QHow are your state’s affordable housing needs changing?

ASteve Auger, Florida Housing Finance Corp. executive director:

Florida has experienced unprecedented increases in the cost of land, construction, utilities, property taxes, and insurance. At the same time, the state and the nation have been in a period of relatively stagnant income growth. This combination of flat rents and increasing construction and operating costs has made it extremely difficult to put together financial transactions.

On the homeownership side, the cost versus income equation also has had an impact. To provide perspective, 69 percent of Florida households in 1999 earned an income sufficient to purchase a median priced home using conventional financing. In 2005, only 33 percent of households had annual incomes that allowed them to do so. This continues today. All in all, this means that as the state works to increase housing efforts to serve extremely low income, special-needs households, we’re also faced with expanding need at the upper end of the income spectrum that we normally serve.

Dianne Bolen, executive director, Mississippi Home Corp.:

Owner-occupied: The challenges facing households continue to be the same: incomes that are too low to readily qualify for mortgages and credit history. In south Mississippi counties following Katrina, MHC has seen square foot costs on existing (previously occupied) homes it finances rise up to 45 percent above levels seen before the storm in some zip codes. Building materials costs continue to put pressure on the cost of new construction.

Rental: In south Mississippi, a large number of rental housing units were lost to Katrina, but many units were older single-family houses. The challenge is to replace the units with new construction while keeping rents at a level renters can afford. Communities are challenged to balance the need for replacement housing with their vision for how they want their communities to recover.

Michael DeVos, executive director, Michigan State Housing Development Authority:

Housing costs have increased at a rate higher than inflation. As a result, housing costs are taking up an increasing percentage of renter household budgets around the state. Rural projects are exhibiting high vacancy rates as more young workers move to urban areas. In some areas of the state, with significant dependence on manufacturing jobs, conventional rents are less expensive than tax credit rents as the auto industry shrinks. As the number of overburdened households in Michigan grows, we are using increased levels of subsidy for increased levels of deeply targeted rental housing.

Susan F. Dewey, executive director, Virginia Housing Development Authority:

Virginia’s shifting demographics and the recent run-up in housing costs are altering the distribution of unmet housing needs in a number of ways.

First, high housing costs have increased public awareness of the need for affordable housing options close to major employment centers. This is shifting local and state focus away from what had been a major focus on the neediest populations to a broader focus on workforce housing.

This issue has increased attention on local land-use regulatory barriers that are restricting the development of needed affordable housing stock, as well as on the need to better link housing policy and planning with economic development and transportation planning. Communities impacted by high growth, congestion, and affordability challenges are seeking “smarter” growth strategies involving new types of mixed-income and mixed-use development. VHDA is responding by developing new programs and incentives to address these shifting development priorities.

Second, the recent housing boom was heavily driven by demand for trade-up homes by baby boomers. As the boom unwinds and as baby boomers look toward retirement, we will see more attention focused on two very different needs: 1) the need for affordable starter homes (both rental and homeownership) for young echo baby boomers; and 2) the need for more moderate-sized, moderate-priced housing incorporating universal design to meet the needs of an aging population. VHDA is developing programs and outreach to educate the public on the need to accommodate housing development to meet the needs of the next generation, and to accept new universal design standards that will enable aging in place.

Third, the aging of the native-born population coupled with high rates of foreign immigration are fundamentally altering the ethnic composition of local communities. VHDA is providing loan products, home buyer education and outreach to help close the gap in homeownership rates between minorities and non-Hispanic whites.

Doug Garver, executive director, Ohio Housing Finance Agency:

Ohio is currently in the midst of a foreclosure crisis and finding possible solutions has become a priority. We have a mission to open the doors to an affordable place to call home and in the past several months, keeping Ohio residents in their homes has proven to be just as critical. The Ohio Housing Finance Agency (OHFA) also continues to strategically fund multifamily housing that meets the changing needs of residents and the surrounding community. We will examine and introduce new initiatives to provide viable options to Ohio residents in search of quality, affordable housing.

Kim Herman, executive director, Washington State Housing Finance Commission:

Few people realize that Washington is probably the fifth or sixth most expensive state in the nation for single-family homes. In 2004, only Hawaii, California, Massachusetts, and New Jersey had higher median prices than Washington. Median prices in two of our counties are now over $450,000, and the statewide median price is almost $302,000. This makes it very difficult for working families to buy a home.

John G. Markowski, commissioner, Chicago Department of Housing:

The city’s demographics are changing to include increasing numbers of Latinos, seniors, and low-income renters.

Q What is the biggest challenge to developing affordable housing in your state? And how is your agency responding to the challenge?

A Auger: The biggest challenge continues to be the need to put more financing into each transaction even as the need for assistance expands across higher-income levels. Moreover, this tension is heightened by an increasing need to provide preservation funding to existing housing that is aging or has expiring affordability restrictions. As this occurs, a statutory cap on the distribution of dedicated revenues into Florida’s housing trust funds will go into place in July of this year. Florida Housing continues to educate state lawmakers about the need for affordable housing and encourage stakeholders to do the same. In addition, Florida is beginning to target land-use strategies as an important tool to support the development and preservation of affordable housing.

Bolen: In Mississippi’s six southern counties, the biggest challenge is finding suitable land with services outside of flood elevation boundaries. Insurance costs are significantly higher for both rental and owner-occupied housing, placing an added burden on affordability. Mississippi Home Corp. is working to keep the interest rates on single-family mortgages as low as possible and aggressively marketing its low-interest site development and construction lending products to developers. Additionally, MHC has worked aggressively to commit GO (Gulf Opportunity) Zone housing tax credits to strong developments in eligible areas of the state.

DeVos: The biggest challenge is the lack of a significant subsidy to develop or preserve rental units affordable to very low income households (30-50 percent of area median income). MSHDA uses HOME funds in a variety of lending and community development programs and does not have sufficient subsidy resources to address this need. The affordable housing community in Michigan, including MSHDA, is engaged in a No. 1 priority effort to encourage state funding totaling $100 million a year of an already enacted Housing and Community Development Fund. This funding would help fill the gap to create or preserve rental units affordable to those most in need.

Dewey: VHDA, like many other states, faces the challenge of expanding homeownership opportunities for very low income households, new immigrants, minorities, and persons with disabilities. About five years ago, our concerns led us to develop one of our most successful programs ever, the VHDA SPARC (Sponsoring Partnerships and Revitalizing Communities) Program.

This program allowed us to set aside funds from our First-Time Home Buyer Program for sponsors (local governments, nonprofits, for-profits, etc.) who focused on providing housing to households with incomes below 80 percent of median income. Sponsors must bring leverage to the table in the form of downpayment and closing cost assistance, waiver of fees for new construction, targeting of emerging markets or persons with disabilities, revitalization of existing neighborhoods. In return, VHDA reduces the interest rate on our program by either 0.5 percent or 1 percent, depending upon the depth of the leverage. To date, VHDA has allocated more than $513 million and closed over 2,364 loans for a total of $302 million, with a pipeline of loans still yet to close.

Garver: The limited availability of private-activity volume cap continues to be a challenge for the agency. In 2006, OHFA issued $1.3 billion in single-family mortgage revenue bonds and closed over $1.1 billion in mortgages in our First-Time Homebuyer (FTHB) Program. In order to sustain this level of production, we have increasingly injected taxable bonds into our structures to leverage our tax-exempt borrowing authority in order to meet the strong demand of the program.

Demand was strong for multifamily bonds last year, with issuance volume by local and state issuers exceeding the original allocation by nearly 40 percent. The demand for competitive tax credits outstrips our annual allocation, typically in the range of 3 or even 4 to 1.

In regard to rental housing, we are facing rising development and operating costs. With lower prices for low-income housing tax credits (LIHTCs) predicted this year, it will be a real challenge to fund as many projects and units as we have in the past. We intend to focus on our underwriting standards and analysis of project costs in order to ensure we are effectively allocating our scarce resources. Fortunately, we continue to have access to additional state resources (a housing trust fund, unclaimed funds) that will help us fill the funding gaps. On the operating costs side, we implemented a new option in January for providing utility allowances. This new process should alleviate some of the budget difficulties some of the Ohio LIHTC properties are having.

Herman: Our state has two distinct regions, the western Interstate 5 corridor and the more rural area east of the Cascade Mountains. Along the I-5 corridor, the problem is lack of sufficient land for new construction, particularly in the Seattle metropolitan area. Because of Puget Sound and several large lakes between the sound and the mountains, the land base is narrow. When you combine this with our growth management policies, the cost of land suitable for development has increased steeply in our most urban area.

East of the mountains, we have lots of land but much of it serves our agriculture industry and doesn’t have the infrastructure for development. Add to these issues continued population growth, and the cost of housing keeps going up.

Our challenges as an agency are to increase our affordable rental housing stock and make available financing programs for first-time buyers that will get them into the market as quickly and as cheaply as possible.

Markowski: Our biggest challenge is the need for more resources. We are responding with the following:

  • At the federal level, we are advocating for more Community Development Block Grant and HOME funds.
  • At the state level, we have been successful in creating the Donations Tax Credit and the Statewide Rental Subsidy Fund, resources that benefit affordable housing throughout Illinois. The Donations Tax Credit, which offers a 50 percent state income tax credit for contributions to affordable housing, has assisted 2,000 units since it was created in 2002. The Statewide Rental Subsidy Fund, funded by the $10 mortgage document recording fee, will generate $25 million per year to provide rental subsidies for very low income households throughout Illinois.
  • Locally, the city has aggressively used Tax Increment Financing (TIF) to benefit affordable housing. Since 1994, we have used $205 million to build and rehab 8,000 units of affordable housing.