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More Multifamily Owners Are Discovering One Of The ‘Best-Kept Secrets’ Of U.S. Housing Policy

Robin Valentine struggled financially for years as she lived in subsidized housing in Boston's Dorchester neighborhood with three children she raised on her own.

Despite having a stable job working for the University of Massachusetts Boston for nearly two decades, she found it hard to keep up with bills and debt payments. That all changed after she was introduced to a little-known federal program that would ultimately help her save tens of thousands of dollars and get out of subsidized housing.

Robin Valentine and two of her children outside of their home.

“I didn’t want to be on Section 8 forever,” Valentine said. “It felt good to save money and have control.”

In her first five-year period in the Family Self-Sufficiency program, she saved $11K that she used to pay off her student loan debt and other bills. She then re-enrolled and was able to save another $30K during the second five-year period as her income increased. She used the money for a down payment on her first home.

“I never thought about it until we moved into our house and sat down,” Valentine said. “One day, I just cried and thought about everything that happened.”

Valentine is one of tens of thousands of families using the FSS program overseen by the Department of Housing and Urban Development, which expects 70,000 families to enroll this year. But housing advocates say that number pales in comparison to the program’s untapped potential, with more than 2 million families eligible to benefit from the program.

The FSS program allows families who live in federally subsidized affordable housing to recapture any rent increases they are forced to pay when their income rises by putting it into an interest-earning savings account, and if they meet certain requirements, they later receive the savings to use as they wish. Nearly 37,000 households completed the program during the 10-year period ending in 2016, and they received an average of $6,270, according to HUD data.

The government has worked to grow the program in recent years, with HUD expanding the program’s eligibility in 2015 to include private multifamily owners that have subsidized tenants. Last year, it added funding to help those landlords implement the program at their properties. This step has led to a surge in interest from the multifamily sector, experts said, and they think additional changes could help expand it dramatically in the coming years.

Housing providers and advocates told Bisnow the program has come a long way in the three decades since its inception, but there are still improvements that need to be made to bring in more families and providers. Advocates have pushed to make it a universal program that eligible participants are automatically enrolled in rather than being required to opt in, and HUD embraced that idea by proposing a pilot program in its latest budget request.

“It’s one of HUD’s best-kept secrets,” said Julianna Stuart-Lomax, vice president of community impact for Preservation of Affordable Housing, a nonprofit landlord that has been using the program since 2015.

“We are thrilled to see the increase in interest,” she added.

The Department of Housing and Urban Development headquarters in Southwest D.C.

Compass Working Capital CEO Markita Morris-Louis, whose firm helps public housing agencies and private affordable housing providers operate FSS programs at their properties, said she is pushing to get more of the 2 million eligible households involved in the program.

“We’re working really hard to try and close that gap through our direct service relationships with our housing partners, through training and technical assistance for all the folks doing this kind of work, and through our policy initiative and trying to remove barriers to families,” Morris-Louis said.

The program was conceived in 1990 during the George H.W. Bush administration, and over the years, its focus has shifted to prioritize building assets for low-income families, in addition to incentivizing them to work, Morris-Louis said. 

To be eligible for the program, families must live in affordable housing through a public housing agency or a project-based rental assistance unit that is run by a private multifamily landlord.

These families’ monthly rent payments are determined by their income, so when their salary rises, they also see a hike in expenses. For example, according to the Center for Budget and Policy Priorities, if a family’s monthly income increased from $600 to $1K, its required rent payments would increase by $120.

The FSS program works by taking the amount of increased rent in those instances and putting it aside in an interest-bearing escrow account established by the public housing authority or affordable housing provider that operates the tenant's property. 

Participants must complete a five-year program to access that escrow account, and throughout that period they must maintain employment, meet specific goals in their contracts and be independent of welfare assistance by the end of the program. They will also receive financial coaching during the period, and if they complete the program, they can use the money in the savings account to buy their own homes, pay off debt or cover other expenses.

The program has begun to see renewed interest in recent years from the federal government and the local public housing agencies and landlords that implement it. Federal funding for the program has risen from $80M in fiscal year 2019 to $125M in FY23, a 56% increase.

“Both Republicans and Democrats have supported this, and even under the last administration, when HUD’s budget was slashed, the FSS coordinator grants received an increase,” Morris-Louis said “There is definite across-the-aisle support for this.”

In 2015, Congress expanded program eligibility to families living in privately owned units that have Section 8 tenants. Last year, as part of a list of new changes made in HUD’s final ruling on the program, the department also expanded funding to private multifamily owners to help pay the FSS coordinators who run the program as well as fund the escrow accounts needed to hold the savings.

Compass Working Capital and WinnCos. partnered to bring an FSS program to Castle Square apartments in Boston's South End neighborhood.

“Prior to this past year, HUD didn’t fund the program for multifamily housing,” said Trevor Samios, senior vice president of connected communities at multifamily owner WinnCos.

“Although they’d fund the escrow account and said, ‘We’ll pay the difference between someone’s base rent and as their income progresses, we require financial coaching to be done in person, and we require reporting on the impact of the program,’ that meant that multifamily owners had to self-fund the program.” 

The new funding to help multifamily owners implement the program has led to a surge in interest from landlords, a HUD spokesperson told Bisnow.

“This year, we had an overwhelming interest in applications, and this was the first time we were able to offer new programs,” the spokesperson said.

Of the newly funded programs, 38 of the applications were from privately owned affordable housing operators, the spokesperson said. And they had another 150 applications they couldn’t fund, including around 100 from private owners.

Some of the first multifamily owners to participate in this program included Preservation of Affordable Housing and WinnCos., both mission-driven organizations that have substantial affordable housing portfolios.

POAH was the first owner to adopt the program in 2015, and Stuart-Lomax said she was excited to see other housing providers join in the years that followed.

“There was a lot of manual, hands-on investment to get this thing going,” she said. “Private owners were not eligible to run the program, and this also recently changed. Part of the resurgence is that we are now eligible to apply competitively for grants to run these programs.” 

However, Stuart-Lomax said that there are still some issues with the program that need to be resolved to help more private housing providers implement it.

WinnCos. started participating in the FSS program in 2019, making it the first for-profit owner to do so, and it has since expanded the program to 19 of its properties. The developer and owner was able to secure nine grants from HUD.

Samios said the ripple effects from the pandemic have made property owners and investors look for other avenues to keep up with operations and prevent evictions and turnover at properties.

“Part of what you’re seeing in terms of a resurgence right now is that a lot of property owners are seeing that the [pandemic] really destabilized operations of a property and the community, made it a lot harder to run and finance their work, and because of that, you had investors trying to figure out how to prevent a backslide in evictions,” Samios said.

He said that more property owners are starting to turn to the FSS program because it not only helps residents build assets but also helps landlords keep operations stable, as tenants continue to pay rent and have better financial planning.

“All of those things colliding has really pushed the program to be more accepted, and more people are interested, especially with the grant opening the door to actual funding available,” Samios said.

A Boston Housing Authority location

Samios said there could also be more consideration of making the FSS program part of Massachusetts' qualified allocation plans, which is the criteria for awarding federal tax credits to certain housing properties.

“With MassHousing, for example, if you operate FSS as an owner or a developer, it can be considered in a competitive submission or response to an RFP,” Samios said. “That will catalyze a lot of owners to get more involved if they see that it can help their projects get financed and built faster.”

Samios isn't alone in seeing the potential for the program to expand even further. One of the biggest changes that housing advocates think Congress should make to the program is to consider an opt-out model, also known as a universal escrow account, that would automatically enroll eligible families.

Sonya Acosta, a senior policy analyst at the Center for Budget and Policy Priorities, said that although Congress has made efforts to expand the program, the universal escrow account could help more families save.

“It would be really great to test out the universal escrow account idea and see how it might play out and see if it is something that could potentially be expanded to more rental assistance programs more broadly,” Acosta said.

As the program is now, families have to voluntarily apply. Some families might distrust their housing provider and might believe the program is too good to be true, and others might not even know it exists. Morris-Louis said that using this model would be similar to that of an employer-sponsored retirement plan.

“By opt out, we mean shifting the default,” Morris-Louis said. “When we want people to take advantage of a resource, the best way is to just put the resources in front of them and say, ‘You’re participating in this until you’re not.’”

As advocates push for more expansion, HUD has been listening. The agency has filed a request through its FY24 budget to test an opt-out model for the program, but it still needs congressional approval.

“We have to do demos and pilots to test the model and figure out what unknowns there are,” a HUD spokesperson said. “It takes an act from Congress to make a lot of changes to a program like this, and we are thrilled that it happened. Now we are like, ‘OK, we did it, now let’s watch and learn.’”

Changing the program to automatically enroll eligible families could help more people like Valentine, who said she was initially skeptical of the FSS program and didn’t trust that it could help her.

“Before I started this program, I had this fear of money,” she said. “Although I worked and paid my bills as much as I could, I could never get ahead.

“Once I got the hang of that and after talking to a financial coach, I became less fearful.”