CHICAGO—The next year will bring tremendous opportunities for progress in federal affordable housing policy, but only if housing advocates come up with good ideas to modernize current programs and convince the next president to install a capable reformer as the head of the Department of Housing and Urban Development (HUD).
That was the message from former Congresswoman Nancy Johnson and Sen. Paul Sarbanes at AHF Live: The Tax Credit Developers’ Summit, which was held here at the Hyatt Regency Oct. 24-26.
The two plenary session speakers gave a bipartisan overview of the political outlook for affordable housing, emphasizing the need for advocates to move quickly during the current presidential election campaign to shine a spotlight on housing issues.
Federal health-care programs serve a continuum of needs, including people of all incomes and all ages, said Johnson. "Housing needs to be part of a supportiveservice network people carry with them throughout their lives to have a modicum of security. If the industry does not get this, housing will become a backwater issue."
She said she was pleased that Congress is now taking interest in housing but disappointed it is “reinventing the wheel” by creating new programs instead of using existing delivery systems. She was referring to the passage by the House of a bill to create a National Housing Trust Fund.
Sarbanes said the industry must address the problems at HUD, which he called "dysfunctional." "If we can get a highly competent head of HUD, I think we can get the agency back to doing its job," he said.
He called on the audience to make an effort to educate members of Congress. “Show them projects, show them happy families in decent housing. Show how their whole lives change and transform,” Sarbanes said. "Tell Congress to give it a higher priority."
Johnson said she got involved in supporting the low-income housing tax credit (LIHTC) because "someone took me to a project," and she called on developers to invite their representatives to visit their projects.
Johnson called on the industry to acknowledge problems with the tax credit program and be proactive about suggesting ways to fix them. For example, she said that some critics were justifiably concerned that tax credits were being used to build assisted housing where the private market was already providing low-rent housing.
One of the problems with HUD in the eyes of Congress is that it is deeply associated with failed public housing. Johnson said some members of Congress were also disappointed by the housing voucher program. "Vouchers were hopeful, but the original idea that people’s salaries would go up and we would get the voucher back has failed. To help new people, we must add more money. How much money can you keep adding?"
After losing the 2006 election in her Connecticut district, Johnson, a Republican, became a member of the Federal Public Policy Group at Baker, Donelson, Bearman, Caldwell & Berkowitz, P.C.
Johnson was first elected in 1982 and was a senior member of the powerful House Ways and Means Committee. She most recently chaired the Health Subcommittee, making her the first woman to chair a House Ways and Means subcommittee. She was a staunch advocate for the LIHTC program while in Congress.
Before he retired from the Senate in 2006, Sarbanes had been a strong advocate of affordable housing programs and chaired the Senate Banking committee fora short period early this decade. He is a Democrat from Maryland.
for the 21st century A new leader and a revamped mission may be enough to get HUD back into the good graces of Congress, according to a blue-ribbon panel convened by AFFORDABLE HOUSING FINANCE magazine.
"The problems at HUD are very severe, and when I read the articles that were given to us, it’s a human catastrophe in government, and we really have to find a more aggressive way to address it," said Johnson.
Johnson quickly added that she was optimistic about the potential to make a positive change at HUD. She said a critical part of reforming HUD would be to change its mission to make it more relevant to more people and to rely more on a partnership between the federal government and the private sector, which has worked extraordinarily well in programs not run by HUD.
The next president needs to choose a good leader as secretary of HUD, said Michael Bodaken, president of the National Housing Trust. He called for hiring someone who has successful business or local government experience. "There are many successful for-profit and nonprofit executives from whom the next administration could draw," he said. "Ideally, this older man or woman would have complete and utter respect from the White House and of course the Office of Management and Budget. This person should be passionate about improving communities."
Staffing and management issues must also be addressed, said Carolyn Federoff, president of AFGE Council 222, a group of the American Federation of Government Employees that represents workers at HUD. HUD employees suffer from understaffing, poor training, and bad morale, she said. "If someone doesn’t pay attention to the infrastructure of HUD, the agency will hollow out, and there will be no reason for the agency to exist." She added that she thinks HUD and its employees still have a vital role to play in federal housing policy.
Johnson called for changing HUD’s mission to reflect a more holistic vision. “You need to think of housing in the context of all the other programs along the continuum of personal responsibility, accountability, and long-term societal need for housing, because we’re failing our country in affordable housing,” she said.
Negotiating the HUD maze
Although the agency features great financing programs, working with HUD presents many challenges, said panelists at the "Negotiating the HUD Maze"session.
Still, some developers are making HUD programs and subsidies such as mark-to-market and interest-reduction payments work for them as they exploit opportunities in acquiring and rehabbing Sec. 236 properties.
HUD programs like Sec. 221(d)4 offer 40- year amortization at a fixed rate, and are non-recourse. But dealing with the department’s red tape can derail a deal, and many of its local offices function inefficiently, making deal timelines uncertain.
"I’ve dealt with HUD through five or six different administrations, and HUD’s field office structure has never been weaker," said Sheldon Schreiberg with the law firm Pepper Hamilton, LLP.
While HUD helps developers by providing subsidies such as interest-reduction payments, the department also forces developers to deal with inefficient processes.
"A good field office is usually the difference between if a deal can or can’t happen," said Laura Burns, president of Eagle Point Enterprises.
Eagle Point sees opportunities in acquiring Sec. 236 properties with some project-based Sec. 8 assistance that can be rehabbed and repositioned. Sec. 236 properties in strong markets often have belowmarket rents, and HUD’s mark-to-market program can mark up those rents to market levels. "I can get a rent increase on a 236 deal more than anywhere else," said Burns.
What’s next for tax credit equity
LIHTC syndicators admitted paying as high as $1.05 or $1.06 for some select deals on the West Coast this year. These high prices were influenced, in certain cases, by the pay-in structure or the need to fill a Community Reinvestment Act obligation.
No one reported paying less than 85 cents this year during the "Tax Credit Equity Outlook" session moderated by Todd Sears, vice president of finance at Herman & Kittle Properties, Inc.
Looking toward 2008, syndicators projected seeing lower prices. If the average price this year was 94 cents, the average price may be 90 cents or maybe in the 80s next year, estimated Greg Judge of MMA Financial.
Syndicators expressed concern that Fannie Mae, which has historically been the industry’s biggest tax credit investor, is significantly reducing its investment level because it has slipped into alternative minimum tax status.
"The depth [of the investor pool] is razor thin," said Ryan Sfreddo, managing director of Centerline Capital Group. "There are very few investors."
Overall, there are probably 20 to 30 core investors in the market, with the top six making up 50 percent of the volume in the market, estimated Judge.
Jeff Butcher of WNC & Associates, Inc., said he often receives calls from developers asking about pricing. "If someone tells you a price without first asking is it a 9 percent deal or a 4 percent deal, does it have some debt and how much, you are not going to have an accurate number at all," he warned.
Sfreddo added that the other key questions are “who’s your sponsor and what’s your track record."