The State of Affordable Housing Forum is an annual AHS event designed to engage the community in a discussion of a range of current events and the outlook for affordable housing in the coming year. This year's event subtitled “Federal Upheaval…Local Consequences” was held at the intersection of major federal decisions that could have lasting political impacts to the future of affordable housing finance and community economic development programs.
Several recent proposals by the Trump administration have sparked concern. First, Trump’s initial budget proposals cut funding for Housing and Urban Development by $6 billion, putting many of the nation’s housing programs at risk. Second, the potential for significant tax reforms, including cutting rates to as low as 15%, could fundamentally dampen the impact of the nation’s only major affordable housing production program, the Low-Income Housing Tax Credit.
Keynote speaker Congressman Don Beyer said that such sweeping changes might be unlikely, despite the administration’s proposals. "The larger perspective on appropriations is that the senior Republicans on the committee have been there for a long time. They are institutionalists rather than revolutionists and deeply committed to many of the programs that they have been funding." Even so, he and other panelists stressed the need for a continued effort by housing supporters to advocate for the programs and policies that matter, because significant cuts are a real possibility.
Federal Updates: Tax Reform and Budget Cuts Loom
Much of the discussion on potential federal changes centered around the outlook for tax reform. There are proposed changes in investment underwriting, greater spending, and investment in infrastructure and a lowering of the marginal tax rate that should be considered in the context of what happens in tax reform as a whole. According to calculations presented by panelist Peter Lawrence of Novogradac, lowering the top corporate tax rate could significantly decrease the amount investors are willing to pay for tax credits, substantially reducing the amount of equity available to build and preserve affordable rental housing. Based on historical unit production data from the National Council of State Housing Agencies, such a reduction in equity could translate into a drop of 16,000, or more affordable housing units created or preserved each year (see charts on slides 4-6). Lawrence also shared a Novogradac proposal for changes to the law that could help overcome these effects should tax reform occur. This proposal adds to other bills under consideration such as the Cantwell-Hatch Affordable Housing Credit Improvement Act that includes a number of updates and improvements that could lead to an even more effective program.
LIHTC's are an essential piece of the puzzle, but they are not the only mechanism for getting projects built for the lowest income families. The FY2017 budget was passed seven months into the fiscal year, but it was mostly positive regarding HUD funding (see slide page 10). According to Enterprise’s Marion McFadden, most of the work for the 2017 budget was in motion long before the Trump Administration’s budget proposals were revealed, so they had little impact on what had already been negotiated. Talks on the FY2018 budget are just getting started, however so much still needs to be done on the advocacy side to prevent the proposals from negatively impacting future appropriations. McFadden’s view, similar to Congressman Beyer’s, is that the proposed elimination of the Community Development Block Grant (CDBG) program is unlikely to become a reality because there is such a broad base of political support for that program across the country.
Other block grants, including the HOME program, may be at greater risk based on the assumption that state and local governments are better situated to deliver these types of programs. Although the official budget proposals had not been released at the time of the event, the proposed magnitude of the cuts would mean that some cuts could also occur to rental assistance programs (Housing Choice Vouchers, or Section 8 assistance). The proposals also include reducing vouchers by attrition and eliminating NeighborWorks America, the Interagency Council on Homelessness, and the Treasury Department’s Community Development Financial Institutions Fund.
Panelist Mike Hawkins of the Virginia Housing Development Authority (VHDA) shared additional trends that he believes will impact affordable housing providers in the state. One is the increasing use of 9% LIHTC by public housing agencies to transform their portfolios under HUD’s Rental Assistance Demonstration program. Although this is seen as a positive development that addresses much-needed improvements in the public housing stock, the increased demand on the LIHTC program could make it harder for other affordable housing development and preservation proposals to receive competitive tax credit allocations.
VHDA is also focused on the capacity of the nonprofit housing delivery network moving forward. A large number of nonprofits have emerged at various times over the past several decades, and these groups have been supported in large part by HUD programs such as CDBG and HOME. With the drop in these programs over time and the threat of further cuts, it is essential to look for ways to maintain the sustainability and the strength of the network. VHDA’s capacity building grants are one tool designed to help these nonprofits examine alternative strategies that assist in ensuring the long-term sustainability of their work.
What can be done to combat these potential changes? Panelists shared a number of possible action items:
- Stay Informed and Engaged: Learn about and join some of the national advocacy groups that support housing programs at the federal level, such as the Rental Housing Action Campaign: www.rentalhousingaction.org/join.
- Educate Your Representatives: Invite members of Congress and staffers to come and tour an affordable housing development and meet with residents. Organize in-person meetings to discuss which programs are most important to your work.
- Don’t Be Complacent: Even elected officials who are known to be supportive of affordable housing efforts need information and encouragement from constituents to help make a stronger case for the programs.
Local Responses: Be Prepared and Seek Alternative Strategies
Following the discussion of federal policy updates and their implications, a panel of local experts took the stage to share their specific “survival strategies” to weather the upcoming changes.
Jennifer Daniels of Arlington County emphasized the role that federal funding plays beyond bricks and mortar of housing production and preservation programs. Housing-related services are often funded through CDBG, as well as some HOME funds. These programs help set up residents of affordable housing for success – workforce development, job skills training, self-sufficiency programs, and homeless outreach services, for example. Communities across the region use these funds in different ways (see slides page 21), so the impact of federal budget changes will vary from place to place. Filling gaps with state and local sources of funding, such as Arlington’s Affordable Housing Investment Fund, will help lessen the potential impacts at the local level.
The importance of housing-based services is illustrated well by the work of Cornerstones, a housing and social services provider based in Reston that serves many former homeless individuals. According to Michael Scheurer, “the people who come out of the shelter have less than $12,000 per year in annual income. The housing tax credit will not pay for their housing —it’s still an affordable housing issue, but on steroids.” While he lauded the progress that has been made on reducing veterans’ homelessness, there is more work to do, and needs vary over time and from group to group. For example, Scheurer has observed that more and more baby boomers are homeless, and the needs of homeless seniors are different. The services side of affordable housing for these populations goes way beyond the computer room in the apartment complex to education, language skills, health services, budgeting, life skills, and more.
On the bricks and mortar side, John Welsh discussed how AHC, Inc. has chosen to diversify its development strategy to solutions that are not overly dependent upon only one form of subsidy such as the Low-Income Housing Tax Credit. One financing tool they have recently begun to use is their membership in the Housing Partnership Equity Trust (HPET), which is the first Real Estate Investment Trust (REIT), owned and operated by nonprofits, and is solely focused on affordable and workforce housing investments. Using tools such as HPET, AHC has been able to purchase several older mixed-income properties and reposition them to maintain long-term affordability for a variety of income levels both above and below 60% of area median income.
Jim Edmondson of E&G Group, a mission-driven for-profit developer of affordable housing based in Northern Virginia, argued that to meet the shortfall of units “we need a whole lot more resources than we’ve got. We pat ourselves on the back for producing 1,000 units when we need 30 or 40 or 50,000 units.”
According to Edmondson it now costs at least $300,000 to create a new affordable housing unit in the DC area. Using a tax-exempt bond transaction with 4% LIHTC, about 1/3 of the cost is covered by LIHTC equity, 1/3 can be financed with a first mortgage loan, and 1/3 is a gap that needs to be filled, or about $100,000 per unit of “soft money” from a variety of sources including local governments. Most of the resources in the area for affordable housing are available in the District of Columbia “because the mayors have focused on affordable housing as a civic virtue - $100 million per year for the last several years. We go where the money is, and that’s the District,” says Edmondson. George Mason University estimates that Fairfax has about the same size of housing need as DC, and yet Fairfax put in only $7 million of its own funding compared to DC’s $100 million.
Fairfax County’s recent strategic plan for economic development touches on schools, transportation, and affordable housing as top issues impacting economic success of the County. Gaining support for more public resources for affordable housing depends on emphasizing that it’s economically strategic to do so, and the investments will benefit the community as a whole, not just the individual beneficiaries.
Moderator Mary Hynes closed the session with a reflection on the three-legged stool of housing: development, rental subsidies, and services. Hynes sees “glimmers of creativity” in how communities and housing providers have responded in difficult times. Calling to mind Jay Fisette’s earlier comments that affordable housing is the moral imperative of our region, she says the challenge is “how to get more people in the conversation who believe this,” which is essential for getting elected officials to support additional resources for affordable housing in today’s climate.
Senator Barbara Favola offered closing remarks on how can we get more funding for affordable housing at the state and local levels, and how can we get more people on board for the concept. She urged the advocates to enlist the help of a variety of voices such as from the public safety community, members of the Chamber of Commerce, and others, to help carry the message. After all, according to Favola, “affordable housing is the soul of a community.”