MARKET OPPORTUNITIES

SPECIAL-NEEDS HOUSING

The Supportive Housing Boom

BY BENDIX ANDERSON

AFFORDABLE HOUSING FINANCE • OCTOBER 2007

BROOKLYN, N.Y.—A developer here is doing something smart: Adding supportive-housing units to an affordable housing property. Thanks to state incentives, this move is helping to offset development costs.

The project is Myrtle Avenue Apartments. Eleven of its 33 units are reserved for recently homeless people or people with AIDS, according to Martin Dunn, president of Dunn Development Corp., a for-profit affordable housing developer based, like the Myrtle Avenue project, in Brooklyn, N.Y.

The supportive-housing apartments, which provide residents with permanent housing and intensive services, also made it easier for Dunn to win affordable housing subsidies to build Myrtle Avenue, he said.

Supportive-housing projects are notorious for being difficult to finance because of the very low incomes of the residents. They’re also complicated to operate because of the wide range of services these tenants need.

But developers in many states now benefit from dedicating small numbers of apartments as supportive-housing units at otherwise conventional affordable housing projects, according to Tim Klont, senior program manager for the Corporation for Supportive Housing (CSH).

An edge in the fight for subsidy

All 50 states now give developments that include supportive housing or house some special-needs tenants an advantage in the competition for low-income housing tax credits (LIHTCs), according to an October 2006 report from the Supportive Housing Investment Partnership, a partnership between CSH and Enterprise Community Investment, Inc. Thirty-five states also offer these projects extra points in their tax credit competitions.

Just to compete for LIHTCs in North Carolina, developers must reserve the greater of five units or 10 percent of the total number of units for persons with disabilities or tenants who are or have recently been homeless. Louisiana recently instituted a similar standard set at 5 percent. Michigan set a 10 percent standard in its draft 2008-2009 qualified allocation plan, which also sets aside 20 percent of the state’s total LIHTC authority for housing for persons with special needs.

Officials report little opposition to these new requirements, which began in North Carolina and Michigan as incentives used by developers.

Supportive-housing units benefit developers

The supportive-housing units at Myrtle Avenue make the entire building easier to manage, thanks to full-time, onsite staff that provide intensive, one-onone services to the supportive-housing residents, said Dunn.

Even families that don’t need counseling appreciate having two social workers at the building during the day, Dunn said. It makes the building a safer place to live. The social workers also help Dunn stay aware of any serious physical issues at Myrtle Avenue so that leaks, graffiti, or other problems can be addressed immediately.

“Having staff in your building helps protect your asset,” Dunn said. Plus, the developer doesn’t have to worry about the cost of supplying these workers. They are paid for by the building’s nonprofit socialservice provider, CAMBA, using operating funding raised through a city-administered program.

CAMBA has also taken over the dayto- day management for the 11 supportivehousing units, including applying for rental subsidies and collecting the tenants’ share of the rent. That takes a lot of work off of Dunn’s own property management staff, allowing them to focus on the building’s other 22 apartments.

Special-needs tenants already live alongside low-income families at many affordable housing properties. “In any affordable complex, you’d have people with these needs that are not being addressed,” said Tim Thorland, executive director of Southwest Nonprofit Housing, a Detroit-based developer.

Southwest has opened 350 apartments at 22 properties, all financed with LIHTCs. Nearly a third of these are supportive- housing units. They house people earning up to 30 percent of the area median income who need intensive, one-onone mental health services, which are offered by Southwest Counseling Solutions (SCS), Southwest Housing’s sister company.

Southwest’s residents who don’t live in supportive-housing apartments still benefit from services like transportation, child-care, and employment counseling, and in some cases can access more intensive services such as one-on-one counseling when the need arises.

Affordable housing developments that include family housing along with some supportive housing haven’t triggered the intense community opposition faced by many all-supportive-housing developments, according to Dunn and Thorland. Because most of the units house families, locals tend to think of the projects in that light. “You don’t get that ‘Not in My Back Yard’ reaction,” said Mark Zimet, director of development for Dunn. “[If] you build a nice looking apartment building, no one seems to care if you set aside a few units.”

Supportive Housing Spared IRS Worries

The Internal Revenue Service (IRS) is looking closely at affordable housing projects that target apartments to specific populations, according to the 8823 Guide to low-income housing tax credit (LIHTC) program compliance, issued by the IRS in early 2007.

According to the guide, the IRS recently ruled that at least one LIHTC project that targeted apartments to teachers was out of compliance with program rules and fair housing law.

However, uncertainty over whether LIHTC apartments can be targeted to local government employees like teachers is unlikely to have any effect on supportive- housing projects, which provide permanent housing and services to tenants that have often recently been homeless, according to lawyers familiar with the 8823 Guide and LIHTC program rules. That’s because the law passed by Congress that governs the tax credit program specifically mentions targeting apartments to homeless people in Sec. 42(c)(1)(E).

However, it’s always a good idea whenever a developer builds apartments that target a specific population to consult with a lawyer familiar with fair housing law and the rules of the LIHTC program.

Helping Homeless Families Find Homes

Developers can add supportive-housing units to their affordable housing projects at very little extra cost to the state, according to Michigan and North Carolina officials and the housing experts at the Corporation for Supportive Housing. Such mixed-tenant projects could become part of the solution to the increase in the numbers of homeless families. Many such families would benefit from case management and counseling services, but might not need the level of counseling or the 24-hour security provided at many more concentrated supportive-housing projects, according to Sally Harrison, director of special programs for the Office of Supportive Housing and Homeless Initiatives at the Michigan State Housing Development Agency (MSHDA).

The need for supportive housing for homeless families is tremendous: “We have 80,000 homeless people in Michigan,” said Harrison. That recent tally is nearly twice the number that MSHDA expected. “Of those, 56 to 60 percent are families. What used to be a single-adult problem has swapped out to become a family problem.”

The hard cost to construct a community that includes some supportive-housing apartments and perhaps 1,000 square feet of space for services is about the same as the cost to build other types of affordable housing, according to developers.

For rental subsidy, some of MSHDA’s supportive apartments will apply for hard-to-get federal Sec. 8 vouchers. To develop the rest, MSHDA provides federal HOME grants of $20,000 to $60,000 per supportive apartment. The money allows developers to underwrite rents affordable to tenants earning up to 30 percent of the area median income. Many homeless families have some income, but rarely enough to afford full tax credit rents, Harrison said.

The tenant services, which tend to be provided by nonprofits with their own streams of funding—typically from foundations—add little or nothing to the cost of operating the property.