Issue #106, July/August 1999


Eyesore to Community Asset

Historic preservation creates affordable housing and livable neighborhoods


On a hill just west of downtown Los Angeles sits the Mary Andrews Clark Memorial Home, a 1912 "Chateauesque" building that The Los Angeles Times has called "architecturally one of the most imposing structures in this city." The building also happens to serve as a 153-unit single-room occupancy (SRO) affordable housing development.

In Cleveland, the Notre Dame Academy, a five-story Gothic Revival structure built in 1914 as a school for girls, is the largest building in the area, with its front in the neighborhood and its three back wings towering over the west slope of Rockefeller Park. Despite its impressive architecture, the building stood vacant for 20 years and fell into such disrepair that neighbors demanded its demolition. Today, the outside of this historic landmark has been restored to its original condition and it offers 73 independent-living apartments for low-income seniors, along with commercial space and a community center.

And in Charleston, South Carolina, the housing authority in the 1980s created infill housing with "piazzas" (high-ceilinged porches historically designed to capture sea breezes) and other features to fit the character of neighborhoods that are part of the oldest designated historic district in the country.

These projects represent the joining of two goals often thought to be antithetical – affordable housing and historic preservation. While historic preservation projects account for a small percentage of the affordable units in the U.S. – over 39,000 low and moderate-income units have received the Historic Rehabilitation Tax Credit (HRTC) – the number of such projects is rising. In 1993, only 19 percent of the 8,286 units completed through historic rehabilitation projects were low- and moderate-income units. By 1997, that number had risen to 42 percent of a total of 15,025 units, according to the National Park Service (NPS), which administers the HRTC jointly with state historic preservation officers (SHPOs). In 1998, projects that received HRTC created a record number of low- and moderate-income units – 6,616. This increase partly reflects a growing view of affordable housing development as part of a larger goal of community revitalization.

"We're seeing a real resurgence in trying to create livable communities in center cities," said Sharon Park, chief of Technical Preservation Services for NPS's Heritage Preservation Services branch. She noted that many historic preservation projects create mixed-use developments, providing space for businesses and social services along with affordable housing.

"Most urban areas have an abundance of vacant historic buildings, and that's the resource that's most readily available if you're dealing with rehab," said Charlene Vaughn, program analyst for the Advisory Council on Historic Preservation (ACHP), an independent federal agency created by the National Historic Preservation Act of 1966. The 20-member council, which includes HUD Secretary Andrew Cuomo and Secretary of the Interior Bruce Babbitt, advises the president and Congress and, working with SHPOs, administers the government's protective system for historic properties, commonly known as Section 106 Review.

"When they're done correctly," said Richard Arnesen of Stone House Development, Inc., a for-profit developer in Madison, Wisconsin, "[Historic rehabilitation projects] make the finest affordable housing projects you can come across. The biggest advantage is that it's much more situated for mixed-income housing, if your basic premise is that mixed-income housing is a good objective. The kind of apartments created are so superior that they're attractive to people of a variety of income levels."

Arnesen said old school buildings and warehouses make good prospects for historic rehabilitation, since they tend to have attractive features such as a large number of windows and high ceilings. He added that not every historic building is going to work as housing. "Just because it's historic doesn't mean it's suitable for adaptive re-use," he noted.

Balancing Competing Goals

Rehabbing historic properties is expensive and labor intensive, said Cathy Kleinman of Charleston Affordable Housing (CAH), a nonprofit developer in Charleston, South Carolina. Kleinman, who worked for HUD under President Jimmy Carter, renovates old historic houses and builds new energy efficient infill housing that fits into historic areas.

Affordable housing developers that undertake historic rehabilitation or build in historic districts are subject to standards set by the Secretary of the Interior, along with state and local laws. To be eligible for the HRTC, a property must be, or become, either a certified historic structure listed on the National Register of Historic Places or a contributing building in an official historic district.

In addition, many historic houses require lead paint remediation and new plumbing and electrical wiring. With Charleston's late 1700s to early 1900s housing stock, every single old home has lead paint, Kleinman noted.

Kleinman said combining affordable housing and historic preservation is a financial and philosophical decision, one that requires a belief that low-income people belong in the historic preservation movement. CAH creates low-density (the highest is four units) housing north of areas in Charleston's southern section that have gentrified. For its rental units, the organization targets working poor families employed in the service economy earning between 50 and 65 percent of area median income. Altogether, the organization has developed 79 units on 28 sites, with another 14 in the works. Kleinman acknowledged that progress has been slower than she had hoped.

Nevertheless, Kleinman said her organization goes above and beyond what's required because, "We believe very strongly that if you're going to create something, you create something beautiful and of value."

According to Kleinman, creating affordable housing in historic areas has three goals:

  • Raising enough soft money – grant money and philanthropic money – to make the housing affordable. (CAH doesn't used project-based assistance other than gap financing.)
  • Community revitalization, as distinguished from community development in that it involves turning dilapidated buildings into assets.
  • Economic reinvestment in a neighborhood that saves a national treasure.
If you're only trying to meet one goal, providing affordable housing, historic preservation is not the answer, Kleinman said, because there is a premium. "There's no question that it comes with a price tag," she said. "It's definitely much easier to throw up a complex in the country."

Indeed, there is often a disconnect between the two missions, said Sharon Park of NPS. NPS tends to have more stringent requirements for renovations than HUD, she said. "But that's why we're giving a tax credit, so it's a balance."

Even some historic affordable housing projects that do not receive the HRTC must comply with historic preservation regulations. Any type of direct federal subsidy for historic housing triggers the ACHP's Section 106 Review process.

When the Housing Authority of the City of Charleston began designing infill housing in 1979 in the city's historic neighborhoods, that meant negotiating through both the Department of the Interior's and HUD's standards, along with local zoning laws. During the development process, the Charleston Authority consulted with the Historic Charleston Foundation, which gave advice and recommended a local builder, Herbert DeCosta, a former board member of the National Trust for Historic Preservation. Getting HUD approval for the plans actually proved to be the most work, according to Charleston Authority Executive Director Don Cameron. For example, HUD requirements for curbs and gutters in driveways didn't fit the character of the neighborhoods. But Cameron said HUD's technical staff was very supportive and granted all the variances the housing authority wanted.

Housing and Neighborhood Development Services (HANDS) of Orange, New Jersey, faced complications with its state historic preservation officer when it undertook rehabilitation of a 100-year-old house that had been noted in a study as contributing to the character of a block that was eligible for listing on the National Register of Historic Places. Because the project had received $25,000 in federal HOME money, HANDS was still bound by some requirements for historic rehabilitations. HANDS Executive Director Patrick Morrissy said his organization had already planned to maintain much of the original structure and took great pains to restore the front porch, but he ran into trouble on the windows. Only a handful of the house's 30 windows were originals; the rest had been replaced with wooden double-hung windows that were not replicas of the originals. Over those were aluminum storm windows and screens in disrepair. When HANDS wanted to replace all the windows with vinyl or aluminum energy-efficient windows, the law said he could either repair what was there, at considerable expense, or replace them with replicas of the originals. After beginning work on some of the windows, Morrissy said, he invited the SHPO out to take a look at how much time and money HANDS had put in, and she relented.

Morrissy noted that without the regulations, another developer might have just ripped off the front porch – the home's distinguishing feature. On the other hand, he said the requirements almost prohibited the more cost efficient, better-looking solution for the windows.

The Advisory Council on Historic Preservation (ACHP) has adopted new flexible guidelines for Section 106 Reviews that attempt to respond to this dilemma and balance affordable housing project goals with historic preservation values. Many SHPOs also have their own review procedures, and the ACHP sometimes allows state review processes to substitute for Section 106 procedures.

Not everyone involved in historic preservation and affordable housing development believes it's necessarily more expensive. Charlene Vaughn of the ACHP said that, over time, rehabilitation of older houses has been shown to be cheaper than building new. Heather Rudge, technical services manager for the Cleveland Restoration Society, said some agencies that develop affordable housing rip out all of the historic detail from an old house because they think it will be cheaper, but in many cases it's not. She said rehabbing can be less than half the cost of building new.

Most affordable housing developers shy away from historic preservation, said Bill Huang of the National Trust for Historic Preservation's (NTHP) Community Partners Program, because it's an additional level of complexity on an already complicated process. But he said nobody can make a blanket statement on whether it's more expensive. That depends on the building, and while some historic buildings are extraordinarily elaborate, he said, there's a strong argument that the tax credit offsets the expense of any additional historic preservation work.

"From a design and quality of construction perspective," he added, "you can't afford to build affordable housing at the same level. Even though I'm an architect, I finally came to the conclusion that I couldn't design buildings that were better than historic buildings."

Huang, who is based in California, worked for the Los Angeles Community Design Center, a nonprofit group that developed the Mary Andrews Clark Memorial Home, before joining the NTHP. Congress chartered NTHP in 1949 as a private, nonprofit organization dedicated to protecting historic buildings and the neighborhoods and landscapes they anchor. The organization conducts targeted demonstrations on the use of the new guidelines for Section 106 Reviews of affordable housing. NTHP's Community Partners Program promotes the use of cost-sensitive neighborhood design guidelines and creates real-estate financing mechanisms that encourage reuse of historic buildings to benefit low-income neighborhoods.

There's not as much community opposition to affordable housing that involves historic rehabilitation, Huang noted, because in such cases groups are often helping to improve what has been an eyesore and blight in the neighborhood. For example, when Huang worked for the Los Angeles Community Design Center, the organization rehabilitated a 155-unit historic building that had been vacant for years. Across the street stood an equally large but new affordable housing development. "The historic one was kind of like bringing back an old friend," he said, "and the new one was like a monstrosity."

From an environmental perspective, he added, historic preservation involves recycling. While he acknowledged that issues such as lead paint and asbestos abatement and underground storage tanks can complicate the redevelopment of historic buildings, he said much of those complications can be eliminated with good management and site investigation during predevelopment.

Using the Tax Credit

As with affordable housing development alone, historically sensitive affordable housing development is financed through a variety of means. Many states and cities have programs that support historic preservation, and NPS administers Historic Preservation Fund Grants to States and Territories. This provides partial financial support to SHPOs, which then subgrant funds for historic resource surveys; preservation plans; historic structures analyses; and, to a limited extent, for restoring properties owned by other state or local government agencies, private organizations, and individuals.

The HPTC, however, is the federal government's main program to encourage investment in historic buildings. An increasing number of projects combine the HPTC with the Low-Income Housing Tax Credit (LIHTC). The HPTC – begun in 1976, 10 years before the LIHTC – equals 20 percent of the cost of qualified rehabilitation work on certain income-producing historic buildings, including rental housing, provided that the owner spends an amount on renovation at least equal to the adjusted cost basis of the building. While the HPTC is not targeted to affordable housing only, the number of low-income units created in historic buildings using the HRTC is increasing at over 40 percent annually.

 The Notre Dame Academy in Cleveland, now being completed by the nonprofit Famicos Foundation at a total cost of $9.7 million, is the first project in the country to combine both the HPTC and the LIHTC with HUD Section 202 money, according to Heather Rudge of the Cleveland Restoration Society. The project has used additional financing from a variety of sources, including the Enterprise Foundation, the Local Initiatives Support Corporation, the Ohio Department of Development, and the City of Cleveland.

Applying for the HRTC is a three-step process, explained Huang. In part one, NPS determines eligibility for the National Register of Historic Places. Part two requires the developer to determine the scope of the rehab work and whether that still keeps the property eligible. Finally, after construction, the group must certify that the work was done according to part two. Huang said this process doesn't have to add to a project's timeline, if it is done concurrent with other development activities.

Rehabilitation of New York City's famous – at one time infamous – Times Square Hotel was already well underway when the project's LIHTC syndicator, First Financial Management Corporation based in Boston, convinced its nonprofit developer, Community Housing Development Fund Corporation, to also use the HRTC. Because Common Ground had already taken a preservation approach to the building using a preservation consultant, the group was able to navigate the approval process with only a few compromises and minor changes. Common Ground also received government and corporate funding for the 652-unit Times Square, the nation's largest SRO.

Some affordable housing projects actually use the HRTC alone, Huang noted, because unlike the LIHTC, which is competitive in many states, the HRTC is not. In addition, with the HRTC, tax credit investors can realize the tax benefits in year one. Because of this, an investor will pay more for $1 of the HRTC than the LIHTC, according to Huang.

Huang said the National Trust for Historic Preservation (NTHP) is the industry leader in syndicating the HRTC only. The NTHP's Heritage Property Investors (HPI) provides developers of historic rehab tax credit projects and historic/low-income housing tax credit projects with access to corporate equity investors, construction and permanent lending sources, and equity bridge financing. In addition, NTHP's Inner-City Ventures Fund provides low-interest loans on flexible terms for projects that reuse historic properties for affordable housing, community facilities, and retail and office space in low- and mixed-income neighborhoods. Nonprofit organizations, public agencies, and community groups are the main beneficiaries of these programs.

Getting Started

Affordable housing developers wanting to get involved in historic preservation might want to find a consultant who specializes in the field, Huang said. Nonprofit developers sometimes use two consultants, one who can help get the property on the National Register, and a syndication consultant who can value the tax credit and market it to investors.

Sharon Park of NPS recommended that organizations wanting to develop historic housing contact their SHPOs, located in the capital of every state, to learn of any requirement particular to their state. Many cities also have historic preservation departments.

Partnering with local preservation groups can also be useful for nonprofit housing developers inexperienced with historic preservation. The Cleveland Restoration Society is working with the Cleveland Neighborhood Development Corporation, an umbrella group of CDCs, to train CDC personnel and building contractors in historic rehabilitation. And NTHP's Community Partners Program creates partnerships between community development and "traditional" historic preservation groups at the national, state, and local levels to promote historic preservation as a tool for revitalizing historic urban neighborhoods, particularly African-American communities.

Heather Rudge of the Cleveland Restoration Society said her organization has also been advocating for the Historic Homeownership Assistance Act now pending in Congress as S. 664, sponsored by Senator John Chafee (R-RI), and H.R. 1172, sponsored by Representative E. Clay Shaw, Jr. (R-FL). The act would create a 20 percent federal income tax credit toward rehabilitation of housing stock with the goals of historic preservation, community revitalization, and homeownership.

The HHAA could also increase CDC involvement in historic preservation. "That would do more for neighborhoods on the edge and first ring suburbs, even small towns in Middle America," Rudge said. "It would bring people back to cities and towns and create private investment. It's a huge homeownership opportunity for people who right now can't afford to buy a house."

Copyright 1999

Contact:

  • National Park Service, Heritage Preservation Services, 1849 C St., NW, Washington, DC 20240; 202-343-9578; www2.cr.nps.gov.
  • National Conference of State Historic Preservation Officers, 444 N. Capital St., NW, Suite 342, Washington, DC, 20001-1512; 202-624-5465; www.ncshpo.org.
  • Advisory Council on Historic Preservation, 1100 Pennsylvania Ave., NW, Suite 809, Washington, DC 20004; 202-606-8503/8505; www.achp.gov.
  • National Trust for Historic Preservation, Community Partners Program, 1785 Massachusetts Ave, NW, Washington, DC 20036; 202-588-6000; www.nationaltrust.org.