Federal subsidies on an unprecedented number of apartments set aside for low-income tenants nationwide will expire between now and 2006. When these subsidies expire, owners are free to exit the federal program to take advantage of much higher market rents.

A long-term relationship between the for-profit sector and affordable housing is not a viable one.

Rachel Bratt Department of Urban and Environmental Policy and Planning Tufts University

California is at the forefront of this impending crisis with its 148,540 federally subsidized units, the largest number in the country. The city of Los Angeles stands to be the hardest hit--about one out of three of its affordable housing units are federally subsidized.

Owners of these subsidized apartments want to get out of the federal program to take advantage of rapidly rising market rents, which are typically far higher than the subsidized rents. The loss of perhaps thousands of low-income units would put further pressure on the nation's already inadequate supply of low-cost housing.

State housing policymakers and nonprofits are scrambling with varying degrees of success to find additional funding to preserve California's federally subsidized units, keeping them reserved for low-income tenants.

Federal housing programs built most of the state's low-income units from the '60s through the early '80s. In one program, the Department of Housing and Urban Development insured low down-payment loans and subsidized interest rates.

In a second, HUD provided a monthly subsidy per tenant to encourage building owners to rent to low-income tenants. The subsidy required tenants to pay 30% of their monthly income in rent and HUD would pay the landlord the difference.

In exchange, building owners involved in both programs agreed to rent the units to low-income tenants for 20 years--after which they can exit the federal program and raise rents to market levels.

In most cases in which an owner leaves one of these programs, tenants can qualify for an enhanced voucher that provides for a higher subsidy. But some owners refuse to accept those higher subsidies, saying they don't want the paperwork involved in dealing with the government.

The squeeze couldn't come at a worse time: The nation's housing market is already plagued by shortages of low-income units. Tight rental markets in the largest metropolitan areas make it difficult for many Americans to find affordable apartments. For the country's poorest families, it's next to impossible.

Nationwide there are 2.9 million subsidized apartments available for 5.1 million low-income families that qualify for the help. In California, conditions are even tighter: There are more than twice as many tenants as low-income units. In Los Angeles and Orange counties, where apartment vacancy rates are approaching historic lows of 3% and less, only one low-income unit exists for every four households that need one.

Meanwhile, the federal government is drastically scaling back its housing programs for low-income Americans. HUD is tearing down crime-plagued projects and replacing them with mixed-income communities with fewer units.

And as old agreements expire at an increasing pace, thousands of owners are converting units to market rents. Housing experts say it would cost billions to replace these apartments.

"This is the first time we've had so much affordable housing stock at risk at the same time," said Jeff Burum, executive director of the National Housing Development Corp., a nonprofit that raises seed money for nonprofits to acquire units.

The human toll of this decline is most evident in California, where about 350,000 tenants live in subsidized apartments. The majority of these renters facing an uncertain future are elderly, disabled or single parents who subsist on incomes of $9,000 a year or less.

"Everyone who lives here is very uncomfortable and unhappy because they don't know what tomorrow's going to bring," said Virginia Breimann, a tenant in a complex in a Sacramento suburb that was set to be sold and to leave the federal program this summer. "That's an awful way to live, especially for people who are older and who are sick."

A judge has issued a temporary restraining order blocking the sale of Breimann's building pending the outcome of a case filed by tenants against HUD and the building's owner claiming the owners didn't provide proper notice of the sale as required by law and signed an agreement with HUD to charge rents that exceed market rent for comparable units.

Since 1996, when building owners were first allowed to leave various federal housing programs, California has lost one out of seven of its subsidized apartments. The defections have come in two waves as decades-old programs expire. In the process, some rents more than doubled.

"There's a discouraging number of properties that have already gone away," said David A. Smith, president of Boston-based Recapitalization Advisors Inc., a firm that specializes in financing affordable housing.

Nationwide, federal subsidies on 1.3 million units that house 2.5 million Americans are expiring, said Michael Bodaken, president of the National Housing Trust, a nonprofit that preserves subsidized housing.

HUD-sponsored complexes aren't the only low-income units at risk in California. About 14,392 units built with the help of tax subsidies through the Internal Revenue Service are also at risk of converting to market-rate rents by 2004. These figures understate the number of units at risk because nobody tracks all the state's subsidized apartments.

Nonprofit corporations have taken a central role in attempting to preserve subsidized apartments for low-income tenants.

For example, the California Housing Partnership Corp., a nonprofit created by California lawmakers to preserve low-income units, together with nonprofit and for-profit developers, have acquired 3,070 units.

"It's a hell of a lot easier and less costly to preserve these units than it is to build new ones," said Rob Weiner, executive director of the California Coalition for Rural Housing, a nonprofit that works to build and preserve low-income housing.

Housing advocates say the decline in subsidized apartments should prompt HUD to rethink its role in housing the nation's poor. Instead of helping private developers to build low-income housing, experts argue, HUD should subsidize nonprofits to construct affordable rentals that will be available for the long haul.

"A long-term relationship between the for-profit sector and affordable housing is not a viable one," said Rachel Bratt, a professor and chairwoman of the Department of Urban and Environmental Policy and Planning at Tufts University.

Owners across the city are weighing decisions to leave the program.

Culver City-based Goldrich & Kest Industries owns the largest amount of federally subsidized rental housing in the state. Goldrich & Kest has filed notice that it's considering opting out of its federal contract for the 100-unit Miyako Gardens in Little Tokyo pending the outcome of negotiations with HUD to change rents in its building.

Many of Miyako's residents don't speak English, are elderly and disabled, and would be hard pressed to afford an apartment in Los Angeles County, where monthly rent for a low-cost, two-bedroom apartment averages $899.

Like other owners, Goldrich & Kest said the costs of operating a HUD building often make it unprofitable to remain in the federal program.

"People forget there are a lot of other costs involved in operating in the HUD program that a conventional landlord doesn't have," said Carole Glodney, president of Goldrich & Kest Management.

These costs include recertifying residents to make sure they meet income requirements and maintaining the buildings to meet HUD regulations. If Goldrich & Kest does opt out, a nonprofit is considering a move to buy the building.

"We're in a terrible situation, Goldrich & Kest is in a terrible situation and the tenants are in a terrible situation," said Lisa Sugino, community development director for the Little Tokyo Service Center, a nonprofit developer.

If an owner opts out of the federal program, qualifying tenants can stay and apply for an enhanced housing voucher. The enhanced vouchers from HUD make up the difference between the subsidized rent and the new rent.

But these vouchers must be reauthorized by Congress every year as part of HUD's budget, and once the tenant leaves the unit the owner is free to hike the rent. Tenants, meanwhile, are left to fret about what will happen.

"I've lived here forever and it would devastate me to be forced to move," said Carol Berman, who lives in the Ocean View Apartments in Venice. "Not because I was doing anything wrong but merely because I was too old and too poor."

Even when tenants receive an enhanced voucher, owners may require them to pay a deposit they can't afford to remain in the building, said Dewey Bandy, preservation program manager at the California Coalition for Rural Housing.

In addition, housing advocates say some owners refuse to accept enhanced vouchers. Helmut Martin, who owns the Country Village Apartments in Sacramento, refused to accept enhanced vouchers after he opted out of the program this spring, said Mona Tawatao, an attorney with Legal Services of Northern California.

Instead, he gave tenants an ultimatum: Sign a lease at market-rate rents or move out, Tawatao said. Most tenants decided to move out. Tawatao obtained a restraining order barring Martin from evicting one of the remaining tenants.

The parties recently settled the case, and Tawatao's client was allowed to stay in the building.

Martin's attorney, who said he can't comment on the Country Village case, said owners he's represented in similar cases believe they've complied with agreements they signed 20 years ago with HUD and now want to be free of federal restrictions.

"The owner has benefited, HUD has benefited and these families have benefited," Melvin Visger said. "But these contracts are coming to termination now, and if the owner complied with terms to opt out, what they're saying is, 'Why can't we opt out now? Why do we have to enter into an enhanced voucher?' "

Visger said federal law requires owners to accept enhanced vouchers for only one year. HUD disagrees, saying in a written statement to the Los Angeles Times that owners are required to accept enhanced vouchers for the long term.

"Congress provided the residents the 'right to remain,' unless tenancy is terminated for cause or there is a change in use at the property [from rental to home ownership]," HUD wrote in response to a list of questions from The Times.

But even before enhanced vouchers are issued, tenant advocates say some owners fail to provide adequate notice to tenants and government offices that they are leaving the program, as required by federal and state law.

Few cities have come to terms with the problem, experts say. An exception is San Francisco, the only major West Coast city not to have lost any of its federally subsidized housing stock.

Since it enacted an affordable housing preservation program in 1997, the city has spent $23.5 million to save 1,131 units, said Sean Spear, senior development specialist for the San Francisco Redevelopment Agency.

"For the first three years of the program we had more money going into preservation than the entire state had going into housing," Spear said.

To ensure long-term affordability of units that opt out of federal subsidies, the city will purchase the land a building is on and lease it to the complex's buyer.

But the problem of low-income rental housing preservation is not likely to go away soon. The various subsidy programs all have finite lives.

"In 10, 20 and 30 years we'll face the same problem," said Elena Popp, a staff attorney at the Legal Aid Foundation of Los Angeles. "We need to find better ways of building affordable housing."

Copyright © 2001 Los Angeles Times

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