Industry News

"House Overwhelmingly Passes Section 8 Voucher Reform Act of 2007"
"HUD Rolls Out Green Initiative for Some Properties"
"House Panel Endorses Housing Fund"
"Developers Reveal the Costs of Doing Business"
"Affordable-Housing Assistance"
"Housing Tax Credits Work, Report Claims"
"Myths Vs. Truths on Low-Income Housing-Tax-Credit Developments"
"Compliance Monitoring: A Critical Component of Expanding Affordable Housing"
"Improvement to Public Housing"
"The Art of Affordable Housing"

"House Overwhelmingly Passes Section 8 Voucher Reform Act of 2007"
US States News (07/13/07)

The U.S. House of Representatives overwhelmingly passed H.R. 1851, the Section 8 Voucher Reform Act of 2007, to reform the Section 8 funding formula to make it more efficient and revise the rent calculation process for Section 8 and public housing to expand work incentives and reduce administrative costs. In addition, the bill will increase flexibility to use vouchers for homeownership, amend voucher targeting rules to increase voucher opportunities for lower income working families in rural areas, and authorize an expansion in the number of families receiving vouchers by 20,000 a year for each of the next five years. The measure now moves to the Senate for consideration. "This is a program we can all be proud of. This bill addresses many of those problems and will return much-needed stability to the Section 8 program and the 2 million low-income families who rely upon it," said bill sponsor Rep. Maxine Waters (D-CA). "We are reestablishing a program that changes lives by providing clean, safe, and affordable housing, improve the health of families, introduce better educational opportunities for children in school, improve communities, and strengthen the face of the nation's affordable housing landscape." "At last, we have a bill that brings this country's Section 8 Housing Choice Voucher Program into the 21st Century," said Rep. Biggert (R-IL), an original cosponsor of the bill. "Besides providing more flexibility at the local level, where it's needed most, this bill will expand and enhance the programs that help public housing recipients move to self-sufficiency and to homeownership." The House also voted to adopt Rep. Waters' manager's amendment, to allow flexibility in rent setting while maintaining statutory affordability requirements, increase the level of permitted voucher reserves in the first year of the transition under the funding formula change, spell-out responsibilities for HUD to provide uniform translation of documents under the Administration's Limited English Proficiency (LEP) requirements, and make modifications to inspection and Housing Innovation Program (HIP) provisions in the bill.
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HUD has launched the Mark-to-Market Green Initiative to spur the eco-friendly rehabilitation of Section 8 properties in its Mark to Market Program. Environmentally sensitive improvements aim to enhance indoor air quality and energy efficiency, reduce utility costs, and improve the health of tenants. According to HUD Assistant Secretary Brian Montgomery, "The Mark-to-Market Green Initiative recognizes that the affordable housing industry can make a significant impact in reducing energy consumption and enhancing tenants' living environments." HUD will include eco-friendly upgrades in the "significant additions" category, meaning that it will foot the bill for 97 percent of such projects.
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In a 45-to-23 vote, the House Financial Services Committee approved the establishment of a fund for the construction or rehabilitation of 1.5 million affordable-housing units over the next 10 years. Under the measure, U.S. mortgage finance giants Fannie Mae and Freddie Mac will be compelled to funnel as much as $600 million a year into the fund. The reserve is being launched with $1 billion in initial funding, an estimated $300 million of which will be contributed by the Federal Housing Administration.
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Rising construction costs is the top issue for affordable housing developers today, and most believe development costs will increase by up to 9 percent this year, according to a national poll conducted by Affordable Housing Finance magazine during the first quarter. Last year, most respondents said construction costs rose between 10 percent and 19 percent. About 100 local and national affordable housing owners and developers participated in the survey, which also revealed expectations that long-term permanent loan rates would remain flat. As for low-income housing tax credits (LIHTCs), the average price fetched is expected to be about 94 cents per dollar of credit, with tax credit prices having fallen since last year. The average price was 98 cents per dollar of credit in 2006. Developers suggested placing a cap on the amount of credits a deal can receive and eliminating preferences for nonprofit and inexperienced developers as ways to better allocate tax credits. Also high-cost areas should be more of a focus for LIHTC allocating agencies. Respondents also saw inclusionary housing programs and housing trust funds as promising ideas.
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Brian Montgomery, Assistant Secretary Housing-Federal Housing Commissioner, U.S. Department of Housing and Urban Development, testified on H.R. 2895, the National Affordable Housing Trust Fund Act, before the Committee on House Financial Services. H.R. 2895 would establish a new federal housing program - the National Affordable Housing Trust Fund - to be administered by the Department of Housing and Urban Development, for the purpose of providing funding for the construction, rehabilitation, and preservation of affordable housing for low-income and very low- income families. Montgomery asserts that while the legislation purports to create a "permanently appropriated fund, with dedicated sources of funding ... without supplanting existing housing appropriations," a closer study of the bill "demonstrates it would do precisely the opposite." Montgomery says there are existing tools in the federal arsenal that would better achieve the goal of affordable housing, and that would not divert funds from this bill to a new, separate housing trust fund. He also notes previously stated concerns that Section 140 could create an undue and counterproductive reliance on Fannie Mae and Freddie Mac by tying the potentially unlimited growth of their affordable housing funds to the annual amount of their mortgage business. Montgomery says those concerns are now compounded by the provisions in H.R. 2895 that also seek to derive revenue from the FHA Modernization bill. He warns that any new program that attempts to access HUD revenue, whether explicitly or implicitly, would disrupt and needlessly complicate the appropriations process. Any deposits to the Trust Fund would have to be offset. Additionally, with a Trust Fund dependent on a certain level of FHA receipts, policy makers could feel pressured to hit certain revenue targets. Rather than working to ensure that FHA's traditional borrowers - low-income and first-time homebuyers - are being charged the lowest possible premium, FHA might find itself forced to charge higher premiums to finance unrelated programs through the housing fund. Montgomery says that in addition to preserving existing affordable housing projects, HUD is committed to increasing the supply of new affordable housing. The majority of affordable housing projects built today are financed, in part, with Low-Income Housing Tax Credits. The Department has begun an initiative to identify and address ways in which HUD's financing programs - FHA, Section 202, and Section 811 - can work more effectively and efficiently with the Tax Credit Program. The department is streamlining its subsidy layering and processing procedures to improve the timing of HUD approvals and better meet Tax Credit program deadlines. Montgomery says that such programs would be endangered by the National Affordable Housing Trust Fund under consideration, because the bill would force them to compete with HUD's existing efforts for scarce resources.
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Missouri would not be able to build affordable, quality housing without its tax credit system, according to a study a consulting firm presented to the Missouri Housing Development Commission. The state issues millions of dollars worth of tax credits to developers, who sell them at a discount to raise money for projects, but the tax credit system has come under fire from critics who say only 35 or 40 cents on every dollar of tax credits goes to actual construction. The commission wants to improve the effectiveness of the tax credit system, but the study does not address the pricing issue. According to Greg Young, a critic of the commission, the state prices low-income housing tax credits in a way that has it borrowing funds at an annual rate as high as 39 percent. Amending the federal tax code to enable state credit users to also get a federal income tax deduction for state income taxes is seen as a way to increase the value of the credits, by both the commissioners and the consultants. MHDC Chairman Richard Baalmann raised the issue of relying on direct appropriations for housing construction, which could be a tough sell politically.
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Rev. Shari Prestmon, executive director of Back Bay Mission in Biloxi, Miss., and Everett Lewis, an affordable housing specialist, address the myths surrounding low-income housing-tax-credits in the Sun Herald Forum. On the myth concerning the disregard that LIHTC projects have for the local planning process, they note that tax credit development must follow the same approval process as other development. An increase in crime, congestion, and "negative influences" in a neighborhood is another myth, considering tax-credit properties are built for working households and families, and that the local community as well as the Internal Revenue Service, which oversees LIHTCs at the federal level, hold developers accountable. Housing developed using tax-credits do not destroy communities, but bring in millions of dollars in investment locally and provide jobs. The Qualified Allocation Plan, which requires single-family units to average 1,500 square feet of living space and have a two-car carport or garage, and would cost $150,000 or more in the current market, should dispel any myths about tax credit projects bringing down the value of surrounding properties. Also, tenants can pursue upward mobility without any fear of losing their homes, unlike the traditional affordable housing model. Long-standing nonprofit organizations are among the developers on the Mississippi Coast now turning to LIHTCs, which offer the best option for constructing affordable housing today.
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To swell the supply of affordable housing, many counties issue tax-exempt bonds, loans, and grants to developers. This funding offsets construction and land costs, enabling developers to produce very low income, low income, and moderate income housing. In turn, public agencies are responsible for conducting compliance reviews to guarantee that needy tenants are being offered the correct number of affordable units. Compliance reviews consist of site visits during which physical inspections are performed and tenant files are reviewed. Compliance monitoring also includes examining reports from the owner. The process, which is technical, detailed, and time-consuming, works best when public agencies have a reliable and methodical system for tracing, assessing, and filing the reports. Agencies without such capacities may consider out-sourcing their compliance duties or adopting customized software programs. Such programs increase accuracy, cut down on paperwork, and substantially improve reporting compliance. Indeed, one large issuer slashed its out-of-compliance properties by more than 50 percent in eight months after employing compliance software.
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Dave Wood, Director, Financial Markets and Community Investment at the U.S. Government Accountability Office, testified in June before the Subcommittee on Housing, Transportation, and Community Development. Wood noted that since fiscal year 1992, HUD has awarded more than $6 billion in HOPE VI grants to public housing authorities. To increase the number of affordable housing units developed at HOPE VI sites, HUD has encouraged housing authorities to use their HOPE VI grants to attract, or leverage, funding from other sources, including other federal, state, local, and private-sector sources. HUD also has encouraged housing authorities to leverage additional funds for supportive services. According to analysis of HUD data for a 2002 report, housing authorities expected to leverage an additional $1.85 in funds from other sources for every dollar received in HOPE VI revitalization grants awarded since the program's inception through fiscal year 2001. However, HUD considered the amount of leveraging to be slightly higher because it treated as "leveraged" both HOPE VI grant funds competitively awarded for the demolition of public housing units and other public housing capital funds that the housing authorities would receive even in the absence of the revitalization grants. Even when public housing funds were excluded from leveraged funds, an analysis of HUD data showed that projected leveraging had increased. But the analysis of HUD data through fiscal year 2001 also indicated that 79 percent of funds that PHAs had budgeted came from federal sources, when low-income housing tax credit funding was included. The analysis also showed that although the majority of funds budgeted overall for supportive services were HOPE VI funds, the amount of non-HOPE VI funds budgeted for supportive services increased dramatically since the program's inception. HUD issued annual reports to Congress for fiscal years 2002 through 2006 that include information on the amounts and sources of funding used at HOPE VI sites. In each of these reports, HUD included the amount of funds leveraged from low-income housing tax credits in its data on non- federal funds. Based on data reported in the 2006 annual report, since the program's inception HOPE VI grantees have cumulatively leveraged $1.28 per HOPE VI grant dollar expended. The GAO has recommended that HUD clarify the role of HUD field offices in HOPE VI oversight and ensure that the offices conducted required annual reviews. In response to this recommendation, HUD published new guidance in March 2004 that clarified the role of HUD field offices in HOPE VI oversight and the annual review requirements. According to the guidance, HUD field office responsibilities include conducting an annual risk assessment, which should consider such factors as missed deadlines and adverse publicity and should be used to determine whether an on-site review should be conducted and which areas of the HOPE VI grant should be reviewed.
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With 17 million households across the country devoting 50 percent or more of their earnings to housing expenses, according to Harvard University's Joint Center for Housing Studies, the need for more affordable housing is apparent. However, rising land prices and construction costs and HUD's move to freeze rents on units tied to low-income housing tax credits in approximately 2,000 counties have made it difficult for builders to continue putting up affordable units. HUD's rent freezes have hit the tax credit industry especially hard, as $5 billion in tax credits are issued annually for affordable-housing construction and have helped create over 1.8 million affordable units during the past 20 years. Meanwhile, there are concerns about the affordable-housing crisis worsening as one million units revert to market-rate rents as their Section 8 contracts expire, with Wendy Dolber of Standard & Poor's public finance housing group predicting the number of "deeply affordable" units to fall to just two million. In response, affordable-housing developers are calling for federal subsidy programs that permit rent increases to cover higher operating costs and asking local governments to either contribute land for affordable-housing projects or rezone parcels near employment centers for higher-density development. Others believe the key to success in the affordable-housing market is to team up with public housing agencies, nonprofit organizations, and other development firms.
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