Michelle Krocker, Executive Director, Northern Virginia Affordable Housing Alliance
Is Fairfax County committed to providing housing that is affordable for all its residents?
While the Board of Supervisors unanimously adopted the Ten Year Plan to End Homelessness in 2007 and the Blueprint for Housing in 2010, they have done very little in the ensuing years to provide the resources needed to implement these plans. In 2009, when the county reduced the Penny Fund for Housing to a half cent, the financial resources to leverage private capital to preserve and develop new affordable housing were lost (the remaining half cent is used to pay the debt service on the bonds issued for the Wedgewood Apartments acquisition). From 2005 to 2009, the One Penny Fund preserved over 2,200 units of affordable housing. Since 2009, the number of new or preserved units serving households earning less than $64,000 or 60% of area median income has declined significantly.
The FY2015 Housing and Community Development budget provides $5 million for new construction or a preservation project of 120 units, and approximately $3 million for Bridging Affordability, a rental subsidy for households moving out of homelessness. This is a paltry amount of funding for a county of this size and wealth. As has been famously said, “show me your budget and I’ll show you your priorities.”
Other policies to provide funding for housing have been studied and tabled by the Board of Supervisors, the most recent being the ‘3-2-1 policy’ which would secure a contribution from commercial development in transit and high density areas of the county to support the development of workforce housing. This policy is currently in place for the Tysons redevelopment area, but Board members felt that if applied to other areas of the county, it could deter new commercial development which has slowed down in the last few years. However, both Arlington and Alexandria have commercial development fee policies in place, and the result has been a significant increase in resources for affordable housing with no apparent impact on commercial development.
The unwillingness to adopt new, proven funding strategies, combined with minimal local investment in housing programs means that the county is falling farther and farther behind in meeting the goals for the 10 Year Plan and the Blueprint for Housing. How can homelessness be addressed in a meaningful way if the stock of affordable housing isn’t growing? How does Fairfax County ensure that there is housing in their communities for the workforce in the retail, hospitality, health care, public sector and entry level jobs? How does the county promote the development of stable, affordable housing for homeless children, youth aging out of foster care, persons with special needs, seniors on fixed incomes and low wage working people?
The need for a community conversation about housing
The final motion on the RSU amendment at the June 9 meeting included a recommendation stating that “there be a broader community dialogue about affordable housing, including a discussion on how best to provide for a range of housing opportunities….that will serve the County’s current and future residents at all income levels.” The Alliance enthusiastically endorses this recommendation, and believes the time for discussion is now. An honest community discussion would hopefully break down some of the barriers of mistrust and misunderstanding surrounding housing, and engage more members of the community in building consensus for solutions.
The growing shortage of affordable housing and the severe cost burden for an increasing percentage of the county’s population is not unique to Fairfax County. This is a challenge that threatens the vitality and sustainability of the entire region, and some jurisdictions have made progress in increasing their affordable housing stock through a variety of financial and land use tools. As the largest jurisdiction and the engine of job growth for the region, Fairfax County should be the leader in addressing the housing issue. Instead, they are lagging far behind due to negligible investments and the absence of vision to address the unmet housing needs of its residents both today and in the future.
The Community Foundation for Northern Virginia, in partnership with the United Way of the National Capital Area and with the support of Deloitte Consulting, is pleased to present “Supporting our Region’s Veterans.” This report was developed to gain a more sophistocated, data-driven understanding of support available to Northern Virginia’s vetereans, and to provide the Community Foundation, United Way NCA, and other local community-based organizations and philanthropists with the insights needed to strategically target and coordinate contributions and grant dollars toward the greatest needs. Deloitte Consulting invested over $80,000 in pro-bono support to perform the research and publish the report.
The basic findings of this three-year study indicate that although veterans in our area are well supported at the macro-level with access to a wide variety of government and nonprofit services, there are several ways that the local philanthropic sector can target its dollars to better support the needs of Northern Virginia’s veterans at the micro-level. Veterans in particular find services to be overly complex and sometimes difficult to access. Greater coordination between government and nonprofit providers to create a seamless web of services would improve the lives of veterans and military families.
Please click here to download the report.
The DC Council has introduced legislation that would change how long a homeownership unit must remain affordable when it is subsidized by the Housing Production Trust Fund—DC’s main source for affordable housing construction and renovation. Right now, homeownership units subsidized by the HPTF must remain affordable for at least 15 years. This means that if someone wants to sell their unit during that time period, they must sell it at a price that another low-income buyer can afford. After 15 years, the owner can sell it for whatever price they like. Keeping the unit affordable for at least 15 years helps ensure that DC maintains a stock of low-cost homeownership units for current (and future) low-income homebuyers, and helps keep affordable housing stock in neighborhoods that might rapidly grow in price.
According to changes now being proposed, however, the affordability period for homeownership units would be reduced to five years in neighborhoods considered to be “distressed.” This means that affordable housing in areas like Mt. Pleasant, Columbia Heights, and Bloomingdale would be lost in just five years. The likelihood that DC could replace those units in those neighborhoods without a significant amount of additional investment is pretty slim. There might be specific DC neighborhoods where the housing market is so slow that residents need incentives to buy there, but those decisions must be carefully weighed against the amount of affordable housing that will be lost as a result. The current bill doesn’t do this, and instead implements a blunt definition of “distressed” that would lead to the loss of affordable housing in some of DC’s hottest neighborhoods.
What defines a “distressed” neighborhood? The proposed changes define a distressed neighborhood as one with a poverty rate of 20 percent or more. It’s simple, except that definition includes DC neighborhoods like Mt. Pleasant, Columbia Heights and Bloomingdale – areas that were affordable 15 to 20 years ago, and now typically only offer affordable stock if a subsidy (on the development side and/or on the purchase side) makes it affordable to low-income households. Under the new bill, a low-income buyer could receive a subsidy to buy into one of these neighborhoods and sell after 5 years to a market-rate buyer. The proposed law will also allow the original nonprofit developer the first right to buy the unit back, but in any of these rapidly gentrifying neighborhoods, the developer would need an additional subsidy (on top of the original subsidy) to make the unit affordable to the next low-income buyer. In these still-tough budget times, what jurisdiction can afford to put brand new subsidy in every five years on the same unit?
How does this compare to local and national best practices? The proposed change to DC’s HPTF law is out of step with affordability best practices across the country, and also with jurisdictions in our own backyard. It positions DC, which has in the past been a leader both locally and nationally in affordable housing policy and funding, to have some of the most lax affordability restrictions in the region when it comes to homeownership. Arlington imposes a 30 year affordability restriction on units developed with its Affordable Housing Investment Fund, and uses a shared equity model for households using their mortgage assistance program (MIPAP) in which owners have to share the proceeds of a sale to help the next low-income buyer afford the property. Montgomery County, which notably started out with 5 year restrictions back in the 1970s, has increased their affordability period to 30 years on many of the properties purchased through their Moderately Priced Dwelling Unit (MPDU) program. According to a National Housing Institute report, the county had lost 2/3 of the affordable units it had created by the time they enacted the 30-year requirement. The proposed DC change also breaks rank with other progressive jurisdictions around the country like San Francisco and Seattle (King County) that have typically been DC’s housing peers.
But aren’t there truly distressed neighborhoods where even low-income buyers need incentives to purchase? Sure, I can imagine places where long-term restrictions truly prohibit homeownership, i.e. they are so distressed that potential buyers won’t buy in if there are restrictions. Do we think this is the case for neighborhoods like Bloomingdale or Columbia Heights, though? Moreover, the definition of “distressed” in the proposed bill uses the poverty rate, data that can be as much as five years old by the time we get it. Under this bill, a gentrifying neighborhood could get defined as distressed and it could be more than a decade before it is no longer defined as such. The neighborhoods mentioned above all began transitioning more than a decade ago. If truly defining distressed, we should be looking at current data about home values, sales price and number of transactions – all data available from the DC Office of Tax and Revenue.
Shouldn’t subsidized buyers get the same benefits from homeownership as everyone else? In a perfect world where public subsidies are unlimited or there is enough naturally occurring affordable housing to meet needs at all points on the housing continuum, yes they should. In the real world where we have limited resources, though, I think that if someone shared with you, you should share with the next person. In affordable homeownership terms, we call this concept “equity sharing.” Equity sharing models are in that gray area where most good public policy resides! These models don’t propose that subsidized buyers walk away with nothing, but they don’t get to walk away with everything either. Data and research from restricted homeownership models tell us that homeowners in these units tend to sell their homes at the same rate as other homeowners, within 5 – 7 years, and that some 2/3 of them are able to build enough wealth in the process to buy their next home at market price with no deed restrictions. Folks much smarter than I am have done a lot of research on this, though. Check out this quick piece done by Brett Theodos, a researcher at the Urban Institute.
Affordable housing is really about rentals; why should I care about affordability restrictions for homeownership units? Well, the shorter the affordability period, the more we have to return to the public trough to keep those units affordable. The same trough where you get your rental housing subsidies! We have to make wise decisions across the board about how to use our scarce public resources.
The Washington Metropolitan region, overall, is an attractive place to live. Our residents have some of the highest incomes in the country, and we struggle to create and preserve housing that everyday working people can afford. This challenge will be with us for a long time to come. As a result, it is shortsighted to consider easing affordability restrictions in all but the most dire of circumstances. Moreover, we are talking about use of our public funds, and any time the benefit of public funds is going to inure to individuals and not back to the public, the trigger should be a difficult threshold to meet. According to a Center for Housing Policy report about affordable homeownership strategies, well-designed programs can both protect limited public resources while also giving buyers the benefits of homeownership.
As an affordable housing community, we fiercely defend and protect affordability restrictions on rental units. Why are we not equally protective of homeownership units, particularly when there is a ton of good data and models that say we can both help low-income buyers build wealth and keep the unit affordable for the foreseeable future?
LEARN MORE! The Coalition for Smarter Growth has weighed in with a full set of recommendations to make this proposed bill less harmful.
GET INVOLVED! The DC Affordable Housing Alliance has drafted this sign-on letter to encourage the Council to support these changes. Email me to sign on as either an individual or as an organization.
SPEAK OUT! The DC Council will hear from the public about this bill on May 29th at 10 am. Email the council to sign up to speak or to submit written comments.
Angie Rodgers is Principal of Peoples Consulting, LLC and a co-convener of the DC Affordable Housing Alliance, a coalition of individuals and organizations dedicated to promoting policies, programs and resources that support the successful development, preservation and operation of affordable housing and related programs and services in the District of Columbia.
From CohnReznick:
With the Senate proposing sweeping reform of the tax code, now is a critical time in preserving the future of the Low Income Housing Tax Credit (Housing Credit) and New Markets Tax Credit (NMTC) programs. It is critical that stakeholders endorse their support of these programs so that they are not at risk of removal through tax reform.On June 27, Senate Finance Committee Chairman Max Baucus (D-MT) and Ranking Member Orrin Hatch (R-UT) announced plans to pursue tax reform efforts. The Senators’ plan includes an approach that starts with a “blank slate” by removing all credits and deductions from the Internal Revenue Code “unless there is clear evidence that they: (1)help grow the economy; (2)make the tax code fairer; (3)effectively promote other important policy objectives.” Senators Baucus and Hatch have asked all Senators to submit their proposals by July 26, so they can be considered during the crafting of the Senate Finance Committee’s bill. Action Requested: We are asking that you add your organization’s name to the growing list of local, state, and national organizations to show your support of these credits and urge the Senate to keep the LIHTC and NMTC in the reformed tax code. The deadline for organizations to sign on to the letter is July 17, 2013. Click on this link to sign the Support Letter.
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CohnReznick, LLP recently released a comprehensive updated report on the performance of the LIHTC program over the course of its 25+ years of operation. Using the data provided from a large pool of syndicators, operators and investors, CohnReznick was able to assemble a database of 17,118 housing credit properties with a total of 1,264,353 units in all 50 states, the District of Columbia, Guam, Puerto Rico and the US Virgin Islands. The analysis focused on three basic metrics: occupancy, debt coverage ratio (“DCR”) and per unit net cash flow. The report found the following performance highlights:
Overview: In all three metrics measured, LIHTC properties showed consistent, positive performance. For the past 10 years, median occupancy at the LIHTC properties in the study has been at or near 96 percent. For the same period, the median DCR held steady at 1.13 to 1.15. Since 2002, per unit cash flow was consistently between $200 and $250 per annum.
2008-2010: The report analyzed the operations of the LIHTC properties in the study during the recent recession in comparison to the previous decade. As might be expected, operations strengthened in direct response to the greater demand for affordable housing units caused by the recession and ongoing economic weakness. While market rate multifamily properties were negatively impacted in the 2008-2010 time frame by the recession, LIHTC properties key operational indicators improved measurably.
Occupancy: At 96 percent median occupancy, the subject properties enjoyed effective full occupancy. The 2008 through 2010 median occupancy in the surveyed properties ran at 96.4 percent, 96.3 percent and 96.6 percent respectively. The major reason for the consistently high occupancy rates in the LIHTC properties is the severe shortage of affordable housing in the country. The data suggests that the recent downturn in the economy may have created greater demand for low-income housing than ever before. According to a recent report from the National Low Income Housing Coalition, as of 2010, there was a shortage of 6.8 million units needed for just the extremely low income households (those earning up to 30 percent of area median income) segment of the population.
Per Unit Cash Flow: From 2002 through 2008 the per unit cash flow, after paying hard debt, ran between $200 and $250 per annum. In 2009, that number increased to $341 per unit, per annum, an improvement of 26.7 percent. By the end of 2010, cash flow increased to $419 per unit, per annum, 18.6 percent better than the previous year. The report found that a major driver of the improved financial performance since 2008 has been the increasing prices of the tax credits. Rising tax credit prices allowed more LIHTC properties to be financed with less hard debt resulting in higher cash flow. Other contributing factors cited for the improved financial performance included more efficient expense underwriting, higher rental rates and lower collection losses.
Debt Coverage Ratio (DCR): In the midst of a national recession, high unemployment and the housing market collapse, the significant increase in the DCR for the properties in the study was unexpected. In 2008, the median DCR stood at 1.15, right in line with historic LIHTC industry standards. But in 2009, arguably the worst year for the market rate multifamily industry, the median DCR for the subject LIHTC properties rose to 1.21 and jumped significantly again in 2010 to 1.24. The favorable improvement in DCR is directly related to the improved cash flow and lower hard debt reported by the participants in the study. Interestingly, the report found this improvement in DCR to be “pervasive” trending across “…virtually every state, property type and financing type.”
The CohnReznick LLP study updates and expands upon a similar study done in 2011 by its predecessor, the Reznick Group. This new study includes a larger sampling of LIHTC properties and provides data and analysis for regions, states and more than 200 metropolitan statistical areas (MSAs). The in depth report also offers interesting data on topics such as underperforming LIHTC properties, foreclosures and tax credit investment yields. The full report can be found here.
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