DC Council Must Prioritize Displacement Prevention and Affordable Housing Preservation

Good morning, Chairperson White and members of the committee. Thank you for the opportunity to speak today. My name is Eliana Golding, and I am a senior policy analyst at the DC Fiscal Policy Institute (DCFPI). DCFPI is a non-profit organization that shapes racially-just tax, budget, and policy decisions by centering Black and brown communities in our research and analysis, community partnerships, and advocacy efforts to advance an antiracist, equitable future.

Today, I will focus my testimony on asking the Council and this committee to prioritize displacement prevention and affordable housing preservation by:

• Investing in the Affordable Housing Preservation Fund (Preservation Fund) and designating a portion of Housing Production Trust Fund (HPTF) funding specifically for preservation projects; and
• Protecting the Tenant Opportunity to Purchase Act (TOPA) by funding programs that allow TOPA to continue contributing to the creation and preservation of affordable housing.

Displacement is a multi-faceted problem that has come in many forms at different times throughout the District’s history, and Black and brown communities have borne the brunt. Generations of policy choices, both on the local and federal level, have led to racial segregation, wealth disparities, and the steady disappearance of affordable housing, creating the conditions that drive displacement today.^[1],[2] Despite recent groundbreaking local investments in housing production, DC has underfunded more immediate- and medium-term strategies to support residents with the lowest incomes and stem the displacement of residents of color.

Investing in Preservation, From Acquisition to Redevelopment, Prevents Displacement

Preservation of existing affordable housing, whether it is naturally occurring or income-restricted, is an essential part of a robust displacement prevention housing strategy.

The Preservation Fund is a revolving loan fund that allows the District to leverage private dollars in a three-to-one match to offer short-term acquisition, pre-development, and critical repair financing to developers for projects that preserve existing affordable housing. Loans from the Preservation Fund are not permanent financing. Borrowers who receive these loans must also apply for and secure long-term financing from public agencies and other private lenders.

The Preservation Fund is a successful program, and the District should continue to support and invest in the fund. Since the creation of the fund, fund managers have leveraged $46 million of public funds to create a lending pool of $184 million. The fund managers have deployed $166 million for 36 loans, which has resulted in the preservation of 2500 units affordable at 80 percent median family income or below.

Of the $166 million in deployed funds, about $45 million has been repaid into the revolving loan pool to be re-deployed. This means that there are still $120 million in outstanding loans. The majority of these loans are maturing within the next two to three years, meaning that borrowers must soon find permanent financing sources in order to sustain the projects. Nearly all of the outstanding Preservation Fund loans rely on a mix of Tax Exempt Bonds, Low Income Housing Tax Credits, and HPTF awards.

Unfortunately, broader economic trends mean that these sources of financing are in high demand and short supply. In 2023, DC reached its bond cap, limiting the number of affordable housing projects that can receive financing. Shifts in the economic landscape, including high interest rates and diminished tax revenue are placing stress on the District’s tools for affordable housing production and preservation. Additionally, traditional bank lending has slowed significantly, which leaves affordable housing projects without many permanent financing options.

Some of the projects in the Preservation Fund pipeline have secured funding awards through the HPTF. However, the vast majority of preservation projects have not received funding. Many have applied through several rounds of the HPTF’s Consolidated Request for Proposals (RFP) process and are again waiting for another chance to apply. Between fiscal year (FY) 2024 and FY 2026, projects that received acquisition financing through the Preservation Fund will need roughly $58 million in gap financing from the HPTF to preserve over 1,400 units.^[3] While waiting for this financing, millions of dollars of public and private money are locked up in preservation projects, many of which are stagnating in disrepair. Some projects have been waiting for so long and are in such dire condition that the owners of those properties, who had acquired them in order to preserve their affordability, are now forced to sell the properties. These sales will jeopardize the properties’ affordability and the housing stability of the tenants who live there.

The District can mitigate a preservation financing crisis and ensure that preservation projects, and the tenants who live in those buildings, have secure futures by:

• Designating $5 million in flexible funds for existing preservation projects to pay for carrying costs associated with loan extensions. Because many preservation projects have not been able to secure permanent financing, they have required loan extensions, which come with burdensome carrying costs, including additional interest payments and money for critical repairs. Providing $5 million in flexible funds will mean that borrowers will not have to sell off portions of their affordable housing portfolio, risking losing their affordability.
  Expensive carrying costs are disproportionately burdensome to developers of color, who have less access to capital as a result of structural barriers and systemic racism. Additionally, because of persistent wealth and wage gaps, people living in affordable properties, especially properties suffering from deferred maintenance, are more likely to be Black and brown renters.^[4] Providing funds to preserve the affordability and improve the quality of these buildings is essential to ensuring these tenants have a safe and healthy place to live.
• Setting aside at least a quarter of HPTF allocations for preservation projects. While preservation projects can apply for HPTF, the criteria that the Department of Housing and Community Development (DHCD) uses to select projects make it difficult for preservation projects to compete with new production. By setting aside a portion of the HTPF for preservation, the District can ensure more preservation projects move forward, and that those projects are financially viable, while increasing housing stability for residents in buildings in need of repair.

In the most recent RFP round, around 30 percent projects selected for underwriting were preservation projects, which is an improvement over the 2021 RFP round when 11 percent of projects selected were for preservation.^[5],[6] DHCD should continue to make preservation a core priority when making selections for HPTF allocations. Dedicating at minimum a quarter of the HPTF for preservation keeps these projects out of untenable financial situations and helps improve living conditions throughout the District.

A lack of guaranteed financing, particularly in the current economic climate, has left many projects, and hundreds of units, stagnating in disrepair as non-profit or mission-driven affordable housing developers wait round after round for take-out financing needed to bring the buildings up to code. Allocating $5 million in flexible funding to sustain existing preservation projects and designating 25 percent of the HPTF for long-term preservation financing will make affordable housing projects financially viable and prevent displacement of tenants with low incomes.

Council Should Protect TOPA and Strengthen Programs that Allow TOPA to Achieve its Goal of Housing Preservation

Adopted more than 40 years ago, TOPA gives District renters the first right to purchase a property when an owner decides to sell. TOPA also allows renters to assign their rights to a housing developer who agrees to match the listing price for the building.

TOPA is an essential tool in the District’s tool box for the development and maintenance of affordable housing across the District:

• TOPA preserves affordable housing. TOPA allows tenants to assign their TOPA rights to developers who are mission-oriented and committed to affordability and high-quality housing that is sustainable both for the tenants and for the building owner.
• TOPA prevents displacement. When tenants negotiate with potential purchasers of their homes, they can negotiate accommodations that prevent displacement of long-time and lower-income residents. These accommodations include building conditions improvements, temporary relocations during renovation, and rent stabilization. In instances where tenants purchase their building, they can stay in their homes and benefit from co-op membership.
• TOPA improves housing conditions. When tenants organize around their TOPA rights, they have the opportunity to shape the development outcomes to align with resident needs. The TOPA process enables tenant associations to negotiate a development agreement in which a new purchaser of the building makes repairs to their building, addressing major deferred maintenance and quality of life concerns including mold and pest remediation, safety concerns, and other habitability issues. Without TOPA, building purchasers may not be compelled to make such essential repairs.

A recent study commissioned by the DC Council agreed with these assertions.^[7] At a time when DC tenants are most at risk of displacement as a result of rising housing costs and deteriorating housing conditions, the District government has the opportunity to take steps to better support TOPA to achieve its intended outcomes. Council can do this in a number of ways:

• The District must invest in programs that facilitate redevelopment under TOPA. Some multi-family properties have characteristics that make it difficult for prospective buyers to find financing options, such as major deferred maintenance issues and high development costs. The District can ensure that these properties have a pathway to redevelopment without displacement by: (1) regularly investing in the Preservation Fund and (2) ensuring that a portion of the HPTF goes to preservation and/or TOPA projects.
• Reinstate, expand, and fund the First Right to Purchase Program (FRPP). Even when tenant associations are able to act on their TOPA rights, associations and the developers they choose to work with struggle to find financing to purchase and preserve the buildings as either affordable rental units or as limited equity co-operatives. The District should expand and fund the FRPP, a program that offered many tenants with low and moderate incomes, the majority of whom are Black or brown, their first opportunity for homeownership by providing low-interest loans to tenant groups. DHCD, the agency that administers FRPP, has not accepted applications for this program in more than five years and it is no longer funded. As the TOPA study commissioned by the Council recommends, FRPP should be funded and expanded to offer financing to multi-family properties with characteristics that make it hard for them to find other financing options due to deferred maintenance or high costs of acquisition and renovation that would require a purchaser to significantly raise rents, displacing tenants with low incomes.^[8]
• DC should enable community-based organizations (CBOs) to support tenant organizing. DHCD publishes a weekly notice of all properties that have registered an intent to sell. Previously, DHCD gave advance notice of these filings to CBOs that offered TOPA technical assistance. DHCD no longer follows this practice, which means that technical assistance providers are often unable to reach tenants before brokers with a financial interest approach tenants to sign away their rights. The District should require that DHCD give these CBOs, many of which receive District funds to offer technical assistance, advance notice of filings to ensure that tenants understand their rights under TOPA and are able to make informed decisions.

The District must adopt a holistic approach to preventing displacement of Black and brown tenants from the District. This means employing multiple strategies, including but not limited to production. These strategies must include a firm commitment to preserving both the District’s affordable housing and the rights of the renters who live in that housing. In considering the performance of the District’s housing programs, the Council must bring the intention of repairing historic and structural harm that has left Black and brown residents more vulnerable to displacement pressures. This means acknowledging past and ongoing racist policies that have caused harm and actively creating policies to repair those harms and meaningfully involve residents to identify their needs.

Thank you for the opportunity to testify. I look forward to discussing these recommendations with you further.