Changes in federal housing leadership, an order to capitalize the National Housing Trust Fund, and a controversial door for the poor in New York City are among the notable stories of the past year.
Affordable Housing Finance, with help from several industry leaders, looks back on 10 of the most important events of 2014.
10. Leadership Changes at HUD: From deep in the heart of Texas to the nation’s capital, Julián Castro left his post as mayor of San Antonio to become the 16th secretary of the Department of Housing and Urban Development (HUD) in Washington, D.C. Sworn in as the nation’s top housing official on July 28, he replaced Shaun Donovan, who moved on to become director of the Office of Management and Budget.
Castro, 40, is a rising star in the Democratic party, and his new post gives him national exposure and experience.
As the Obama administration moved further into its second and final term, other key figures also left HUD. Sandra Henriquez, who was assistant secretary for public and Indian housing, stepped down at the end of June. Carol Galante, Federal Housing Administration commissioner and assistant secretary for housing, also left, joining the University of California at Berkeley. Both had been with HUD since the beginning days of the Obama administration.
Earlier in 2014, Maurice Jones left after serving as deputy secretary for less than two years to become Virginia’s secretary of commerce and trade.
9. Decline in Homelessness: The number of homeless individuals and families continued to fall.
There were approximately 578,424 persons experiencing homelessness on a given night in January, an overall drop of about 2 percent (or 13,344 individuals) from the year before and an 11 percent decline (or 72,718 individuals) since 2007, according to the annual point-in-time count results released by HUD.
Significant progress has been made in reducing chronic and veterans homelessness thanks to the growth of Housing First communities and the HUD-Veterans Affairs Supportive Housing program. Chronic homelessness declined by 3 percent (or 2,164 individuals) last year and by 30 percent (or 36,197 individuals) between 2007 and 2014. Homelessness among veterans declined by 11 percent (or 5,846 individuals) last year and 33 percent (or 24,117 individuals) between 2009 and 2014.
However, not all the news was positive. A recent report shows that the number of homeless children has reached an all-time high.
The National Center on Family Homelessness at the American Institutes for Research reported this fall that almost 2.5 million children, or 1 in every 30 children in the United States, experienced homelessness in 2013. Child homelessness grew 8 percent nationally from 2012 to 2013, and it increased in 31 states and the District of Columbia.
8. Housing Plus: Discussions continued to grow around the important role affordable housing plays in improving education, transportation, and health outcomes.
David Smith, chairman of Recap Real Estate Advisors, points to the growing connections housing and health care.
“During 2014, health-care providers discovered that ‘upstream intervention’ in housing can help people remain independent longer and avoid homelessness, assisted-living, or nursing home admission, with consequent savings against overstressed management-care organizations,” he says. “While the funding mechanisms and business models for pre-health care independence are still being developed, interest in housing ‘plus’ services to relieve rising health care is growing exponentially.”
The industry saw The Housing Collaborative develop Creston Avenue Residence in New York City this year, the first housing project financed under the state’s Medicaid Redesign Team Housing Capital Program. Under this innovative program, savings from the state’s Medicaid program are being used to help finance supportive housing.
7. Mid-term Elections: The Republicans stormed to victory in the 2014 mid-term elections, gaining control of the Senate and adding to their majority in the House. How this will shake out for affordable housing and the low-income housing tax credit (LIHTC) program remains to be seen, but one thing is certain: Affordable housing advocates will have a lot of work to do with so many new members of Congress heading to Washington.
“Our education process, as a result of the election, starts over in 2015,” says Bob Moss, principal and national director of governmental affairs at CohnReznick. He calls it “the 3G network of grand openings, ground breakings, and grandma (residents/constituents).”
During the last few years, developers and others have worked to educate lawmakers about the need for affordable housing and the importance of the housing tax credit. That effort now must continue in 2015, says Moss.
6. Robust Financial Markets: The low-income housing tax credit and larger financial markets rolled through the year with hardly a hiccup.
“Stability—not sexy but highly unusual,” says Chickie Grayson , president and CEO of Enterprise Homes, about the 2014 market conditions. The result was strong LIHTC prices and available debt for developers.
Even as yields to LIHTC investors slipped below 7 percent, prices to developers remained strong. That’s because demand for credits continued to far outpace the limited supply. LIHTC investors were shopping in all aisles of store this year. They weren’t just buying in the hot coastal markets. They were also looking at deals throughout the country.
Debt was also readily available. Banks were eager to make loans, and the government-sponsored enterprises (GSEs) were focused on the affordable housing space.
5. Poor Door Controversy: The housing story that sparked the most debate and generated the most headlines this year involved a door at a building that’s under development in New York City.
The developers behind a 33-story project on the Upper West Side are building one entrance for low-income residents who will live in the property’s affordable apartments and a separate entrance for those who will live in the building’s luxury condominiums.
“It’s the epitome of government-sanctioned inequality,” says New York Assemblymember Linda B. Rosenthal, who represents the neighborhood.
The 40 Riverside Blvd. development isn't breaking any rules, but it struck a nerve. Its two-door plan prompted calls to change city housing rules and shined a light on income inequality.
4. Supreme Court Case: The Supreme Court agreed to hear a case involving the LIHTC program in Texas. The case carries high stakes for the program nationally.
A lawsuit filed by the Inclusive Communities Project (ICP) claimed that the Texas Department of Housing and Community Affairs (TDHCA) discriminated based on race by disproportionately approving LIHTC developments in predominantly minority neighborhoods and disproportionately denying LIHTC developments in predominantly Caucasian neighborhoods.
The top court will soon decide whether the disparate impact theory can be used in claims made under the Fair Housing Act. In general, disparate impact is when a policy that may appear to be neutral has a discriminatory effect on a group based on race, sex, age, or disability.
The court’s ruling could have a major impact on how and where housing credits are allocated.
3. National Housing Trust Fund: In December, the Federal Housing Finance Agency (FHFA) ordered Fannie Mae and Freddie Mac to begin setting aside and allocating funds to the National Housing Trust Fund (NHTF) and the Capital Magnet Fund.
“It’s one of the biggest policy decisions benefitting affordable housing in many years,” says Enterprise Homes’ Grayson.
The move comes about six long years after the much-anticipated trust fund was established under the Housing and Economic Recovery Act of 2008, which was signed by President George W. Bush.
The NHTF was supposed to be capitalized with contributions from Fannie Mae and Freddie Mac, but the GSEs were placed into conservatorship by FHFA in September 2008 during the housing crisis and payments to the fund were suspended. As a result, the fund has existed in name only.
Starting with fiscal 2015, both Fannie Mae and Freddie Mac are to set aside an amount equal to 4.2 basis points of each dollar of unpaid principal balance of its total new business purchases.
Approximately $500 million could be raised for both the NHTF and the Capital Magnet Fund in 2015. Those funds would then likely be allocated the following year.
2. RAD Expansion: The fiscal 2015 budget passed by Congress greatly expands the Rental Assistance Demonstration (RAD) program.
RAD has two components. The first has allowed public housing and Mod-Rehab properties to convert, under a competition limited to 60,000 units, to long-term Sec. 8 rental assistance contracts. The second allows HUD Rent Supplement, Rental Assistance Payment, and Mod-Rehab properties to convert tenant-based vouchers to project-based assistance.
“Originally authorized as a demonstration with a 60,000-apartment cap, and introduced to widespread stakeholder skepticism, RAD dramatically outperformed everyone’s expectations, with the pipeline rising to 180,000 apartments, an achievement that Congress belatedly recognized by increasing the cap to 185,000 apartments,” Smith says. “RAD is nothing short of revolutionary: Voluntary, property-based, zero count to the federal government, and deregulatory, it offers public housing authorities a way to recapitalize properties and transition out of a system that has been hamstringing them.”
Others also cite the significance of RAD.
“For HUD to have initiated a new program and so quickly garnered the support of authorizers and appropriators to the extent that they would expand the program is quite remarkable in this day,” says David Gasson, executive director of the Housing Advisory Group and vice president of Boston Capital. “The efforts of the Lift the RAD Cap Coalition are commendable and again should serve as a model for other programs under the HUD umbrella in which we as an industry must build the level of support.”
1. Tax Reform: When out-going Ways and Means Committee Chairman Dave Camp (R-Mich.) released his much-anticipated tax reform draft this year, the LIHTC was one of only three tax preferences included in his discussion plan. This was a major victory.
Yes, the draft includes some troubling changes to the LIHTC program, but it was more significant that the housing credit was maintained in Camp’s version of the tax code.
“The inclusion of the LIHTC in the Camp draft, and the Republican Ways and Means committee level of support for the credit, was huge,” says CohnReznick’s Moss.
Others also agree that it was one of the year’s critical events and will continue to be a major topic in 2015.
“From the tax reform perspective I would contend this past year was a watershed moment for the LIHTC program,” says Gasson.
Based on recent public statements, tax reform seems to be an area of focus for Republicans, adds Todd Crow, executive vice president and manager of tax credit capital at PNC Real Estate. He's also president of the Affordable Housing Tax Credit Coalition.
"Just in the last week we've seen Chairman Camp follow through on his discussion draft with a tax reform proposal that could modify certain provisions of the LIHTC while it would do away with other tax credits altogether," Crow says.
Camp’s efforts will likely frame tax reform discussions going forward. It also lays the groundwork for LIHTC advocates.
“While this was a marquee moment for the program I would suggest that the real story was the grassroots advocacy effort the affordable housing industry so successfully undertook to achieve this end result,” Gasson says. “While past efforts have seen us prevail with a minority of Ways and Means Republicans voicing their support for affordable housing, this effort saw a super-majority of the Republican members standing up for the credit. We must continue and expand on these efforts as the reform debate is just getting started, the authorizing committees have new leadership and there are a lot of new members of Congress. We must also contemplate similar efforts to bolster the image of and support for the appropriated programs, especially with sequestration scheduled to come back into play with the fiscal 2016 budget.”
Connect with Donna Kimura, deputy editor of Affordable Housing Finance, on Twitter @DKimura_AHF.