A Resident-Centered Approach to Affordable Housing

This article is part of The Rooftop, a blog and multimedia series from New America’s Future of Land and Housing program. Featuring insights from experts across diverse fields, the series is a home for bold ideas to improve housing in the United States and globally.

Several years ago, a longtime resident living in one of the affordable rental buildings owned by Hope Community—our nonprofit community development corporation and housing operator in Minneapolis—told us she was moving away. She and her son had been at Hope for about a decade and had been active, valued members of the community. But the modest annual rent increase of 2 percent, or about $25 per month, was just not feasible, especially without any direct rental assistance.

This news was hard to hear—the entire reason for our work at Hope Community is to make sure that people have dignified, quality homes that they can stay in as long as they wish. But unfortunately, nearly half of the residents of this affordable building don’t have any direct rental assistance.

Meanwhile, the costs of operating this building have been rising far faster than the rents people can afford to pay. Hope has needed to subsidize these operation costs—addressing maintenance, paying utilities, paying staff—to maintain existing rent levels and ultimately improve residents’ experience. If the rents we’re collecting aren’t enough to operate sustainably but also are too high for some of our residents, then isn’t our current model the worst of both worlds?

Since its inception in 1977, Hope Community has experienced both the joys and the challenges of sustaining affordable rental housing. We have had to make tough decisions about confronting an operations crisis for affordable housing buildings where the expenses are unsustainable for the rent levels. In 2023, we had to close a building that we could no longer afford to operate without risking the viability of the rest of our housing portfolio and engagement work.

“If the rents we’re collecting aren’t enough to operate sustainably but also are too high for some of our residents, then isn’t our current model the worst of both worlds?”

Throughout Minnesota, and across the country, other nonprofit housing developers and owners are facing these same challenges: high operating costs and insufficient revenue to cover them. For building owners seeking to keep rents affordable, there is little support; public funding is limited and often restrictive, focused on up-front subsidies for developers rather than ongoing rental assistance for tenants or other operating support for owners. Like the case at Hope Community, many residents in “affordable” rental housing are still cost-burdened and yet those unaffordable rents are insufficient to cover rising operating costs.

Many nonprofits have or are seriously considering selling their properties—troubling at a time when we need more affordable units than ever. In Minnesota, some organizations are seeking regulatory relief from public funders so that they can raise rents to serve higher-income households, or remove requirements that reserve some units for people who are experiencing homelessness. In the face of operating costs that rents cannot cover, this is an understandable reaction. But raising rents to sustain affordable housing or reducing options for people experiencing homelessness is not a solution. To make units less affordable is to sacrifice our mission, and doing so puts affordable homes for our lowest-income neighbors further out of reach.

Instead, we believe our current system of affordable housing funding can be reoriented to create a better living experience for low-income tenants and communities while helping to ensure the ongoing stability of buildings and owners. Based on our decades of experience attempting to keep buildings both affordable and operational, Hope is preparing to launch a demonstration project to model how our current system can be realigned so that households are not cost-burdened and funds are available to operate sustainably.

Central to the demonstration is a self-administered rental subsidy fund, similar in concept to the Section 8 federal voucher program. Each household will pay 30 percent of their income towards rent, and Hope’s subsidy fund will fill in the gap between that amount and the market rent for the unit, paid from the organization directly to the property. Unlike the Section 8 program, where only a quarter of households who qualify receive support, this subsidy will be available to everyone living in the demonstration project’s properties. It will also match people’s income up to the point that they no longer need a subsidy to afford the full cost of rent, avoiding some of the steep financial cliffs that can accompany existing subsidies with strict income cutoffs.

“Our study will measure success based on one question that seems simple enough, but is not how affordable housing programs are currently evaluated: Can you afford your rent?”

We anticipate this fund will be supported through philanthropy initially, but we hope the results will inspire a realignment of public dollars towards rental subsidy. During the demonstration project, Hope’s portfolio will be divided essentially in half, with some properties receiving the demonstration project subsidy and the other half operating as they do today: as Low-Income Housing Tax Credit (LIHTC) properties where rents are set at standard affordability levels. The demonstration sets up a study that allows us to compare two common approaches to subsidizing affordable housing: housing vouchers and LIHTC. The rigorous evaluation of these approaches for residents, buildings, and nonprofit owners will be applicable not only to Minneapolis, but to cities and counties across the country.

We believe this idea has transformative potential. Our study will measure success based on one question that seems simple enough, but is not how affordable housing programs are currently evaluated: Can you afford your rent in affordable housing?

For residents, the project focuses on affordability for each household. While the current LIHTC-based system sets rents as affordable at certain levels irrespective of what individual households can afford, our model will provide the subsidy each household needs to afford rent so that they do not spend more than 30 percent of their income on housing. For nonprofit-owned properties, revenue from rents at the area market rate (subsidized to be affordable to renters) would make it possible to operate stably and not be chronically underfunded. Additionally, the revenue increase means properties that otherwise cannot support both deep affordability and any payable debt can take on some debt service (in the form of long-term, patient capital).

Finally, this model is also designed to benefit wider systems including nonprofits, funders, and governments. It would support rents that give nonprofit affordable housing providers the resources necessary to operate properties adequately (like offering competitive salaries for high quality property managers and addressing maintenance in a timely manner) without having to rely on vacillating private fundraising cycles or risking organizational stability. We also believe this approach is a more efficient use of public dollars if properties can address maintenance needs as they arise, as opposed to waiting for a complete systems failure to undergo a multimillion-dollar rehabilitation process that increases construction costs and racks up administrative and legal fees.

At Hope Community, we believe that this demonstration project can help move systems to a resident-oriented approach to providing affordable housing—one where residents aren’t displaced by small rent increases and everyone has a high-quality home they can afford.

Editor’s note: The views expressed in the articles on The Rooftop are those of the authors alone and do not necessarily reflect the opinions or policy positions of New America.