The Fallout from Federal Low‐Income Housing Preservation Programs: A Case Study in Estimating Damages

Abstract

In 1987, Congress passed the Emergency Low‐Income Housing Preservation Act (ELIHPA) to prevent owners of low‐income housing projects from converting their properties to market rents as allowed under the owners’ original government‐insured mortgage contracts. Three years later, ELIHPA was replaced by the Low‐Income Housing Preservation and Resident Homeownership Act (LIHPRHA), which imposed permanent restrictions on property owners’ rights to prepay their mortgages. The compensation to owners under ELIHPA and LIHPRHA did not cover their losses during the prepayment freeze and led to a series of lawsuits.

This article presents the methodology for evaluating owners’ losses that was accepted by the U.S. Court of Federal Claims. If the court's decision is ultimately sustained on appeal, American taxpayers may face a damage bill on the order of $500 million or more. The real long‐term damage, however, lies in how the private sector will react to future attempts by the government to produce low‐income housing.

Keywords:

• Low‐income housing
• Preservation
• Federal