Nearly a decade ago, DC passed a law that was meant to preserve affordable housing that slipped through the cracks of perhaps the city’s best known tenant protection legislation, TOPA (Tenant Opportunity to Purchase Act). That law has never been used due to its lack of implementation regulations, but officials are looking to change that soon.
When a landlord sells a residential apartment building in DC, the city’s TOPA law allows tenants to refuse the sale and to purchase the building instead (often by partnering with a developer). If tenants do not act, or cannot secure financing, the initial sale goes forward.
In 2008 the DC council passed the District Opportunity to Purchase Act, or DOPA. It was designed as a safety net for TOPA. If tenants could not make TOPA work, the city could refuse the sale and preserve the building as affordable housing. In other words, if the tenants’ attempt (TOPA) fails, the District (DOPA) would step in and act like a tenant association would: strike a bargain with a developer and preserve some affordable homes.
The problem is that DOPA has never been used because it lacks regulations for implementation. City officials are now in the process of writing these regulations.
Why DOPA is Important
The District has made it easier for tenants to use TOPA by funding nonprofits who help tenants navigate the process and deal with technical issues, but tenants still face challenges.
Perhaps the biggest hurdle is financing. Most tenants’ associations do not have access to credit, so they have to partner with a developer to purchase their properties. Some developers promise more than they can deliver. Others fail to complete deals because of market forces beyond their control. Whatever the cause, some tenants cannot get financing in place in the allotted time and are unable to complete the purchase.
Tenant infighting can also create challenges. In mixed income buildings, for example, tenants often cannot agree what to do with their building post-purchase. Wealthier tenants may prefer condo conversion while moderate-income ones would rather remain rental. Meanwhile, short-termers may be most interested in the size of potential buyouts. When tenants cannot reach a consensus, they usually do not invoke their TOPA rights.
One of the primary purposes of TOPA is to allow tenants to negotiate to keep their homes more affordable, so when TOPA fails the city could lose those affordable homes. This was why DOPA was conceived of in the first place, as a way to intervene and preserve affordable homes in failed TOPA deals.
What will DOPA look like in practice?
Currently the District’s Department of Housing and Community Development (DHCD) and tenant advocates are talking about what DOPA implementation regulations should look like. Although the statute offers some guidelines — for example, TOPA rights supersede DOPA rights — numerous questions remain. In particular, city officials need to decide when it should invoke its DOPA rights and how it should do so.
Most tenant advocates believe the District should register its interest as soon as a sale is contracted. Registering interest is a formal process that temporarily stops a contracted sale from proceeding while the District weights its options (tenants do the same thing in the TOPA process). Since TOPA rights are senior to DOPA rights, even if the city expresses an interest in a property before the tenants do, DOPA rights would only kick in if tenants fail to act.
If the District ends up exercising DOPA, it basically would do what the tenants’ association failed to do. First the District would issue an RFP (request for proposals) to developers that are willing to meet affordability criteria and are in good standing with the District. Developers could also apply for pre-approval to ensure a timely process occurs.
The District would then choose the best developer, who would then purchase the building, make necessary repairs and cosmetic improvements, and manage it under the agreed-upon affordability criteria.
The regulations for all of this are pending soon, but most tenant advocates believe the District should use its expression of interests broadly, meaning that it registers its DOPA rights early and often when apartment buildings go up for sale. But they also believe the city should buy the building (or in TOPA/DOPA parlance, “refuse a sale” since it blocks the original private sale) more sparingly, meaning they actually go through with the whole process only on more focused and strategic properties that meet certain criteria.
Although this approach, or something like it, is likely to go forward, DOPA could be used in other ways. Let’s look at two.
1) The District could become the landlord
In this approach, the District would use DOPA to actually purchase buildings outright, rather than partnering with a developer. This would require using the District’s Housing Production Trust Fund or another source of funding, and then a district agency would manage the homes as affordable rentals.
While government-owned housing has seen a big decline in the US, other cities (such as Vienna) have managed social housing programs with great success. Having a permanent supply of public housing is especially important in the current context. The stock of privately owned affordable rental housing in the city is in steep decline. Between 2002 and 2015 alone, the DC Fiscal Policy Institute estimates that the city lost nearly 50 percent of its affordable housing units.
Most cities in the US are reluctant to build or buy more public housing. It’s expensive to buy older buildings that have been subjected to decades of disinvestment. Most buildings would require extensive repairs just to bring them up to code, never mind the cost of modernizing heating and cooling systems, windows, and entry systems. Maintaining older buildings also tends to costs more than rent receipts and reserves allow, making upkeep difficult.
Public housing does not have to be a failure though. Both Hong Kong and Singapore have built and continue to build affordable housing. Edward Goertz’ recent book on housing policy in the US — New Deal Ruins — also demonstrates that public housing’s failures in the US have as much to do with how public housing provision was managed (he uses the term straitjacketed) than with something inherent to public housing.
None of this means the District should buy all of the buildings available to it through a DOPA process, but it does mean that the city could target some buildings to purchase, refurbish, and manage as low income rentals. It could also select building across the city, helping to spread out the city’s affordable housing stock. Selective purchases could also create more low-income units since the District could select a higher than average number of units to make affordable. The District could also choose to keep the units affordable in perpetuity (currently, most buildings funded through HPTF are time-limited for affordability).
2) The District could buy buildings, then re-sell them with permanent rules for affordability
Joe Sternleib, CEO of the Georgetown BID and participant in the city’s 2016 Housing Preservation Strike Force, proposes a different use of DOPA. He told the Washington City Paper, “It costs hundreds of thousands of dollars in subsidy per unit in some neighborhoods to build new affordable units.” Rather than building new units, he suggests, the city could use DOPA to purchase existing lower-cost buildings that go up for sale, place covenants on some of the units to keep them affordable, then put the buildings back on the market.
It would be up to the District to select what percentage of units to covenant and at what income levels. The rates in covenants used today vary widely — anywhere between 30 percent and 120 percent of Area Median Income (AMI) — depending on the affordability program used.
The affordable housing stock owned or funded by the District is already subject to affordable housing covenants. The main difference here would be that the city would use the DOPA process to place covenants on already existing buildings it neither owns nor intends to fund through the HPTF.
This model raises a significant question, though, about who should be first in line, tenants or the District (the current DOPA statute puts TOPA rights first). Sternlieb’s initial suggestion was to make the District first in line rather than tenants so that it could immediately place the affordability requirements on a percentage of units.
However, tenants and tenant advocates are not likely to support this approach, precisely because it would erode TOPA rights. TOPA offers tenants a form of empowerment they rarely get in other cities — the chance to negotiate to stay put in a fast gentrifying city as renters (or as homeowners, if they negotiate to turn the their building into affordable condos). This approach would also make it harder for tenants to use TOPA to convert their buildings to condo or co-op since many creditors will not finance condo/co-op developments with permanent rentals.
When queried about tenant concerns, Sternlieb offered a modified version of his idea in which TOPA rights would come first with a caveat. Tenants would get first crack at buying their building if that means staying put and agreeing to keep a significant percentage of units affordable long-term. However, if tenants wanted to negotiate with a developer for buyouts and/or voluntary agreements (meaning that that the tenant gets a sum of money to relinquish their rights to the unit), the District would have the option to step in first. The District would only use its veto for buildings with high numbers of low income residents.
As he explained, “The primary objective is the preservation of affordable housing. If neither the tenants nor the District are willing to make the commitment to preserve the affordable housing, then you can allow the tenants to buy out, but not until the District has had the opportunity to preserve the affordable housing. I really feel strongly that if you have a public policy designed to promote affordable housing, that should be the highest value in the hierarchy of values.”
Neither this approach nor the District-as-landlord approach are likely to be written into the upcoming regulations, but it is useful to consider alternatives as we wait for a the first real rules and use for DOPA. TOPA is a powerful tool for empowering tenants and preserving affordability. Adding a functioning and flexible DOPA to the mix will only reinforce these benefits.