Industry News

"A Big Push for Affordable Housing"
"Congress Moves to Boost 2008 HUD Funding"
"Housing for the Elderly"
"Enterprise Hails Plan to Boost Low Income Housing Tax Credit"
"Fannie, Freddie Meet Goals"
"Affordable Housing Rally Treads on City Hall"
"In Washington, Aid to Homeowners Debated"
"Project Design and Cost Standards for the Section 202 and Section 811 Programs"
"Statutorily Mandated Designation of Difficult Development Areas for 2008"
"Viability of Affordable Housing Threatened"
"Special Report: Rebuilding New Orleans"
"Who Will Build Affordable Housing?"

"A Big Push for Affordable Housing"
U.S. News & World Report (10/01/07) P. 32; Garber, Kent

More than a decade has passed since Congress passed a significant housing law, and proponents of affordable housing are hopeful now that a House committee has approved legislation to put a portion of Fannie Mae and Freddie Mac's profits toward a national housing trust fund that would contribute money to build and rehabilitate affordable residential units. Observers believe rising housing costs have played a role in moving the bill along, with a report from the Joint Center of Housing Studies indicating that close to 14 percent of the nation's households devote over 50 percent of their incomes to shelter. Meanwhile, federal housing programs are experiencing budget cuts, with a 2.3 percent decline in spending recorded in 2006. Despite the fact that Republicans believe the trust fund is nothing more than a "slush fund," supporters are hopeful that the national trust fund could achieve the successes of those on the local level. For instance, over 5,000 low-cost housing units have been fixed up during the past six years in Washington, D.C., with the help of a tax-exempt trust fund.
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The Department of Housing and Urban Development's (HUD's) 2008 appropriations bill is currently moving through Congress, but runs the risk of being vetoed by the President, an action that Democrats would likely not be able to override. The House's HR 3074 bill allocates roughly $36.3 billion overall for HUD, of which $2.44 billion was approved for the Public Housing Capital Fund, $4.2 billion for the operating fund, and $120 million for HOPE VI. The Senate committee's version, S. 1789, allocates $2.5 billion, $4.2 billion, and $100 billion, respectively. The Senate bill would also require that PHAs (public housing authorities) with fewer than 500 public housing unit could exclude themselves from asset management requirements under HUD's operating fund rule. But small PHAs that want to halt their operating fund reductions at less than the standard reduction would have to comply with asset management rules. Both bills feature commitment limits of $185 billion for the Federal Housing Administration (FHA) Mutual Mortgage Insurance Fund, $45 billion for the FHA General and Special Risk Account, and $200 billion for Ginnie Mae mortgage-backed securities. Both bills also boost the maximum FHA multifamily high-cost adjustment from 140 percent to 170 percent on an area-wide basis, and from 170 percent to 215 percent on a project-by-project basis in costlier areas. The House also allocates $16.33 billion for Sec. 8 tenant-based assistance and passed Sec. 8 voucher reform legislation intended to streamline rent and income determinations for Sec. 8 and public housing.
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Thomas W. Slemmer, who serves as Board Chair Elect for the American Association of Homes and Services for the Aging, testified before the Committee on House Financial Services Subcommittee on Housing and Community Opportunity. Slemmer said the affordable housing crisis is particularly acute among the elderly living on low or moderate incomes, and that the major contributing factors to the elderly-housing crisis are the unnecessary loss of federally subsidized housing units, the lack of significant affordable housing production of new units, an elderly population boom, a national policy that favors vouchers instead of production as the solution the affordable housing crisis, escalating rental costs, and a lack of predictability for social services funding. He specifically stated that the competitive Low Income Housing Tax Credit (LIHTC) program employs rigid time frames, which makes it difficult to use with the Section 202 program. The unpredictable HUD processing time and constant waiver requests that must be vetted at headquarters make the combination of mixed financing deals almost impossible. Slemmer said the tax credit program represents the most likely source of funding to meet the large gaps in the Section 202 deals, and notes it is to his group's benefit to make this work. He asserted these projects are complicated with obsolete HUD regulatory burdens that increase development timeframes, put the tax credit awards at risk and raise operating costs. In addition, these mixed finance projects require a level of sophistication that few sponsors feel capable of tackling. Delegated processing to state agencies will help make mixed financing more predictable and easier to use. State agencies are already doing the multiple source, layered financing deals. HUD staff has admitted that they do not currently posses the expertise and do not have the funding for education to get the current HUD staff "up to speed" on the tax credit program.
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Rep. Jim McDermott (D-Wash.) has been cheered by Enterprise for his introduction of legislation to bring the Low Income Housing Tax Credit (LIHTC) program up to date and enable affordable housing developments' leveraging of federal rental and operating subsidies. The program has stimulated the production or renovation of close to 2 million affordable rental homes throughout the country over the past two decades. McDermott's measure would excuse federal rental and operating subsidies from being treated as federal grants for the purpose of calculating tax credit basis, which Enterprise says will give affordable housing developers a better chance to blend housing credit with other federal resources. "The LIHTC program is responsible for financing 90 percent of the nation's affordable housing built in the last 10 years," noted Enterprise Community Investment COO Charles Werhane. "These small modifications to the tax credit program will have a significant impact on reducing cash flow needs from rent to enable properties to be rented to the lowest-income tenants." McDermott expects his bill to "streamline the tax credit program, enabling developments to make better use of federal funds."
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HUD reports that both Fannie Mae and Freddie Mac satisfied their regulatory mandates for supporting affordable housing. According to the agency, low- or moderate-income households benefited from approximately 57 percent of the residential units that Fannie Mae helped to finance in 2006 and about 56 percent of those backed by Freddie Mac. The two government-sponsored enterprises provided $370 billion in loans last year for 3.67 million houses and apartments.
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Activists held a rally outside City Hall in Philadelphia to push for the passage of the "inclusionary housing bill" proposed by the Philadelphia Campaign for Housing Justice (PCHJ). The bill would beef up the city's affordable housing stock by requiring developers of eight units or more to include low-cost units in their projects or shell out money to erect affordable units elsewhere in the city. In exchange, they would be given fast-track approvals and density bonuses. The bill was proposed in response to the city's affordable housing shortage, with the University of Pennsylvania estimating that 60,000 units are needed. The PCHJ bill would reserve the units for residents making no more than $36,000 annually, in contrast to a bill proposed by Councilman Darrell Clark last year that Women's Community Revitalization Project Co-Chair Staci Moore said failed to address the needs of over 70 percent of city residents by restricting the units to those making 80 percent to 150 percent of the median income. If passed, upwards of 2,500 low-cost units would be erected over a 10-year period.
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The Bush administration and Congress are discussing ways to help cash-strapped homeowners avoid foreclosure, especially in light of a Deutsche Bank report that predicts a surge in mortgage defaults as interest rates on $400 billion worth of subprime mortgages rise 30 percent or more over the next year to 18 months. While the Bush administration opposes a large-scale bailout, officials are pushing for an increase in the maximum mortgage amount that can be insured by the Federal Housing Administration. In addition to revamping the FHA, Democrats have proposed establishing a national affordable housing fund, lifting portfolio limits for Fannie Mae and Freddie Mac so that they can snap up renegotiated subprime mortgages, and giving at least $100 million to nonprofit organizations to assist struggling borrowers in refinancing or renegotiating their home loans. Another solution being debated in the Senate would give the power to revise mortgage contracts to bankruptcy judges. However, Center for Economic Policy Research co-director Dean Baker is skeptical that refinancing or renegotiating mortgages will actually help borrowers whose homes have substantially declined in value and who are in need of cash.
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Section 202 of the Housing Act of 1959 authorizes HUD to establish programs to provide assistance to expand the supply of housing with supportive services for the elderly and persons with disabilities. Specifically, HUD provides capital advances to eligible private, nonprofit sponsors to finance the development of rental housing with supportive services for the elderly. Similarly, the Section 811 program provides assistance to expand the supply of housing with the availability of supportive services for persons with disabilities. Again, HUD provides capital advances to eligible nonprofit sponsors, which have a Section 501(c)(3) tax exemption ruling, to finance the development of rental housing with the availability of supportive services for persons with disabilities. Section 891.120 establishes the project design and cost standards for Section 202 and Section 811 projects. Projects must be modest in design and certain amenities are not eligible for HUD capital advance or project rental assistance contract (PRAC) funds. Among the amenities for which HUD funding is restricted are private balconies and decks, atriums, bowling alleys, swimming pools, saunas, Jacuzzis, dishwashers, trash compactors, and washers and dryers. Section 202 and 811 project sponsors may include these amenities, but must not use HUD funds for the purchase of an ineligible amenity or the continued operating costs associated with the ineligible amenity. A new proposed rule would revise HUD's regulations that govern the project design and cost standards for HUD's Section 202 and Section 811 programs. The rule would allow project sponsors to use HUD funds for dishwashers in individual supportive housing units for the elderly and independent living projects for persons with disabilities. In addition, the proposed rule would clarify the applicability of the project design and cost standards to Section 811 group homes. The due date for comments on the proposed HUD rule is October 15, 2007.
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This document designates "Difficult Development Areas" (DDAs) for purposes of the Low-Income Housing Tax Credit (LIHTC). Section 42 of the LIHTC provides an income tax credit to owners of newly constructed or substantially rehabilitated low-income rental housing projects. The dollar amount of the LIHTC available for allocation by each state (credit ceiling) is limited by population. Section 42 credits to owners of buildings based on the percentage of certain building costs financed by tax-exempt bond proceeds. Credits provided under the tax-exempt bond "volume cap" do not reduce the credits available from the credit ceiling. The credits allocated to a building are based on the cost of units placed in service as low-income units under particular minimum occupancy and maximum rent criteria. In general, a building must meet one of two thresholds to be eligible for the LIHTC: either 20 percent of the units must be rent-restricted and occupied by tenants with incomes no higher than 50 percent of the Area Median Gross Income (AMGI), or 40 percent of the units must be rent-restricted and occupied by tenants with incomes no higher than 60 percent of AMGI. The term "rent-restricted" means that gross rent, including an allowance for utilities, cannot exceed 30 percent of the tenant's imputed income limitation. The rent and occupancy thresholds remain in effect for at least 15 years, and building owners are required to enter into agreements to maintain the low-income character of the building for at least an additional 15 years. The LIHTC reduces income tax liability dollar-for-dollar. It is taken annually for a term of 10 years and is intended to yield a present value of either: (1) 70 percent of the "qualified basis" for new construction or substantial rehabilitation expenditures that are not federally subsidized, or (2) 30 percent of the qualified basis for the cost of acquiring certain existing buildings or projects that are federally subsidized. Individuals can use the credits up to a deduction equivalent of $25,000. Corporations, other than S or personal service corporations, can use the credits against ordinary income tax. These corporations can also deduct losses from the project. The qualified basis represents the product of the building's "applicable fraction" and its "eligible basis." The applicable fraction is based on the number of low-income units in the building as a percentage of the total number of units, or based on the floor space of low income-units as a percentage of the total floor space of residential units in the building. The eligible basis is the adjusted basis attributable to acquisition, rehabilitation, or new construction costs. These costs include amounts chargeable to a capital account that are incurred prior to the end of the first taxable year in which the qualified low-income building is placed in service or, at the election of the taxpayer, the end of the succeeding taxable year.
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A study by the National Association of Home Builders (NAHB) reveals that many rental properties with Low Income Housing Tax Credits (LIHTCs) have not seen an increase in rents in five years, mainly due to the methodology used to determine income limits by the Department of Housing and Urban Development (HUD). Research by HUD shows that three-quarters of the nation saw median family incomes fall this year, though median family income edged up 4 percent in the American Community Housing Survey. These income limit calculations, coupled with average gains in operating costs of 27 percent and rising utility allowances, are making it difficult for many affordable-housing communities to operate under LIHTC rules. "The very income restrictions meant to ensure that these properties are available to serve people in need of affordable housing are actually threatening the long-term sustainability of many of these projects," says NAHB Multifamily Housing Credit Group Chairman Steve Lawson, who is pushing for federal lawmakers to tie rents under the LIHTC program to the inflation rate. The study shows a "critical gap" of $1,000 in nearly 1,750 counties nationwide, $2,000 in over 700 counties, $4,000 in 175 counties, and $6,000 in 48 counties.
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The magnitude of the effort to rebuild New Orleans is the reason why the city's recovery is taking so long, says Matthew Schwartz, a partner with for-profit developer The Domain Cos. The New York-based company says it has the city's largest projects in The Preserve, a 183-unit, affordable housing complex; the 228-unit Crescent Club; and another development with 72 additional units of affordable multifamily homes. For The Preserve and Crescent Club, Domain has secured $36.9 million in equity from Low Income Housing Tax Credits (LIHTC) allocated through the Louisiana Housing Finance Agency, in addition to $19.2 million in permanent mortgage financing from Freddie Mac. Domain is still in the process of securing financing for its proposed third project. Musicians and entertainers such as saxophonist Branford Marsalis and singer and pianist Harry Connick Jr., are involved in projects, and a consortium of mixed-income housing developers and local non-profit organizations have targeted the St. Bernard, C.J. Peete, and B.W. Cooper public housing communities for redevelopment. The state, banks, foundations, and community development organizations have created a $47 million loan fund to offer below-market rates for affordable and mixed-income housing projects. The Reliance Housing Foundation, which wanted to assist in the rebuilding efforts, learned of the sale of 200 Carondelet after several visits to the city. "At the same time, Louisiana Housing Finance Agency and Louisiana Recovery Authority were finalizing their plans to utilize LIHTC and Community Development Block Grant funds to finance mixed-income housing in Orleans Parish," says Sandra Seals of the Fort Lauderdale, Fla.-based foundation.
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The Association of Bay Area Governments (ABAG) wants the smaller cities and more-affluent communities in the nine-county region to share more of the burden of providing affordable housing. The organization wants to create more of a balance between housing and jobs in each city, while considering public transit as well, compared to its past focus on population and job growth. However, small cities say they do not have the land and money to build more low-income housing, and there are no penalties for non-compliance. The Bay Area will need at least 214,000 new housing units, about 40 percent very-low-income or low-income, to accommodate 700,000 more residents by 2015. "Even if we took most of our general fund, we don't have the money," says Lafayette City Councilman Don Tatzin. Local, state, and federal funds are often assembled to finance affordable-housing projects. About 80 percent of the cost of the $13 million West Rivertown II apartments is covered by federal tax credits, according to developer Eden Housing. Some cities also establish redevelopment agencies or special funds to address their affordable housing needs.
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