Policies Support Affordable Housing, Encourage Public/Private Partnership

MBA (2/1/2008 ) Palaparty, Vijay
The range of options to provide affordable rental housing and to promote homeownership requires even more state and local government involvement—especially to keep pace with growing demand.
“Public/private sector partnership is essential to promote affordable rental housing,” said Erika Poethig, associate director for housing at the John D. and Catherine T. MacAruther Foundation , speaking in a webcast sponsored by the National Housing Council . “A comprehensive approach is critical to help us reach our goal.”

In Cook County, Ill., for example, affordable rental housing supply has been depleting steadily as demand increases. For every two units built, one may be lost by the year 2020—a potential shortfall of 78,000 units. Causes impacting supply including condo conversions, demolition, expiring subsidies, gaps in funding, increase in energy costs and increase in property taxes.

The MacArthur Foundation drafted The Preservation Compact—a rental housing strategy for Cook County—with the goal to preserve 75,000 affordable rental housing units by 2020 and to accelerate overall housing preservation activity. Additionally, the Foundation launched the Window of Opportunity in 2003, a national initiative totaling $150 million to support affordable housing in both Cook County and New York City.

“Half of the $150 million will go to a mix of regional and housing developers, financing initiatives, research projects and in depth initiatives in affordable housing," Pethig said. "Additionally, $35 million will go towards state and local preservation awards. It’s a national cross-cutting effort to improve information about housing stock, policies in advanced preservation, technical assistance, evaluation and research,”

The Foundation has a goal of preserving 300,000 rental homes nationwide—about one-third of the homes that might be lost over the next decade.

In Cook County, preservation keystones include an interagency council consisting of a partnership between the Chicago Department of Housing, Illinois Housing Development Authority, HUD and the county government. The council meets monthly to coordinate activities such as identifying properties requiring preservation and developing systems to match sellers with developers who have an interest in affordable preservation.

The Foundation also developed a data clearinghouse to provide data on the supply of affordable housing. The Energy Savers Program promotes energy savings in affordable housing. Outreach efforts, both training and education, include offerings for tenants and communities with at-risk communities. The Rental Housing Alliance was established to offer legal and technical assistance to tenants in ongoing preservation transactions and to coordinate with other public agencies.

A preservation fund of up to $100 million will provide short to mid-term loans for new preservation buyers to quickly purchase and improve at-risk buildings. Additionally, the fund would provide smaller, low-cost loans and grants for long-term owners to maintain existing rental properties.

Lowered property taxes are also part of the compact, also endorsed in the webcast by the Massachusetts Housing Partnership. Tax reductions for owners who substantially improve or preserve housing is one way to promote growth in affordable housing supply. But so is taking advantage of the federal 4 percent tax credit.

Part of the federal Low-Income Housing Tax Credit program, four percent tax credits are available for qualified affordable housing projects with an allocation of private activity tax-exempt bondsy. In 2008, each state will get the greater of $262 million or $85 multiplied by the state's population in private activity tax-exempt bond cap to allocate.

“Four percent tax credits are often easier to get than nine percent credits,” Mark Curtiss, managing director of the Massachusetts Housing Partnership. “Having the added benefit of tax-exempt bond financing, meaning lower interest rates and the ability to support more debt, can work especially well for existing affordable properties that need some capital improvements.”

Affordable housing, however, isn’t the only option in private activity tax-exempt bonds—it competes with education, economic development, single-family homeownership and other programs for "volume cap" dollars. Additionally, allocations vary from state to state for multifamily housing.

“The challenge is how to demonstrate the importance of rental housing compared to all other noble uses of tax-exempt bonds,” Curtiss said. “You have to show how much more leverage you can get using tax-exempt bonds for multifamily housing.”

Curtiss called for increasing the volume cap for affordable housing by $100 million, which would raise an additional federal tax credit subsidy in Massachusetts by an additional $45 to $50 million. “Our goal is to advocate further increases up to 50 percent of the state’s volume cap over the next several years. This could allow us to build or renovate an additional 1,500 units per year,” he said. “However, four percent credits don’t work everywhere—you want to be sure you can use the entire volume cap your state allocates for multifamily bonds.”

In Vermont, the Champlain Housing Trust promotes affordable homeownership opportunities. Through its shared equity program, the Trust provides a downpayment grant which acts a silent second mortgage.

“As homes become more affordable over time in an appreciating market, the appreciation goes back into the homes,” said Emily Higgins, director of homeownership at Champlain Housing Trust. “Grants are in the 20 percent range and provide a substantial incentive for borrowers. The grants come from the Vermont Housing and Conservation Board, which receives profits from a program which channels 50 percent of the state’s property transfer tax into affordable housing and preservation work. If sales increase, affordable housing and more land becomes available.”

The Trust acquires new homes through new developments and also provides a buyer-driven option where homeowners could bring a home to the program and earn a grant—to later share appreciation with the Trust when the house is sold again. Additionally, the Trust works with conversions—creating homeowners out of tenatns in some cases.

“Our challenges are in defining a stewardship role and overseeing maintenance and how to negotiate repairs,” Higgins said. “Additionally keeping homeowners involved in education and events is also a challenge. Of course, delinquency, foreclosures and taxes pose big challenges as well.”
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