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"Housing and Economic Recovery Act: Median Incomes and Rent Growth at LIHTC Properties"
"When Does the Recovery Start?"
"Neighborhood Funding for 'Green' Affordable Housing"
"Plots & Ploys: Rural Housing Stranded"
"The HUD-DOT Collaboration"
"Developers Migrate to FHA"
"A New Focus on Rental Housing for Poor"
"Community Lenders Get Stimulus Boost "
"N.Y.C. HDC to Increase Housing Preservation Deals"
"OHFA Awarded $104M in Stimulus Funding"
"Rebates Energize Solar Retrofits"
"Foreclosures Drive Rental Scarcity"

"Housing and Economic Recovery Act: Median Incomes and Rent Growth at LIHTC Properties"
Affordable Housing Finance (05/09) Clarke III, A.H. (Bud)

Market watchers report that the impact of the Housing and Economic Recovery Act of 2008 (HERA) has resulted in a reversal to the problem of no rent growth at Sec. 42 low-income housing tax credit (LIHTC) properties, in addition to a few other benefits for underwriting rents. HERA included rules aimed at addressing the negative impact previous years' declining median incomes had on rent growth at LIHTC properties. Consequently, a number of existing tax credit properties are poised to experience rent growth for the first time in years. While the program's main objective have been to maintain affordable rents for low-income families, the ongoing feasibility of LIHTC properties in certain markets has been the subject of intense debate. Rents have been flat in some markets since 2003. Finding the right balance between affordability for tenants and feasibility for owners proved to be key to HERA's new provisions as they pertain to median incomes and rent growth. With the release of the latest data, some solid relief can be expected for properties that have been dealing with increasing expenses and flat rents. While the HERA changes have drawn praise, an intensified focus by both property managers and asset managers will still be required to take full advantage of these new opportunities and maintain full compliance at the property level.
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The $787 billion American Recovery and Reinvestment Act (ARRA) included funding and program changes intended to kick-start the stalled low-income housing tax credit (LIHTC) market by the end of this year. Affordable Housing Finance recently assembled a panel of leading affordable housing developers and experts to discuss what they like about the bill, what else needs to be done to encourage LIHTC investments, and whether more deals will be done this year than in 2008. Mercy Housing Inc. CEO Sister Lillian Murphy hopes the stimulus bill "will enable developers who have projects in the pipeline for 2009 but have LIHTC investment gaps to move forward." Cohen-Esrey Real Estate Services President and CEO R. Lee Harris has his share of complaints, though. He stated, "I think it's unfortunate that the bill only addresses LIHTC for 2008 and 2009. I'm very disappointed that the House and Senate conference did not agree to accelerate the credits, which would have had a real positive and long-term impact on tax credit equity." The experts were further asked about what else would it take to bring investors back into the market. Bill Kelly, president of Stewards of Affordable Housing for the Future, replied, "In the short term, we need to address the effect of the financial meltdown on the tax liability of long-term investors by allowing a five-year carryback of tax credits or refundability for investors that are not related to developers. Unless we make it possible for these knowledgeable investors to continue their pattern of investment, we risk losing them not only for this year but forever as they shed staff and dump their investments in the secondary market."
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Operating under President Barack Obama's directive for U.S. agencies to "work together to build sustainable, affordable communities," new HUD Secretary Shaun Donovan is mobilizing support for green affordable housing through pilot programs carried with federal aid. Speaking to more than 200 housing industry professionals, nonprofit representatives, and academics attending a recent conference on expanding the country's inventory of green, affordable housing, Donovan disclosed that his agency is disbursing another $2 billion in neighborhood stabilization funds thorough the Recovery Act. "We hope," he stated, "that sustainable homes will be a feature of that investment in many neighborhoods across the country." Discussion at the conference, "Green and Affordable: Sustainable Strategies for the New Housing Marketplace," centered on creative strategies for funding projects, ways to promote healthy indoor air, green maintenance practices, the responsibility of city governments in creating environmentally friendly affordable housing and commercial buildings.
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The most recent federal budget does not include funding for a U.S. Department of Agriculture program that provides interest-rate subsidies to encourage the construction and rehabilitation of affordable housing in rural areas. As a result, some apartment communities will be without any type of financing, including buildings such as the 60-unit High Meadows, a rental complex in Wytheville, Va. High Meadows was being financed, in part, through a federal program run by the Department of Agriculture to encourage affordable-housing construction in rural areas. Lancaster Pollard Mortgage Co., which arranges financing for affordable-housing developments, including High Meadows, says about 90 percent of its 32 developments that relied on federal funding won't be viable. "Those are transactions that we have right now in hand," says Carl Wagner, a senior vice president at Lancaster Pollard. Affordable-housing advocates and developers said they are working with Congress to restore the funds.
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U.S. Housing and Urban Development (HUD) Secretary Shaun Donovan and Department of Transportation (DOT) Secretary Ray LaHood are pledging to make their departments interoperate with each other to coordinate their impact on communities around the country. This is a highly unconventional approach for the federal bureaucracies, which are accustomed to taking a siloed approach, but Rep. John Olver (D-Mass.) links it to the desire for livable, transit-oriented communities that combine "the transportation mobility of the old and young alike with affordable housing, shopping, job opportunities, and green infrastructure." Olver chairs the House Appropriations subcommittee that controls both departments' budgets, and he has been pushing for closer collaboration between housing and transportation. In the past, HUD money has often gone toward affordable housing without much concern for its proximity to transit and jobs, while major road and transit projects have been funded with little regard to how they serve housing projects or help working people get to jobs. Donovan says that in some metropolitan areas, low-income workers spend more of their money on transportation than on housing, "posing a particular burden, inhibiting wealth creation, hindering homeownership and pushing family budgets closer to the brink." According to LaHood, a third of Americans today live in neighborhoods that do not have sidewalks, and nearly half say they do not have access to public transportation. LaHood and Donovan said they are launching a "Sustainable Communities Initiative" with joint funding to encourage metro areas to develop integrated housing, land use, and transportation plans.
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Many market-rate developers are gravitating toward the Federal Housing Administration's Sec. 221(d)(4) multifamily mortgage insurance program in response to the reluctance of conventional lenders to fund new apartment projects. The program, overseen by the Department of Housing and Urban Development, helps for-profit developers attain both construction and permanent financing covering 90 percent of the projected replacement cost of a development or substantial rehabilitation project. Unlike commercial loans offered by commercial banks, it does not require a personal "recourse" repayment guarantee from borrowers. "Frankly, there are so few conventional alternatives out there today, interest in (d)(4) is as strong as we've seen in recent years," says Karl Reinlein, executive vice president overseeing HUD/FHA lending at Capmark Finance.
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At a May 19 news conference, U.S. Housing and Urban Development (HUD) Secretary Shaun Donovan said the Obama Administration will focus more money and attention on rental housing for low-income households. "We've effectively had a national housing policy only about homeownership, with not even a focus or discussion in Washington about the importance of rental properties," he said. Donovan noted the an additional $1.8 billion would be allocated to rental vouchers under the president's latest budget proposal, which would provide another 225,000 households with rental assistance. Additionally, he stated that HUD wanted to make $2.25 billion in additional tax credits available for affordable housing projects, and he is pushing for another round of stimulus funding equal to $1 billion, which would be made available to housing authorities on a competitive basis.
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The federal stimulus law sets aside $400 billion in funding over two years for Community Development Financial Institutions (CFDIs), which include local thrifts, community banks, and nonprofits catering to low-income neighborhoods. Experts say $14 to $20 in economic activity will be generated for every dollar in funding, providing a major boost to struggling communities. For instance, the funding will help Pennsylvania's Community First Fund -- which provides loans to minorities, women, and underserved borrowers and finances affordable housing and commercial real estate projects. It hopes to use the federal funds to clean up a five-acre parcel along the riverfront in Lancaster to spur private housing and retail development. According to Rutgers' Bloustein School of Planning and Public Policy assistant professor Julie Sass Rubin, "You're helping poor communities. You're funding (lenders) that otherwise would have a challenging time finding capital, and it's a time when banks are not lending like they were." However, some are calling for more regulation of CDFIs, though banks and thrifts already are subjected to federal oversight.
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The New York City Housing Development Corp. (HDC) is planning on increasing the number of housing preservation projects it finances compared to new construction projects because of the economic downturn. Preservation deals are currently easier to conduct because the risks associated with remodeling and refinancing an existing building are better than on a new building. "There are limited construction risks," says HDC chairman Rafael Cestero. "You don't have the rent-up risk because usually these things are done to occupied properties, so right there you're starting off with these strong advantages." The organization is not sure what the ratio of preservation deals compared to new construction will be, but they expect to have six to ten new construction financings approved in June. The HDC plans to look at affordable housing projects that were over-leveraged or need new financing in order to see if there are solutions that can be found. The organization is hindered by a lack of resources, but they feel that they can develop financing and provide affordable housing.
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The Ohio Housing Finance Agency (OHFA), the recipient of $104 million in federal stimulus money, is preparing grant criteria for distributing the funds and will soon begin accepting applications. Of the funding total, $83 million came from the U.S. Department of Housing and Urban Development. Under the federal agency's Tax Credit Assistance Program, developers awarded tax credits in 2009 or in the past two years will receive the dollars in the form of low-interest loans and grants that can be used as gap financing for lower-equity investments. To qualify, developers must already have an investor to purchase the OFHA tax credit upfront -- but at a discount. The other $21 million was pumped to OHFA from the U.S. Treasury, under its Tax Credit Exchange initiative. In exchange for the stimulus dollars, OHFA will return to the government about 10 percent of the $26 million in federally backed tax credits it plans to hand out this year. The Treasury, in turn, will convert those funds into grants for affordable housing developers that have won tax credits but have been unsuccessful in lining up an investor to purchase the credit upfront. Developers can return the tax credits in order to receive the grants -- which are expected to benefit dozens of Ohio developers struggling to arrange financing in a tight equity market. In addition to extending tax credits for housing developments, OHFA also provides mortgages and down-payment aid to home buyers.
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The California Solar Initiative's Multifamily Affordable Solar Housing (MASH) program provides up-front capacity-based incentives for solar photovoltaic systems in affordable housing buildings. The common area and tenant loads will be offset for properties that have had an occupancy permit for at least two years. The developments also must be electric customers of Pacific Gas and Electric Co., Southern California Edison, or San Diego Gas & Electric. MASH's Track 1, one of the program's options, provides rebates based on the size of the photovoltaic system and its performance. The common area load system will get a rebate of $3.30 per watt, and the tenant load system will receive a $4 per watt rebate. Track 2 will be offered to those that provide their quantifiable direct tenant benefits and is still under review. The system could pay for itself within five to seven years, depending on the cost of the installation, the system production, and the rebate level. Another benefit is that MASH users can use virtual net metering, which will allow owners to combine multiple credits from a single solar system. For those that are interested, it is important to first examine their roofs and other structures involved in the development. Studying current rate schedules and the amount of consumption within the buildings will also be helpful.
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The National Low Income Housing Coalition's (NLIHC) "Out of Reach" report reveals the average median hourly wage is lower than the $17.84 hourly "housing wage" full-time workers need to afford a standard two-bedroom rental unit at the nation's average fair market rent. The report indicates that renting households increased by 2.2 million since 2007, and at the same time the volume of house owners dropped. Meanwhile, unemployment rose from 4.8 percent to 8.1 percent in the last year. Before the credit crisis began, about 70 percent of renting households with low incomes spent more than 50 percent of their earnings on rent. NLIHC's research indicates that there were just 38 affordable units available per 100 households before the financial turmoil began, leaving a deficit of about 2.8 million units. "The statistics in Out of Reach show the disconnect between what it costs to afford decent rental housing in the U.S. and what low-wage employment actually pays. With more families turning to the rental market and job losses numbering in the millions, the struggle to find affordable housing has become even more acute," say NLIHC researchers.
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