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July 27, 2015

Reforming Arlington’s housing assistance program: Housing grants are twice as effective as subsidies for developers of new apartment buildings

house_sketchA key missing item in the debate in Arlington today over the proposed Affordable Housing Master Plan is consideration of the effectiveness of Arlington housing assistance and whether today’s program is efficiency helping tenants . There is no question that Arlington needs to expand funding for its housing assistance to lower income renters, but just expanding ineffective programs is unwise.

Arlington County spends in 2015 about $36 million of its own tax revenues (as distinct from Federal HUD funds) for housing assistance. The largest program is the $12 million for the AHIF program that provides loans and grants to developers to build or renovate apartments that are then rented to lower income tenants (called committed affordable units (CAFs). Most of the households in the CAFs earn 60-percent of the area median income. The second-leading program is housing grants with $8 million that provides monthly rental subsidies to about 1,200 households (averaging about $555 a month). Most of these households are below the 30-percent AMI (about $30,000 a year or less).

The question occurs as to which of the two leading programs provide more effective assistance to low income renters? In recent years, each new CAF has required about $100,000 from the AHIF. On average the rents charged in CAFs averaged about $150-200 per month below the rents in comparable private market complexes. For every million dollars of AHIF funds, about 10 households receive a total of $24,000 in benefits as lower rents charged per year. Most CAF households are in the 60%-AMI income level.

With regard to the housing grants program, 1,200 households received in 2015 an average $555/month grant each or about $6,000 annually. Thus for every million dollars spent for housing grants, 167 households received benefits of one million dollars in lower rents charged. All of these households earned well under $30,000 a year and most under $20,000 a year, including disabled, seniors and working families with children. This is what a million dollars spent for AHIF versus housing grants yields:

Number of households helped…… 10 AHIF 167 Housing grants
Median income level of households 60-% AMI 30%-AMI
Monthly rental reduction per
Household…………………………….. $200 $555
Duration of assistance……………… 30 years 1 year
Total 2015 value of assistance over
30-years………………………………. $480,000 $1 million

If one compares the benefits of a one year housing grant of $1 million to spending that amount in AHIF, the difference is still large over 30 years: the ten CAF apartments yield $720,000 in lower rents, but this economic value in 2015 of such lower rents (considering time and interest rates), falls to $480,000. (The lump sum value in 2015 of receiving $24,000 a year in payments at a 3% interest rate over 30 years). All benefits of the housing grants are received in the first year, whereas the benefits of lower rents in the CAFs accrue over 30 years.

In summary, the housing grants program provides about twice the benefits to renters than the same amount for new construction of subsidized apartments over 30 years. In the first year with a million dollars, housing grants help 167 households, versus only 10 households in CAFs. Housing grant households are the lowest income persons in Arlington, and in addition must be a senior over 65, disabled or a working family with a child, and thus are arguably the neediest group in our community.

It stands to reason that if Arlington County wishes to help the identified 7,000 households living in Arlington earning under 60-percent AMI, the cheapest way to do so is expanding the housing grants program.