Preservation FAQs

Several trends contribute to the need for affordable housing in the state of New Mexico. While new developments certainly are necessary to meet much of the affordable housing need, existing housing stock must also be preserved if we are to keep low-income New Mexicans safely and stably housed. 

There is a shortage of 39,999 rental homes affordable and available for extremely low-income renters and two-thirds of extremely low-income households are "severely cost burdened".

Affordable housing initiatives that only focus on new development address only part of the problem. Preserving existing affordable housing options is also cost-effective when compared to new development--rehabilitating an in-use affordable apartment can equal as much as 50% less in costs to partners than building a new apartment. 

Preservation also respects taxpayers by protecting existing housing that was developed using taxpayer money. Publicly supported housing programs are a substantial community investment that supports the public, and preserving this investment is crucial for long-term gains.

Not only does stable housing support individual families, it also acts as a form of community reinvestment. While new development is made difficult in high-opportunity areas (healthy neighborhoods with easy access to amenities, high-quality education, meaningful job opportunities, etc.) due to high cost of land and political barriers, affordable housing options in these areas often already exist. Preserving these options ensures continued investment in these high-opportunity areas.

Finally, preservation can help New Mexico further environmental protection and energy independence goals. By reusing existing buildings, development projects reduce construction waste and do not require the expansion of utility and/or transportation infrastructure. An added benefit of preserving existing affordable housing options is also adding energy efficiency upgrades to buildings, helping residents lower utility bills and communities lower their environmental impact.

According to data from the National Housing Preservation Database, there are 28,178 publicly supported rental homes within the state of New Mexico. The majority of these (16,049 rental homes, or 57% of all publicly supported rental homes) receive Low Income Housing Tax Credits (LIHTC). 6,426 are supported by the Section 8 program, 4,182 by USDA, 3,662 are public housing, 3,434 are supported by other HUD programs (including Section 202 Direct Loans and Section 236), and 780 are supported by the HOME program.

Please see the "data" tab for more facts and figures.

An affordable housing property may be considered “at-risk” if it is vulnerable to loss due to aging and deterioration or if it is reaching the end of its mandated affordability period and is therefore in danger of becoming unaffordable to low-income New Mexicans. NM Affordable Futures also considers “at-risk” those properties which may be targeted by actors interested in compromising a subsidized property’s long-term affordability by taking advantage of legal loopholes, such as by pursuing the Qualified Contract process or pursuing a forced foreclosure of a LIHTC property.

According to data from the National Housing Preservation Database, 1,209 publicly supported rental homes in New Mexico (or 4% of the state’s public supported rental housing stock) have affordability terms set to expire in the next five years. Fifty-four percent (649) of these are supported by the LIHTC program, 31% by Section 8, 10% by multiple programs and 5% by other HUD programs. Including those 1,209 publicly supported rental homes facing expiring affordability restrictions in the next five years, 73,014 publicly supported rental homes are facing expiring affordability restrictions in the next thirty years. Even more are physically deteriorating and require immediate investment to ensure longevity.

Owners must grapple with the effects of an aging property when properties supported by public programs reach the end of their relevant affordability periods. Affordable properties often lack resources to maintain their property and perform necessary rehabilitation projects. Owners may also worry about the viability of keeping a property affordable when it is in desperate need of funding sources that could be supplied by charging higher rents or by selling the property.  Such properties require new funding streams to perform necessary maintenance and rehabilitation projects to keep aging properties safe and stable, especially for low-income renters. 

Qualified contracts:

Even though LIHTC properties generally remain affordable for thirty years or longer (15 years in the initial Compliance Period plus 15 or more years in the Extended Use Period), the Qualified Contract (QC) process allows LIHTC properties to exit affordability after only 15 years.

The QC process varies among states, but generally goes through these steps: first, a complicated calculation involving a property’s equity, debt, fair market value of the land, and inflation sets a sales price (which is often unreasonably high) for the property. The owner then submits a request to the state tax allocating agency to find a buyer based on this sales price. The agency has 365 days to find a qualified buyer; if no buyer is found within this period, the owner is released from affordability restrictions and can convert the property to market-rate rents on a phased-in basis over a three-year decontrol period.

Unfortunately, because the QC sales price is often inflated above market price, this is typically the outcome when an owner initiates the QC process. On the other hand, If a buyer is found, the buyer operates the property as an affordable property for the remainder of the Extended Use Period. If a buyer is found, but the existing owner refuses to sell the property, the property remains affordable for the rest of the Extended Use Period under original ownership. Many properties waive their right to a QC process when signing their initial land use restriction agreements or at another time, such as during an ownership change. In New Mexico, LIHTC properties began to automatically waive their QC right in 2003. This means that only properties developed before 2003 are vulnerable to loss via the QC process; however, many of these properties have waived their QC right during ownership changes or other processes.

Planned Foreclosures

LIHTC properties may leave the program early if the property is subject to a foreclosure. Because of this, partners in LIHTC developments have occasionally strategically planned actions to initiate a foreclosure so that the property may exit affordability early. Although Congress has granted the Treasury Department the authority to determine that these intentional actions do not qualify as foreclosures—and although these cases are rare—these actions pose a threat to the preservation of affordable LIHTC properties as bad actors seek out ways to convert affordable units to market rents.

Expiring Extended Use Periods

As the LIHTC program itself ages, many properties have reached their thirtieth year and beyond, marking the end of their Extended Use Periods and corresponding affordability restrictions. Owners often convert properties with expired affordability restrictions to market-rate rents, especially in cases where funding is needed to maintain the property and/or in competitive markets where statutorily-set affordable rents are substantially lower than market-rate rents in the area.

 Year 15 Transfer Disputes 

The LIHTC program grants nonprofit partners the right to obtain full ownership of the affordable housing project they support at a minimum purchase price after 15 years. This right, called the right of first refusal, furthers the goal of the LIHTC program to generate and preserve affordable rental housing for low-income families. By the fifteenth year when the right may be exercised, the investor partner has claimed all tax credits and in theory exits the partnership. The mission-driven nonprofit partner then continues operating the low-income housing development under the relevant affordability restrictions, in accordance with the program’s intent.

However, for-profit partners and investors may take advantage of legal loopholes within this process. According to the Washington State Housing Finance Commission, in recent years, “some private firms have begun to systematically challenge nonprofits’ project-transfer rights and disrupt the normal exit process in hopes of selling the property at market value.” Individual investors may engage in this practice through interests they already hold in LIHTC projects, but in addition, investors (called “aggregators”) have begun to acquire large numbers of investor interests in LIHTC partnerships simply to take advantage of this practice. Aggregators “often use burdensome tactics that take advantage of legal ambiguities, resource disparities, and economies of scale to overwhelm their nonprofit counterparts,” draining the mission-driven nonprofit’s resources and threatening the project’s long-term affordability by selling it at market rate to profit-driven owners.

Threats include:

Prepayment

The current process for RD loan prepayment was laid out in the Emergency Low Income Housing Preservation Act of 1987. Under this process, owners who apply to prepay an RD loan are offered incentives to stay in the RD program for an additional 20 years. If the incentives are rejected, the owner may take different routes to prepay the loan, depending on the availability of a nonprofit or public entity buyer for the property and/or the availability of minority housing opportunities and adequate affordable housing in the area. The RD regulations governing prepayments can be found at 7 C.F.R. Part 3560, Subpart N. Further guidance can be found in Chapter 15 of RD Handbook 3-360 or on the National Housing Law Project’s Saving Rural Rental Homes resources page. 

Mortgage Maturities

RD Section 515 loan terms range from 30 to 50 years, depending on the type of household receiving the loan and when the loan was granted. Due to the number of years since RD Section 515 loans were first disbursed, Section 515 developments have been maturing since the early 2000s, with the number of developments with maturing mortgages rapidly accelerating and projections of dramatic increases in loan maturities in the coming years.

Foreclosure

Borrowers who have defaulted on their RD loans by failing to make payments, failing to maintain the housing, and failing operate the housing in accordance with program policies are frequently foreclosed on by the RD program. These properties often leave the Section 515 program altogether, thus endangering residents of these properties.

Threats include:

Prepayment

Program regulations allow most for-profit owners to prepay their Section 236 and Section 221(d)(3) BMIR mortgages after only 20 years of the original 40 year term, often terminating income and rent restrictions and any Section 8 rent subsidy.

Mortgage Maturities

HUD-subsidized Section 236 and Section 221(d)(3) BMIR mortgages are maturing at an accelerating rate; residents’ assistance is at risk in these properties and in properties reaching the expiration of use restrictions or assistance.

Expiring Project-Based Section 8 Assistance Contracts

Owners may “opt out” of project-based Section 8 contracts when they expire, thereby enabling the conversion of affordable units to market-rate level rents.