Affordable Housing Preservation
Identifying and Preserving At-Risk Subsidized Properties in Philadelphia
by Chris Brzovic
New housing development in Philadelphia. Photo by Jackson Plumlee
In 2021, IBID Associates announced they would sell the University City Townhomes to capitalize on the rising land values associated with decades of university-driven gentrification. The UC Townhomes is a federally subsidized affordable housing property at 40th and Market and has been the home to 70 working-class and low-income predominantly black families in West Philadelphia since its construction in 1983. This sale would allow IBID Associates to realize an immense monetary profit at the expense of residents losing their homes. While the property was last valued at 10 million dollars, estimates projected the sale in the 75-100 million dollar range given the lucrative potential of the land for the growing life sciences industry in the area. The historical tragedy is that these homes were built as a small compensation for the injustice of the mass displacement and demolition of Black Bottom, a historically working-class African American neighborhood, to make room for the expansion of Penn’s campus into West Philadelphia during the era of Urban Renewal.
The sale of the UC Townhomes highlights the growing affordable housing retention crisis across Philadelphia and the country. While increasing in scope, this is not a new problem. In the 1960s and 1970s, the Department of Housing and Urban Development (HUD) subsidized private developers to provide affordable housing for low-income families. These subsidies had time-limited contracts that only required the private landlord to charge affordable rents for a limited period of time, ranging from 15 to 40 years.  Through this approach, HUD assisted more than 22,000 properties and 1.5 million units nationally, all governed by time-limited affordability covenants.  Currently, there is limited federal programmatic support for new large-scale subsidized housing projects, while at the same time, the old contracts and mortgages are expiring.
It is a critical challenge to ensure that federally assisted affordable housing is preserved when owners decide not to renew an expiring project-based Section 8 contract.  Because the law allows owners of Section 8 project-based housing to “opt-out” of preserving their properties as affordable once the contract expires, thousands of Philadelphia families living in subsidized housing are at risk of losing their affordable housing. The likelihood of an owner opting out increases in conjunction with certain risk factors at both the property and neighborhood levels.
This report appraises the current stock of project-based affordable housing in Philadelphia and evaluates the likelihood of owner opt-out according to a risk assessment metric including property level characteristics (size of the property; the size of units; target tenants; type of owner; and rents 80 below the FMR) and neighborhood level characteristics (median rent; median home value; percentage of renters, development permits; and real estate transfers). Based on this analysis, the report identifies 341 federally subsidized affordable housing properties (20,869 units) set to expire and 23 properties with an elevated risk of opting out in the next ten years, with a score of six or more on our risk assessment metric. Finally, this report highlights creative responses, including local and national strategies, to maintain permanently affordable housing by de-commodifying housing markets.
Opting out of Subsidized Housing
Congress did not plan for the evolution or expiration of subsidized housing programs. The looming crisis of affordable housing loss is partially attributable to the expiration of affordability contracts created by the Section 8 and LIHTC programs in the 1960s-80s. For example, within the LIHTC program alone, 400,000 units reached the end of their 15-year mandates by 2009, which has significant implications for the affordable housing supply. 
The risks to existing affordable housing depends on the likelihood of owners opting out of their contracts. Existing research suggests that the risk of opt-out is closely associated with the type of ownership, the physical condition of the property, and the characteristics of the local housing market.  Therefore, we must be prepared to understand Philadelphia’s housing market and the characteristics most likely to present risks to current affordable housing. 
This analysis focuses on possible risk factors in increasing the likelihood of subsidy exit. According to these criteria, we identify Philadelphia properties most at risk within the next ten years. I hypothesize which factors will most predict ownership opt-out: including property-level variables (such as property size, owner type, and target demographics) and neighborhood-level variables (such as housing market, housing tenure, development activity, and real estate market). Finally, I anticipated that for-profit landlords have a higher incentive to sell and are more likely to opt-out as the value of the properties increases. This is exemplified by the UC Townhomes example.
...government intervention in housing affordability did not anticipate the expiration of contracts and changing housing market conditions, and did not develop a proactive plan to address ... lapsing affordability contracts.
Impact on Philadelphia
According to a study by the Harvard Joint Center for Housing Studies, over two-thirds of both renter and homeowner households with incomes under $15,000 spend more than half of their income on housing.  Within the Philadelphia metro area, over 47.1% of renters have severe cost burdens, and 36.4% have moderate cost burdens (122,400 households with housing cost burdens). This ranks the Philadelphia Metro as 41 of 382 within the United States for housing cost burden. 
The loss of affordable housing will disproportionally affect minority populations within Philadelphia. There is a clear racial disparity in project-based housing in Philadelphia. Ethnically and racially minoritized people account for over 80% of residents of all project-based housing in Philadelphia but only account for 65.5% of the city population.  Within that percentage, about 63% of the public housing is occupied by black residents, while comprising only 44% of the Philadelphian population.  The legacy of racist housing policy and urban renewal programs have created the conditions by which the loss of affordable housing will disproportionately affect the housing security of minority populations, with black residents particularly affected. The loss of affordable housing represents a critical racial equity issue in Philadelphia. 
There are 341 active subsidized properties in Philadelphia, with 20,869 total units. Of these, 62 properties (2,103 units) will see all their subsidies expire within the next five years; 107 properties (4,310 units) will expire within ten years; and 250 properties (13,840 units) are set to expire within 20 years. All these affordable properties and units are potentially at-risk given that owners can choose to opt-out once their subsidy contracts expire. Geospatial analysis clusters the most at-risk properties within South Philadelphia, North Philadelphia, and West Philadelphia. The greatest concentration is north of Market Street in West Philadelphia. West Powelton, Belmont, and Haverford North neighborhoods also have higher concentrations of expiring properties. South Philadelphia neighborhoods, including Grays Ferry and Point Breeze, also have higher concentrations of soon-expiring properties.
These neighborhoods are all undergoing significant gentrification and development, which raises further concerns about opt-out and the impacts of the loss of affordable housing on lower-income households. These tracts also have higher populations of Black households, so the loss of these units would exacerbate racial inequities by disproportionately displacing Black families.
Table 1. High-risk properties in Philadelphia with for-profit owners and expiration dates by 2030.
Conclusions and Policy Recommendations
13,840 affordable housing units in Philadelphia are set to expire within the next 20 years. This should worry anyone concerned with racial equity and housing stability for our most vulnerable residents. As seen in our case study, the UC Townhomes is a salient example of what can happen to affordable housing if left to market conditions and the status quo. A property ceded by the city of Philadelphia as compensation for a racist urban renewal policy that displaced thousands of residents was purchased for 1 dollar by IBID Associates and has functioned as affordable housing for 40 years. Now, with the property value purported to be over 100 million dollars, the for-profit owner is looking to cash out. This is an injustice to residents of the Black Bottom and vulnerable households in precarious housing situations, and it is a net loss to the various levels of government who have subsidized this property over time.
The loss of affordable housing in Philadelphia and nationally is a crisis. We must take heed of the risks identified in the literature to best buttress against the effects of losing this housing. This report establishes a risk assessment metric to identify the housing within Philadelphia most at risk of owner-opt-out. Housing advocates should focus their attention on these properties. Together they highlight the significant risk to smaller housing properties, which serve families in neighborhoods of opportunity. Access for vulnerable families to high opportunity areas is essential to create long-term family success. Unfortunately, the lowest income earners, often black residents, are increasingly priced out of opportunity zones and therefore have lower chances for household success.
Affordable housing is tenuous when left to market forces. Despite good intentions, government intervention in housing affordability did not anticipate the expiration of contracts and changing housing market conditions, and did not develop a proactive plan to address the problems that would inevitably come to pass with lapsing affordability contracts. While public/private development have short-term benefits, there are long-term consequences, including significant sunk costs of public funds into non-permanent affordable housing. These consequences cannot be ignored as municipalities face the imminent risk of losing thousands of affordable units as the housing affordability crisis enters an unprecedented stage of acuity.
In particular, the short-term advantages for some come at significant costs to the lowest-income households. Very few protections exist for low-income and very low-income households when subsidized properties expire. As a result, the federal government and municipalities must also develop ways to minimize the downside of subsidy expirations for the lowest-income households if a subsidy does expire.
The crisis of housing access is driven by the commodification of housing, which increases real estate investment value through planned scarcity, waste, and monopoly ownership.  Sustainable solutions to this crisis require moving away from a market-based model of “affordable housing.” One way to accomplish this is to move away from public/private development of affordable housing towards alternative models of housing tenure.
The Community Land Trust Model (CLT’s)
Public/private development is not the only means to create stable, affordable housing; alternative forms should be employed. One such example is the Community Land Trust model. CLTs are a form of permanently affordable housing—ensuring that the housing stock remains outside of market forces. In this model, a community-controlled organization retains ownership of the land and sells or rents the housing on that land to lower-income households.  In exchange for purchasing homes at below-market prices, owners agree to resale price restrictions, thereby keeping homes permanently affordable.
The CLT model mitigates the issues associated with a market-based public/private development model, namely, the sunk costs of public funding into non-permanent affordable housing. Further, CLT’s enable residents to stay in opportunity zones and retain a stake in gentrifying areas because the initial subsidy remains with the building, keeping it continually affordable without requiring new influxes of public money.  The CLT model can be designed with community control at its core (albeit there are limitations), which is important for community stability and long-term household success.
As a model, CLT’s can be an essential component of affordable housing preservation, with the capacity to purchase multi-unit buildings with expiring subsidies. Specific national and local policy changes must be considered to ensure CLT’s can act as “preservation purchasers.”  First, it requires “right of first purchase” legislation, which ensures that communities or tenants can acquire the property to preserve its affordability if an owner decides to sell. Owners cannot be expected to sell to tenants voluntarily. There are a variety of market conditions that would incentivize for-profit owners to maintain market-based properties over de-commodified housing. Legislation is therefore required to guarantee the first right of purchase for organizations who would preserve affordability. Fortunately, a model has been in effect in Washington, D.C. for several decades, and is recently getting more attention as other cities follow suit. In 1980, the District of Columbia passed the Tenant Opportunity to Purchase Act (TOPA).  The City of Philadelphia should study this model and pass legislation that will enable residents and non-profit CLT’s to purchase and preserve expiring affordable housing.
Financing is a further obstacle to the CLT model as a primary means of preserving affordable housing. The costs of starting a CLT are high, as is the price tag of many expiring properties in opportunity zones and gentrifying neighborhoods. Financing these preservation activities will require creativity. One model to emulate is the Real Estate Investment Trust (REIT) launched in 2014 by the Housing Partnership Network, which includes 12 non-profit housing providers across the country.  This network was able to fund the acquisition of Woodside Court, a 129-unit affordable housing development in Fairfield, California, providing the $4 million-dollar upfront cash necessary to assume the existing mortgage in the short 90-day turnaround required for closing.  Fostering a national network with the capacity to raise significant capital is one possible step toward permanent affordable housing preservation using a CLT model.
Public Housing Model
Public or municipal housing is a second policy option that moves away from commodified housing. As Reina (2018) indicates, it is more expensive to build new housing, and further, the loss of existing affordable housing most impacts the lowest-income households. Current policies aimed at limiting homelessness, such as housing first initiatives, are successful at the individual level but are constrained at the macro level by an unequal housing system, which too, is failing to produce sufficient affordable rental housing for low-income households in most metro areas. Losing existing low-income affordable housing, in conjunction with limited efficacy in new federal programs, is the recipe for an increasing housing crisis.
Therefore, mitigating the looming housing crisis and ending homelessness requires addressing the structural causes: the unaffordability of housing to low-income households. One solution is to scale up our production of deeply subsidized units, a goal for PHIMBY (Public Housing in My Backyard) movement advocates. The PHIMBY movement represents a massive investment in the development of low-income housing supply that will make permanent housing permanently affordable and accessible.
Preserving existing affordable housing using the PHIMBY model would require significant efforts by local governments. A recent example in LA is indicative of the scale required. Hillside Villa was built in 1989 under a 30-year affordability covenant that expired in 2019.  Since then, the owner, Tom Botz, has been trying to raise rents to the market rate; in some cases, this increase is as much as 300%. After three years of tenant organizing and advocacy, LA’s City Council voted to start the process of acquiring the property in Chinatown.  However, the owner does not want to sell, and the city is now taking the “unprecedented” step of investigating the possible uses of eminent domain to ensure the preservation of affordable housing in LA, a city in a housing crisis.
The LA city council vote is an excellent example of how progressive cities can take on for-profit owners and out-of-control housing markets to ensure housing remains stable and affordable for residents, particularly in opportunity zones. The City of Philadelphia should follow LA’s example—where there is owner resistance to preserving affordable units, the city should investigate options for eminent domain acquisitions to create and preserve affordable municipal housing.
About the Author: Chris Brzovic
Prior to entering the Master of City Planning Program at Penn, Christopher Brzovic worked for several years building a coordinated entry system in Chittenden County, Vermont to connect people experiencing homelessness with supportive housing. His passion is in working to address housing insecurity and ensure that safe and secure housing is distributed according to need rather than ability to pay.
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