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PEOPLE SOLVING GOVERNMENTS' CHALLENGES

Summary for Affordable Housing Solutions


PURPOSE

Intended Audience:

  1. Policy makers
  2. Advocacy groups
  3. Concerned citizens
  4. Change agents

Intended Outcomes:


Scope of the Problem:

Affordability of housing refers to the amount of capital one has available in relation to the price of the goods to be obtained. Public policies are informed by underlying assumptions about the nature of housing itself. Is housing a basic need, a right, an entitlement, or a public good? Or is just another household-level consumer choice, a commodity or an investment within the free market system? Housing Policies provide a remarkable litmus test for the values of politicians at every level of office and of the varied communities that influence them.[1]

In the US, families who pay more than 30 percent of their income for housing are considered cost burdened and may have difficulty affording necessities such as food, clothing, transportation and medical care. An estimated 12 million renter and homeowner households in the US now pay more than 50 percent of their annual incomes for housing. A family with one full-time worker earning the minimum wage cannot afford the local fair-market rent for a two-bedroom apartment anywhere in the United States.[2]

Assessment of Housing Vulnerability/Needs:

By Demographic:

  1. Age – seniors
  2. Capacity – disables, mentally handicapped
  3. Household Type – single-parent families
  4. Profession –

By Location:

  1. Country
  2. State/Province
  3. City
  4. Locality/Neighborhood

Importance of Affordable Housing

  1. Integration/alignment of affordable housing with other social needs, including:
  2. Health outcomes (e.g., root causes of health linked to stable housing)
  3. Education outcomes (e.g., supportive housing with education resources)
  4. Climate change (e.g., energy efficiency investments to lower utility bills for renters)
  5. Transportation (e.g., affordability of housing + transit as opposed to just affordability of housing)
  6. For more information: Panel discussion by foundations, think tanks, housing funds, and developers: https://www.youtube.com/watch?v=bv0o0-TVegY (discussion begins around 11:30 min mark)
  7. Public costs to support families that can afford other basic needs (eg food, healthcare, etc)
  8. Improve quality of life, strengthen communities
  9. Reduce Homelessness

Opposing Viewpoints:

  1. Market Distortion – More cost effective to just directly subsidize renters than to funnel public money to developers to build non-market rate units (which is easier sell / to stomach)
  2.  

ALTERNATIVE SOLUTIONS TO ADDRESS GAPS

*See Excel matrix of alternatives

  1. Grants: [see additional information on range of government grant programs]
  2. Low Income Housing Tax Credits (LIHTC): Low-income tenants can be charged a maximum rent of 30% of the maximum eligible income, which is 60% of the area's median income adjusted for household size as determined by HUD. There are no limits on the rents that can be charged to tenants who are not low income but live in the same project.[3]
  3. Social Impact Bonds: Contracts between government, service providers, an intermediary, and one or more investors – such as philanthropy. The premise is that, in instances where a social problem is both deeply entrenched and expensive to address, the government can save taxpayer dollars by having an investor finance a social service that is typically paid for by the government. If the service is effectively rendered and the problem is remediated, the investor receives a financial return and the government saves the funds that would have otherwise been spent on the service.[4]
  4. Tax Abatements: A tax abatement is a temporary reduction or elimination of property taxes and can be used to incentivize development.
  5. Inclusionary Zoning: Municipal and county planning ordinances that require a given share of new construction to be affordable by people with low to moderate incomes.[5]
  6. Co-Living / Shared Housing: A market rate solution whereby renters share apartments or homes, benefitting from lower rents per person and increased socialization. Example: We Live
  7. Housing Cooperatives: The cooperative form can be advantageous as a building mortgage can be carried by the cooperative corporation, leaving less financing to be obtained by each co-op owner. Under condominium ownership only the separate condo owners provide financing[6]0

PROCESS TO IMPROVE HOUSING AFFORDABILITY

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1. Assess Needs in Local Community / Define the Scope of the Problem

  • For each jurisdiction, what are the affordable housing needs, what solutions have been implemented, what is working, what is not working, how locality is trying to improve.
  • Who are the key players that understand and are working on affordable housing issues in the jurisdiction.

2. Understand Solutions Used Elsewhere

See Globe Solutions .

3. Determine Way Forward to Improve Housing Affordability.

Decision Matrices for Various Stakeholders to Maximize Benefit

  • Decision Matrix for Policy Makers
  • Decision Matrix for Developers
  • Decision Matrix for Residents (own/rent, location, vouchers, counseling, eligibility, etc)

Questions matrices will answer:

  • Where has it been done, what has worked or not worked, who to contact, etc.

4. Execute Solutions

  • Engage with local stakeholders
  • Advocate for policy changes
  • Implement policy changes
  • Assemble financing
  • Develop units

Where to get the money to pay for affordable housing solutions:

  1. Federal - Reduce mortgage interest deduction (subsidy) that disproportionately benefits households with high household income
  2. State/Local - Increase property taxes on homeowners in the area, who will benefit from affordable housing because… (eg lowers the tax burden of other programs)
  3. State/Local - Economic development to increase tax base (growing the pie or drawing economic generators away from other districts)

Stakeholders:

  1. Federal public sector actors
    1. HUD
    2. FHA
  2. State public sector actors
  3. Local public sector actors
    1. Office of Planning
    2. Public Housing Agency
  4. Non-profit developers
    1. Enterprise Community Partners
    2.  
  5. For-profit developers
    1.  
  6. Think Tanks and Foundations
    1.  
  7. Property Owners / Managers

5. Assess Outcomes and Share Best Practices

  • Affordable Housing Scorecards
  • Information exchange (between governments at federal/state/local level in the US and abroad)   

RESOURCES FOR THOSE IN NEED OF AFFORDABLE HOUSING:

Housing Assistance resources from HUD[7]:


U.S. GOVERNMENT PROGRAMS

HUD Affordable Housing Programs: https://www.hudexchange.info/affordable-housing/

o   HOME: HOME Investment Partnerships Program

o   HOPWA: Housing Opportunities for Persons With AIDS Program

o   HTF: Housing Trust Fund

o   NSP: Neighborhood Stabilization Program

o   RAD: Rental Assistance Demonstration

o   Rural Capacity Building for Community Development and Affordable Housing Program

o   Section 236 Preservation

o   Section 4 Capacity Building for Community Development and Affordable Housing Program

o   SHOP: Self-Help Homeownership Program

HUD Community Development Programs: https://www.hudexchange.info/community-development/

a.     ARC: Appalachian Regional Commission

b.     BEDI: Brownfields Economic Development Initiative

c.      CDBG-DR:Community Development Block Grant Disaster Recovery Program

d.     CDBG Entitlement Program

e.     CDBG HUD Administered Non-Entitled Counties in Hawaii Program

f.       CDBG Insular Areas Program

g.     CDBG State Program

h.     State CDBG Colonias Set-Aside

i.       NSP: Neighborhood Stabilization Program

j.       Section 108: Section 108 Loan Guarantee Program

HUD Community Development Block Grant Program. Overview videos: https://www.hudexchange.info/community-development/cdbg-ta-products/

  • Must benefit populations where over half of residents are in low to moderate income brackets (<80% AMI), or create/retain jobs for low to mod income employees
  • Prevent and eliminate slums and blight
  • 26 activities grouped in 7 categories: acquisition, econ dev, admin and planning, housing, public improvements, public services, repayments of section 108 loans

OTHER INFORMATION SOURCES

Washington Regional Association of Grantmakers - Housing Resources:

The Greater Washington Region's Future Housing Needs: 2023, a report by the Center for Regional Analysis, George Mason University

Bending the Cost Curve: Solutions to Expand the Supply of Affordable Rentals, a report by the Urban Land Institute, Terwilliger Center for Housing, and Enterprise

Housing and Health: New Opportunities for Dialogue and Action, a National Center for Healthy Housing paper documenting the many ways in which housing affects health 

Housing Security in the Washington Region, a report from the Community Foundation for the National Capital Region, with support from The Morris and Gwendolyn Cafritz Foundation

Multifamily Housing in the Washington, DC Region: Demand and Supply Trends, a report by the Center for Regional Analysis, George Mason University

Place + Opportunity: Strategies for Creating Great Communities and a Stronger Region, a report of the Metropolitan Washington Council of Governments

Unfulfilled Promises: Affordable Housing in Metropolitan Washington, a report of the The Washington Lawyers' Committee for Civil Rights and Urban Affairs

External Organizations:

Bridges to Opportunity, housing strategy for the District of Columbia

Center for Regional Analysis, George Mason University

National Housing Conference / Center for Housing Policy

National Low Income Housing Coalition

The Urban Institute

Urban Land Institute

U.S. Department of Housing and Urban Development

Other Resources:

  • Community Access Center. ―Housing Registry.‖ April 22, 2008.
  • National Housing Trust. ―Data Clearing House: Subsidized Housing Data.
  • National Housing Trust Fund. ―A Home is the Foundation: Why the National Housing Trust Fund Primarily Targets the Lowest Income Renters (2007).
  • National Low Income Housing Coalition. ―2008 Advocates’ Guide to Housing & Community Development Policy.

Tax-Exempt Bonds and Low-income Housing Tax Credits (LIHTC)

Overview - Tax exempt bonds and 4% LIHTC:

When 50 % or more of the project’s eligible costs are financed with tax-exempt private activity bonds, project developers can receive 4 percent LIHTCs. These tax credits, awarded to developers in a noncompetitive application process, are designed to provide a 30 percent subsidy that is applied to the acquisition of existing buildings and to federally subsidized new construction or rehabilitation.

Tax-exempts bonds are debt obligations issued by state or local government agencies for multifamily rental housing, infrastructure improvements and other qualified municipal endeavors having a public purpose. The IRS Code (Section 103) allows the purchasers of the bonds to deduct the interest income from the bonds from their federal gross income taxes.[8]

In addition to threshold requirements for bonds, the use of Low-income Housing Tax Credits has its own conditions, including: Rents must be affordable to persons under 60% of the area median (not an issue for supportive housing); apartments must be self-contained (have their own kitchen and bath); and housing must remain affordable for at least 15 years.

Advantages:

  • The interest rate on tax exempt bonds is lower than conventional bank financing (typically by about 2%), and these savings can promote housing affordability.
  • Tax-exempt bonds provide “as-of-right” (non-competitive) 4% Low income Housing Tax Credits for housing projects that meet certain requirements, whereas 9% LIHTCs are competitive and limited by the state’s allocation. This results in 4% LIHTCs being more reliable, which is very important for the planning of supportive housing production pipeline and the associated public cost.
  • They don’t count against 9% state (or city) allocations and therefore extend the 9% credits for affordable housing.
  • The amount of tax credits per project is not capped, whereas 9% credits are usually capped by state Qualified Allocation Plans. This may actually result in a larger allocation of credits (and equity) than the 9% credits in the case of large-scale projects.

Disadvantages:

  • From a developers perspective, the 4% credits are worth only about one-half of the of 9% credits since the federal credit rate is roughly half of the 9% rate. However, there are several reasons why the 4% credits may still be preferable to the 9% competitive credits (see advantages – more reliable, no cap).

Overview - 9% LIHTC:

The 9 % tax credit is designed to subsidize 70 percent of the eligible development costs for new construction and substantial rehabilitation of housing projects that are not otherwise subsidized by the federal government. These tax credits are awarded by HCAs on a competitive basis to for-profit and nonprofit affordable housing developers who, in turn, offer the credits to investors. The funds raised from the sale of tax credits are used as equity financing for the housing project.[9]

Advantages:

Disadvantages:

Case Studies and Contact Information:


Taxable Bonds

Housing bonds can be tax-exempt or taxable. Tax-exempt bonds have a lower interest rate and come with tax credits, whereas taxable bonds have neither of these advantages. The main benefit of taxable bonds is that they are not capped by the federal government, so therefore are more readily available.

Tax Increment Financing Districts….

Advantages:

Disadvantages:

Case Studies and Contact Information:

For seven case studies of financing models that employ LIHTC and tax exempt bonds in different states, see: http://www.csh.org/wp-content/uploads/2012/01/Report_financing-withbondsand-litch_1012.pdf.

Financing Vehicles:

  • Below-market debt funds
  • Private equity vehicles
  • Real estate investment trusts

Advantages:

Disadvantages:

Case Studies and Contact Information:

  • ULI / Neighborhood Works America - white paper on financing vehicles (see overview on p 14): Preserving Multifamily Workforce and Affordable Housing: New Approaches for Investing in a Vital National Asset

Reducing the Cost of Housing Development

  • project scale
  • project design and construction
  • financing and underwriting
  • program and investor requirements

Advantages:

Disadvantages:

Case Studies and Contact Information:

  • ULI / Enterprise Community Partners - white paper on costs of affordable housing (see recommended actions on p 13): Bending the Cost Curve on Affordable Rental Development Understanding the Drivers of Cost

Types of Housing Alternatives

  1. Market rate housing in more affordable neighborhoods
    1. Traditional
    2. Co-Living / Shared Housing
  2. Public housing
  3. Affordable housing at various Area Median Income (AMI) brackets
  4. Supportive housing (i.e., affordable housing with other social services on site)

Advantages:

Disadvantages:

Case Studies and Contact Information: