Industry News

"Rental Assistance Programs"
"Rural Housing Pushes Forward"
"Affordable-Housing Initiatives Aim to Foster Improved Operations"
"Mass. Supreme Judicial Court Rules Landlord Cannot Deny Tenant Despite 'Harmful' Lease Clause"
"$3.9 Billion in NMTCs Announced"
"The Federal Hand in Affordable Housing"
"New Report Outlines Methods for Increasing Investments in Supportive Housing"
"Rentals Out of Reach"
"House Passes Low-Cost Housing"
"Low-Cost Housing a Challenge for Midwest Developers"
"In New Orleans, A Test of Mixed-Income Housing"
"Looking Toward 2008"
"Being Able to Live Where You Work"

"Rental Assistance Programs"
CQ Congressional Testimony (10/17/07)

J. Kenneth Pagano President and CEO Essex Plaza Management Company, testified before the Committee on House Financial Services Subcommittee on Housing and Community Opportunity on behalf of the National Affordable Housing Management Association (NAHMA). The hearing examined the impact of late Housing Assistance Payments (HAPs). Pagano praised the hearing as a very important step toward reassuring concerned affordable housing professionals, owners, and investors that Congress is interested in resolving the serious payment disruptions in the project-based Section 8 program. He noted that making timely HAP payments to housing providers is a contractual obligation between the federal government and affordable housing providers, and that late HAP payments are chronic problems which have plagued affordable housing managers for about the last ten years, and they jeopardize the financial and physical health of apartment communities that serve low-income families with few housing options. When HAP payments are late, owners and agents must use maintenance funds to make the mortgage payments, meet payroll, pay utilities, or other expenses. If owners begin to opt-out of this program and if nervous investors walk away from preservation deals because they've lost faith in the dependability of Section 8 funding, the low-income families who need this housing most will lose it. Pagano added that while NAHMA agrees with GAO studies concluding that market factors are the major factor in an owner's decision to opt out, each of these studies was released prior to the financial chaos project-based Section 8 properties experienced from July through September of 2007. Late HAPs and insufficient contract funding are now an economic consideration. More importantly, the 2007 GAO report provided compelling documentation about the consequences of late HAP payments. Many NAHMA members have had to layoff staff, cut services to residents, miss mortgage payments, make late utility payments, or miss payments to site vendors because of late HAP payments. Pagano noted that a contract review study that has been underway for some time was due to come out in 2006, but still has not been finalized. He voiced NAHMA's concern that if Congress waits until the report is finally released to correct the appropriations for project-based Section 8, it may be too late, and suggests that Congress could use other cost estimates, perhaps from the Congressional Budget Office. Pagano concluded by stating that NAHMA believes the project based Section 8 program is at a crossroads. The severe payment problems, combined with HUD's new short- term funding language in Section 8 contracts, the Administration's requested cut for project-based Section 8 contract renewals, and the adoption of this cut in the Senate's FY 2008 Transportation-HUD Appropriations Act are raising questions throughout the affordable housing industry about whether the federal government is truly committed to the project- based Section 8 program--and whether it is worth the risk of participating in the program. NAHMA calls on Congress and the Administration to stabilize funding by providing the necessary appropriations to pay the full 12 month increments of HAP contracts, and for Congress to increase the funding for project based Section 8 contract renewals to roughly $8 billion. NAHMA also requests Congress and the Administration address any regulatory issues that affect the timeliness of HAP payments, including requiring the Administration to submit accurate budgetary information and improving the turn around time on inter- agency and intra-agency processing of these funds. The organization also urges Congress to amend the enhanced voucher statute to make tenant protections available when HAP payments stop for any reason (especially due to the government's failure to pay owners) and also to provide these vouchers to tenants even before the end of a one year notice period. NAHMA supports legislation that would require HUD to pay owners interest on late HAP payments, just as owners must pay late fees on missed mortgage and/or utility payments which result from the late HAP.
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The Department of Agriculture's Rural Development (RD) agency, which oversees federal rural housing, has expanded its Sec. 538 lending initiative to help protect older affordable housing, on top of the new building projects that Sec. 538 has financed previously. RD guarantees Sec. 538 loans and vows to reduce their interest rates by as many as 250 basis points to try and match the applicable federal rate. As the current fiscal year came to a close on Sept. 30, authorities expected to utilize all of the funds that Congress had set aside for the program, guaranteeing over $90 million in Sec. 538 loans. That is similar to the previous fiscal year, when the agency promised $100 million in Sec. 538 loans to 60 properties. One-third of the loans helped repair older affordable housing, while the remaining two-thirds funded new construction. Sec. 538 loans are usually combined with equity from the sale of low-income housing tax credits and offer the additional financing needed to make rural deals viable. The loans are initiated by individual banks, which utilize RD's guarantees to bundle the loans and sell them to Ginnie Mae.
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On Oct. 31, the House Financial Services Committee sanctioned a pair of bills that attempt to upgrade affordable-housing initiatives. The panel granted voice-vote approval to HR 3965, which would revamp the Department of Housing and Urban Development's "mark-to-market" effort of renewing Section 8 housing vouchers that are project-based. The vouchers are grants provided to landlords who revamp or construct low-income housing units or who consent to earmark part of the units in a community for low-income residents. The legislation would widen the mark-to-market initiative to include project-based Section 8 commitments with beneath-market rents. Meanwhile, HB 3873 would alter the procedure by which the Department of Agriculture permits Section 515 rural multifamily housing projects to be moved from one owner to a different owner. The voice-voted bill would mandate a study of the department's process for rural housing plans involving tax credits for low-income housing. The legislation would also send applications that have not been processed for transfer of ownership to the federal government following a particular number of days of inaction at the state level.
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In Massachusetts, a recent decision by the state's Supreme Judicial Court makes it harder for a landlord to deny housing to someone receiving government assistance. This recent ruling is seen as a victory for renters, especially those who are elderly or disabled, since the decision upholds clear language that landlords cannot turn away any participants in the Department of Housing and Community Development program for financial reasons. The case was brought on by a plaintiff who received temporary housing through the Alternative Housing Voucher Program, but was denied a lease since the program could relocate her to a different apartment with only a month's notice. "Every landlord would have said, 'I don't like these requirements. I'm being penalized economically," said Zaheer A. Samee, a Cambridge attorney who represented the plaintiff. "But the Legislature has decided that this is a cost that's worth imposing."
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The Community Development Financial Institutions (CDFI) Fund reports that a total of 61 organizations have been selected to receive $3.9 billion in New Markets Tax Credits (NMTCs) this year in the fifth round of allocations. Established by Capitol Hill legislators seven years ago, the program permits corporate and individual taxpayers to receive a credit against federal income taxes for making qualified equity investments in community development entities (CDEs). Substantially all of the investment must be utilized by the CDE to make qualified investments in low-income areas. A number of prominent players in the affordable housing field are listed among the 2007 recipients, including Bank of America CDE LLC, Habitat for Humanity International, JPMorgan Chase & Co., Key Community Development New Markets LLC, Related Community Development Group and the Wisconsin Housing and Economic Development Authority. Nearly 260 applications were submitted this year, with the applicants together requesting approximately $27.9 billion in NMTC funds--seven times more than the $3.9 billion in available authority. The NMTC program's main goal is to attract private capital into low-income neighborhoods nationwide to help finance community development projects and stimulate economic growth.
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Over the past century, more than 30 different federal programs have been created to address the nation's affordable-housing needs. One of the largest is in the area of low-income housing tax credits. Written into the tax code in 1986 and administered by the IRS, this tax-incentive-based program is the largest federal effort aimed at increasing the supply of housing. An estimated $5.1 billion in tax credits are issued annually to private developers who agree to set aside some units for low- and moderate-income families. Harvard University's Joint Center for Housing Studies estimates that the tax credits account for the construction or preservation of about 90,000 units of subsidized rental housing each year.
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The Supportive Housing Investment Partnership, a collaboration between Enterprise Community Partners and the Corporation for Supportive Housing, recently released a comprehensive update on how states are using innovative policies to produce permanent affordable housing with support services to address homelessness. Specifically, Housing Credit Policies in 2007 that Promote Supportive Housing: A State-by-State Analysis looks at how states encourage supportive housing development within qualified allocation plans for the federal Low- Income Housing Tax Credit program. Supportive housing-permanent, affordable housing with support services-is a proven, cost-effective way to end homelessness for people who face the most complex challenges. Communities across the United States have identified expanding the supply of supportive housing as critical to their efforts to end homelessness. The federal Housing Credit program is a major source of financing for supportive housing development. "We know supportive housing is an important tool in our work to end chronic homelessness," said Deborah De Santis, president and CEO of CSH. "Expanding opportunities for private investment through the federal Housing Credit program is a productive and proven way for states to create permanent affordable housing while addressing the special needs of homeless persons without burdening state budgets. We are excited that more and more states are utilizing Low-Income Housing Tax Credits as a means of creating supportive housing for persons experiencing homelessness." The 2005 state-by-state assessment and the new 2007 analysis were developed as a basic resource for supportive housing developers, policymakers and advocates. The 2007 analysis identifies a variety of innovative Housing Credit policies regarding financing supportive housing development, including examples in each of the following categories: Credit Set-asides; Scoring Incentives; and Threshold Requirements.
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Housing experts say federally subsidized programs for renters need to be overhauled to reflect the current housing landscape. With many programs experiencing funding shortfalls, the subsidies that provide affordable rental housing are antiquated. Under the current framework, the cost of developing affordable apartments is defrayed by federal subsidies. But the cost of land and building is getting more expensive in certain locations, making the task of building affordable units for low- and middle-income families more difficult. To offset these costs, the Department of Housing and Urban Development (HUD) and other agencies have rolled out several programs, the largest of which is the Treasury Department's Low Income Housing Tax Credit program, which offers private developers tax credits to build affordable housing. Another area lawmakers and government officials are working to address is the impact of land-use restrictions on new construction. There is a consensus that land-use restrictions add significantly to the cost of new housing construction and need to be lowered.
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Legislation approved by the House calls for the creation of a fund to build and renovate 1.5 million affordable housing units during the next 10 years. Each year, Fannie Mae and Freddie Mac would be required to contribute upwards of $600 million to the fund; the Federal Housing Administration would have to donate $300 million annually. The White House has issued a statement indicating that the bill likely will be vetoed by President Bush.
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Developers of affordable housing are finding the Midwest to be a region full of hurdles, due primarily to recent changes to federal programs coupled with a variety of local issues. The Midwest continues to be home to the country's least pricey residential markets, with parts of four states--Indiana, Iowa, Michigan, and Ohio--still boasting a median home price under $100,000. However, changes in the way area median income (AMI) is calculated and funding cuts to two federal programs--the USDA's Rural Development assistance initiative and the Community Block Development Grant--are complicating matters. In terms of the former, HUD now uses American Community Survey data to determine AMIs rather than extrapolating recent census figures. The new formula has dropped the estimates in many areas. Jeffrey Kittle, executive vice president of developer Herman & Kittle Properties Inc., states, "It's a driving issue for our older projects that have declining rents and therefore declining net operating income." At the same time, both construction and utility costs are on the rise and threaten to slow construction in the niche even further.
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In neighborhoods near New Orleans' central business district and historic center, which were not severely damaged by Hurricane Katrina, several out-of-state developers are building multifamily units. While close to 5,400 new and rehabilitated units are underway, the Louisiana Recovery Authority says such development is not enough. Roughly 50 percent of the city's rentals sustained damage or were destroyed by Hurricane Katrina. Among the multifamily developments under construction are the 183-unit Preserve on the site of the former Crystal Hot Sauce plant, the 228-unit Crescent Club on the site of a former car dealership, and 147 units on the former Falstaff Brewery site. Most of the units being built are subsidized through federal low-income-housing tax credits and other funding sources, and they will be the first in the city to house both low-income and market-rate tenants. Tenants earning 60 percent or less of the median income will occupy 40 percent of the units in the Preserve and the Crescent Club, for example. However, East New Orleans--a middle-class African-American community that took a big hit from Hurricane Katrina--has seen little subsidized apartment development due to resistance among residents to affordable housing. Given that rents have risen 27 percent since Hurricane Katrina and that the storm wiped out a large number of rental units, Urban Land Institute senior housing fellow John McIlwain believes the city's residents might be more receptive to mixed-income housing, as the market-rate units within these developments typically offer lower rents than complexes that lack affordable units.
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Equity funds that invest in low-income housing tax credit (LIHTC) developments are scrutinizing development plans more diligently than before, paying closer attention to costs per square foot and per unit. Midwest Housing Equity Group Inc. President James Rieker says LIHTC activity has been hampered by Fannie Mae and Freddie Mac pulling away from such investments, which he says underscores the importance of developing relationships with new investors to cushion the impact when a couple of investors lose interest. According to syndicators, the average price paid for tax credits was 92.4 cents per dollar in the second quarter, with an average investor yield of 5.64 percent. Rieker says deals are moving downward to about 90 cents. Ohio Capital Corporation for Housing President Hal Keller says syndicators should stress and illustrate the safety of lower-tier deals in order to keep funding from investors flowing.
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Affordable housing in New York City is scarce, and labor unions like District Council 37 are using funds to build new apartments to keep valuable workers within city limits. The city's affordable housing market has deteriorated so much that hundreds of its municipal employees and their families live in homeless shelters, and just a meager 5 percent of housing units sold in New York City in 2005 were attainable for middle-class earners. Tens of thousands of teachers, firefighters, police officers, and other public servants commute into the city every day--some as far away as Pennsylvania--because their low salaries make homes in the city out of reach. District Council 37 is sacrificing pay increases, taking from pension funds, and working with developers to bring 234 affordably priced rental apartments to the Bronx by 2009; and the units will be available for teachers with household incomes under $70,900. The initiative is a step in the right direction but is a mere "drop in the bucket," according to United Federation of Teachers President Randi Weingarten, who says the city employs an estimated 80,000 teachers. Similar developments in Palm Beach and Washington, D.C., have been built to target housing needs for public workers and civil servants.
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