2019 was a relatively quiet year for the affordable housing industry, unlike the previous several years when effects of tax reform and the 2016 presidential election dominated the news. Even so, the year brought us new trends and notable changes.
Affordable Housing Finance, with help from its Editorial Advisory Board members, takes a look at 10 news events for the industry from the past year.
1. Growing Focus on Affordable Housing
The affordability crisis made national and local headlines during 2019.
“There’s increased national interest in increasing the supply of affordable housing,” says Bart Mitchell, president and CEO of The Community Builders. “Everyone is talking about it, from presidential candidates with housing plans to more congressional sponsors to increase low-income housing tax credit (LIHTC) resources than ever before.”
Affordable housing has been a key talking point for 2020 Democratic presidential contenders, even coming front and center during a primary debate in November. It also was a hot topic in local elections across the nation this past fall.
The LIHTC continues to receive broad bipartisan support in Congress. The Affordable Housing Credit Improvement Act (S. 1703 and H.R. 3077) has 197 co-sponsors in the House—125 Democrats and 72 Republicans—and 37 co-sponsors in the Senate—24 Democrats, 11 Republicans, and two Independents. One of the bill’s provisions, the permanent 4% LIHTC rate, was in play up to the last minute in budget negotiations in mid-December but was abruptly pulled at the last minute.
In addition, legislators have introduced myriad bills in recent months that would invest more money in affordable housing, reinvest in public housing, and provide eviction protections for residents.
2. Maximizing Loan Proceeds
While most predicted a year ago that the Federal Reserve would raise interest rates, the opposite occurred in 2019. At the start of the year, the Fed was watching the economy carefully and said it would be patient about future rate hikes and lenders were fairly optimistic about the year ahead.
“In fact, the Fed lowered rates three times during the year, and the 10-year Treasury is pretty much where we ended the year last year, allowing us to maximize loan proceeds in an environment where every dollar is dear,” says Richard Gerwitz, co-head of Citi Community Capital.
3. Pressure on Private-Activity Bonds
Many industry stakeholders have been watching states where demand for private-activity bonds have exceeded the supply.
“An increasing number of states are back to pre-Great Recession times when affordable multifamily volume consumed all available bond cap,” says Gerwitz. “Those states that had carry-forward have run through it and are having to go back to competitive allocation systems. Some are limiting the amount of allocation to any one project to just enough, plus a safety margin, to pass the 50% test. Others are mandating or giving scoring points for taxable tails, and are exploring putting bond recycling programs in place.”
4. Acquisition and Sales Activity
From a development point of view, Patrick Sheridan, executive vice president of housing for Volunteers of America, says there has been an increased “churning” in affordable housing properties being sold and bought through a variety of ways—from one-off sales, portfolios, fee simple, or managing member acquisitions.
Some larger deals in 2019 include Fairstead announcing the acquisition of general partner interests in a 1,568-unit, 16-property portfolio from The Hampstead Cos. in December, and Oak Coast Properties and BMC Investments acquiring 1,023 units in Denver earlier in the year. The Community Development Trust and Southport Financial Services purchased five affordable housing developments with 450 units in California’s Central Valley.
“We also have seen an increase in balance sheet funds becoming available—one of the key components needed to complete some of these more creative transactions,” he says.
Ronne Thielen, director of public policy and advocacy at R4 Capital, agrees and says this trend has not been limited to 2019. “Year 15 exits have been going on for the past 10-plus years and have become more troubling and complex as we have moved through the past decade,” she adds.
5. Housing Finance Reform
The Federal Housing Finance Agency (FHFA) is starting to lay the foundation for Fannie Mae and Freddie Mac to exit conservatorship.
“After nearly 11 years, ending the conservatorships of Fannie Mae and Freddie Mac is now a top priority for this administration and the FHFA,” says Mark Calabria, who was sworn in as director in April. “I look forward to working with the administration and Congress to chart a path forward that achieves the following objectives: Creating a competitive mortgage market with a limited government role; ensuring taxpayers never again have to rescue Fannie Mae and Freddie Mac; and paving the way for sustainable and affordable housing for homeowners across America.”
In September, affordable housing advocates raised concerns about the Trump administration’s wide-ranging plans for housing finance reform that call for replacing the statutory housing goals of Fannie Mae and Freddie Mac with a new system and giving the Federal Housing Administration (FHA) more autonomy.
In addition, the FHFA unveiled revised multifamily loan caps for the government-sponsored enterprises (GSEs) that same month. The new multifamily loan purchase caps were increased to $100 billion for each GSE, a combined total of $200 billion in support to the multifamily market, for the five-quarter period Q4 2019 to Q4 2020.
6. New Deal Design
The model of combining 9% and 4% housing tax credits in the same development continues to pick up steam across the country.
This hybrid structure allows agencies to stretch limited 9% credits further while using 4% credits to finance larger affordable housing developments. Developers and their financial partners have been able to utilize both credits by splitting a project into separate deals, but it’s not for the faint of heart, requiring careful planning and documentation.
“It generates more equity capital and ‘sops up’ the otherwise unused 4% LIHTCs,” says Conrad Egan, chairman emeritus of Community Preservation Development Corp.
7. Housing and Health Prescription
Combining affordable housing and health care continues to be a growing trend for the industry.
“Finding investors that are willing to put money into properties so that health outcomes are improved has been on the rise,” says Sheridan.
Some developers, such as Sulzbacher Center and Central City Concern, have even taken their communities to the next level by integrating affordable housing and health clinics. Others offer vital health care services and helping their residents access healthy foods.
Health-care systems also are stepping up to the plate to offer solutions.
Kaiser Permanente announced three major housing initiatives in early 2019. It provided $5.2 million to help finance the acquisition of a 41-unit housing complex in East Oakland, Calif., near the company’s national headquarters. It’s the first local impact investment from the health-care system’s $200 million Thriving Communities Fund.
The company and Enterprise also announced a $100 million loan initiative to create and preserve multifamily rental homes for low-income residents throughout Kaiser Permanente’s service areas. Enterprise matched Kaiser Permanente’s $50 million commitment to provide a total $100 million available for investment. In addition, it is working to end homelessness for more than 500 people in Oakland, who are older than 50 and have at least one chronic condition.
8. Tech Money
2019 saw major technology firms stepping up to invest in affordable housing. At the start of the year, Microsoft pledged $500 million to address the affordability crisis in Washington’s Puget Sound region. In November, Apple committed $2.5 billion to address housing availability and affordability in California. Facebook announced $25 million to build up to 120 apartments for teachers in the San Francisco Bay Area. This is the social media giant's largest contribution yet to helping ease the region's affordable housing crisis. And Amazon, which is building its HQ2 in Northern Virginia, gave a $3 million gift to the Arlington Community Foundation in June to help create affordable housing and pursue additional innovative solutions.
9. Industry Giants Retire
Several major influencers in the industry retired in 2019 or announced their upcoming retirements. In the syndication world, Joe Hagan, the longtime president and CEO of National Equity Fund, retired after 19 years with the organization, and Hal Keller, president of Ohio Capital Corporation for Housing, announced his retirement after serving in that role for 25 years.
Washington and North Dakota saw their HFA leaders leave. Kim Herman, who had been the executive director of the Washington State Housing Finance Commission since its creation in 1983, and Jolene Kline, who was with the North Dakota Housing Finance Agency for 34 years and has held the top post of executive director for six years, both left their posts.
On the development side, Pam Goodman retired from her role at Beacon Communities, where she spent 20 years of helping grow the Boston-based company into a diversified multifamily housing owner and developer. In addition, nonprofit leaders Jane Graf, president and CEO of Mercy Housing, and Volunteers of America’s Sheridan broke the news that they both would be retiring in 2020.
10. Government Shutdown
2019 kicked off with a partial government shutdown, the longest in the nation’s history, and put some of the nation’s most vulnerable families and seniors at risk. The shutdown lasted 35 days from Dec. 18, 2018, to Jan 25, 2019. During the middle of the shutdown, housing advocates were concerned about owners of subsidized housing for seniors and those with special-needs covering costs that the Department of Housing and Urban Development would typically provide for as well as local housing authorities maintaining and making repairs at their properties.