NHC Open House Blog

House approves low budget suballocations, setting up battle with Senate

noreply@blogger.com (National Housing Conference) — Thu, 23 May 2013 15:34:00 +0000

by Ethan Handelman, National Housing Conference

On May 21, the House Appropriations Committee released its 302(b) allocations, which are the levels of budget authority allocated to each subcommittee. The allocation for Transportation, Housing and Urban Development (THUD) is only $44.1 billion, which is $4 billion less than the post-sequestration FY 2013 level. This is an unsustainably low level, and one that reflects the overall 302(a) budget cap of $973 billion the House set earlier this year. NHC, as part of the Campaign for Housing and Community Development Funding, is pressing for a much higher THUD 302(b) spending level.

Ranking Member Nita Lowey (D-MA) observed as much during the markup. She offered an amendment to increase the 302(a) allocation for THUD to $1.058 trillion, the presequester level and roughly in line with the President’s budget request. Notably, Rep. Lowey’s amendment included additional funds to fully renewed property-based Section 8 contracts (which NHC has supported). The amendment was defeated along party lines.

The House THUD appropriation level as proposed is unlikely to become law, but it does set up a major battle with the Senate, which has not yet set its 302(b) allocations. The two chambers set very different overall budget levels; Senate Appropriations Committee Chairman Barbara Mikulski (D-MD) announced a 302(a) level of $1.058 trillion. The House and Senate have yet to come to any compromise or agreement on them. Expect a major battle this year, largely along party lines, over the total amount of federal spending. The course of that battle will be partly determined by how strongly advocates call for funding of essential priorities like affordable housing, and the result of that battle will then flow back downward in the federal spending decisions.

The need for disaster-resistant housing becomes tragically clear

noreply@blogger.com (National Housing Conference) — Tue, 21 May 2013 14:12:00 +0000

by Janet Viveiros, Center for Housing Policy

A home in Union Beach, N.J., destroyed by
Hurricane Sandy. Credit: iStockphoto

In light of the deaths and destruction caused by the tornado in Moore, Okla., yesterday, as well as the tornadoes in Texas and Oklahoma this past week, the need to build disaster-resistant housing is clear. As the disturbing images of damage caused by the tornadoes remind us, many households across the country are very vulnerable to natural disasters. In addition to offering assistance to the victims of these tornadoes, moving forward we must also look at how we can reduce this loss of life and widespread devastation in the future.

I recently attended the Build It Better Leadership Forum which brought together leaders of various industries to discuss how we can “build it better” to improve the safety and resiliency of buildings and communities in the face of hurricanes like Hurricane Sandy. While the focus of the forum was on hurricane risks, the lessons about the importance of sound construction techniques and disaster preparedness are applicable to any natural disaster. One major challenge mentioned several times during the forum was how to effectively educate and make resources available to help homeowners and property owners improve the safety of homes before disaster strikes.

Several organizations and states are actively looking at ways to improve home safety through better construction of new houses, and retrofits of older houses. The Federal Alliance for Safe Homes (FLASH) is a no-profit consumer advocate for disaster resistant housing. The organization provides information to consumers and builders about ways to construct or retrofit homes to better withstand various natural disasters. This includes detailed designs and estimated costs of safe rooms which offer greater protection to families and individuals sheltering in their home during a tornado or storm with high winds.

Improving the safety and resiliency of a home is a concern for all households. However, low- and moderate-income households have fewer resources available to invest in disaster resistance retrofit projects for their homes. Low-income individuals are often the least able to prepare for and respond to the damaging impacts of natural disasters. It is important that state and local governments, as well as local non-profits, examine ways to make disaster retrofit projects affordable to low- and moderate-income households.

One state that has taken the lead in this area is South Carolina. The South Carolina Safe Home program offers grants and matching funds to low- and moderate-income homeowners in coastal counties to complete retrofits on their homes to mitigate damage from severe storms like hurricanes. The mitigation measures also make homeowners eligible for discounts on homeowner insurance policies. These incentives are just one way to help low- and moderate-income households to make their homes safer. All states and local governments should examine the risks that their communities face, as well as the special needs of vulnerable populations and low- and moderate-income households, and then develop strategies to help all households prepare before a disaster.

My thoughts are with all those impacted by the tornadoes this week.

House panel pushes FHA on reverse mortgages, multifamily consolidation and more

noreply@blogger.com (National Housing Conference) — Fri, 17 May 2013 20:44:00 +0000

by Ethan Handelman

The Housing and Insurance Subcommittee of House Financial Services examined three Deputy Assistant Secretaries from FHA’s Reverse Mortgage, Multifamily Housing, and Healthcare Programs on May 16. Members had sharp questions for the witnesses who were pushed to defend agency decisions and identify corrective measures in the face of a possible FHA draw on the Treasury. Participating members were Neugebauer (Chair, R-TX), Luetkemeyer (Vice Chair, R-MO), Capuano (Ranking, D-MA), Royce (R-CA), Cleaver (D-MO), Clay (D-MO), Beatty (D-OH), Himes (D-CT), Fitzpatrick (R-PA), Heck (D-WA), Sherman (D-CA), and Ellison (D-MN).

Reverse mortgages

Charles Coulter, Deputy Assistant Secretary for Single-Family Housing faced sharp questions from Rep. Neugebauer on the capital shortfall identified in FHA’s actuarial report and the substantial role of the reverse mortgage program in losses thus and to come. Coulter emphasized the importance of the reverse mortgage option for seniors facing financial hardship, particularly now that private capital sources have fled and FHA is the only option in the market. Coulter identified steps taken already to reduce up-front draws and improve loss mitigation efforts but focused attention on the Congressional action needed to empower FHA to take further needed steps, particularly around underwriting non-borrowing spouses. Reps. Heck and Fitzpatrick noted that their proposed bipartisan bill would provide FHA the need authority to get the program on track. Reps. Royce and Luetkemeyer both pressed Coulter to address local-level proposals to seize mortgages by eminent domain and then refinance through FHA, asking him to mirror the GSE refusal to accept such loans. Coulter shared their concern and offered a formal written response rather than an off-the-cuff policy decision. Rep. Capuano raised further questions about whether separate accounting treatment for the reverse mortgage program would bring clarity and whether the agency could restrict private originators from using actors and game-show hosts as spokespeople on late-night television ads (Rep. Capuano had noticed the ads during his evening viewing).

Multifamily

Marie Head, Deputy Assistant Secretary for Multifamily Housing, presented HUD’s proposal to consolidate its multifamily operations. She, too, faced tough questioning on that and other fronts. Representatives Sherman, Clay, Cleaver, and Ellison each raised concerns about loss of trained staff, local relationships, and valuable asset management capability as a result of consolidation. Rep. Neugebauer pushed for an explanation of FHA’s role in the multifamily market, whether it had expanded beyond its mission, and whether it had focused too much on properties outside its existing portfolio, particularly with refinancing. DAS Head clarified that less than 10 percent of the refinancing came from the GSE portfolio, that the rough breakdown of loans is 25 percent rural, 50 percent suburban, and 25 percent urban, and that 40 percent of the overall business now is refinancing. She also emphasized the need for additional commitment authority so that FHA Multifamily could continue operating through the balance of the year.

Health care

Roger Miller, Deputy Assistant Secretary for Healthcare Programs, faced fewer questions overall from his testimony on FHA’s financing of hospitals, nursing homes, and assisted living facilities. Rep. Neugebauer explored whether some of FHA’s loans to hospitals consumed a disproportionate share of commitment authority, noting in particular New York Presbyterian Hospital. Miller explained how the loan relationship began in the 1980s when the hospital was struggling and evolved over time as the hospital improved and merged to its current form. He also noted their $81 million commitment to indigent care.

See written testimony and archived webcast on the hearing page.

Senate hearing shows government guarantee necessary, explores options for private capital bearing mortgage risk

noreply@blogger.com (National Housing Conference) — Thu, 16 May 2013 15:14:00 +0000

by Ethan Handelman, National Housing Conference

The Senate Banking Committee’s Subcommittee on Securities, Insurance, and Investment heard testimony on Tuesday from a range of experts on mortgage finance. Senators in attendance, all with thoughtful questions, were Jon Tester (Chair, D-MT), Johanns (Ranking, R-NE), Jack Reed (D-RI), Mark Warner (D-VA), Elizabeth Warren (D-MA), and Bob Corker (R-TN). The title of the hearing “Returning Private Capital to Mortgage Markets: A Fundamental for Housing Finance Reform” accurately represents the theme of the questions and testimony, which focused on different mechanisms for causing private capital to bear risk ahead of government.

The witnesses largely agreed that in the short term, a continued government guarantee role was necessary to enable mortgage markets to function and that change should come gradually. Although several witnesses suggested that eventually government backing could be removed entirely, Mark Willis observed that at some point the cost in reduced access and affordability might not be worth further reduction of the government’s role.

Senator Warren encapsulated the discussion by observing that all the witnesses favored a layering of risk with private capital ahead of an explicit government guarantee paid for by a fee. The witnesses vary in their recommendations for getting the pricing of the guarantee right and the mechanisms for layering risk, and each has concerns about the incentives and loss-bearing capacity of the entities bearing risk.

Senators explored several structures for risk-layering, including an A-piece/B-piece structure similar to the Freddie Mac K-series, credit-linked notes, and an insurance-based model, with Senators Corker and Warner particularly interested in the A/B structure. Questions also raised issues of how and when mortgage limits should come down, what we should look for as FHFA causes Fannie Mae and Freddie Mac to test risk-sharing structures, and whether requiring private capital first limits government’s ability to step in when private capital flees.

The hearing closed on an optimistic note, as Senator Warren raised the possibility of data-tagging as a new source of much better information on loan performance that could inform future regulation.

List of witnesses with links to testimony plus archived webcast:

Dr. Mark A. Willis [view testimony]
Resident Research Fellow
Furman Center for Real Estate and Urban Policy, New York University
Mr. Andrew Davidson [view testimony]
President
Andrew Davidson & Co. Inc.
The Honorable Phillip L. Swagel [view testimony]
Professor of International Economic Policy
University of Maryland School of Public Policy
Dr. Robert Van Order [view testimony]
Chairperson
Department of Finance and Professor of Finance and Economics, George Washington University School of Business

Permanent Supportive Housing Helps Struggling Veterans Recover

noreply@blogger.com (National Housing Conference) — Wed, 15 May 2013 19:52:00 +0000

by Maya Brennan, Center for Housing Policy

Permanent supportive housing helps chronically homeless veterans make headway toward recovery. While some veterans become homeless due to a temporary economic setback, veterans who are chronically homeless typically have more substantial challenges to overcome. As we've noted before on this blog, ongoing support can help veterans recover from traumatic brain injury, substance use disorders, military sexual trauma, and other similarly serious impediments.

Veterans homelessness is an important national issue, but it is also personal to me. Through my volunteer activities outside of NHC, I have built friendships with homeless veterans struggling through recovery.

NHC’s new Veterans Permanent Supportive Housing guide highlights strong programs that provide a combination of services and affordable housing for the men and women who have served our nation but now need our nation’s help in return. The examples show that three key elements are essential for success:

property-based rental assistance to allow rents to be affordable for extremely-low income veterans,
little or no hard debt so that properties’ rent revenue can support operating costs rather than mortgage payments, and
dedicated supportive services funding to ensure the ongoing availability of the services that residents need.

Silver Star Apartments in Battle Creek, MI

Places like Silver Star Apartments in Michigan, Hope Manor in Chicago, New Directions in Los Angeles, and American Legion Apartments in rural Connecticut all exist because of programs like HOME, project-based HUD-VASH and Housing Choice Vouchers, Low-Income Housing Tax Credits, Enhanced Use Leases of VA land, and other federal sources. State and local governments also provide important assistance through administration of federal funding programs as well as state and local grants, tax credits, soft loans, and land donations.

We need to keep and strengthen the programs that work. See the guide for our six key recommendations.

Our nation’s most disadvantaged veterans need our help. Let’s answer the call.

(This blog post is dedicated to Charlie, a Michigan native, homeless veteran, and fantastic human being who we lost too soon.)

More than a quarter of working renter households spends more than half of income on housing

noreply@blogger.com (National Housing Conference) — Thu, 02 May 2013 15:40:00 +0000

by Janet Viveiros, Center for Housing Policy

The Center's new Housing Landscape 2013 report, which I co-authored with my colleague Maya Brennan, is out today. It finds that severe housing cost burdens among working renter households rose for the third consecutive year due primarily to falling incomes and rising rental housing costs. Nationally, working renters saw their housing costs rise by 6 percent from 2008 to 2011, while their household incomes fell more than 3 percent. Renters are stretched so thin by growing housing costs that many face impossible choices.

While severe housing cost burdens stayed relatively stable for working homeowners between 2008 and 2011, working homeowners have not avoided the effects of falling incomes. In fact, while housing costs among homeowners fell some 3 percent over the study period, household incomes among these homeowners fell even more than they did for renters, down more than 4 percent over the three-year span. Roughly one in five working homeowners experienced severe housing affordability challenges throughout this period – despite falling home prices and mortgage interest rates.

Between 2008 and 2011, the rates of severe housing cost among working households increased in 24 states and 18 major metropolitan areas. Only 1 state and 2 metropolitan areas saw decreases in severe housing cost burden rates during this time were few.

For many more detailed results, find the full report at www.nhc.org/landscape.

Rep. Mel Watt nominated for top FHFA post

noreply@blogger.com (National Housing Conference) — Thu, 02 May 2013 13:17:00 +0000

by Ethan Handelman, National Housing Conference

Yesterday, President Obama nominated Representative Mel Watt to lead the Federal Housing Finance Agency (FHFA), the agency which oversees Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. The current FHFA Acting Director, Ed DeMarco, has served in an acting capacity since 2009.


President Obama congratulates Rep. Watt at the nomination announcement.

Representative Watt, a Democrat, currently represents North Carolina’s 12th district. He serves on the House Financial Services Committee, including the Subcommittee on Capital Markets and Government Sponsored Enterprises and the Subcommittee on Financial Institutions and Consumer Credit, which has responsibility for much housing policy.

The post of FHFA Director requires Senate confirmation, and it is unclear whether Rep. Watt will clear that hurdle. At a recent Senate hearing on mortgage finance reform, Sen. Corker expressed disapproval of a possible nomination of Rep. Watt in reaction to circulating rumors. Statements in favor of confirmation are already appearing, and the President endorsed Rep. Watt strongly at the nomination announcement.

Pre-purchase counseling reduces mortgage delinquency, no matter how it’s delivered

noreply@blogger.com (National Housing Conference) — Mon, 29 Apr 2013 14:40:00 +0000

by Maya Brennan, Center for Housing Policy

New research from Freddie Mac suggests that pre-purchase counseling may be even more effective at reducing mortgage delinquency than previously thought. And the delivery method? It doesn’t seem to matter.

According to the new study, pre-purchase counseling reduces 90-day mortgage delinquency rates by 29 percent. The findings relate to low- and moderate-income, first-time homeowners with Freddie Mac mortgages originated between 2000 and 2008. Prior research on mortgages originated in the 1990s found a 19-percent reduction in 90-day delinquency rates.

While the housing field has long recognized the effectiveness of pre-purchase counseling, the evidence had largely suggested that more personal, in-person instruction was better. This study calls that into question. The results were nearly the same whether the counseling was delivered in a classroom, via home study, or even on the phone or online.

This is a stunning change from the state of knowledge previously.

In the earlier study of mortgages originated in the 1990s, the reduction in delinquency rates was largest for individual counseling, followed by classroom, and then home study. Phone and online counseling had no significant effect at that point.

Rural borrowers? People with inflexible schedules? It may be time for you to exhale. It looks like we’ve gotten a lot better at developing effective ways to deliver counseling remotely. (See new online counseling efforts by the Housing Partnership Network and Freddie Mac.)

And how does housing counseling get funded? No single source dominates, but federal budget watchers take note: This highly cost-effective tool for preventing mortgage delinquency gets more than a third of its funds from HUD housing counseling funds, CDBG, HOME, and other federal sources. And these sources have been cut or are well below historical levels.

If you are just such a federal budget watcher and a housing-minded professional to boot, we encourage you to attend this Friday's Annual Budget Forum, where a panel of experts from HUD, PHAs, and nonprofits will discuss the impacts of the President's FY 2014 budget proposals on these and many other important housing programs. You'll also hear from me about the latest data on housing affordability for working households. Register online (and free) here.

HUD to reorganize multifamily offices

noreply@blogger.com (National Housing Conference) — Thu, 25 Apr 2013 13:57:00 +0000

by Ethan Handelman

HUD plans to reorganize its multifamily operations, Deputy Assistant Secretary Marie Head announced yesterday in a call with stakeholders and a press release. The changes involve consolidating its multifamily field offices into 10, made up of 5 primary and 5 satellite offices. Remarks from officials suggest the plan aims to reduce costs in a tough budget environment and increase efficiency of operations.

A vacant former HUD office in Tucson, Ariz.

Projected savings estimated by HUD are $40-45 million. To put that in context, the President’s budget request for HUD in FY 2014 is $47 billion in gross discretionary spending, so the forecasted savings are less than 0.1% of HUD’s annual budget. Operational costs simply don’t loom all that large for HUD relative to the housing funds it disburses.

The planned new field office structure would have five multifamily hubs each with a satellite office:

New York, satellite in Boston

Atlanta, satellite in Jacksonville

Chicago, satellite in Detroit

Fort Worth, satellite in Kansas City

San Francisco, satellite in Denver

Other changes announced:

Seattle office would remain to specialize in health care properties

OAHP will be renamed the Office of Recapitalization and will handle more preservation transactions with Margaret Salazar as Director

Section 8 and Contract Administration operations will be folded into the Office of Asset Management

No Reduction in Force is planned, but rather a long transition offering staff opportunity to relocate or retire with incentives.

Additional changes in HQ staff and organization for specific portfolios and troubled properties

Negotiations with civil service unions and Congress are yet to come. Read more details in HUD’s press release.

NHC joins HOME coalition in presenting outside witness testimony to the Senate in support of the HOME Program

noreply@blogger.com (National Housing Conference) — Mon, 22 Apr 2013 15:52:00 +0000

by Ethan Handelman

A broad coalition joined together last week to support the HOME Investment Partnerships program. In outside witness testimony presented to the Senate Appropriations Subcommittee on Transportation, Housing and Urban Development, and Related Agencies, the HOME Coalition made a strong case for a program vital to the production and provision of housing affordable to low‐income families. The testimony highlights the flexibility, leverage, and proven results of the HOME program. It also points out the support for increased HOME funding from the Bipartisan Policy Center’s Housing Commission, which called for HOME funds to provide critical gap financing for creation of new affordable housing.

NHC has worked hard to defend the HOME program, which has seen a series of cuts over the last several years. We are pleased that so many NHC members and partners have added their voices, and we are grateful to the National Council of State Housing Agencies for taking a leadership role in the HOME Coalition.

NHC Supports the LIHTC to House Ways and Means

noreply@blogger.com (National Housing Conference) — Fri, 12 Apr 2013 16:15:00 +0000

by Ethan Handelman

NHC offered a statement for the record in support of the Low Income Housing Tax Credit to the Real Estate Tax Reform Working Group of the House Committee on Ways and Means. We also joined the A.C.T.I.O.N. Campaign’s coalition statement advocating for continuation of the Housing Credit and making credit percentages fixed at 9 percent and 4 percent.

Our comment emphasized the acute need for affordable rental housing and the essential role the Housing Credit plays in filling that need, particularly by creating permanent supportive housing for the most vulnerable in America. We also highlighted how the program aligns public and private incentives using the tax credit mechanism in particular. Read our comment and the A.C.T.I.O.N. letter.

HARP refinancing program extended through 2015

noreply@blogger.com (National Housing Conference) — Fri, 12 Apr 2013 13:30:00 +0000

by Ethan Handelman

The Federal Housing Finance Agency announced on April 11 that the Home Affordable Refinancing Program (HARP) will be extended through 2015. It was previously scheduled to expire at the end of this year.

HARP is an important tool for preventing foreclosures and reducing housing cost burdens for underwater homeowners. These homeowners could not otherwise take advantage of low interest rates because their loan exceeded the market value of their home. As of the March 2013 Housing Scorecard, there had been well over 2 million refinancing under HARP since the program began in April 2009.

President’s FY2014 Budget Reflects Deficit Pressure and Tough Times for Housing

noreply@blogger.com (National Housing Conference) — Thu, 11 Apr 2013 18:01:00 +0000

by Ethan Handelman

The President’s FY 2014 budget, delivered April 10, follows the recurring theme in Washington of deficit reduction. It does so in ways that attempt to balance immediate job creation with the long-term need for investment in people, infrastructure, and industry, while also reducing the deficit. In housing, the budget shows the how the overall pressure to reduce spending filters down to the program level, with cuts or flat funding for some core housing programs alongside a few increases and new proposals in key areas. These cuts come on top of prior year reductions and the across-the-board sequestration cuts, leaving housing programs and the people they serve more vulnerable. Read our summary document here.

The budget arrives, however, after the Senate and the House of Representatives have each set their budgets for 2014 (S Con Res 8, H Con Res 25). It may therefore be less of a specific blueprint for appropriations and more a proposal in negotiations over the future of government funding. This summer will bring another potential battle over raising the debt limit, with sequestration still in place until an agreement on deficit reduction occurs. The budget proposal combines new revenue sources with cuts in spending, aiming for the still-elusive grand bargain needed to bring deficits down without harming the economy or the most vulnerable in America.

The top line HUD budget is $47.6 billion, which is a 9.7% increase above FY 2012 (two years ago). It renews funding primarily to preserve assistance for currently-assisted households, making cuts mostly in programs that create new units. In other words, the practical effect of this necessary triage is to put off and worsen the affordable housing needs of tomorrow by not creating needed units today. In several areas, the budget proposes program expansions or changes, noted in NHC’s budget summary, which also provides links to learn more. The summary table below gives a quick view of requested program funding levels.

Summary Table of FY 2014 Budget Proposal Compared to Past Years

Key:

Programs (Figures in Millions)	*FY11 Enacted**	*FY12 Actual**	FY13 CR	FY13 CR Less 5% sequester**	FY14 Budget Proposal
Tenant Based Rental Assistance	18,371	18,914	19,006	18,056	19,989	↑
Project Based Rental Assistance	9,257	9,340	9,395	8,925	10,272	↑
Family Self Sufficiency		60	60	57	75	↑
Rental Assistance Demonstration	-	-	-	-	10	↑
Public Housing Operating Fund	4,617	3,962	3,986	3,787	4,600	↖
Public Housing Capital Fund	2,040	1,875	1,886	1,792	2,000	↖
Homeless Assistance Grants	1,901	1,901	1,913	1,817	2,381	↑
Section 202 – Elderly	399	375	377	358	400	↖
Section 811 – Disabled	150	165	166	158	126	↓
CDBG (excluding disaster funds)	3,501	3,308	3,308	3,143	3,128	↓
HOME	1,607	1,000	1,006	956	950	↓
SHOP***	82	54	54	51	10	↓
Sustainable Communities	100	0	100	95	75	↓
Choice Neighborhoods/Hope VI	100	120	121	115	395	↑
HOPWA	334	332	334	317	332	↖
Housing Counseling	0	45	45	43	55	↖
502 Single Family Direct****	1,119	900	900	855	360	↓
502 Single Family Guaranteed	24,000	24,000	24,000	22,800	24,000	−
515 Rental Housing Direct	69	64	0	0	28	↖
538 Rental Housing Guaranteed	31	130	150	143	150	−
521 Rental Assistance	954	905	907	862	1,015	↑


Legend ↑ = increase, ↓= decrease, ↖ = increase vs. last year but below historical levels, − = no change Notes *FY12 Actuals and FY13 CR amounts as reported by HUD in the Congressional justification
**FY13 CR less 5% sequester calculated from FY 13 CR figures
***SHOP would receive only a $10 million carveout from the HOME budget
****Rural housing program amounts as reported by the Housing Assistance Council

Moving Forward: A Personal Note and the Housing Implications of Telecommuting

noreply@blogger.com (National Housing Conference) — Thu, 04 Apr 2013 14:31:00 +0000

by Jeffrey Lubell, Center for Housing Policy

A personal note

After seven years of service as the executive director of the Center for Housing Policy, I will be making a transition later this year to Abt Associates, where I will become the director of housing initiatives. I will start half-time at Abt on June 1, while continuing to manage the Center for a period of time while a replacement director is sought. While at Abt, I will continue to work on informing housing policy through research, while also exploring opportunities for cross-fertilization between Abt’s research and technical assistance practices.

I will miss the opportunities that the Center’s work provides to explore the intersection of research, policy, and advocacy. But with a talented and dedicated staff at the Center and NHC and the strong leadership of Chris Estes at NHC, I am confident that the transition will be a smooth one and the Center will continue to produce excellent, policy-relevant research.

As many of you know, I live in Vermont, while the Center/NHC offices are in Washington, DC, which means I have a rather extreme commute. Among other benefits of my new position will be the opportunity to work from home full-time, allowing me to spend more time with my family and less time on an airplane. While I will still have a fair amount of travel, it will not come on top of my regular commute to D.C., cutting down on my carbon emissions and improving my quality of life.

The housing implications of telecommuting

One person does not a trend make. But I have long thought that the potential implications of telecommuting for affordable housing are worth more attention. If telecommuting were to gain greater acceptance within the workplace, and if more people were to take advantage of the flexibility of telecommuting to relocate to areas with lower housing costs, it could potentially play an important role in addressing the nation’s affordable housing challenges. At the same time, it could promote economic development in satellite cities within large metropolitan areas as well as in smaller metro areas and well-located rural communities.

I should stress that these are very big “ifs,” and the available data do not yet support the conclusion that telecommuters will necessarily choose to move out of cities or large metro areas. But given the magnitude of our affordable housing challenges, it is worth considering every possible angle.

The potential for future impact

Let’s start by considering the potential for impact. What would happen if significant numbers of telecommuters started moving out of expensive communities into satellite cities within larger metropolitan areas or to smaller metro areas or central nodes within rural communities (such as college towns or county seats)? It’s hard to say with certainty since a lot depends on who moves, where they move, how many move, etc. But here are some initial thoughts on the potential impacts:

The relocating households (likely, mostly professionals working in the knowledge economy) would gain access to housing that is substantially less expensive than what they had been used to. Some would choose to reduce their overall housing expenditures. Others would choose to increase the size or quality of their housing. Many would choose some combination.
The increased demand for housing in the receiving community could lead either to the renovation of older homes (think of smaller, older cities) or the development of new homes (think of satellite cities within larger metro areas or college towns). There could be inflationary pressures in some areas, but presumably it would be easier for the market to respond with new supply to the increased demand in these smaller communities than in many high-cost areas that are already built-out.
The receiving communities could experience some economic growth as a result of the influx of households that could benefit the community.
The sending communities would experience a reduction in demand for housing that could potentially slow the rate of growth in housing costs.

The reality of today’s limited impact

Now obviously, this all depends on telecommuting gaining greater acceptance in the workplace—an elusive goal that has seemed to be just around the corner for many years, but remains a long way off. There are many ways to measure telecommuting, which lead to strikingly different conclusions about the proportion of the workforce that engage in it. But however you measure it, the trend does seem to be up, even if the overall share of the workforce that telecommutes full-time remains low.

According to one source, the number of employed individuals that identify home as their primary place of work increased by 73 percent from 2005 to 2011, rising to 3.1 million, or 2.5 percent of the workforce. By comparison, the overall workforce grew by 4.3 percent. These statistics exclude self-employed individuals working from home. Since self-employment has declined over this period, including self-employment within the statistics would show a slower rate of growth over this period of about 26% (still, a much faster rate of growth than for the overall employment base).

A second issue is whether telecommuters are really likely to move to different communities in search of more affordable housing. While there is reason to think that individuals take their telecommuting status into consideration in deciding where to live, an analysis of 1997 Current Population Survey data by Ingrid Gould Ellen and Katherine Hempstead found that telecommuters were actually more likely than others to live in large urban areas. Telecommuters do seem to live further from their place of work than non-telecommuters. But it’s still unclear exactly how telecommuting influences a household’s choice of housing or neighborhood.

Reasons to keep our eye on telecommuting and its impact on housing

Despite the slow take-up rate of telecommuting and its uncertain impact on locational decisions, I believe it would be a mistake to ignore the issue. With technology changing rapidly, the data and software infrastructure to support telecommuting is finally coming into place. If you've ever used business-class telepresence, you know how realistic it seems. Imagine if everyone had access to a similarly high-quality video connection at a low cost in their own home. It’s only a matter of time before we’ll be able to have face-to-face conversations fluidly and inexpensively across long distances. What will the implications be for settlement patterns and the affordability of housing?

A second reason to keep our eye on the trend is the likelihood that housing costs will continue to rise over the long-term in many high-cost metro areas. For the most part, it has proven difficult to produce enough supply in these areas to keep pace with demand. Places that have been able to produce enough supply tend to build further and further away from places of employment, leading to higher transportation costs and increases in traffic congestion, energy use and greenhouse gas emissions. Telecommuting offers a way to reduce the combined costs of housing and transportation as well as the negative impacts on the environment and quality of life of long car trips.

Finally, from the perspective of smaller communities—such as college towns or shrinking cities—even the influx of a relatively small number of households could have an outsized impact on local economic development.

Looking forward

As we make the transition to a more connected world, it will be interesting to see whether smaller cities and towns try to capitalize on the opportunity to market themselves to highly mobile professionals. Perhaps they’ll set up shared office centers where groups of telecommuters can work remotely, coming together for office functions, sharing telepresence facilities (at least until they are ubiquitous), sharing a copier, receptionist, etc. Perhaps they’ll use technology to bring in cultural events, much like the Metropolitan Opera shares its live performances. And maybe they’ll even set up advertising campaigns to market themselves to potential new residents who are currently living in large cities -- perhaps focusing on young families getting ready to send their children to school, who may be able to bring their jobs with them.

It’s too early to know whether this trend will have a substantial impact in the near term, but it’s worth being open to the possibility that technology may have a major impact on the housing field, as it has in other areas. To the extent it facilitates telecommuting, it could promote economic development in satellite cities, smaller cities, college towns and other well-situated communities, while playing a small but important role in addressing the nation’s affordable housing challenges.

We’ll look forward to your input on the ideas in this column. Please join the conversation and post a comment below.

New Foreclosure Prevention Tool for Fannie and Freddie Loans

noreply@blogger.com (National Housing Conference) — Wed, 27 Mar 2013 19:59:00 +0000

by Ethan Handelman, National Housing Conference

FHFA announced today its new Streamlined Modification Initiative to enable quicker and simpler loan modifications for borrowers who have not otherwise responded to loan modification options and are more than 90 days delinquent. As such, it could become an important tool for foreclosure prevention by intervening early in the delinquency process.

The program appears designed to provide a simple, standardized modification program for delinquent borrowers that eliminates the paperwork around documenting need. As described by FHFA, the program complements other options (such as HAMP) rather than replaces them.

What’s new and different about this initiative?

Servicers must reach out to all eligible borrowers. Beginning July 1, “servicers must identify eligible borrowers who are 90 days to 24 months delinquent and send them an offer letter that states the terms of the modification,” according to the FAQ released by FHFA. The burden is on the mortgage servicers to initiate the modification. The primary qualifications are that the loan is 90 days to 24 months delinquent, has loan-to-value ratio greater than 80% based on current market value, and a first-lien mortgage more than 12 months old that has no more than one modification. FHFA also refers to “existing proprietary screening measures to prevent strategic defaulters from taking advantage of a Streamlined Modification,” but has not made details of that screening available.
Only required response from borrower is to make the new, lower, payment. There is no requirement to separately document need or qualification, or indeed to respond other than by making the payment. A borrower may be eligible for better terms through, for instance, a HAMP modification that does require more documentation and interaction with the servicer.
Conversion from trial to permanent after three payments. If the borrower makes the modified payment for three months, the servicer will invite them to make the modification permanent. If they miss a payment, they are still eligible for other modification options.

The program would begin July 1 and run through August 1, 2015, but as of this writing it is unclear when servicers are expected to begin outreach to borrowers.

Resources to learn more:

FHFA press release including FAQ

Fannie Mae guidance

Freddie Mac guidance

The accounting change that can attract more capital to affordable housing is closer to approval

noreply@blogger.com (National Housing Conference) — Tue, 26 Mar 2013 15:15:00 +0000

by Ron Diner, Raymond James Tax Credit Funds, Inc.

NHC invites guest blog posters to write on important housing topics. The views expressed by guest posters do not necessarily reflect those of NHC or its members.

In January, I wrote on the simple accounting change that could attract more investment to affordable housing: moving the cost and benefits of the Housing Credit to the same side of the tax line. Just two months later, that long-awaited change is looking closer to becoming a reality.

The Financial Accounting Standards Board’s (FASB) Emerging Issues Task Force (EITF) discussed the matter in a March 14 meeting, The EITF reached a consensus-for-exposure to allow public companies to report both the costs and benefits of the Low Income Housing Tax Credits on the tax line, essentially agreeing with the June 2012 white paper prepared by the Raymond James-led task force comprising syndicators, investors and others. (The paper was prepared by Mike Beck of CohnReznick and Bentley Stanton ofNovogradac & Company.)

Although we are not over the goal line, it would seem that we are close. Based on the comments at the meeting and the overall direction the EITF seems to be heading, this is a very positive development. The proposed change would allow what is called “effective yield accounting” without a guarantee requirement, which would ensure that both the deductions and the tax credits generated by federal income tax credit investments are recorded below the line as part of a company’s income tax expense. It would enhance the accounting for affordable housing investments, eliminate a concern of both current and prospective investors and almost certainly increase the flow of capital to affordable housing.

The revised criteria to apply the effective yield method, subject to certain edits (which are not anticipated to be material), generally would require that:

(a) It is probable that the tax credits allocable to the investor will be available

(b) The investor does not participate in the operation of the investment, and substantially all of the projected benefits are from the tax credits and other tax benefits;

(c) The investor's expected return is positive, based solely on the cash flows from the tax credit and other tax benefits; and

(d) The investor holds a limited interest (LLP or LLC) in the affordable housing project for both legal and tax purposes, and the investor's liability is limited to its capital investment.

The proposed guidance is expected to be applied retrospectively, with early adoption permitted. (For LIHTCs that do not meet the criteria, the investment would be accounted for as either an equity investment or cost-method investment.)

The next step is that EITF staff will create and publish an exposure draft for public comment. The exposure draft is expected in mid-April.

Based on the discussion in the meeting, application of the proposed consensus would be limited to LIHTC programs. However, the exposure document will solicit feedback through comment letters about whether other tax credit programs may also meet the proposed criteria to apply the effective yield method.

After public comment is gathered, the EITF will hold another meeting to discuss that feedback and consider additional modifications to the proposal. Once the process has been completed, the EITF will finalize its recommendations and submit them to the FASB for final approval. In the best-case scenario, a final rule would be adopted in mid-September.

Ronald Diner is Executive Chairman at Raymond James Tax Credit Funds, based in St. Petersburg, Florida. Raymond James has been sponsoring affordable housing since 1969, and has raised more than $4 billion in equity for more than 1,300 properties across the country since the inception of the Tax Credit program in 1986.

Senate Banking Committee hears the need for mortgage finance reform

noreply@blogger.com (National Housing Conference) — Thu, 21 Mar 2013 13:30:00 +0000

by Ethan Handelman, National Housing Conference

I had the privilege on Tuesday of watching the Senate Banking, Housing and Urban Affairs Committee’s hearing, “Bipartisan Solutions for Housing Finance Reform?” The question mark in the title shouldn’t distract from the clear message of the hearing, that mortgage finance reform is overdue and that our guiding principles for it must span the partisan divide. Former HUD Secretary and Senator Mel Martinez testified in his role as a co-chair of the Bipartisan Policy Center’s Housing Commission to share their bipartisan blueprint for a mortgage finance system that puts private capital ahead of a limited government role to support both homeownership and rental housing. Janneke Ratcliffe of the UNC Center for Community Capital and the Center for American Progress reinforced the importance of a government role in housing finance to ensure that all in America have access to affordable housing and offered the detailed proposal crafted by CAP’s Mortgage Finance Working Group (in which NHC participates). Peter Wallison of the American Enterprise Institute was a lone voice calling for no governmental role at all in the mortgage finance system.

CAP's Janneke Ratcliffe testifies at the hearing.

Full video of the hearing is available, so I’ll stick to a few highlights:

Why do we need a government guarantee? Senator Crapo (R-ID) asked the panelists specifically what market functions require a government guarantee? Martinez noted two: the 30-year fixed rate mortgage, which demands more and longer-term capital than private sources will provide without a guarantee, and the To Be Announced (TBA) market, which reduces borrowing costs and allows buyers to lock-in rates before closing. Ratcliffe agreed and noted also that most other industrial countries have government guarantees in some form, often indirectly through the banking sector. Wallison decried government intervention as a source of instability.

Does the private sector price mortgage risk correctly? After much discussion during the hearing of whether government can price mortgage risk effectively, Senator Warren (D-MA), put Wallison on the spot, asking whether there were any examples from history in which the private sector handling of mortgage risk survived a crisis without government intervention. As contrasting examples, she cited failures in the early 1900s, 1920s, and the recent experience of private-label securities. Wallison did not cite any specific examples but pointed to Fannie Mae and Freddie Mac as examples of government failure.

Should the government use Fannie Mae and Freddie Mac guarantee fee revenue for other purposes? Panelists all agreed that attempts to use the guarantee fee to fund non-housing purposes were counterproductive. Ratcliffe added that funding the National Housing Trust Fund and Capital Magnet Fund, as Congress enacted in 2008, would be a constructive use. Several members of the committee have introduced a bipartisan bill to block just such redirection of the guarantee fees.

A bipartisan jumpstart to mortgage finance reform

noreply@blogger.com (National Housing Conference) — Thu, 14 Mar 2013 19:15:00 +0000

by Ethan Handelman, National Housing Conference

It’s past time for our new Congress to take reform of the mortgage finance system, particularly the role of Fannie Mae and Freddie Mac. Inaction means:

Homebuyers, especially first-time and low-wealth homebuyers, struggle to obtain financing

Multifamily housing producers lack clarity about future availability of capital

Fannie Mae and Freddie Mac operate without a long-term plan while in-house expertise migrates elsewhere

Private capital remains mostly on the sidelines, waiting for clarity before reentering the market

Government-backed sources dominate the market under the triage structures erected during the financial crisis

Four senators have just introduced the Jumpstart GSE Reform Act to
move Congress in the right direction. Senators Elizabeth Warren (MA), Bob Corker (TN), David Vitter (LA) and Mark Warner (VA) have sponsored the bipartisan measure to prohibit Congress from using the GSE’s guarantee fees as a revenue source. The guarantee fees charged by Fannie and Freddie have been an all-too tempting target, but using them to fund other initiatives only harms still-recovering housing markets and makes it even harder to complete GSE reform by creating budgetary consequences to restructuring. The bill also would prohibit the Treasury Secretary from disposing of the government’s senior preferred stock in Fannie and Freddie without new legislative authority.

This is the second bipartisan prod on mortgage finance reform this month—the Bipartisan Policy Center’s Housing Commission released a report in February explaining a proposal for an explicit, limited government role implemented by a public guarantor that would replace many of the functions currently handled by Fannie Mae and Freddie Mac. NHC welcomed the BPC report and the renewed focus it brings to the critical issue of mortgage finance reform. Housing challenges cut across partisan, geographic, and economic divisions in this country. Lawmakers and housing experts are reaching across the aisle to chart a path forward. It is time for action on mortgage finance reform.

Does the housing market recovery mean greater affordability?

noreply@blogger.com (National Housing Conference) — Wed, 13 Mar 2013 13:37:00 +0000

by Janet Viveiros, Center for Housing Policy

When I compare news headlines on the housing market from the last few months to those I read in the beginning of the Great Recession, I am encouraged by glimmers of good news. Even the use of the term “recovery” indicates there is cause for hope. However, the results of a fall 2012 survey I recently read on Long Island residents’ opinions on the local economy and housing post-recession, by Stony Brook University’s Center for Survey Research, gave me pause.

Housing starts are up, but enough to meet demand?

Similar to many places around the country, home values in Long Island steadily decreased during the housing crisis. But as home prices dropped, so did incomes, creating major affordability challenges for homeowners. Long Island renters, like renters across the country, also face declining incomes but without the relief of decreasing housing costs as rents have risen steadily during the housing crisis. It is no surprise that 39 percent of Long Islanders surveyed reported that they spend more than 35 percent of their income on housing costs (30 percent or less of total income is considered affordable). Nearly 6 in 10 Long Islanders surveyed indicated that they were struggling to pay their rent or mortgage. This is up from the 2010 survey of Long Islanders when 5 in 10 of the survey respondents reported having difficulty affording their housing costs. More households in Long Island, like many regions around the country, are struggling with housing costs even as the national housing market begins to see improvements.

This survey is a reminder that, while the housing crisis clearly contributed to worsening housing affordability around the country, improvements in the housing market do not necessarily translate to improved housing affordability. As a matter of fact, in many high-priced markets, a property value recovery coupled with stagnant wage growth and an inadequate supply of new housing has actually hurt affordability. There is still a great deal of work to be done to ensure that all households have access to adequate and affordable housing.

I am encouraged by the conversations surrounding the release of the Bipartisan Policy Center’s Housing Commission report and its recommended reforms to better meet the housing needs of all Americans, particularly seniors and low- and moderate-income families. Hopefully these conversations will lead to action in order to better address issues of housing affordability.

Coalition briefs Congress on QRM

noreply@blogger.com (National Housing Conference) — Mon, 11 Mar 2013 17:00:00 +0000

by Ethan Handelman, National Housing Conference

I led a panel today to brief Congressional staff on how the qualified residential mortgage (QRM) rule can align with the qualified mortgage (QM) rule to encourage safe mortgages that are accessible to borrowers of low and moderate income and also perform well for investors. Several other members of the Coalition for Sensible Housing Policy joined me:

Ken Fears, Senior Economist and the Manager, Regional Economics and Mortgage Finance for the Research Division of the National Association of REALTORS
Kenneth W. Edwards, Policy Counsel for the Center for Responsible Lending
Michael Fratantoni, Vice President of Single-Family Research and Policy Development for the Mortgage Bankers Association
Julia Gordon, Director of Housing Finance and Policy at the Center for American Progress

Those who have been following NHC’s work on the QRM won’t be surprised by the content of the presentation. QRM shouldn’t require high downpayments or restrictive debt-to-income ratios. Indeed, the best move for regulators would be to use the recently adopted QM rule as the standard for QRM.

Tight budget? Think preservation

noreply@blogger.com (National Housing Conference) — Tue, 05 Mar 2013 16:42:00 +0000

by Maya Brennan, Center for Housing Policy

The housing industry needs to think about low-cost ways to deliver affordable housing. Recent posts here and on the @the Horizon blog highlight ways to get more years of affordability from a multifamily rental property with little to no additional money, and I would encourage you to read those posts and join the discussion.

But let’s be honest. With sequestration here, we also need to answer the pressing question: How can we reduce the costs of developing affordable housing today? One answer may be preservation.

A new analysis (released by the Center for Housing Policy in partnership with the Compass Group and Summit Consulting) compares the costs of producing affordable multifamily rental housing using either acquisition-rehabilitation or new construction. When both are options, which can produce units at a lower cost?

To get all of the properties on a level playing field, we looked at the combined cost of developing and maintaining the properties over a full 50-year lifecycle. This meant adjusting the total development costs to include enough initial reserve funding to cover the expected costs of major system replacements over the years. We also tried to level the playing field by looking at just the properties financed using Low-Income Housing Tax Credits (231 of them) and controlling for a variety of other factors that might influence costs (location, project size, average unit size, etc.).

After waving a magic wand of statistics, we have results. [Note: For the stats-minded, the magic wand is really an OLS regression. See the working paper and its tables and references.]

Looking at our sample, per-units costs were significantly lower for acquisition-rehab properties. New construction added about $40,000 to $71,000 to the per-unit cost of developing and maintaining affordable rental properties for a full 50-year lifecycle. That’s 25 to 45 percent higher than the costs of acquisition-rehab.

If these results reflect the broader universe of affordable multifamily rental housing, I know which development approach I’d opt for when cost is the deciding factor.

I don’t mean to suggest that the housing industry completely move away from new construction. Holding down costs, although incredibly important in tight economic times, is not the only (or even the best) way to choose a development approach. For example, acquisition-rehab is not going to work if affordable housing is needed in an area with no suitable properties to acquire. Or maybe a development plan involves modern features that the available properties can’t accommodate. The desire for specific neighborhood features (proximity to jobs, transit, high-performing schools), incentives tied to available funding, developers’ specialties, an organizational mission…These can all be legitimate reasons to pursue a specific development approach even if the costs are higher. But isn’t it always useful to know the costs and make an informed choice?

What the sequester means for housing in your state

noreply@blogger.com (National Housing Conference) — Wed, 27 Feb 2013 19:27:00 +0000

by Blake Warenik, National Housing Conference and Center for Housing Policy

We at NHC have been raising the hue and cry on the impending sequester for quite a while now. As recently as October, the Office of Management and Budget told federal agencies to operate normally, as if a deal was expected (though Ethan Handelman said even then that this development may have been more hope than expectation). And still the cuts loom; if a decision is not reached Friday, the cuts begin automatically.

Though we can't know all of the consequences of the sequester, the folks over at the Center for Budget and Policy Priorities (CBPP) have released data on how much housing programs in each state stand to lose without a deal by Friday. It's helpfully broken down into two tables showing how much each state will lose right now; one table shows cuts to housing (including HOME and Native American housing grants) and Community Development Block Grants, and the other shows cuts to rental assistance.

It's an interesting and frightening read. While the sequestration cuts to my home territory of the District of Columbia appear as just a blip—primarily due to its small population—there is one statistic that really drives the message home for me. CBPP estimates that 541 D.C. families will lose their Housing Choice Vouchers if Congress does not reach an agreement to avoid the sequester by Friday. In an environment where more than three-quarters of families who qualify for assistance actually receive it (see page 16 of this CHP report), we should be expanding assistance to more families in need, not cutting it.

Improving housing affordability for low-income families isn't even a very controversial issue. This week's report from the Bipartisan Policy Center's Housing Commission demonstrates rare agreement from both parties that housing resources should be targeted to those at 30 percent of area median income and below. It seems a shame to squander such important room for discussion simply because inaction is easier.

So now, when lawmakers aren't even having the most basic discussions about how to avoid the across-the-board cuts laid as a boobytrap to ensure meaningful deficit reduction measures as part of the 2011 debt ceiling fight, it feels especially frustrating to know that we are rushing headlong into the designated, long-anticipated, worst-case scenario of $86 billion in mandatory, brute-force cuts. Even more frustrating is that the sequester is merely the latest manufactured crisis to come out of Washington and threaten both vital programs and a fragile economic recovery.

When we talk about the effects of the sequester on families, rather than dollars, the foolishness of this crisis becomes clear. How many families in your state will lose access to housing affordability as a result? Read on—if you can stomach it.

NHC welcomes Bipartisan Policy Center’s Report on Housing

noreply@blogger.com (National Housing Conference) — Mon, 25 Feb 2013 15:48:00 +0000

by Chris Estes, National Housing Conference

Today’s release by the Bipartisan Policy Center’s Housing Commission demonstrates how housing cuts across partisan divisions. NHC welcomes the Commission’s focus on identifying the critical housing challenges we face and proposing policy solutions to address them head-on. Housing is too critical to the safety and health of our families and children, the stability of our neighborhoods, and promise of our nation’s economic future to let politics get in the way of necessary action.

The 136-page report recommends change in many areas: rental housing, homeownership, the housing and medical needs of an aging population, rural housing and mortgage finance. It contains a wealth of information to inform discussion throughout the year and beyond, and NHC urges our members and all who care about housing policy to read it, discuss it and, by doing so, help to advance housing policy. Notable recommendations in the report include:

Reforming mortgage finance to put more private capital bearing risk ahead of government and limiting the government role to a limited, paid-for means of assuring stability, liquidity and wider access to affordable mortgage credit.

Expanding rental housing assistance, through production of new rental homes, preservation of existing public and private affordable rental housing and direct rental assistance to the most vulnerable.

Strengthening rural housing assistance, by expanding the resources committed and the capacities of organizations delivering assistance.

Helping older Americans age in place comfortably, by supporting retrofits for energy efficiency and accessibility and making federal assistance more compatible with solutions that deliver medical services in-home and locally in communities.

Let us follow the BPC Housing Commission’s example and work together toward safe, decent and affordable housing for all in America. We can and should discuss the details vigorously, but then unite to support positive change in housing policy, for we are stronger together.

Moving Forward: Long-Term Viability and Affordability of Multifamily Rental Housing

noreply@blogger.com (National Housing Conference) — Fri, 22 Feb 2013 16:37:00 +0000

by Jeffrey Lubell, Center for Housing Policy

At the Center for Housing Policy, we have long been interested in whether “long-term affordability” could be used as a strategy for getting more “bang for the buck” and increasing the number of families that can be served with fixed levels of affordable housing funding. For the most part, our examination has focused on affordable homeownership programs, where our analysis suggests that, over a 30-year period, shared equity approaches (such as community land trusts or long-term resale restrictions) can provide affordable ownership opportunities to two to three times as many homebuyers as an equivalently funded grant program.

But I’ve written about shared equity homeownership before. Today, I want to consider long-term affordability in the context of affordable rental housing.

Can long-term affordability likewise be used as a strategy for serving more families at current funding levels if applied to affordable multifamily rental housing? On the face of it, it seems logical to think that it might. After all, if you can get 50 years of affordability, rather than 15 or 30 years, from the same initial investment, doesn’t that improve efficiency and decrease the costs of each year of affordability?

When I’ve discussed this issue with practitioners, they have raised a number of practical obstacles – mostly notably, the fact that affordable rental properties are typically financed in a way that ensures they remain financially viable for only 15 to 20 years, at which point they need a new injection of capital. Typically, this is accomplished with low-income housing tax credits (often the less-costly 4 percent credits) which extend both the financial viability of the property and the duration of its affordability covenant.

These recapitalizations can be expensive, both because of the new allocation of tax credits and because of the soft costs (lawyers, accountants, etc.) associated with getting the transaction completed. Wouldn’t it be less expensive overall if affordable rental properties could be financed initially so as to remain financially viable over their full lifecycle (say, 50 years), thus avoiding the need for these expensive recapitalization events?

A new suite of materials about “lifecycle underwriting” provide the tools for examining this and other related questions, and I invite you all to take a look at the materials and help us consider their import for policy and practice.

Lifecycle underwriting is the name we’ve given to a new approach to underwriting, developed by our research partner, the Compass Group, that considers the viability of a multifamily affordable rental property over the course of its full lifecycle. We’ve chosen to look at a 50-year lifecycle, but you can choose to look at lifecycles of a different length. The basic idea is to project the capital needs of a property over its full lifecycle and consider whether the property has sufficient funds available to meet those needs. If not, we calculate the amount of additional funds that would need to be deposited into the initial replacement reserve to ensure the property can meet those projected needs over its full lifecycle.

We applied this methodology to a convenience sample of more than 250 multifamily affordable properties and came to some interesting conclusions.

As you might expect, most properties were not likely to be viable beyond 15 years without accessing their cash flow or the proceeds of a refinancing. If given access to cash flow and refinancing proceeds, however, about half of the properties would be viable over a 50-year period. This underscores the importance of considering cash flow and refinancing as strategies for ensuring long-term viability.

We next looked at how much more it would have cost at the time of project development to make the remaining properties viable over a full 50-year lifecycle – again, assuming access to cash flow and refinancing proceeds as needed during the lifecycle. The answer, for these particular properties, was about $6,558 per unit (in 2009 dollars). This represents a 4.3% increase in initial project cost for about half of the properties in our sample (or roughly a 2% increase in initial costs if amortized over the full sample of properties, including those that did not need any infusion).

This seems like a small price to pay for extending financial viability from 15 to 50 years, especially since it avoids the need for costly recapitalizations (the public cost of which we estimate at $63,985 per unit based on data for properties in our sample). It also facilitates long-term affordability covenants of 30, 40 or even 50 years, which can reduce the costs of each year of affordability.

There are obviously many questions and issues that need to be fully considered before this approach is adopted. For this reason, we’ve prepared a paper examining the practical and policy implications of lifecycle underwriting. Take a look and let us know what you think, we’re eager for your feedback.

The full suite of materials, available at nhc.org/lcycle, includes four products:

L-Cycle – a free online tool for applying lifecycle underwriting to specific properties. The tool enables users to examine whether specific properties are likely to be viable over a 50-year lifecycle and if not, how much of an additional deposit would be needed to the initial replacement reserves to ensure viability.

The policy implications paper described above that considers the implications for policy and practice of lifecycle underwriting.

An overall summary of the research that produced lifecycle underwriting, including the application of this approach to compare two methods of producing multifamily affordable rental housing: new construction and acquisition-rehab. (Quick summary: among the 200+ low-income housing tax credit properties in our sample, new construction was 25 to 45 percent more expensive.)

A technical paper describing the lifecycle underwriting methodology in depth.

The study team consisted of researchers at the Center for Housing Policy, The Compass Group and Summit Consulting, with our colleagues at the National Housing Conference joining us for the policy analysis. We are deeply grateful to the John D. and Catherine T. MacArthur Foundation for funding this work, but any errors or opinions expressed in the materials are those of the authors alone.

We’ll look forward to your input on these materials, as well the ideas in this column. Please join the conversation and post a comment below.

How did inclusionary housing weather the crisis?

noreply@blogger.com (National Housing Conference) — Tue, 19 Feb 2013 16:19:00 +0000

by Robert Hickey, Center for Housing Policy

In lieu of preparing our own version of the Harlem Shake video last week, the Center for Housing Policy polished off a new report about inclusionary housing that I think you’ll find at least as enlightening. After the Downturn: New Challenges and Opportunities for Inclusionary Housing examines how well inclusionary housing policies weathered the historic housing downturn, and how the environment for inclusionary housing has changed since 2007.

By way of background, inclusionary housing policies require or encourage developers to include a modest share of new homes for low- or moderate-income households in otherwise market-rate developments. Often these policies function as mandatory zoning requirements but are accompanied by various forms of regulatory relief to help offset the costs for developers of pricing units more affordably.

Up through the recent housing boom, inclusionary housing policies enjoyed growing popularity, both as a mechanism for including affordable homes in opportunity-rich, high-demand neighborhoods, and as a tool that engages the private sector in creating needed affordable homes. But over the past five years, new challenges have emerged that affect the workability and effectiveness of many inclusionary housing policies. These include:

New restrictions on applying inclusionary requirements to rental housing in several states;

A shift in development patterns toward “infill” settings where developments costs are often higher; and

Difficulties selling some affordable homes produced through inclusionary policies due to tightened mortgage credit, FHA concerns about affordability restrictions that survive foreclosure, and inclusionary home prices being set too closely to market prices in communities where the market has not yet rebounded.

After the Downturn discusses these and other key issues that have come into focus over the past five years, drawing on conversations I was able to have with practitioners, experts, and local administrative staff from across the country. The report also discusses some promising responses that may be relevant to local jurisdictions as the market begins to recover, while leaving a more extensive treatment of potential solutions to follow-up reports.

After the Downturn is the first in a series of research papers and policy briefs on inclusionary housing due out from the Center in 2013. We look forward to your feedback, and to sharing more research as the year unfolds.