Wednesday, November 23, 2011

Putting the squeeze on project-based Section 8

by Ethan Handelman, National Housing Conference

Those who have been following the FY 2012 HUD appropriations (see NHC’s coverage) will have seen that the project-based Section 8 account received $9.34 billion rather than the $9.42 billion dollars requested. Beyond that $80 million shortfall, Congress rescinded $200 million from the Housing Certificate Fund, which in the past has in part been used to address shortfalls in the project-based Section 8 account. That leaves a gap for FY 2012, probably of around $180 million, based on the appropriations shortfall plus the portion of rescinded funds that could have been used. Then add an uncertainty factor, since the renewal figure is an estimate that can change based on how many contracts renew, what rent levels are, and how much tenants are able to pay.

So what is HUD doing to address the shortfall? To their credit, they have stood firmly behind the pledge to fully fund all project-based Section 8 contract renewals. That means, however, they have to find the extra money. In a recent memo and in a meeting with NHC and other members of the Preservation Working Group, HUD outlined several painful changes:
  • Redirecting residual receipts. HUD has said it will require certain restricted project funds to be used to pay Section 8 HAP payments rather than remain for project use. Some types of Section 8 contracts have a cap on how much project cash flow can be distributed to the owner each year. Amounts earned above that cap get deposited in a residual receipts account, access to which HUD controls. In the later vintage contracts, so-called “new-reg” contracts, contracts provide HUD with explicit control of these funds. Historically, residual receipts have been kept in reserve to preserve affordability at the property, for instance by funding capital needs shortfalls. Redirecting them to pay rents will quickly deplete the reserves—expect real push-back from owners on this one.
  • Limiting rent increases on exception projects. Most Section 8 rents roughly track market rents, thanks to the renewal process created in the MAHRA Act in the late 1990s. There are some exceptions (called with much originality “Exception Projects”) that can renew at above-market rents with increases based on the operating costs of the property. HUD has said it will limit those projects to formula-based Operating Cost Adjustment Factor increases if rents are already above market. This may create serious challenges for properties with operating costs rising faster than the formula rent increases.
  • Scrutiny of rent comparability studies that exceed a new benchmark. When project-based Section 8 contracts renew, rents can be reset to market levels using a rent comparability study that looks at rents for similar apartments in the non-HUD subsidized market. HUD plans to issue guidance for these renewals requiring extra scrutiny of comparable rents that are more than 110% of the new Small Area Fair Market Rent. Not only is this a new requirement, but it relies on a new standard, the Small Area FMR, which has thus far only been a pilot. While careful underwriting of rents is a generally a good feature, HUD should be careful that the 110% benchmark does not become a de facto cap on rents (a real danger when guidance from HUD headquarters translates into field office practice).
These are understandable reactions to a constrained funding environment. Expect to see push back on some of these policy changes once details are announced, especially if or when they place existing affordable housing properties at risk.

Tuesday, November 22, 2011

Next stop: sustainable development principles in action

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

Last month, I had the pleasure of taking the Washington Metro's Red Line just a few stops to tour the Rhode Island Row mixed-use development in Northeast D.C. with my colleagues at the National Housing Conference and Center for Housing Policy. At the time of our tour, Rhode Island Row's housing units were in their final stages of construction and have since opened to residents.

Situated adjacent to Rhode Island Avenue Station on the former site of an 800-space commuter parking lot, Rhode Island Row represents a dramatic departure from the bridge-and-tunnel vision of mid-century D.C. toward a sustainable, transit-oriented model that offers residents of all income levels access to housing, jobs and amenities.

Rhode Island Row's project manager, Caroline Kenney of Urban Atlantic Development in Bethesda, Md., was our guide. She and her company worked to ensure that Rhode Island Row serves a mixed-income population, making 20% of the project's 247 housing units affordable to area families at or below 50% of area median income using a combination of Low Income Housing Tax Credits and other sources of HUD multifamily financing.

While that's the main point of interest to those of us in the affordable housing world, Rhode Island Row is a living study in sustainable development. Practitioners and experts in the planning, transportation, environmental and government fields will find a lot to like about this transformation of a regional transit hub into the seed of a vibrant community.

Please watch below and pardon the dust.



Rhode Island Row is managed by NHC Leadership Circle member The Bozzuto Group. Learn more at RhodeIslandRow.com.

Monday, November 21, 2011

FY 2012 THUD Appropriations Signed Into Law


by Clare Duncan, National Housing Conference

Last Friday, President Obama signed the minibus (H.R. 2112), which combines FY2012 Appropriations for Agriculture, Commerce/Justice/Science (CJS) and Transportation/Housing and Urban Development (THUD), into law. The bill provides $128 billion for the included programs, with $55.6 billion for the THUD portion of the package, which is actually an increase of $183 million from FY11 levels. HUD, however, was cut by $3.8 billion relative to FY 2011, for a total of $37.3 billion for 2012. (Note: Approximately $2.6 billion of the cut is offset by receipts from FHA and Ginnie Mae and one-time rescissions. See analysis by the Center on Budget and Policy Priorities.)

The cuts show up in many places (see chart below for details):
  • No funding for the Sustainable Communities Initiative, which has been targeted for elimination in the House.
  • Section 8 tenant-based vouchers receives $18.9 billion, above both the House and Senate version, which the summary describes as “sufficient funding to renew ever individual and family that received assistance through Section 8 tenant-based vouchers”. Veterans Affairs Supportive Housing vouchers would receive $75 million.
  • Project-based Section 8 receives $9.3 billion. Project-based Section 8 contract renewals are fully funded, but doing so requires some one-time accounting actions and ongoing program changes to address the gap between the requested amount and what Congress appropriated. HUD expects to release details of those changes shortly. 
  • HOME receives only $1 billion, a severe cut from FY 2011 levels. The summary reiterates criticism of the program from the House committee report, and the bill includes new oversight requirements for community development program funds, including a requirement that homeownership units unsold after 6 months must be rented and that funds for projects uncompleted after 4 years must be repaid, with a 1 year discretionary extension.
  • CDBG is cut by $192.9 million from FY11 levels, to a total $3.3 billion of which $400 million can be used for eligible disaster recovery activities.
  • Public housing receives $1.85 billion for the capital fund and $3.96 billion for the operating fund, but the operating figure includes $750 million against PHA reserves.
  • Section 202 Housing for the Elderly drops to $375 million from $399 million in FY 2011.
  • In the Agriculture budget, several major housing programs are cut relative to FY 2011, including the Section 502 Single Family Direct Loan Program, Section 515 Rental Housing Direct Loan Program, and Section 521 Rental Assistance Program.
There are a few bright spots, however (taking the liberty of counting level funding as good):
  • Choice Neighborhoods receives $120 million to revitalize distressed communities.
  • Section 811 Housing for the Disabled receives $165 million, a slight increase from FY 2011 though below historical levels for the program.
  • HUD’s housing counseling program, which was zeroed out in FY 2011, receives $45 million, still far below the $87.5 million it received in FY 2010. The NFMC program received $80 million.The Rental Assistance Demonstration program is authorized for conversion of 60,000 units of public housing to project-based Section 8, although without specific funding attached. 
  • Homeless assistance grants receive level funding at $1.9 billion
  • In the Agriculture budget, the Section 502 Single Family Guarantee program is level-funded at $24 billion, and the 538 Rental Housing Guarantee program saw a substantial increase (bringing it closer to historical levels) to $130 million.
Other key provisions in the minibus:
  • Raises FHA’s loan limits back to the levels passed in HERA, a maximum of $729,650. However, the loan limits for Fannie Mae and Freddie Mac are left at their current level of $625,000. Although the FHA increase will be helpful in providing stability in high-cost markets, the differential between FHA and the GSEs (which together are still providing over 90% of new home mortgages) will further drive mortgage origination to the fully-guaranteed FHA channel that is already handling a much greater share of the market than usual.
  • Continuing resolution through December 16 for parts of government for which Congress has not yet passed appropriations bills.
For more information, please visit the House Appropriations Committee website or view the full conference report here.


FY 2012 Budget Chart for Selected HUD and Agriculture Programs (in millions of dollars)

FY11 Enacted
House Subcommittee Bill
Senate Subcommittee Bill
Final Conference Language
Tenant Based Rental Assistance
18,308
18,468
18,872
18,914
Project Based Rental Assistance
9,257
9,429
9,419
9,340
Public Housing Operating Fund
4,617
3,862
3,962
3,960
Public Housing Capital Fund
2,040
1,532
1,875
1,850
Homeless Assistance Grants
1,901
1,901
1,901
1,901
Section 202 - Elderly
399
600
368
375
Section 811 - Disabilities
150
196
150
165
CDBG (formula grants)
3,336
3,501
2,851
3,300
HOME
1,607
1,200
1,000
1,000
Sustainable Communities
100
0
90
0
Choice Neighborhoods
65
0
120
120
HOPWA
334
334
330
332
Housing Counseling
0
0
60
45
502 Single Family Direct
1,211
846
900
900
502 Single Family Guar.
24,000
24,000
24,000
24,000
515 Rental Housing Direct
70
59
65
64
538 Rental Housing Guar.
31
0
130
130
521 Rental Assistance
956
890
905
905

Wednesday, November 16, 2011

Eliminating the federal guaranty from multifamily would sacrifice affordable housing

by Ethan Handelman, National Housing Conference

I just came from a presentation by two housing experts I respect greatly that left me concerned for the future of affordable rental housing (an all too frequent occurrence these days). Charlie Wilkins and Tom White presented their paper "No Federal Guaranty for Multifamily" at the American Enterprise Institute. The nutshell summary (quite possibly Procrustean, for which I apologize) of their paper is the claim that a federal guaranty is inherently distortive and that over time will impose large costs on taxpayers. The paper advocates replacing the federal guaranty with private capital delivered via risk-based pricing, augmented by direct subsidy to create affordability where the market won't otherwise deliver it. At its root, the paper's recommendation raises the prospect of less affordable rental housing in pursuit of overall efficiency and, possibly, higher returns and higher risk to lenders and investors.

The paper is unequivocal that removing the federal guaranty from multifamily would increase the cost of capital. In other words, the money that developers borrow to create apartments would cost more, so they could borrow less of it. If the amount of debt that can be raised shrinks, some developments will become financially infeasible, and fewer apartments will be produced. Further, apartments for low- and moderate-income renters, especially subsidized properties, would be disproportionately hampered, as they are less likely to meet what the paper terms "prime" loan characteristics. Although the paper offers FHA as a sole-source solution for these below-prime loans, that channel is simple not wide enough to bear the burden alone.

Nor would direct subsidy to create affordability offset this loss of debt capital for affordable housing. As the severe cuts in the most recent FY 2012 appropriations bill for HUD, fiscal constraints limit what we can spend. This situation will get worse, not better, for the foreseeable future.

So, given that we have:
  • A proven 20-year GSE track record in multifamily that did not lose discipline during the boom, unlike the private conduits 
  • Rising rents and severe affordability burdens for renters in many markets (see the Center for Housing Policy's Housing Landscape 2011 and Paycheck to Paycheck for data) 
  • The beginnings of a recovery in multifamily after a severe credit crunch moderated only by the existence of federally-backed capital source 
Why would we consider eliminating the federal guaranty, placing the entire burden for financing affordable housing on FHA, and on balance reducing the creation of affordable rental housing in supply-constrained markets?

Hosting webinars for fun and (non)profit

by Laura Williams, Center for Housing Policy

Here at the Center for Housing Policy, we host a lot of webinars. There are webinars about disasters, webinars about energy efficiency, webinars about zoning policy, older adults and location-efficient development. We do it all (when it comes to affordable housing).

This week I am working on putting together a webinar (perhaps two) about foreclosures. I hadn’t tackled one for awhile – our last big series was over the summer and for that we had interns – and I forgot how engrossing the planning process can be. First there’s the idea, then the guest (speaker) list. Scheduling begins pretty quickly and seems to never end; people who are interesting enough to be guest speakers for a webinar are often interesting enough to have very full calendars.

This is where I am today, as we move ever closer to our (hoped for) date. Though there are actually two dates we need to schedule: the webinar, of course, but also a planning call. This is my favorite part of organizing. My colleagues and I might come up with the vague outlines of a presentation, but our speakers always bring so much more to the table and it comes together in unanticipated (but always very good) ways. During the planning call, I get a bit of a preview of what’s to come, and a chance to meet some folks doing really interesting work. It’s a great way to spend 30 minutes or so.

Which is nice, because the webinar itself is usually all business. We use a web-based program that lets everyone log in from their (usually) remote locations, and when our hour begins we are off and running: I make introductions, and our guests share their knowledge with the wider housing world. In the meantime, I’m also recording the presentations and trouble-shooting any technical glitches (there are always one or two).

And then, it’s over. Though catalogued for posterity on HousingPolicy.org. Check it out sometime.

Tuesday, November 15, 2011

Disproportionate cuts to HUD in conference appropriations bill

by Clare Duncan, National Housing Conference

Yesterday, the conference committee released the final conference report for the so-called minibus, which combines FY2012 Appropriations for Agriculture, Commerce/Justice/Science (CJS) and Transportation/Housing and Urban Development (THUD). The report was approved with bipartisan support, with all but one of the 38 conferees supporting the legislation. The bill would provide $128 billion for the included programs, with $55.6 billion for the THUD portion of the package, which is actually an increase of $183 million from FY11 levels. HUD, however, was cut by $3.8 billion relative to FY 2011, for a total of $37.3 billion for 2012.

The cuts show up in many places (see chart below for details):
  • No funding for the Sustainable Communities Initiative, which has been targeted for elimination in the House.
  • Section 8 tenant-based vouchers would receive $18.9 billion, above both the House and Senate version, which the summary describes as “sufficient funding to renew every individual and family that received assistance through Section 8 tenant-based vouchers”. Veterans Affairs Supportive Housing vouchers would receive $75 million.
  • Project-based Section 8 (not mentioned in the summary), would receive $9.3 billion. Since this is below the amounts in both the House and Senate versions, it does not appear to fully fund renewals.
  • HOME would receive only $1 billion, a severe cut from FY 2011 levels. The summary reiterates criticism of the program from the House committee report, and the bill includes new oversight requirements for community development program funds, including a requirement that homeownership units unsold after six months must be rented and that funds for projects uncompleted after four years must be repaid, with a one-year discretionary extension.
  • CDBG would be cut by $192.9 million from FY11 levels, to a total $3.3 billion of which $400 million can be used for eligible disaster recovery activities.
  • Public housing would receive $1.85 billion for the capital fund and $3.96 billion for the operating fund, but the operating figure includes $750 million against PHA reserves.
  • Section 202 Housing for the Elderly, which would drop to $375 million from $399 million in FY 2011.
  • In the Agriculture budget, several major housing programs would be cut relative to FY 2011, including the Section 502 Single Family Direct Loan Program, Section 515 Rental Housing Direct Loan Program, and Section 521 Rental Assistance Program.
There are a few bright spots, however (taking the liberty of counting level funding as good):
  • Choice Neighborhoods would receive $120 million to revitalize distressed communities
  • Section 811 Housing for the Disabled would receive $165 million, a slight increase from FY 2011 though below historical levels for the program.
  • HUD’s housing counseling program, which was zeroed out in FY 2011, would receive $45 million, still far below the $87.5 million it received in FY 2010. The NFMC program received $80 million.
  • The Rental Assistance Demonstration program would be authorized for conversion of 60,000 units of public housing to project-based Section 8, although without specific funding attached.
  • Homeless assistance grants would receive level funding at $1.9 billion.
  • In the Agriculture budget, the Section 502 Single Family Guarantee program would be level-funded at $24 billion, and the 538 Rental Housing Guarantee program would see a substantial increase (bringing it closer to historical levels) to $130 million.
Other key provisions in the minibus:
  • Raise FHA’s loan limits back to the levels passed in HERA, a maximum of $729,650. However, the loan limits for Fannie Mae and Freddie Mac would be left at their current level of $625,000. Although the FHA increase will be helpful in providing stability in high-cost markets, the differential between FHA and the GSEs (which together are still providing over 90% of new home mortgages) will further drive mortgage origination to the fully-guaranteed FHA channel that is already handling a much greater share of the market than usual.
  • Continuing resolution through December 16 for parts of government for which Congress has not yet passed appropriations bills. Since the current CR expires November 18, this becomes must-pass legislation.

For more information, please visit the House Appropriations Committee website or view the full conference report here. NHC's member Enterprise Community Partners also has a detailed budget chart here.

FY 2012 Budget Chart for Selected HUD and Agriculture Programs (in millions of dollars)

FY11 Enacted
House Subcommittee Bill
Senate Subcommittee Bill
Final Conference Language
Tenant Based Rental Assistance
18,308
18,468
18,872
18,914
Project Based Rental Assistance
9,257
9,429
9,419
9,340
Public Housing Operating Fund
4,617
3,862
3,962
3,960
Public Housing Capital Fund
2,040
1,532
1,875
1,850
Homeless Assistance Grants
1,901
1,901
1,901
1,901
Section 202 - Elderly
399
600
368
375
Section 811 - Disabilities
150
196
150
165
CDBG (formula grants)
3,336
3,501
2,851
3,300
HOME
1,607
1,200
1,000
1,000
Sustainable Communities
100
0
90
0
Choice Neighborhoods
65
0
120
120
HOPWA
334
334
330
332
Housing Counseling
0
0
60
45
502 Single Family Direct
1,211
846
900
900
502 Single Family Guar.
24,000
24,000
24,000
24,000
515 Rental Housing Direct
70
59
65
64
538 Rental Housing Guar.
31
0
130
130
521 Rental Assistance
956
890
905
905