Communities eradicating veteran homelessness, the Supreme Court’s ruling on disparate impact, and Congress making the 9% rate permanent within the last week are among the most important events of 2015.
Affordable Housing Finance, with help from its Editorial Advisory Board members, looks back on 10 notable events for the industry from the past year.
10. Baltimore Riots
During a night of riots on April 27 in Baltimore following the funeral for Freddie Gray, the 25-year-old who died in policy custody, an affordable housing development under construction was burned down.
The
Mary Harvin Center, a 61-unit seniors housing project with community space,
in East Baltimore was approximately 45% complete at the time of the massive
fire. Developer The Woda Group, based in Westerville, Ohio, and partner
Southern Baptist Church vowed to rebuild and had a plan in place within 24
hours.
The development, which is being financed with low-income housing tax credits (LIHTCs), is expected to be completed by early spring 2016, a few months behind the original schedule.
9. Florida Developer Debacle
After several long years of investigation, former executives of Carlisle Development Group and co-founders of Biscayne Housing Group were charged in August with conspiring to defraud the government by stealing millions of dollars intended for the construction of affordable housing.
The court documents allege that as a result of the fraudulently inflated contracts, Florida Housing Finance Corp. allocated more than $36 million in excess LIHTCs and grant money for 14 affordable housing developments by Biscayne Housing and Carlisle Development, which once was one of the nation’s largest affordable housing developers.
In September, former Carlisle CEO Matt Greer pleaded guilty to stealing millions of dollars in federal subsidies for affordable housing developments. Lloyd Boggio, who had founded Carlisle with Greer’s father in 1997, pleaded not guilty and will go to trial, which is set for Aug. 24, 2016.
The others charged, Biscayne Housing Group’s co-founders Michael Cox and Gonzalo DeRamon, Fort Lauderdale contractor Michael Runyan, and Plantation contractor Rene Sierra, pleaded guilty.
8. New York’s Affordable Housing Fight
New York City mayor Bill de Blasio has taken a bold stand to create and preserve more affordable housing in the Big Apple.
“If we do not act—and act boldly—New York risks taking on the qualities of a gated community … A place defined by exclusivity, rather than opportunity. And we cannot let that happen,” said de Blasio in his State of the City address in February.
The mayor is calling for the construction of 80,000 new affordable housing units and the preservation of another 120,000 affordable units over 10 years. And he is ready to rewrite the rules, including the adoption of a mandatory inclusionary zoning policy and zoning changes to allow taller buildings in some areas.
Although de Blasio has raised the level of conversation for the need for affordable housing in the nation’s biggest city, he still faces a lot of opposition. In November, both of his proposals faced rejection from community boards around the city. All 12 community boards in the Bronx and the Queens Borough Board voted against the plans.
These advisory votes may make it more difficult for the mayor to get the binding approval needed from the City Council.
7. GAO Report
The first of three expected Government Accountability Office (GAO) reports on the LIHTC program came out in July. According to the report, Internal Revenue Service (IRS) oversight of the LIHTC program has been minimal. Since the program’s start in 1986, the IRS has conducted only seven audits of 56 state housing finance agencies.
GAO officials said Congress should consider designating the Department of Housing and Urban Development (HUD) as a joint administrator of the program.
The National Council of State Housing Agencies disagreed with the recommendation. It urged officials to keep oversight with Treasury and the IRS, which have 30 years of expertise and experience with the LIHTC program.
The two other reports taking a hard look at the LIHTC program from different angles are expected to be released in 2016. The review of the program was requested by Sen. Chuck Grassley (R-Iowa).
6. National Housing Trust Fund Traction
After the announcement by Federal Housing Finance Agency chair Mel Watt in December 2014 that the National Housing Trust Fund finally would be funded, the program saw traction as well as some controversy during 2015.
Originally created under the Housing and Economic Recovery Act of 2008 and to be supported by Fannie Mae and Freddie Mac, the payments were suspended when the government-sponsored enterprises (GSEs) were placed in conservatorship. But Watt’s decision lifted that suspension and directed the GSEs to start setting aside funds for the NHTF as well as the Capital Magnet Fund.
In January, HUD jumped right out of the gate with guidance for state and local entities for implementing the trust fund.
States and state-designated entities are eligible grantees for the new funding. Annual formula grants will be made, of which at least 80% must be used for rental housing; up to 10% for homeownership; and up to 10% for the grantee's reasonable administrative and planning costs.
The funds may be used for the production or preservation of affordable housing through the acquisition, new construction, reconstruction, and/or rehabilitation of non-luxury housing with suitable amenities. All NHTF-assisted units will be required to have a minimum affordability period of 30 years.
But it wasn’t all smooth sailing. The fiscal 2016 spending plan from the House Appropriations Subcommittee on Transportation, Housing and Urban Development, and Related Agencies called for diverting the funding aimed for the NHTF to the HOME program and prohibited other sources being used to capitalize the trust fund.
However, the NHTF prevailed in the end. The omnibus spending bill released on Dec. 16 did not raid any funds from the trust fund, which will deliver its first resources to states in 2016.
“We applaud Congress for not raiding the National Housing Trust Fund and for making modest increases to other key affordable housing programs,” said Sheila Crowley, president and CEO of the National Low Income Housing Coalition (NLIHC). “However, many more resources are needed to fight the monumental challenges of homelessness and the lack of decent, available and affordable housing for the lowest income people in America.”
5. Growing Affordability Crisis
The nation’s affordability crisis continues to grow, according to reports released throughout the course of the year.
According to Harvard Joint Center for Housing Studies’ America’s Rental Housing: Expanding Options for Diverse and Growing Demand report released in December, a record-setting number of renter households faced housing cost burdens in 2014.
Of the nation’s 43 million renter households, nearly half—21.3 million in 2014—faced housing cost burdens, spending more than 30% of income on housing and utility costs. This included a record-setting 11.4 million renter households with severe housing cost burdens, meaning they spend more than 50% of income on housing and utility costs.
In addition, the NLIHC highlighted the mismatch between wages and housing costs in its annual Out of Reach report in May.
With wages remaining stagnant or declining across the county and the federal minimum wage of $7.25, full-time minimum-wage workers are having problems finding modest affordable housing in their communities.
In 2015, an American household must earn $19.35 an hour, more than two and a half times the federal minimum wage, to afford a two-bedroom apartment without spending more than 30% of their income on rent. The national housing wage for a one-bedroom unit is $15.50.
The new Make Room campaign, created this year, is giving a voice to those who are struggling to make rent each month. Enterprise Community Partners, with help from CohnReznick, the MacArthur Foundation, and the Ford Foundation, is creating urgency to residents’ struggles by telling the stories of the families and staging living-room concerts with artists such Carly Rae Jepsen. These videos and stories are posted on the campaign website on the first of each month, typically the day rent is due.
4. Ending Veteran Homelessness
According to HUD’s 2015 Annual Homeless Assessment Report to Congress in November, the nation’s homelessness rates continue to decline based on this year’s “point-in-time” estimates, which are captured by volunteers counting the number of local sheltered and unsheltered homeless people on a single night in late January.
Much progress has been made on housing homeless veterans, which was a key component of the Obama administration’s Opening Doors initiative, the nation’s first comprehensive federal strategy to prevent and end homelessness that was unveiled in 2010. One goal was to prevent and end homelessness among veterans in 2015.
There’s still work to do, but veteran homelessness decreased by 36% between 2010 and January. Less than 48,000 veterans were found to be homeless during the January count, with only 34% on the streets.
And as of November 2015, according to Veterans Affairs, several states and cities—including Virginia; Las Vegas; Mobile, Ala.; New Orleans; Syracuse, N.Y.; and Winston-Salem, N.C.—announced the end of veteran homelessness in their communities.
“Over the past few years, mayors, community leaders, government agencies, and local nonprofits have come together to get our veterans into housing quickly and permanently,” said first lady Michelle Obama in November. “Through the Mayors Challenge to End Veteran Homelessness, cities like New Orleans; Houston; Mobile, Ala.; and Lancaster County, Pa., have effectively ended veterans homelessness. And they’ve done this by ensuring that veterans not only have immediate access to housing, but also the support they need to stay in their homes for the long term.”
3. Tax Credit Pricing
The LIHTC market has made a return to post-recession levels in 2015. The past year has seen prices at all-time highs and a continued drop in yields. In the third quarter, tax credit investors reported seeing bids as high as $1.18 and $1.21.
“I doubt anyone would have thought that prices would continue to escalate during the year,” said Patrick Sheridan, executive vice president of housing at nonprofit Volunteers of America.
Beth Stohr, director of new production, affordable housing tax credit investments, at U.S. Bancorp Community Development Corp., also said this past year was probably the most competitive that many in the industry have been through.
“I’ve heard people say this is 2006 all over again. It does feel like we’re back at the other peak in the marketplace. It’s a very competitive time,” Stohr added.
2. Tax Extenders Package
A major victory came for the affordable housing industry as the year is coming to a close. Congress approved a permanent minimum 9% rate for the LIHTC in its final extenders package on Dec. 18.
Winning a permanent 9% fixed rate is the best scenario for the industry and will provide certainty to the LIHTC community in preparing applications since they can count on the minimum 9% rate and will make many deals more financially feasible.
It also represents the bipartisan support the program has in Congress.
“The top story on the legislative side was the amount of support we kept for the program from the John Boehner to Paul Ryan speakership change,” said Bob Moss, principal and national director of governmental affairs for CohnReznick. “It could have been a whole new ballgame for us, but with the insertion of the 9% fixed rate provision in the permanent bill, we can plainly see the support we have built within leadership and the Ways and Means Committee.”
Another win for the affordable housing industry was the inclusion of the long-term extension of the New Markets Tax Credit (NMTC) in the tax extenders package. The program received a five-year extension from 2015 to 2019 at its current annual funding level of $3.5 billion.
1. Disparate Impact Ruling
The top news story of the year, agreed industry leaders, is the U.S. Supreme Court’s much-awaited decision in the Texas Department of Housing and Community Affairs (TDHCA) v. Inclusive Community Project case in June.
The Supreme Court in a 5-4 ruling determined that actions with a discriminatory effect are unlawful under the Fair Housing Act, regardless of intent.
“The Supreme Court stood up for fair housing and reaffirmed that every family should have equal access to neighborhoods of opportunity in suburbs or cities,” said Bart Mitchell, president and CEO of The Community Builders.
In addition to the Supreme Court ruling, just weeks later HUD issued its final rule on affirmatively furthering fair housing.
“Clearly this has been boiling for awhile, but the decision, states reaction to it (particularly allocating agencies), and HUD's focus on encouraging LIHTC development in higher-income communities with actions like the use of small difficult development areas rather than difficult development areas has the potential to have a major impact on our industry,” said Richard Gerwitz, managing director at Citi Community Capital. “There are so many aspects to this issue for affordable housing residents, advocates, developers, state and local governments, and other interested parties that I feel it will consume us for some time to come.”
Eileen Fitzgerald, president of Stewards of Affordable Housing for the Future, agreed, saying the disparate impact ruling will have policy and practice ramifications for years to come.
For the LIHTC industry, the court decision raises big questions about where housing tax credit developments should be located. Will the decision push states to award credits in more predominantly white neighborhoods?
“There is debate on how big this effect will be, but there will be some impact,” said Sean Thomas, chief of staff at Ohio Housing Finance Agency. “Every state will need to more closely evaluate how their policies comply with the Supreme Court ruling and federal fair housing policies.”