Austin helped buy cheap apartments with the intent of keeping prices low. Instead, rents went up.

From KUT:

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In the parking lot of a two-story apartment building in Central Austin last month, former and current politicians came together to celebrate something increasingly rare in this city: low rents.

The city, along with a real estate investment fund, had bought seven apartment complexes in some of Austin’s priciest neighborhoods. They planned to save these old, cheap homes from the threat of redevelopment or demolition.

“The challenge of affordability requires us to be dedicated, focused and relentless,” former Mayor Steve Adler said at the gathering on that humid October morning. He addressed about three dozen former colleagues, staff members and activists, who nibbled on pastries and sipped hot coffee from disposable cups. “But it also requires us to be clever and to be smart because the challenge is so great.”

In the apartments the city purchased are old appliances, shag carpet, wood paneling, popcorn ceilings. But with lackluster interiors comes cheap rent. It’s a compromise renters understand intimately. Put up with delayed maintenance and shabby interiors in exchange for paying less than your neighbors. By buying up these properties, the city and its partner would keep bargain rents down and help low-wage workers stay in Austin.

That fall day was a chance to memorialize this achievement. Wearing a suit, Adler tugged on a rope attached to a tarp hanging across the front of the Hyde Park apartment building. It came swirling to the ground to reveal his own name, now affixed to the side of the building: The Adler.

Months earlier, a city staffer summed up what Adler and others hoped to achieve by buying these properties.

“No one will be displaced,” James May, who works for Austin’s housing department, told community members at a meeting in July. “We are not going to raise their rent … and we are not going to make them leave.”

But the reality is quite different. At each of the apartment buildings the city and its partner purchased, residents confirmed rent went up as much as 25%, and they now owe additional fees. While tenants received notice of higher rents from the previous owner, it happened just weeks before the city and its partner finalized the purchase of the buildings. One source said the buyers told former owners to raise the rent.

Some tenants moved because they could not afford these higher costs.

Rent goes up

Amy Taylor learned that the city and Austin Housing Conservancy, a real estate investment fund focused on preserving cheap housing, now owned her Hyde Park apartment when a reporter told her.

“Wouldn’t you like to know that your apartments were bought by the city?” Taylor, who works as a hairdresser, said. “I didn’t even know that was something the city does.”

Taylor is right to be confused. The City of Austin isn’t often a landlord. But in the wake of incredible rent raises over the past decade, the city has reasoned it could do better than private owners. It could own property with the intent of keeping rent affordable rather than making a large profit.

In 2018, Austin voters overwhelmingly approved a $250 million bond for affordable housing. The city set aside nearly half of that money to buy property, much of it vacant land, to build affordable housing. But the city also decided to use a portion to buy existing homes, properties that have remained relatively cheap, mostly because the buildings are old and in need of maintenance.

Taylor has lived in a one-bedroom apartment on Avenue A for two years. She can’t rely on the water being hot. Some of her windows don’t lock. The wood paneling that covers her walls is chipped close to the carpet and gets lodged in the vacuum when she cleans. But until this summer, Taylor’s rent was just under $1,000 a month.

In late May, Taylor got a letter that said the two-story apartment complex she lives in had a new property manager and a new owner, Hyde Park Housing LP. The company was set up by the city to buy these properties, although the letter did not state that.

After months of negotiating, and several false starts, the city and Austin Housing Conservancy bought a group of apartment buildings from Central Properties, a local, family-run real estate company. The more than 200 apartments cost $35 million, roughly $15 million of which came from the city. The city plans to own these properties for decades and set rents so that apartments remain affordable for people earning roughly $65,000 a year. If they earn less, they would owe less.

Taylor also got notice that her rent was going up from $995 a month to $1,160. She would also owe $12 a month for pest control and $15 for trash collection, fees she’d never had to pay before. It was a lot for someone earning about $40,000 a year.

Taylor considered looking for cheaper rent, but realized even with the raise she was still paying less than most people. The average rent in Austin is about $1,600 a month.

“I have to pay it. I have no choice,” Taylor said. Doing so has been hard. When asked how much of her monthly income goes to rent, Taylor shuddered. “I’m just OK with giving up 50% of my paycheck [for rent]? That sucks.”

It’s not clear who initiated the rent increase on Taylor and her neighbors. Copies of letters shared with KUT show that tenants received notice of higher rents while Central Properties still owned the buildings, but just weeks before the city and the real estate fund closed the deal.

The increases appear to have been a condition of the sale. In a section of a written agreement shared with KUT, Central Properties was required to have the city and the real estate investment fund sign off on any new leases or rent renewals before the purchase was final.

David Steinwedell, CEO of Austin Housing Conservancy, said he did not realize how low the rent was at these properties when they began negotiating the deal. A private equity fund, Austin Housing Conservancy has invested in about 2,000 apartments across the city, where the majority of rents are kept affordable for people earning less than the typical Austin income. Renters’ incomes are checked to ensure rent is less than a third of what they earn.

“We expected to have higher rents in place than actually were being collected from the residents,” Steinwedell said. “I think there’s sometimes an assumption that if there’s an affordable property that the rents never increase. Unfortunately, that’s not the case.”

He said his organization told Central Properties it had to increase its operating income so the city and the fund could make the deal work financially. When asked several times whether Central Properties was told to raise rent, Steinwedell did not answer directly.

“There were a variety of issues that we were asking them to address and how they addressed them was kind of their choice,” he said. “That’s where we needed to be in order to close the deal. They then had to come up with a solution.”

That solution appears to have been raising the rent.

KUT tried to contact the former owners by phone, e-mail and mail. One former owner, Lori Bausman, picked up the phone but would not answer any questions. KUT also filed public information requests with the city, asking for copies of documents and communications related to these sales, but the city said there were no related documents it could release.

A former Central Properties manager, Debbie Reese, told KUT the city and the real estate fund wanted Central Properties to raise rents and start charging monthly fees at two of the apartment complexes while they were still negotiating the sale.

“The city was wanting us to raise the rents and to start charging for utilities and trash pick-up and pet fees,” said Reese, who left Central Properties a couple months before the sale was finalized. “Which didn’t make any sense to me because they said they were [creating] affordable housing.”

The City of Austin did not make anyone available for an interview. “The City of Austin did not instruct Central Properties or Affordable Central Texas [the nonprofit that oversees the real estate investment fund] to raise rents,” Mandy DeMayo, deputy director of Austin’s housing department said by email.

People displaced

Patrick Polk has lived in the same studio apartment in Hyde Park for two decades. His space is small — just 400 square feet. But he’s managed to fit a drum set, desk and couch.

Several months ago, Polk got notice that his rent was going up from $895 a month to $1,120 a month, plus fees.

“In the 23 years I’ve lived here, rent has never jumped up the way it did,” he said. “It went up in increments of no more than $50 from year to year, and sometimes it didn’t go up at all. So this was certainly a surprise.”

Polk earns $39,000 a year as a hospital technician. He now spends nearly half his monthly income on rent. But he never seriously considered moving.

“Where is it going to be … cheaper? Nowhere. Not here in Austin,” he said.

Steinwedell said about 10% of the apartments bought by the city and his fund are currently vacant. He acknowledged that people left after rent went up, and the new owners have struggled to relet some of these apartments.

Polk said he watched at least a dozen neighbors move out this summer. As they packed up their apartments, he asked where they were headed. Some said they were moving in with a roommate, a girlfriend, a son. All said they were leaving because the rent went up.

“All of them that I spoke with were moving in with somebody and moving away from the Central Austin area,” Polk said. “South Austin, Round Rock, Pflugerville.”

At a property just a block away from Polk’s, other tenants left once the rent was raised. That includes Louise. (KUT agreed to use her middle name only because she is afraid of retribution from the city and Austin Housing Conservancy.) A research assistant at Dell Medical School, Louise was paying $995 a month for a studio apartment off West 40th Street.

In April, a month before the city and the real estate fund finalized the purchase, she received notice that if she wanted to renew her lease in August she would have to pay more in rent. She would now owe $1,075 a month, plus fees.

“I was like, ‘Oh, cool. Another friggin’ real estate company coming in and buying up properties and raising rent. Classic,’” Louise said. Like most of the tenants KUT spoke with, she had no idea who bought the properties.

Steinwedell said residents should have been informed of the new owners. They also should have been told, he said, about plans for the properties. To ensure these units are affordable for people earning low incomes, the city and the real estate fund will limit rents to a third of tenants’ incomes, per federal housing guidelines. Both Polk and Taylor are paying more than their current incomes dictate they should.

Louise initially thought she could handle the new rent with her $42,000 salary, so she signed the lease renewal. But a month later, she realized she couldn’t afford it. She found a cheaper apartment with a roommate in South Austin and decided to break her lease.

Louise admits she made a rash decision. But she figured it would be easy to find someone to take her place. The rent was still relatively cheap and Hyde Park is a coveted neighborhood, close to UT, restaurants and bars. But the rental market in Austin looks very different than it has in the past decade. Rent prices are down. Apartments are staying empty for longer.

Months after Louise moved out, no one has taken her old apartment. Louise has been paying rent on two places. She’s been using money from her savings, which she says will be drained by early next year.

“I’ve had to do a lot of research into what would happen if I can’t pay,” Louise said. She could be sued or hounded by debt collectors. “It becomes difficult to concentrate on work because I’m always worried about not having enough money. I’ve actually started eating less because I want to save money.”

She may have caught a break. Last week, the management company told her it had an application pending for the apartment and took down the online listing. Before it did, the listing showed a bird’s eye view of her 400-square foot home with a new monthly rent of $999, less than what she agreed to pay this summer.

A sign hangs from the building: “New management, new ownership, new day.”

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