An Overview of “Affordable Housing”

The term affordable housing has very different connotations, depending on what side of the debate you happen to fall on. If you’re an advocate, you probably see it as an equitable way of providing shelter to low-income families. If you are a critic, you probably see it as prone to abuse, and resulting in increased costs for homeowners and businesses that don’t qualify as low-income.

The purpose of this post is not to further debate the merits of such programs, but rather to provide a basic understanding of how they work. Affordable housing generally comes in one of two forms: subsidized rentals or homeownership opportunities, respectively enabling participants to either rent or buy a home at a below-market rate. This is pretty self-explanatory.

Typically, developers are required by the city to set aside a certain number of units as affordable housing, through mandatory inclusionary zoning rules. Properties-for-sale are then sold at-cost and/or with reduced down-payments and subsidized mortgages are provided to qualifying buyers. This is usually handled through a lottery system, especially when demand exceeds supply.

The catch is that “The income-restricted units have limits on resale prices, too, allowing sales at only the inflation-adjusted purchase price to keep them affordable for decades to come.” This rule aims to close a loophole which previously allowed speculators to purchase homes at reduced prices and flip them at market rates for an immediate profit, a common practice during the real estate boom.

Both because of this potential for exploitation and because it’s difficult for many low-income buyers to come up with enough cash to make a downpayment, many municipalities are turning to subsidized rentals instead. In this case, the building owner can collect a rent that is below market rate, and the rent can only be raised by small increments. In addition, public money is often available to tenants that wish to buy and renovate their units.

It’s important to remember that the term “affordable” is entirely relative. While paying a reduced price for a unit in a nice building or area could save you money relative to what others are paying, you still might end up paying more than you would by buying/renting at market-rate in a slightly less desirable area nearby. Regardless, if you want to see if you qualify for affordable housing and/or what kinds of such properties are available, the best approach is simply to contact your municipality/state’s department of affordable housing. Nowadays, many of these departments maintain proper websites. Combined with the fact that the recession has reduced demand, affordable housing is now easier than ever to find!