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Federal Reserve Bank of Philadelphia

CASCADE

COMMUNITY DEVELOPMENT STUDIES & EDUCATION

NO. 95 SPRING 2017

Rental Housing Affordability Impacts Educational and Employment Opportunities*
By Eileen Divringi, Community Development Research Associate
Though safe, stable housing is widely recognized as a
basic human need, it is far from assured for many renters
in the Third Federal Reserve District. Across Delaware,
New Jersey, and Pennsylvania, the lowest-income renters
faced severe shortages of affordable and available units
(Figure 1) in 2014, leading to widespread housing cost
burdens among households with the most limited
means. In all three states, the share of lower-income
renter households with unaffordable housing costs1 grew
significantly from 2005 to 2014, ranging from over twothirds in Pennsylvania to more than three-quarters in
New Jersey in the most recent estimates.2
The drivers of growing rental affordability challenges
are well documented. The spike in home foreclosures
that began in 2008 pushed many low-income former
homeowners into the rental market,3 while many
would-be homeowners have been impeded by tightened
mortgage standards and growing student loan debt
levels.4 Nationally, this increased demand for rental
housing has yielded some of the lowest rental vacancy

Figure 1

The lowest-income
renters faced acute
shortages of
affordable and
available units.
Estimates pertain to 2014 for
Pennsylvania and New Jersey
and 2010–2014 for Delaware.

Affordable and available units for every 100
extremely low-income renter households

DELAWARE

NEW JERSEY

PENNSYLVANIA

UNITS

https://philadelphiafed.org/rentalhousing

rates in more than 20 years,5 putting upward pressure on
rents. These trends have intensified a longstanding issue
for the poorest renters, who simply do not have sufficient
income to rent a unit at market rate. In addition, only one
in four of these low-income renters has access to needed
housing subsidies.6
The impact of unaffordable housing reaches beyond the
immediate demands on household budgets. Given the
central role that housing plays in our lives, affordability

* The views expressed here do not necessarily represent the views of the Federal Reserve Bank of Philadelphia or the Federal Reserve System.
Lower-income refers to household income ≤ 80 percent of median family income in the associated region. Housing costs are considered unaffordable
if gross rent exceeds 30 percent of monthly household income.

Unless otherwise noted, estimates are from the Federal Reserve Bank of Philadelphia’s Rental Housing Affordability data tool (www.philadelphiafed.
org/rentalhousing), based on the U.S. Census Bureau’s American Community Survey (ACS) Public Use Microdata Sample (PUMS), accessed via the
Minnesota Population Center IPUMS-USA database. For Delaware, here and throughout this article, the comparison periods are 2005–2009 and
2010–2014.
2

“Chapter 1: Executive Summary,” in Joint Center for Housing Studies of Harvard University, The State of the Nation’s Housing 2016. Cambridge, MA:
Harvard University, 2016; available at www.jchs.harvard.edu/research/state_nations_housing.

On tightening mortgage standards, see Urban Institute, “Housing Credit Availability Index” for Q3 2016; available at www.urban.org/policy-centers/
housing-finance-policy-center/projects/housing-credit-availability-index. On student loan debt and homeownership, see Alvaro A. Mezza, Daniel R.
Ringo, Shane M. Sherlund, and Kamila Sommer, “On the Effect of Student Loans on Access to Homeownership,” Finance and Economics Discussion
Series 2016-010, Board of Governors of the Federal Reserve System, 2016; available at www.federalreserve.gov/econresdata/feds/2016/files/2016010pap.
pdf.

U.S. Census Bureau, Current Population Survey/Housing Vacancy Survey, Series H-111, Table.

issues interact with a wide range of community and
economic development concerns. Two key findings from
the Rental Housing Affordability Data Tool illustrate this
point. First, in nearly every community in our region,
families with children make up a substantial portion
of cost-burdened, lower-income renter households.
The family budgetary tradeoffs and the elevated risk
of residential instability that this entails can have
substantial negative effects on children’s development.
Second, while the majority of cost-burdened, lowerincome renter households in the three states had at
least one employed resident in 2014, it is clear that many
working-age adults in these households face substantial
barriers to gainful employment. The challenges
associated with finding affordable units can undermine
their efforts toward economic stability.
Families with Children
In each of the three states (Figure 2) and nearly every
metropolitan region, families with children made up
more than one-third of the cost-burdened, lower-income
households in 2014. In the Atlantic City–Hammonton,
Dover, and East Stroudsburg metropolitan areas, the
portion was roughly half (50 percent, 50 percent, and 51
percent, respectively, from 2010 to 2014). Affordability
challenges were especially prevalent for single parents:
Across the three states, roughly 60 percent of households
at any income level headed by single parents were cost
burdened.
Figure 2

Families with children
made up a large portion
of cost-burdened,
lower-income renter

Percentage of cost-burdened, lower- income
households that were families with children

44%

47%

36%

households.
DELAWARE
Estimates pertain to 2014 for
Pennsylvania and New Jersey
and 2010–2014 for Delaware.

NEW JERSEY

PENNSYLVANIA

https://philadelphiafed.org/rentalhousing

While burdensome housing costs can be challenging for
any household, the associated financial strain confronts
low-income families with a particularly difficult set of
tradeoffs. On the one hand, the most direct impact of
unaffordable housing costs is diminished resources left

Rental Housing Affordability Data Tool

To provide communities in Delaware, New Jersey, and
Pennsylvania with a more comprehensive understanding
of the households that struggle to afford housing,
the Community Development Studies & Education
(CDS&E) Department has released the Rental Housing
Affordability Data Tool (www.philadelphiafed.org/
rentalhousing). This interactive tool enables users
to examine trends in rental housing affordability in
Delaware, New Jersey, and Pennsylvania from 2005 to
2014.
In addition to information on the affordability of the
rental stock, the tool presents demographic and economic
profiles of the renter households facing unaffordable
housing costs, available for the three states and a
number of metropolitan regions. This information can
be used to help identify vulnerable groups and inform
comprehensive approaches to addressing the challenges
facing low-income renters.

over for other needs, as illustrated by Figure 3. Recent
research suggests that low-income families with high
housing cost burdens spend less on enrichment activities
for their children, potentially contributing to worse
cognitive outcomes.7 However, if accessing affordable
rental housing comes at the expense of serious housing
quality issues or overcrowding, or if affordable units are
located in areas with high rates of violent crime and low
performing schools, poor outcomes for children are even
more likely.8 Of course, the poorest families with the
greatest budgetary constraints have the fewest options for
making tradeoffs that would maximize child well-being.

Sandra J. Newman and C. Scott Holupka, “Housing Affordability and Investments in Children,” Journal of Housing Economics 24 (June 2014), pp.
89–100.

See Tama Leventhal and Sandra Newman, “Housing and Child Development,” Children and Youth Services Review 32:9 (2010), pp. 1165–1174, and
Claudia D. Solari and Robert D. Mare, “Housing Crowding Effects on Children’s Wellbeing,” Social Science Research 41:2 (2012), pp. 464–476.

Figure 3

Unaffordable
housing has
substantial impacts
on household
budgets.
Estimates pertain to 2014 for
Pennsylvania
Pennsylvania and
and New
New Jersey
Jers
and
for Delaware.
and 2010–2014
2010–2

How much did the typical cost-burdened,
extremely low-income renter household pay
beyond what they could afford?

$625
more than
affordable

DELAWARE

$695
more than
affordable

$483

NEW JERSEY

PENNSYLVANIA

more than
affordable

https://philadelphiafed.org/rentalhousing

Furthermore, for families at the lowest end of the income
scale, unaffordable rents paired with income volatility can
lead to residential instability, causing major interruptions
in children’s lives. The Joint Center for Housing Studies
of Harvard University estimates that, nationally, roughly
2 million low-income renter households were at risk
of eviction in 2013.9 Analysis of eviction patterns in
Philadelphia reveals a disproportionate likelihood of such
destabilizing moves for residents of poor, predominantly
black neighborhoods.10 Chronic residential instability
increases parental stress and can negatively affect
younger children’s vocabulary development, increase
adolescents’ risk of dropping out of high school, and
harm the mental health of youth of any age.11
Working-Age Adults
As illustrated in Figure 4, in Delaware, New Jersey, and
Pennsylvania, the majority of cost-burdened, lowerincome renter households had at least one employed
resident in 2014.12 Looking at the prior year’s employment
patterns of working-age adults13 in these households, it
appears that roughly one-quarter of these adults may
have been underemployed or experienced a recent job
loss, working either part-time or full-time for only part of
the year. Further, in these three states, only 31 percent to

42 percent of working-age adults in cost-burdened, lowerincome renter households worked full-time for most of
the prior year.
Elevated rates of unemployment and underemployment
among adults in cost-burdened, lower-income households
may in part be a function of the job opportunities
available to them. In each of the three states, adults in
these households were disproportionately likely to have
a high school diploma or less as their highest level of
education (Figure 5). The decline of decent-paying jobs
available to workers with less than a four-year degree
is well documented, particularly for those without any
postsecondary training.14 Federal Reserve researchers
have found that the availability of such jobs varies
Figure 4

The majority of
cost-burdened,
lower-income renter

Percentage of cost-burdened, lower- income
households with one or more employed persons

62%

63%

53%

households had at least
one employed resident.
DELAWARE
Estimates pertain to 2014 for
Pennsylvania and New Jersey
and 2010–2014 for Delaware.

NEW JERSEY

PENNSYLVANIA

https://philadelphiafed.org/rentalhousing

Figure 5

Many adults in costburdened, lower-income
renter households faced
barriers to accessing

Adults 25 years or older in cost-burdened,
lower-income households with a high school
diploma or less

60%

62%

63%

DELAWARE

NEW JERSEY

PENNSYLVANIA

high-quality employment.

Estimates pertain to 2014 for
Pennsylvania and New Jersey
and 2010–2014 for Delaware.

https://philadelphiafed.org/rentalhousing

Ira Goldstein, Al Parker, and Rhea Acuña, “Policy Brief: Evictions in Philadelphia,” Reinvestment Fund, January 2017; available at www.
reinvestment.com/wp-content/uploads/2017/01/Evictions_in_Philadelphia_brief_Final.pdf.

Heather Sandstrom and Sandra Huerta, “The Negative Effects of Instability on Child Development,” Low-Income Working Families Fact Sheet,
Urban Institute, September 2013; available at www.urban.org/sites/default/files/alfresco/publication-pdfs/412908-The-Negative-Effects-of-Instabilityon-Child-Development-Fact-Sheet.pdf.
11

Households headed by seniors and people with disabilities constitute a substantial share of households without employed residents.

Defined as individuals 18 to 65 years old not enrolled in school.

For a brief discussion, see David Autor, “The Polarization of Job Opportunities in the U.S. Labor Market: Implications for Employment and
Earnings,” Federal Reserve Bank of San Francisco Community Investments 23:2 (Fall 2011), pp. 11–16; available at www.frbsf.org/communitydevelopment/files/CI_IncomeInequality_Autor.pdf.

dramatically by region but generally declined from 2005
to 2014.15 For many of these individuals, job training
or certificate programs may provide opportunities
for upward mobility; however, in a recent survey of
workforce development program administrators, nearly
half of respondents identified housing assistance as a
top unmet need for both male and female participants.
Additionally, while 28 percent specifically identified
unaffordable housing as a reason that participants
did not complete training, 59 percent cited financial
considerations,16 which include housing costs.
On the demand side of the employment equation, the
location of affordable rental units can profoundly affect
low-income renters’ access to job opportunities. Recent
research published by CDS&E found that Philadelphia’s
gentrifying neighborhoods lost low-cost rental units at
nearly five times the rate of low-income neighborhoods
that did not gentrify between 2000 and 2014.17 With
1.5 jobs per working-age resident in gentrifying
neighborhoods from 2010 to 2014 compared with just
0.4 jobs in nongentrifying neighborhoods,18 this loss
of low-cost rental units has substantially reduced lowincome renters’ housing options in some of the most
opportunity-rich neighborhoods in the city. Indeed,
previous research on gentrification and residential
mobility found that vulnerable residents who are unable
to remain in Philadelphia’s gentrifying neighborhoods

were considerably more likely to move to neighborhoods
with higher unemployment rates.19
Conclusion
Clearly, the affordability, location, and stability of rental
housing have significant implications for the well-being
and human capital development opportunities of both
youth and working-age adults.20 The challenges outlined
in this article are stark, but existing research points
to promising avenues for intervention. An analysis of
families living in subsidized housing found that each
year teenagers lived in assisted units increased their
annual earnings as an adult and decreased the likelihood
of incarceration for both males and females as compared
with the outcomes of siblings who lived in non-assisted
units for longer periods of time.21 For disadvantaged
workers, access to needed housing supports may make
the difference between completing job training programs
that lead to upward mobility and falling short. Further,
recent research suggests that enabling vulnerable renters
to remain in gentrifying neighborhoods improves
their employment outcomes.22 These and other positive
externalities of ensuring that lower-income renters
have access to decent-quality, affordable units in
opportunity-rich neighborhoods should be kept in mind
by community and economic development practitioners
as they develop responses to the widespread challenge of
rental housing unaffordability.

Keith Wardrip, Kyle Fee, Lisa Nelson, and Stuart Andreason, “Identifying Opportunity Occupations in the Nation’s Largest Metropolitan
Economies,” Special Report, Federal Reserve Banks of Philadelphia, Cleveland, and Atlanta, 2015; available at www.philadelphiafed.org/communitydevelopment/publications/special-reports.
15

Cynthia Hess, Emma Williams-Baron, Barbara Gault, and Ariane Hegewisch, “Supportive Services in Workforce Development Programs:
Administrator Perspective on Availability and Unmet Needs,” Institute for Women’s Policy Research, December 2016; available at www.iwpr.org/
publications/pubs/supportive-services-in-workforce-development-programs-administrator-perspectives-on-availability-and-unmet-needs.

Seth Chizeck, “Gentrification and Changes in the Stock of Low-Cost Rental Housing in Philadelphia, 2000 to 2014,” Federal Reserve Bank of
Philadelphia Cascade Focus (January 2017); available at www.philadelphiafed.org/community-development/publications/cascade-focus.

18
Author’s calculation based on U.S. Census Bureau’s 2010 to 2014 American Community Survey Table B01001 and 2014 Longitudinal Employer–
Household Dynamics data, accessed via PolicyMap (www.policymap.com).
19
Lei Ding, Jackelyn Hwang, and Eileen Divringi, “Gentrification and Residential Mobility in Philadelphia,” Regional Science and Urban Economics 61
(2016), pp. 38–51.
20
For brevity’s sake, this article does not review the existing literature on rental housing for seniors and people with disabilities. For a discussion of
the topics, see the Joint Center for Housing Studies of Harvard University report, “Housing America’s Older Adults: Meeting the Needs of an Aging
Population,” 2014; available at www.jchs.harvard.edu/research/housing_americas_older_adults, and Micaela Connery, “Disability Housing: What’s
Happening? What’s Challenging? What’s Needed?” Joint Center for Housing Studies of Harvard University Working Paper, April 2016; available at
www.jchs.harvard.edu/research/publications/disability-housing.

Fredrik Andersson, John C. Haltiwanger, Mark J. Kutzbach, Giordano E. Palloni, Henry O. Pollakowski, and Daniel H. Weinberg, “Childhood
Housing and Adult Earnings: A Between-Siblings Analysis of Housing Vouchers and Public Housing,” NBER
Working Paper 22721, October 2016; available at www.nber.org/papers/w22721.pdf.
21

Samuel Dastrup and Ingrid Gould Ellen, “Linking Residents to Opportunity: Gentrification and Public
Housing,” Cityscape 18:3 (2016), pp. 87–107; available at www.huduser.gov/portal/periodicals/cityscpe/vol18num3/
ch4.pdf.

Read the entire issue of Cascade at
www.philadelphiafed.org/cascade.

Research on Affordable Rental Housing and Subsidy
Expiration - Cascade: No. 95, Spring 2017
Explore This Section

Research on Affordable Rental Housing and Subsidy Expiration*
By Vincent Reina, Assistant Professor, Department of City and Regional Planning, University of
Pennsylvania
There is an abundance of evidence that rental markets across the country are unaffordable. Studies1
show that, from 2000 to 2010, there was a rapid decline in rental affordability, with rent increases
occurring in the face of stagnant or declining incomes in nearly every metropolitan area and across
almost every quintile of the income distribution during that period.
For example, renter households at the 40th percentile of the income distribution in Philadelphia saw
their income decrease by 15 percent, while their rents increased by almost 12 percent during this
period.2 Low-income households have been particularly affected by an increasingly unaffordable
rental market. A recent report3 by the Federal Reserve Bank of Philadelphia found that the number of
affordable rental units for every 100 very low-income renter households fell from 82 to 68 between
2005 and 2014. The decline in affordable rental units on the private market makes understanding the
presence — and loss — of subsidized rental housing all the more important.
The federal government provides financing and/or rental support for millions of units of affordable
rental housing across the U.S. The largest federal programs are the Low-Income Housing Tax Credit
(LIHTC), Project-Based Section 8 Rental Assistance, Public Housing, and Section 8 Voucher
programs. The first three programs offer subsides at the building level, while the voucher program is
designed to be a subsidy that moves with the low-income household. It is estimated that almost 4
million affordable housing units nationally have been financed through these programs (Figure 1),
although the exact number is often difficult to determine because many of the properties receive more
than one form of subsidy. For example, a study4 found that nearly one-third of all subsidized
properties in New York City received two or more forms of public subsidy. And while there are
millions of units of federally subsidized rental housing, these units represent an increasingly small
share of the overall rental stock.
Figure 1: Housing subsidies, 2000 to 2010
One factor challenging the existing subsidized housing stock is that owners can, and do, exit subsidy

programs. In the 1960s, the federal government shifted from a public ownership model to a private
one. Under this paradigm, private owners receive a subsidy to develop affordable housing and
maintain it as such for a fixed period of time. At the end of that period, owners can renew the existing
subsidy, apply for a new one, or exit all affordable housing programs. Incidentally, as the demand for
rental units increased in the late 1990s and the 2000s, and there were fewer private market affordable
rental units, private owners of federally subsidized rental housing started to become eligible to exit U.
S. Department of Housing and Urban Development (HUD) affordable housing programs, such as the
Project-Based Section 8 Rental Assistance program.
The project-based Section 8 program was created under the Housing and Community Development
Act of 1974 and financed the development of 1.2 million privately owned units before it was defunded
in 1983. Through this program, tenants’ rent payments are capped at 30 percent of their income, and
the difference between their rent payment and the market rent for the unit is paid to the property
owner by HUD. To date, almost 150,000 units have exited the project-based Section 8 program, and
nearly all properties that remain in it will be eligible to exit in the coming years. Between 1998 and
2010, there were nearly 1,000 households living in properties in the Philadelphia metropolitan area
where the project-based Section 8 contract ended; nearly 900 in the Newark–Union (NJ) metro area;
more than 7,500 in the New York City metro area; and more than 3,500 in the Washington, D.C.,
metro area.5 As seen in Figure 2, the properties in Philadelphia are dispersed in three clusters, with
some, like those in center city and West Philadelphia, being located in increasingly unaffordable
neighborhoods. The previously mentioned study from the Philadelphia Fed found that nearly 34
percent of project-based Section 8 units and 20 percent of all subsidized units in Philadelphia will
approach the end of their affordability restrictions by 2020.
Figure 2: Units Where Project-Based Section 8 Contract Expired in Philadelphia, 2000
to 2010

Source: Based on data from the U.S. Department of Housing and Urban Development and those
employed in Michael C. Lens and Vincent Reina, “Preserving Neighborhood Opportunity: Where
Federal Housing Subsidies Expire,” Housing Policy Debate 26:4–5 (2016), pp. 714–732; available at
http://www.tandfonline.com/doi/pdf/10.1080/10511482.2016.1195422.
Lens and Reina (2016) find that, nationally, properties that exited the project-based Section 8
program between 2000 and 2010 were generally located in neighborhoods that offered fewer
opportunities but that these neighborhoods also showed the strongest improvements during that
period. In other words, these are neighborhoods that may have been largely affordable at the time but
were on the path to becoming unaffordable. This reinforces previous findings6 that private owners are
reacting to neighborhood change dynamics when deciding to exit subsidy programs.
Moreover, nationally, the project-based Section 8 units that are set to expire between 2011 and 2020
are in particularly high-opportunity neighborhoods. These are also neighborhoods that are higher
opportunity7 than those where properties subsidized through other national housing programs are
located, including new and existing LIHTC units and those leased with a voucher. While property
owners will have the option to renew their subsidies, the research cited suggests that these properties
are located in the areas where owners are shown to have higher odds of opting out.
The next question becomes then, what happens to tenants when an owner exits the project-based
Section 8 program? Households in these properties are offered a voucher as a safety net when the
subsidy contract ends but little is known about what happens to these households, including whether
they use their voucher. In my dissertation,8 I studied this phenomenon and used HUD tenant-level
data to track all households who ever lived in a property where the Section 8 subsidy expired. I found
that fewer than 50 percent of households actually used the voucher they were entitled to when their
property owner exited the project-based Section 8 program.
In Philadelphia, the share of voucher users is slightly over 50 percent, while in places like Newark, it
is closer to 40 percent. Nationally, those who did not use their vouchers lost more than $400 per
month of rental assistance on average, or roughly 41 percent of their effective income. More than half
the households who use their vouchers move once or more and, on the whole, the destination

neighborhoods have lower poverty levels than the origin neighborhoods. In aggregate, these findings
highlight a worrisome reality, which is that an owner’s decision to exit the project-based Section 8
program results in a serious income shock for a large share of the low-income households in these
properties. However, for the fraction of households in these properties who use their vouchers, this
event could improve their well-being because their subsidy is now mobile and they can — and often do
— use a voucher to move to a neighborhood with a slightly lower poverty level.
In sum, market-rate rental housing has become less affordable over the previous decade. At the same
time that the demand for subsidized rental housing has increased, owners of existing subsidized
properties are becoming eligible to exit these programs. Understanding where and when subsidies
will expire is important as cities attempt to address issues of affordability in the rental market because
they are often faced with the decision about whether to target existing resources toward the
development of new affordable units or toward the preservation of existing ones. This research
highlights that policymakers should account for multiple factors in making allocation decisions. First,
they should consider what the expiration of a subsidy contract means for neighborhood access, if
promoting access to opportunity neighborhoods is a goal. When looking at neighborhood access,
policymakers should also consider existing conditions and change over time because properties may
be located in what appear to be neighborhoods with fewer opportunities, but these neighborhoods
may be improving dramatically. Second, policymakers should account for the impact that a subsidy
expiration has on the well-being and future outcomes of households in these properties when
deciding whether or which resources are allocated to preserve a property. In particular, local
governments should ensure that households do not suffer a significant and immediate income shock if
their property owner exits a subsidy program. Ultimately, resources like the affordability website at
the Philadelphia Fed9 and the National Housing Preservation Database10 are important tools that
should be employed and bolstered so policymakers can make such informed decisions.

Capital for Communities: Preserving Affordable
Rental Housing Through a Nonprofit Real Estate
Investment Trust - Cascade: No. 95, Spring 2017
By Noelle St.Clair, Community Engagement Associate

Explore This Section

Capital for Communities: Preserving Affordable Rental Housing
Through a Nonprofit Real Estate Investment Trust*
Housing affordability is essential for neighborhood revitalization and social and economic mobility
alike, but affordable housing units continue to be limited as demand for them climbs. In cities
throughout the country, including Philadelphia, market forces in gentrifying neighborhoods place the
affordability of many housing units at risk. This article will explore the Housing Partnership Equity
Trust (HPET), a nonprofit real estate investment trust (REIT) that utilizes private capital to acquire,
preserve, and improve affordable rental housing units across the country.

The Need for Preservation
Research from the Federal Reserve Bank of Philadelphia has shown that gentrification can lead to the
loss of low-cost housing units, leaving low- and moderate-income city residents with limited options
in terms of available affordable housing. Not only do market rate rents increase as neighborhoods
gentrify, but many subsidized units have time-limited affordability restrictions that will soon expire.1
Though some of these units are owned by mission-driven property owners who will likely retain the
affordability of units, some are owned by profit-driven property owners who may sell the properties or
increase rents in order to reap the benefits of real estate appreciation, possibly leading to the
displacement of many long-time residents who would be priced out of the market.

Rental
development in Aurora, IL.
Photo credit: Housing Partnership Equity Trust.
Nonprofit affordable housing developers struggle to compete with profit-driven developers to acquire
these units. They are also finding it too expensive to develop new affordable housing in these areas.
Additionally, the Low-Income Housing Tax Credit, which provides equity for low-income housing
developers by encouraging private investment with tax credits, may soon become less favorable to
investors if certain anticipated changes to the tax code occur under the new federal administration.
The future is also uncertain for other federal housing programs that provide resources to
organizations that build and maintain affordable housing.

Housing Partnership Equity Trust
Given these circumstances, it is worth exploring financing mechanisms for preserving affordable
rental housing that are less reliant on public subsidy. One such example is HPET. The Housing
Partnership Network (HPN), a Boston-based membership organization of more than 100 housing and
community development nonprofits throughout the country, launched HPET in 2013 in response to
the challenges many housing organizations were facing in preserving affordable rental housing. HPET
was established as a REIT, a financing structure that, although unique for nonprofit housing
developers, is a commonly used vehicle in traditional capital markets. Some 192 REITs trade on the

New York Stock Exchange, with equity market capitalization equal to $941.7 billion.2 HPET is not
publicly traded and is only the second mission-oriented and the first nonprofit-sponsored and
controlled REIT.3, 4
Real Estate Investment Trust (REIT)
A REIT combines the capital of many investors to acquire or finance income-producing real estate.
Similar to a mutual fund, a REIT allows investors to benefit from a diversified portfolio, regular
income streams, and long-term capital appreciation. Through a REIT, investors own shares of largescale properties. A REIT typically pays out all of its taxable income as dividends to shareholders, who
then pay income taxes on those dividends.
For more information, see “What Is a REIT?” at www.reit.com/investing/reit-basics/what-reit.
HPN served as the sponsor of HPET, with 12 initial members that made capital contributions and
share collaborative management and ownership. Two additional members subsequently joined. Each
member invested an initial $200,000, while HPN invested $400,000. HPET’s 14 members include
some of the leading nonprofit affordable housing developers and operators across the country, which
have combined portfolios of more than $8 billion and employ more than 3,900 real estate
professionals in 41 markets. HPET has a staff of seven, a management team with more than 50 years
of multifamily housing experience, and a board of experts from the affordable housing and impact
investing industries.
The structure of the REIT includes a scalable operating platform from which HPET’s acquisition team
of developers, composed of the 14 HPET members,5 can monitor potential deals constantly. Rebecca
Regan, executive vice president of HPN, said that HPET’s structure enables its members to “act with
the same speed and flexibility as for-profit buyers looking to purchase rental properties and quickly
bid on properties without needing to first assemble complex financing packages.” The cost-effective
capital that enables HPET to do this is raised by institutional investors motivated by both financial
and social returns on their investments. These investors include foundations such as MacArthur and
Ford, and financial institutions such as Prudential, Citibank, and Morgan Stanley. To date, HPET has
raised more than $150 million and has a current portfolio of 2,605 units totaling $244 million in
acquisition value.

Note: HPET member names indicate the member serving as the property manager for the HPET
portfolio property.
Source: Housing Partnership Network.
The units in HPET’s portfolio of multifamily rental housing properties are not subsidized or deedrestricted affordable housing. Rather, they are housing units with a regular rental rate that is
affordable to someone earning 60 to 80 percent of the area medium income.
A key component of the HPET approach is to strategically acquire properties that are in close
proximity to job opportunities, quality schools, adequate transportation, and other community
amenities that allow families and individuals to thrive. Properties are typically located in gentrifying
neighborhoods and are often in need of significant renovations. HPET strives to increase cash flow
through tax abatements, energy improvements, and other operating efficiencies and enhancements
without increasing rent for residents. HPET also achieves financial returns by making strategic
investments in portfolio properties that improve resident satisfaction, decrease operating costs, and
reduce tenant turnover.
Tenant and Property Characteristics Generally Adhered to by HPET Investments
Tenant Profile
Employment status

Hourly, salaried, or part-time workers

Income range

$20,000 to $80,000 per year

Typical employment Retail, construction, service sector
Average family size

Two to four members per household

Key challenges

Transportation, job stability, family budget

Rent payments

$750 to $1,350 per month
Property Profile

Location

Proximal to employment, transit, schools, community
amenities

Unit mix

One, two, and three bedrooms

Number of units

30 to 418 units (217 average)

Acquisition costs

$7 million to $60 million

Economic occupancy* at
acquisition

79% to 99%

Economic occupancy* at
stabilization

92% to 99%

Monthly rent per unit at acquisition $627 to $1,316 ($962 average)
Monthly rent per unit at
stabilization

$546 to $1,484 ($967 average)

Community facilities

Community room, leasing office, fitness center, pool

* “Economic occupancy” is total possible revenue less vacancy loss as a percentage of total possible
revenue.
Source: Housing Partnership Network

Third District Implications and Further Considerations
Although HPET’s portfolio does not currently have any properties in the Third District, there are
opportunities to expand in this region. HPN’s goal is not to have others replicate HPET but rather to
broaden its portfolio to include properties in additional geographic areas through current members or
the addition of new members. There is an opportunity to grow the number of HPN members involved,
as needed, although it would only be appropriate for experienced partners with the proper skills and
resources. Contributing members of HPET are responsible for managing capital and properties on
behalf of sophisticated institutional investors, and thus underwriting needs to mimic that of a public
REIT with extensive due diligence and presentations to established investment committees. In fact,
since HPET is a mission-driven investment vehicle, both the impact and economic viability of
investments need to be underwritten, requiring additional skills than would be needed in a typical
REIT (i.e., simply underwriting for financial return without consideration of social and environmental
impact). Additionally, all HPET contributing members must be financially stable and reliable in the
event of a capital call requiring additional resources.

Lessons Learned
HPET has found that attracting large amounts of capital is imperative since small investments are

often too difficult, expensive, and time consuming to be worthwhile. Also, HPET has found that its
nonprofit ownership is attractive to socially minded investors. In addition, the cooperative ownership
model and the ability to learn from best practices among members improve the property management
expertise and enhance the opportunity to create operational savings when compared with a typical
REIT.
Since HPET is not publicly traded or rated, its biggest current challenge is creating mechanisms to
provide investors confidence in the liquidity of their shares, Regan said. She explained: “We want to
hold and operate the properties as affordable housing for the long term. We are not a closed-end
fund; our mission is not to liquidate assets on a predetermined date, so it is difficult to show investors
how they will sell shares at a specific point on the investment horizon. With a liquidity vehicle or
guaranty, they would be able to demonstrate the ability to redeem their investment without actually
redeeming it, addressing the most challenging issue in underwriting and allowing the investment to
move through the underwriting process.” Credit enhancements from banks or grants from
foundations could unlock additional institutional capital by allowing investors to underwrite the
liquidity risk. This could potentially lead to increased investment from donor-advised funds or impact
investing platforms, said Regan.
HPET is not the only community development finance vehicle that has this need, however. “Lack of
liquidity is a common problem in many U.S.-based community development investment
opportunities, inhibiting new capital from entering our industry,” Regan said. If this problem could be
addressed strategically, Regan believes that significantly more capital could support community
development efforts such as affordable housing preservation.

Conclusion
Housing affordability remains a foundational component of neighborhood vitality and household
financial stability, although the supply of affordable housing is decreasing in certain areas throughout
the country. It is important to consider ways in which private capital can be utilized to support the
sustainability of community development efforts and preservation of affordable housing. HPET
provides an opportunity for expansion into the Third District states of Pennsylvania, New Jersey, and
Delaware, as well as a model for banks, foundations, and developers in the Third District interested in
exploring replication. The broader need for liquidity in nonpublic community development finance
vehicles also needs further examination.

Full text of Cascade (Federal Reserve Bank of Philadelphia) : Cascade, No. 95

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