Millennial Housing Commission's Vision for Affordable Housing

1. The Millennial Housing Commission's Report -- A Vision for Our Nations' Housing National Association of Housing and Redevelopment Officials June 5, 2002 An NAHRO AudioShort

2. Today’s Moderator • James M. InglisNAHRO Senior Vice President and NAHRO, Inc. ChairmanExecutive DirectorLivonia Housing CommissionLivonia, MI An NAHRO AudioShort

3. Panelists • Conrad Egan Staff DirectorMillennial Housing CommissionWashington, DC • Ophelia B. Basgal Member, Millennial Housing CommissionExecutive DirectorHousing Authority of Alameda CountyHayward, CA An NAHRO AudioShort

4. Agenda • • Introduction • Background • Recommendations • Public Housing • Section 8 • Other Affordable Housing • • Questions and Answers • • Wrap Up An NAHRO AudioShort

5. Objective In today’s AudioShort, our panelists will provide you with an a summary with an emphasis on public and assisted housing as well as a discussion of the Millennial Housing Commission’s Report released on May 30, 2002. An NAHRO AudioShort

6. Introduction: Background • In December 2000, Congress pursuant to legislation established the bipartisan Millennial Housing Commission. • The Commission consisted of 22 individuals drawn from across the country and from across the spectrum of housing ideologies and experience. • The Commission was charged with examining, analyzing and exploring three areas: An NAHRO AudioShort

7. Three Areas of Exploration • The importance of affordable housing to the infrastructure of the US; • Possible methods for increasing private sector involvement; • Whether existing HUD programs work in conjunction with each other and how if needed can these programs be improved to meet the overall purpose of providing better housing opportunities. An NAHRO AudioShort

8. Millennial Housing Commission Sought Answers to These Questions: • Is the nation getting the housing outcomes it expects and desires for individuals, families, and communities? Are there better ways to meet these needs? • Are existing housing programs living up to their potential? Which need reform or significant restructuring? • What are the critical housing needs and are new programs needed to address these needs? An NAHRO AudioShort

9. Gathering the Answers • The Commission held five public hearings, conducted numerous focus group meetings, commissioned papers and asked for input on policy positions and program recommendations from a diverse group of individuals and organizations. An NAHRO AudioShort

10. Fundamental Precepts of Agreement • Housing is linked to access to jobs and healthy communities. The failure to achieve adequate housing leads to significant costs to society. • A multiple of factors arranging from community opposition to high-density development to the fast growth of new families requiring housing created an inadequate supply of affordable housing. An NAHRO AudioShort

11. The Commission’s Vision Produce and preserve more sustainable, affordable housing in healthy communities to help American families progress up the ladder of economic opportunity. An NAHRO AudioShort

12. Basic Principles • Strengthen Communities • Devolve decision-making to states and local governments, but within a framework of federal standards and performance objectives. • Commission recommends that Congress pay special attention to assigning appropriate roles and responsibilities to each level of government. An NAHRO AudioShort

13. Basic Principles (continued) • Provide the private sector with effective incentives to help produce and preserve affordable housing. • Design programs to sustain the stock of affordable housing over the long term. An NAHRO AudioShort

14. Public Housing An NAHRO AudioShort

15. Recommendations Public Housing • One of the major reforms recommended by the Commission is to transform the public housing program. This should not be confused with proposals to convert public housing into a tenant-based program; but, rather the Commission affirms the importance of maintaining a permanent inventory of housing for people with extremely low incomes. An NAHRO AudioShort

16. Recommendations Public Housing (continued) • Specifically the Commission is recommending a gradual transition to project-based accounting, with subsidies flowing to specific properties based on their rents once restored to market condition. An NAHRO AudioShort

17. Recommendations Public Housing (continued) • Under this recommendation, public housing’s physical inventory and population would shift to the project-based Section 8 model. This would be converting operating and capital funding to a long-term Section 8 type contract linked to the property instead of the PHA. An NAHRO AudioShort

18. Recommendations Public Housing (continued) • Benefits of this Conversion: • Reliable funding to cover operating costs • Debt service on loans for capital costs • Replacement reserves • Debt Service Insurance • Subsidy levels would be based on each property’s market rent. An NAHRO AudioShort

19. Recommendations Public Housing (continued) • To be eligible, PHA would pledge to retain some specified income targets for the property. • Timeframe: Voluntary at first, with a period of 7 to 10 years for completion. • Transitioning: HUD would still have to provide oversight on those PHAs who choose not to convert some or all of their housing stock. An NAHRO AudioShort

20. Recommendations Public Housing (continued)PHA Inventory Viability • Converting of public housing would follow the “Mark to Market” Process: conduct a market study and market-based physical and financial assessment for each property in the PHA’s portfolio to determine feasibility of conversion approach. An NAHRO AudioShort

21. Recommendations Public Housing (continued) • If the assessment reveals that the property is severely distressed but is located in a good area and therefore warrants investment, then a HOPE VI revitalization, mixed-income approach would be considered feasible. • When the property being revitalized is completed only then will it move to a project-based voucher contract. An NAHRO AudioShort

22. Recommendations Public Housing (continued) • If the property is severely distressed and is not well located, not viable, it will be demolished. A local market assessment must be completed to determine what housing resources are available to any families that must be relocated. An NAHRO AudioShort

23. Inventory Conversion (continued) • Once the feasibility stage is completed, we must ensure that the conversion is thoughtful and orderly. Transition steps: • Assess the capital, operating, and asset and property management needs of each property to determine the best debt and reserve structure. • Prioritize: Convert the properties in the best condition and location FIRST. An NAHRO AudioShort

24. Inventory Conversion (continued) • Set up each property as an individually owned entity with its assets outside the Annual Contributions Contract (ACC). • Possibility: You could make each property or entity a subsidiary nonprofit corporation of the public housing authority with freestanding assets to facilitate debt financing of capital improvements. An NAHRO AudioShort

25. Inventory Conversion (continued) • Establish clear and widely accepted standards for redesign, unit and site amenities, and physical condition so that the properties are attractive to a wide range of eligible families. • Anticipation that this would serve to reduce the concentration of the very poorest of families. An NAHRO AudioShort

26. Inventory Conversion (continued) • Upon turnover, permit PHAs to admit a percentage of market-rate tenants to properties when income-mixing is feasible. • Use of tenant-based subsidies in areas with inadequate supply, or project-based subsidies for units in other locations. An NAHRO AudioShort

27. Inventory Conversion (continued) • Replace the Annual Contributions Contract with a Housing Assistance Payment (HAP) contract as each property moves to the project-based assistance model. • This reduces the regulatory burden of the PHA and HUD oversight requirements and eventually eliminates the oversight. • Properties that elect not to seek project-based assistance would move to a housing choice voucher-type HAP. An NAHRO AudioShort

28. Inventory Conversion (continued) • Use a Section 8 administrator to avoid conflict of interest if the PHA is the owner/manager, set rent levels, and perform housing quality inspections. • Many jurisdictions have this in place already. An NAHRO AudioShort

29. Inventory Conversion (continued) • Involve the residents in future planning about the conversion. Residents and managers must be aware of each other’s desires, opinions and goals. • Throughout this process, input and participation from public housing residents and other important stakeholders should be actively sought and considered. Residents should have access to training and TA necessary to maketheir involvement informed and productive. An NAHRO AudioShort

30. Conversion of Severely Distressed Properties (continued) • Utilize the HOPE VI as a preservation and production tool providing a comprehensive approach to eliminate blighted conditions: physical deterioration of properties, and social pathology characteristic of high-poverty areas-- higher unemployment rates, longer average tenancy, low education levels, high crime rates, poor school performance. An NAHRO AudioShort

31. Conversion of Severely Distressed Properties (continued) • First, HOPE VI must be utilized to provide relocation, demolition, site remediation and construction costs. HOPE VI leverages non-public housing costs which make up the larger share of the development budget. An NAHRO AudioShort

32. Debt Financing of Capital Needs An NAHRO AudioShort

33. Debt Financing of Capital Needs • Capital Improvements would be financed through private tax-exempt loans secured by a mortgage and backed by FHA mortgage insurance. • No additional guarantees should be necessary for the majority of public housing properties, whose market rents would fully support the debt service to bring the property to acceptable quality standards. An NAHRO AudioShort

34. Debt Financing of Capital Needs: Scenario #1 Properties that potentially have sustainable rents but do not initially meet quality standards... • Would have a limited time to rehabilitate or replace inadequate units. • Rents during the planning and rehab period could be pegged to what the units would command after renovation. • Additional credit enhancements/other HUD guarantees would be necessary in cases where the property’s condition will require financing exceeding the property’s market value. An NAHRO AudioShort

35. Debt Financing of Capital Needs: Scenario #2 PHA decides not to replace or rehabilitate a property… • Rents would be based on market value and replacement reserves would continue to accrue. • Some properties may not need new capital investment while other properties do not warrant any additional investment and are good candidates for demolition -- these units can be replaced with hard units or vouchers. An NAHRO AudioShort

36. Advantages of Debt Financing • Long-term costs of this capital improvement approach would likely be lower than the current approach. • Improvements can occur quickly. • Debt financing provides another level of operational oversight from lenders; thereby, substituting standard real estate practice for HUD oversite and regulations. An NAHRO AudioShort

37. Debt Financing Not For Everyone: Small Properties • For small properties, the ratio of transaction costs to overall debt makes this type of financing impractical. • More suitable approach would be to use existing capital grant programs or to front-load direct grants. An NAHRO AudioShort

38. Debt Financing Not For Everyone: Capital Needs Exceed FMRs For properties whose capital needs require rents substantially above market levels, you can: • Use the HOPE VI program to revitalize the properties that are well located but in poor condition or otherwise obsolete. • Grant PHAs full access to all housing development tools including debt financing and tax credits, as well as new loan and grant programs. An NAHRO AudioShort

39. Challenges • Alternative approaches may add to the already tight competition for tax credits. • Success of endeavor depends on the credibility of the PHA and its partners as asset and construction managers. • Congress should consider increasing the allocation of the Low Income Tax Credit so it can be used to revitalize the public housing stock without diminishing its availability for other uses. An NAHRO AudioShort

40. Challenges (continued) • Congress should direct HUD through the PHA to work with the private sector and different bond-rating agencies to structure a guarantee based on the proposed Section 8 project-based appropriations. Such a guarantee would enable PHAs to leverage private-sector investment for constructing or rehabilitating units. An NAHRO AudioShort

41. Simplify the Rating of PHAs KISS, please?! An NAHRO AudioShort

42. Simplify the Rating of PHAs: Current Situation • HUD uses various systems to assess PHAs that focus on process compliance rather than outcomes. • Evaluation systems have become pointlessly complex. • System needs to be simplified. An NAHRO AudioShort

43. A Simplified Rating System Should Must: • Related to the quality of housing that residents experience and be simple enough to enable PHAs or other administrators to judge how they are doing. • Past public housing assessment systems provide insight to design an approach that accurately gauges quality of housing and its management. An NAHRO AudioShort

44. A Simplified Rating System Should Must: • Prevent PHAs that do not meet minimum standards from converting to the proposed project-based program. • If such a PHA owns some properties that do meet standards, those properties could be converted under some form of ownership that provides opportunities for resident participation and does not give the PHA complete control. An NAHRO AudioShort

45. A Simplified Rating System Should Must: • Require agencies with competency problems to accept alternative management. • Such as other PHAs acting as administrators, state or procured competitively from the public, nonprofit, or for-profit sectors. • If alternative management measures do not work, troubled PHA would have to report to an administrative or judicial receiver. An NAHRO AudioShort

46. Test New Rent-Setting Approaches Rent Model Incentives $$ Threshold An NAHRO AudioShort

47. Test New Rent Approaches • Congress should consider funding a research demonstration of alternative rent models. • Rigorous research is necessary to ensure that public housing residents who are elderly or disabled are not forced to pay too high rents in the name of simplicity. An NAHRO AudioShort

48. Test New Rent Approaches (continued) • The rent structure should incorporate incentives for residents to seek economic opportunities. • Establish an income threshold below which residents are subject to full verification and pay a simplified income-based rent. • Families with incomes above the threshold would pay a higher fixed rent based on their unit size and subject to annual adjustment. Such an approach creates real economic incentives. An NAHRO AudioShort

49. Test New Rent Approaches (continued) • Another approach would be to set rents at 30 percent of income for the first year and then “step up” the level every year thereafter. This creates an incentive to work, but gives families a full year to access services and achieve some stability. An NAHRO AudioShort

50. Exempt Small PHAs ... • From unnecessary and burdensome reporting requirements. An NAHRO AudioShort