A Decade Late, $36M Short: the perpetual struggle of Lexington’s Affordable Housing Fund

LEXINGTON, KY — On Thursday, Lexington’s City Council unanimously approved Mayor Linda Gorton’s proposed allocation of $2 million to the Affordable Housing Fund for FY24, triggering a wave of discontent among housing advocates who assert that this figure falls substantially short of what’s required to combat the city’s escalating affordable housing crisis.

This crisis is by no means a newfound predicament; in 2014, an alarming report highlighted the plight of low-income households in Lexington. The report elucidated that catching up to the affordability gap would necessitate an investment of approximately $36 million per year, factoring in a subsidy of $6,000 per household annually.

Nine years later, the situation has grown progressively worse.

In March 2023, the Lexington Herald-Leader published an article by Beth Musgrave indicating the city’s willingness to double the affordable housing funds. However, Thursday’s resolution of a $2 million allocation sharply contrasts with the urgency portrayed previously. This meager sum is a far cry from the recommendations of the 2014 report, which highlighted the necessity for increased financial resources and an efficient housing system.

Analyzing the Financial Gap

The 2014 report recommended an annual investment of $36 million to bridge the affordability gap in Lexington. Let’s break this down and update it for the current situation.

From 2014 to 2023, the city allocated significantly less than $36 million annually to the Affordable Housing Fund. Furthermore, it is vital to account for inflation, which erodes the value of money over time. Taking only inflation into consideration, a Lexington Times analysis determined that the present value of the recommended $36 million in 2014 would now be approximately $40.8 million annually.

With a growing annual need of $40.8 million and an actual annual allocation of $2 million, the current annual shortfall is about $38.8 million. When coupled with the compounding shortfall over the past nine years, the funding needed to effectively combat Lexington’s housing crisis is staggeringly high.

An underlying question remains: has the City Council taken into consideration the ramifications of the 2014 report? Notably, the report emphasized that Lexington employers pay low wages, resulting in a wage-housing cost gap. Essentially, the city’s affordability problems stem from a “private gain at public expense” model. The strain is felt by the entire community through higher taxes, with the cost of housing subsidies significantly exceeding the wages paid to the households in need.

Councilmember James Brown. Photo by Amy Wallot

Councilman James Brown has been vocal about the need for allocation of more resources to the Affordable Housing Fund, especially considering the rising building costs. Since its inception, the fund has helped create or preserve over 3,000 affordable housing units. However, in light of the current housing climate and the insights provided in the 2014 report, advocates argue that this is just the tip of the iceberg.

BUILD, an inter-denomination group instrumental in pushing for the creation of the affordable housing fund, has also advocated for dedicated funding sources. The group has been consistent in pressing for more affordable housing for over a decade and recently asked council to allocate $10 million per year to the Affordable Housing Fund.

Critics argue that the allocation of $2 million is more symbolic than substantive, given the scale of the challenge at hand. Moreover, there are concerns regarding accountability and the efficient use of funds. Councilman Fred Brown has called for an audit of the fund to ascertain how the money has been used thus far.

The city’s stagnant progress in bridging the wage-housing cost gap, coupled with the Council’s latest decision, has left many questioning whether the plight of low-income households is being duly acknowledged.

As the situation continues to spiral, housing advocates implore the Council to reconsider its approach and align its actions with the magnitude of the affordable housing crisis – a crisis that has only intensified since it was first highlighted nine years ago.

Capital A Affordable Housing: A Double-Edged Sword

A notable aspect of the Affordable Housing Fund in Lexington is that it operates on what experts refer to as the “Capital A” Affordable Housing model. Under this model, private developers receive subsidies to develop affordable housing units. In exchange, these units must be rented at below-market rates for a predetermined number of years. Once this period expires, developers are free to reset the rents to market rates, often reaping substantial profits in the process.

While this model has been instrumental in the creation of affordable housing units in the short term, critics argue that it isn’t a sustainable long-term solution. By allowing the units to revert to market rates after a certain period, this model can inadvertently contribute to the scarcity of affordable housing in the long run. Additionally, this puts the onus back on the government to constantly find new funding sources and engage in further partnerships with developers to replace the units that are no longer affordable.

Given these concerns, it’s worth examining outside-the-box solutions that other cities around the world have employed to tackle their housing crises.

Learning from Vienna: A Holistic Approach to Affordable Housing

The city of Vienna employs a multifaceted strategy that includes extensive public housing. (Wikimedia Commons, CC BY-SA 4.0)

Vienna, the capital city of Austria, is often lauded for its innovative and sustainable approach to affordable housing. Unlike the Capital A Affordable Housing model, Vienna emphasizes long-term affordability and focuses on creating an extensive array of high-quality, socially mixed housing stock that remains affordable indefinitely.

The city of Vienna employs a multifaceted strategy that includes extensive public housing, housing associations, and limited-profit housing companies. A significant percentage of the city’s residents live in housing owned, built, or managed by the municipality or by non-profit cooperatives. This model has been key to ensuring a sustainable stock of affordable housing that caters to diverse income groups.

One of the cornerstones of Vienna’s housing policy is the Gemeindebau, or municipal building. The city owns an extensive portfolio of housing units, and rents are controlled to ensure affordability for residents over the long term. Additionally, Vienna has made a conscious effort to ensure that public housing is of high quality and well-integrated into the urban fabric, avoiding the stigmatization often associated with public housing in other cities.

Applying Global Solutions to Lexington

As Lexington grapples with its affordable housing crisis, there is much to be learned from the holistic and sustainable approach adopted by Vienna. By shifting focus from short-term affordability solutions that primarily benefit private developers to long-term strategies that prioritize the well-being of residents, Lexington could pave the way for a more inclusive and sustainable housing model.

This would entail considering various non-market housing solutions, such as increasing the stock of municipally-owned housing, engaging with non-profit housing cooperatives, and implementing stricter long-term affordability requirements for developers who receive subsidies.

In addition to looking at global examples like Vienna, local leaders such as Lexington Vice Mayor Dan Wu are exploring other American cities for innovative solutions to the housing crisis. During a recent Commerce Lexington-organized trip to Grand Rapids, Michigan, Wu highlighted the need for “bigger, bolder, out-of-the-box solutions” to tackle the pressing housing challenges.

The problems of housing availability are so big now is that we can’t tackle it with small incremental ideas anymore. That we really have to try to go big with the solutions … You can’t completely subsidize your way into a solution.

Vice Mayor Dan Wu to WEKU’s Stu Johnson
Vice Mayor Dan Wu Dec. 20, 2022 Photo by Amy Wallot

Wu also told WEKU’s Stu Johnson that he was particularly impressed by Grand Rapids’ ‘developer day,’ where city officials engage with commercial and residential developers through a guided bus tour to explore potential development sites. This approach fosters a dialogue between the city and developers and aligns availability, need, and development efforts. Wu’s recognition of the need for substantial, innovative approaches is in tune with the sentiment that Lexington may benefit from incorporating diverse and sustainable models akin to what is seen internationally in places like Vienna.

As the demand for affordable housing continues to rise, it is imperative for cities like Lexington to explore innovative solutions that address the core issues of affordability and sustainability. By looking beyond its borders for inspiration, Lexington has the opportunity to reshape its housing landscape for the benefit of all its residents.

Top photo: Adobe Stock