City eyes fund to preserve affordable housing, capitalize on overbuilt apartment market

In talking about the possibility of establishing a city fund specifically for preserving existing affordable housing stock, Council Member Marc Duchen said part of the motivation is to give the city more tools to step in before property owners decide to rebuild aging multifamily properties at higher price points. Using the recent, controversial redevelopment of the Acacia Cliffs complex as an example, Duchen said that, currently, the city has limited options once a zoning request has advanced to a Council agenda.

“How do we make sure that essential workers can stay in Austin?” he said. “It’s better that we’ve got system-wide and citywide tools that we’re accessing well before something comes to a zoning case at Council to address this issue.”

In addition to the recent Council action calling for staff to develop options for revamping density bonus programs — and including one-for-one replacement of affordable units — Duchen has taken a policy page from Dallas, Texas, which launched the Dallas Housing Opportunity Fund in 2021 with a $6 million city grant intended to attract investment partners and preserve 5,000 affordable units. He intends to bring a resolution when Council reconvenes in July.

Duchen said the fund would be designed to intervene earlier in the housing pipeline than density bonus programs, with the goal of using city dollars as seed capital to attract additional investment from philanthropic and private-sector partners, then acquiring or recapitalizing aging properties that serve moderate-income renters.

While the structure of the fund has not been finalized, early discussions have included using unspent proceeds from the 2022 affordable housing bond and funds set aside for anti-displacement efforts under Project Connect. Duchen has indicated interest in seeding Austin’s fund at a level higher than Dallas, potentially around $12 million, to signal commitment and draw outside investment.

The process could provide an option for owners of aging affordable complexes where increasing maintenance costs make them candidates for redevelopment at largely market rate or luxury price points. With the Austin multifamily market currently seen as overbuilt by many real estate industry experts, Duchen said there’s a window of 12 to 18 months when a fund could secure multiple substantial acquisitions to head off potential displacements like Acacia Cliffs.

“We’re kind of in a unique space right now where specifically regarding multifamily in Austin is overbuilt. You’re already seeing what’s possible with some of the deals that (Austin Housing Finance Corporation) and the Texas Housing Conservancy are striking, that they’re able to acquire younger, better-conditioned properties than they would normally be because of how soft that market is right now,” he said.

Duchen and Texas Housing Conservancy (THC) leaders have had meetings in recent months to discuss the feasibility of a city-backed preservation fund.

Monica Medina, president and CEO of THC, said the fund could be operational in a matter of months, with the organization already partnering with the city on recent property purchases that include layers of affordability serving households at 40 to 80 percent of the area median income.

Medina said her recent talks with Duchen suggested that THC, which has a strong track record of acquiring and preserving local workforce housing stock, could be the preferred partner to establish a fund to preserve housing at lower price points.

“I think we’re all on the same page that we have a tool here in Austin through the Texas Housing Conservancy to continue in our preservation efforts,” she said, noting there’s enough demand from existing THC investors to grow a new fund in a matter of months.
“We can partner with the city and come up with some creative capital stack tools. Our investors are expecting a return, but it’s a modest return not comparable to traditional private equity or market rate investors.”

Concerns about affordability and gentrification remain especially acute in East Austin, where displacement of long-term residents has been a persistent issue. Mayor Pro Tem Vanessa Fuentes, whose District 2 seat is in East Austin, said any new preservation strategy needs to be administered equitably and informed by existing data and mapping of vulnerable communities. She and other Council members have had preliminary talks with Duchen have expressed interest in evaluating whether outside organizations like THC are better equipped than city departments to manage or scale such a fund.

Fuentes said the city may need to look at other funding sources than those suggested by Duchen since most of those dollars are already allocated.

“There’s not a lot of money left that has not been unallocated in the 2022 housing bond. In fact, we really need additional housing bond dollars. And that’s a case we’ll have to make to our community come next year,” she said. “This might be an opportunity for us to invite our community to weigh in and to seek their support in seeding this fund.”

The idea of using value-capture mechanisms such as tax increment financing districts has also been raised as a possible parallel tool for supporting naturally-occurring affordable housing preservation. Duchen has discussed identifying areas with clusters of aging apartments where public investment might stabilize affordability over time through targeted infrastructure or reinvestment strategies. Fuentes said existing reports such as the the University of Texas’ Uprooted Project in displacement, along with other census studies, could help to decide what parts of the city should be prioritized for investment by a new preservation fund.

“Certainly we know the areas that are most at risk and the areas that are vulnerable to displacement, and so I think there’s a lot of opportunity where we could leverage the existing work that our community have done,” she said. “We want to ensure that it’s done equitably, ensure that we recognize the history of inequities in our city, and that we move quickly.”

Photo made available through a Creative Commons license.

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