Safeguarding Oregon’s Affordable Homes

1. Safeguarding Oregon’s Affordable Homes September 11, 2006

2. Presentation Outline • Background on National Housing Trust • Critical Need to Preserve Existing Affordable Housing Resources-National and Oregon State • Historical Overview • Threats to the Federally Assisted Housing Stock • Why Preserve? • Attributes of Good Preservation Policy • Preservation Approaches and Resources • Oregon Housing Finance Agency and City of Portland Programs • Partnerships Produce Results

3. Background: National Housing Trust • Committed to safeguarding affordable housing; • Only national nonprofit engaged in housing preservation through real estate development, lending and public policy initiatives; • Four principal activities: • Policy/Advocacy: Advocate for government policies that save affordable homes and apartments; • Technical Assistance: Helped others preserve more than 13,000 apartments in more than 35 states and provided preservation training to nonprofits; • Lending: Provide predevelopment and bridge financing to nonprofit purchasers of affordable housing. Loans helped save more than 4,400 apartments; and • Development: Partner with other nonprofits to purchase and revitalize affordable housing. Preserved 3,000 affordable homes.

4. States Where NHT and Its Affiliates are Active

5. Critical Rental Housing Needs • More than 5 million households have critical housing needs • In no metro area in US can a household with one wage earner at the minimum wage afford market rate rental housing • The shortage of affordable housing is geographically widespread. More than ½ of our nation’s carpenters, kindergarten teachers, groundskeepers, retail clerks, and other workers pay over 50% of their income for rent. • The nearly 10 million renters earning less than $17,500 outnumber the available affordable housing supply by approximately 2 to 1. This number is trending up. • We lose tens of thousands of affordable apartments per year.The cost of replacing this housing much greater than maintaining the existing stock.

6. Assisted Housing Demographics • 1.4 million families reside in HUD subsidized, privately owned properties; • 31% of those receiving some form of housing assistance were elderly (62 and above); • Another 20% were disabled; • 40% were families with children; and • 9% were non-elderly singles; • Average income is less than $12,000 annually.

7. Losing Ground: Affordable Housing at Risk over next 10 years

8. Oregon Housing Needs • Of the nearly, 170,000 Extremely Low Income Households in the State, nearly 108,000, approximately 64% spend more than 50% of their income on housing. • According to the National Housing Trust, Oregon has already lost over 1000 affordable, subsidized, dwelling units.

9. What is Federally Assisted Housing? Historical Overview: • National Housing Act of 1949 • First Government Sponsored affordable housing program was “Public Housing.” • Properties developed and owned by the government • Residents pay 30% of income towards rent; government picks up the difference necessary to fund property operations.

10. Historical Overview Continued: “Older Assisted Housing” • In 1960’s, two programs emerged: Section 221(d)(3) Below Market Interest Rate (“BMIR”) and 236 programs. • 221(d)(3) = direct low interest loan (3%) from government • 236 = government subsidizes interest rate of loan to 1% • Both programs require minimal Owner investment and allow for a modest limited return. In exchange, Owners required to make units available to low-moderate income households. • Both programs utilize “budget-based rents” • This stock is often referred to as “Older Assisted Housing”

11. Historical Overview Continued: “New Construction/Substantial Rehab” • In the 70’s, two new federal housing programs: Section 8 New Construction and Section 8 Substantial Rehabilitation. • Pure rental subsidy program. No special mortgages or interest subsidies. With project-based Section 8, residents pay 30% of their income towards rent. • Section 8 contracts usually for 15 or 20 years • This stock is sometimes referred to as “Newer Assisted Housing”

12. Threats to Federally Assisted Housing • Changes in the market make property more valuable under different use -- Owners prepay or “opt-out” to release affordability restrictions to convert. • As Section 8 contracts expire, owners have right to “go to market.” • Owners no longer want to deal with bureaucracy of a federal program. • Insufficient property funds and/or owner attention to maintain properties to decent standards

13. NHT Study on Housing Loss: Over 1000 affordable apartments lost from Oregon’s affordable housing inventory • Studied the period from 1995-2003 • Studied loss of housing that was supported by Section 8 or subsidized through their HUD-insured mortgage • Found that 300,000 apartments had been lost nationwide to the affordable housing inventory over that time frame • The nation has lost more than 15% of its housing inventory dedicated to serving poor people since 1995 Complete study can be found at www.nhtinc.org

14. Oregon Housing at Risk According to National Housing Trust: 200 properties consisting of nearly 6,800 HUD assisted, affordable apartments are subject to expiration of their Section 8 contracts between now and the end of 2011.

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17. Why Preserve? • The supply of our most affordable apartment homes is decreasing: • The number of apartments that rent for $400 or less declined by 1.2 million between 1993-2003. • New construction alone will not produce enough affordable housing: • The housing we produce costs approximately $900/1 bedroom. The housing we need costs about $450/1 bedroom. • Preservation saves resources: • Revitalizing existing housing costs 40 percent less than new construction and is far more energy efficient. • For “hotter markets,” the choice is to hang on to what we have or lose existing affordable housing forever.

18. Preservation is Cost Effective • Rehabilitation properties received less than $40,000 in tax credit equity for each rehabilitated apartment • In contrast, each newly constructed apartment received almost $65,000 in tax credit equity

19. 5 Attributes of Good Preservation Policy • Most successful preservation work requires good knowledge, a local warning system and coordinated response: Ohio, Minnesota and Illinois examples: • Meet every month • Share all data • Try to reach common understanding of what is at most risk. • Commitment at highest level, meaning funding for persons to lead effort; • Flexibility to meet owners/nonprofits’ needs; • Stressing the relatively low cost of preserving; • Provide an array of preservation resources, i.e., short term and long term debt; low yielding equity; predevelopment; bridge financing, etc.

20. Policy Concerns • Tax Recapture (Exit Tax Relief) • Maintaining the federal Section 8 ‘commitment’ • Capacity: Preservation is a ‘zen like’ activity: have to assume one can’t control the seller; have to be ready and waiting: • That requires QUICK Acquisition Funds, like the Enterprise Fund established in New York City.

21. Senator Smith IntroducesExit Tax Relief • Sen. Gordon Smith (R-OR) and Sen. Charles Schumer (D-NY) have introduced S.3715. • S.3715 would eliminate depreciation recapture for owners who sell to a State approved ‘preservation entity’ that agrees to keep the property affordable for another 30 years. • Support Sen. Smith’s efforts.

22. Preservation Approaches and Resources

23. National Issue: Local Challenge • While preservation is a national challenge, the wide variety of local conditions requires a local, tailored response. • Intervention requires a local understanding of the market, the population being served, and often, the support for preservation at the local and state level. • Many States have resources dedicated to development and/or preservation of affordable housing. • Many Cities/Counties also have resources dedicated to development and/or preservation of affordable housing. • Resources come in the form of soft loans, grants, allocation of tax credits, or tax relief (e.g., real estate tax abatement).

24. Typical Preservation Resourcesfor Nonprofits • Section 8 Mark UP to Market – nonprofit owners & transfers to nonprofit owners • Section 8 Mark (down) to Market Restructuring • Low Income Housing Tax Credits • Tax-exempt bonds • HOME and CDBG • Local resources • Foundations • Layering of multiple resources from above

25. The Good News: State Housing Finance Agencies Answer the Call • State housing agencies are increasingly dedicating resources to preservation • State and local finance agencies employ a variety of strategies to preserve affordable housing • These strategies include: • Setting aside low income housing tax credits • Using private activity bonds and 4% credits • Allocating state housing trust fund money • Providing predevelopment and bridge loans • Allowing owners equity take-outs • Providing tax incentives to owners who agree to maintain the housing as affordable Complete working paper on State and Local Preservation Initiatives available at www.nhtinc.org

26. State Set Asides • Three years ago, only 4-5 states set aside or prioritized Low Income Housing Tax Credits for preservation. • Today, according to information gathered by the Trust, more than 40 states prioritize preservation through points or a specific preservation set-aside in their competitive tax credit program. • 16 states set aside at least 10% of their 9% tax credits for preservation: • Massachusetts, Wisconsin – 35% set aside • Michigan – 30% set aside • Ohio, OREGON – 25% set aside • Illinois, Iowa, Montana, North Carolina, Pennsylvania, West Virginia – 20% set-aside • Indiana, Texas, Utah – 15% set aside • New York, North Dakota – 10% set aside

27. Increasing Trend in the Use of Low Income Housing Tax Credits for Preservation • In 2000, approximately 20,000 affordable apartments were preserved using low income housing tax credits • By 2005, the number of affordable apartments that were preserved using low income housing tax credits increased to more than 50,000 apartments.

28. Other State and Local Preservation Initiatives • Fairfax County, Virginia has dedicated “one penny for housing” from real estate tax levy to raise $18 million for affordable housing preservation fund in first year. Want to preserve 1,000 affordable apartments by 2007. • Virginiaand Washington State have developed nonprofit CDFIs (approved by U.S. Treasury) that fund predevelopment or provide bridge financing for preservation transactions • State and Local Housing Trust Funds used for preservation (e.g. Arizona, District of Columbia, Illinois, Iowa, Maryland, Massachusetts, Minnesota, Missouri, Montana, Ohio, Oregon, Rhode Island, Utah, Washington, Los Angeles, CA, Fairfax County, VA) • Minnesota and Montgomery County, MD use state/local tax revenue for preservation. • Washington DC has set up a $20 million “Acquisition Fund.”

29. State of Oregon and Portland Preservation Programs • 25% set aside in QAP (actually used 40% in 2004) • Oregon Housing Dev. Grant Program • City of Portland prioritizes CDBG, HOME and tax increment funding for preservation of Section 8 housing • City exploring a proposed regional real estate transfer tax for preservation?

30. NHT/Enterprise Preservation Corporation "Preserving Affordable Housing, Creating Community Assets" • NHT and the Enterprise Foundation launched venture almost four years ago • Organization to buy and hold where no local nonprofit interest lies in preserving. Has preserved 3,000 units in Mid-Atlantic, Midwest, South, and Southeast • Staffed by seven underwriters and asset managers employed by NHT • Often partners with other “for profit” and nonprofit developers

31. Sample: Friendship CourtCharlottesville, VA • Here, local nonprofit was offered opportunity to purchase last available affordable housing property in rapidly gentrifying Charlottesville, VA. • NHT/Enterprise took risk and shared guarantees w/ local nonprofit. • Preserved and improved property. • Now local nonprofit shares in fees and provides services on site, including but not limited to after school activities, computer activities, job training and Earned Income Tax Credit returns. • Property fully occupied.

32. For More Information: Michael Bodaken National Housing Trust • E-mail: mbodaken@nhtinc.org • Address: 1101 30th St, NW, Suite 400 Washington, DC 20007 • Phone: (202) 333-8931 • Web: www.nhtinc.org