Market Affordability Primer & Affordable Housing Toolkit Summer - - PowerPoint PPT Presentation

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Summer 2019

Market Affordability Primer & Affordable Housing Toolkit

Example

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Overarching Objective:

• Have a vibrant, growing city where all residents are able to afford and access

quality housing throughout the city Housing Goals Direct Goals:

• 1. Reduce the total number of cost-burdened households
• 2. Minimize displacement of existing residents
• 3. Provide access to affordable housing to those who are most-in-need
• 4. Create new housing supply to accommodate city population growth
• 5. Promote mixed-income housing & neighborhoods

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Housing Ecosystem

• Serves:

~30-100% AMI

• Priced at market

rates

• Serves:

~30-80% AMI

• Priced at

affordability limit

• Serves

~60%-120% AMI

• Priced at market

rates

• Serves:

>~80% AMI

• Priced at market

rates

Market Rate (New) Market Rate (Workforce) Market Rate (NOAH) Income Restricted Affordable Housing Housing Ecosystem is linked:

• Shortage of one type of

housing drives the need or demand for another type of housing

• The overwhelming majority
• f housing is priced at

market rates

• Managing market

affordability is CRITICAL to addressing the affordable housing issue

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Housing Market Affordability Why is Market Affordability Important?

• Market rate housing is home to the large majority of Minneapolis renters
• Maintaining market affordability has the largest effect on the most people
• Market affordability drives supply of NOAH
• An affordable market will have fewer cost-burdened renters and will help reduce

the need for income restricted-affordable units An affordable housing market will help reduce demand & need for 50%-100% AMI

• units. But a non-market strategy is needed to help solve housing need for 30-40% AMI.

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New Supply Constriction & Affordability Delivering supply that meets or exceeds market demand empowers renters:

• Increases market vacancy
• Increases tenant bargaining power with landlords (more favorable terms & fewer

rent increases)

• Landlords must compete for new renters by offering lower rates and

concessions

• Gives renters more choices of where to live
• Reduces displacement

The only way to manage market affordability is by delivering new supply that keeps pace (or exceeds) new demand.

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New Supply Constriction & Affordability What happens when supply does not meet demand? The rental market becomes less affordable

• Vacancy rates decrease
• Renters have less leverage with landlords
• Renters are forced to move down the value chain
• Renters get priced out of Class A, move to Class B. Class B gets priced out,

moves to Class C, etc.

• Displacement – New residents with more spending power will drive out existing

residents with less spending power Eroding market affordability drives need for more income restricted affordable units

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Pressure on Class B & C NOAH Stock Increasing the cost of new housing supply(i.e. lowering yields on new development) will add pressure to NOAH stock in two ways:

New Renter Pressure: Investor Pressure: Increased cost of supply = less new supply Less new supply = fewer homes for new residents Fewer homes for new residents = new residents with more spending power will price out & displace existing residents Lowering investment returns on new developments = less new supply Less new competitive housing supply = increased ‘yield’ in buying existing housing supply Investors seeking ‘yield’ will buy & renovate existing housing(i.e. NOAH) instead of building new housing

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The capital groups who are investing in new developments are the same ones who buy and renovate existing buildings. These groups will make their decision based

• n what provides the best return to their investment.

Owners/Investors/Capital Groups Pressure on Class B & C NOAH Stock

Investment Decision Tree Real Estate Minneapolis Invest in building a new building Buy and renovate an existing building (NOAH) Nashville, Austin, Seattle, etc. Stocks/Bonds/Other

An IZ policy that lowers the returns of building new will increase the relative returns of buying existing buildings.

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Policy Externalities & Considerations

• Any IZ policy needs to consider the implications to supply and market affordability.
• If an IZ policy negatively impacts market affordability it will create a need for more additional

subsidized affordable units.

• Market forces are real. Capital wants to invest in Minneapolis. Does the policy help to channel

that capital into building new housing? Or instead, does it push that capital into removing NOAH?

Multifamily housing is the cheapest and most cost effective way to add to our city’s housing supply. A policy that directly or indirectly increases the cost to produce this type of housing is counterproductive to improving housing affordability in Minneapolis.

New Supply Constriction & Affordability

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94 522

Total IH Compliant Units since Feb 2017

Affordable Units Market Rate Units

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Portland Takeaways

• New housing development has decreased significantly because projects are no

longer financially feasible.

• Portland’s IH Policy is severely exacerbating the housing shortage
• The IH Policy is not a reasonable means of adding new income-restricted

affordable units

• Portland will increase their number of cost-burdened households as a result of

this policy. Portland Case Study – Takeaways

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Example

BMT Affordable Housing Toolkit

Housing policy tools that will:

• Improve rental opportunities at a variety of price points
• Increase affordability access without reliance on new construction alone
• Encourage more NOAH preservation
• Expand housing supply to accommodate future residents

Housing policy tools that won’t:

• Restrict new housing supply
• Increase the cost of rental housing in the city
• Exacerbate loss of existing NOAH housing
• Displace existing NOAH residents

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Affordable Housing Toolkit Affordable Housing Tools:

• Expand 4d Affordable Housing Incentive Program
• Expand Housing Choice Vouchers
• Encourage housing cooperatives

Affordable Housing Funding Sources:

• Inclusionary Development & Investment Fund(TIF pooling)
• MPHA Property tax levy on all property types

Affordable Housing Legislation at the State & County Level

• Support state legislative change to make 4d tax rate .25%
• Mixed-Income Tax Exemption Program
• Support state legislative change to create state housing tax credit

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Tools: Expand The 4d Affordable Tax Pilot Program Why would this work?:

1. Fastest and most efficient means of preserving existing NOAH stock. 2. Minimize tenant displacement, and encourages existing building investment. 3. Modest loss of tax revenue ($800/unit i.e. $80,000 for a typical 100 unit building) is a fraction of the $200- $300k cost for a single new affordable unit. 4. Increases overall affordable housing supply, without using Tax Increment or other city (AHTF) resources. 5. MHFA regulates the 4D program. Existing state monitoring for compliance makes this low cost to city.

BMT Policy Recommendation:

1. Increase City’s 4D Affordable tax Pilot Program to at least 1000 units per year. Prioritizing new 2040 density & transit corridors 2. Leverage Inclusionary Development & Investment Fund to grow the 4d program. 3. Lobby at the state level to lower the class tax rate to .25%.

• This will help make almost $5k/unit of new debt service available for new production. (i.e. $500,000 of

additional private debt available for a typical 100 unit building)

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Tools: Expand MPHA Housing Choice Vouchers Why would this work?:

1. Provides fastest placement for 30% AMI Households. 2. Helps those most in-need. 3. Uses existing housing stock to serve community of need. 4. One of the most effective & efficient ways for the city to deploy limited affordable housing resources. 5. Lower cost than building new units.

BMT Policy Recommendation:

1. Increase dedicated MPHA resources, to permit expansion of HCV eligibility list. 2. Increase MPHA HCV monthly rent allowance levels up to 60% AMI rents. 3. Offer damage guarantee letters to landlords to accept HCV applicants, rather than current cumbersome damage claim fund. 4. Prioritize pricing incentives to landlords in non-poverty concentrated and transit/density zones.

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Tools: Encourage Housing Cooperatives Why would this work?:

1. Buildings that are collectively owned & managed by residents reduce the overall housing cost and can offer tenants greater affordability, stability, and a sense of ownership. 2. Avoids displacement/incent housing re-investment. 3. Class ‘B’ and ‘C’ housing is primary target of investment conversion to Class ‘A’. Preserve NOAH assets rather than suffer displacement

BMT Policy Recommendation:

1. Leverage city credit to help tenants convert small apartment buildings into housing Co-Ops. 2. As part of new sale/notice ordinance, offer cooperatives assistance in matching purchase offers. 3. Use IRB/Conduit Bonds for 2nd mortgage gap financing. 4. Use tax abatement (mini-TIF) to fund closing costs and other costs of ownership conversion like coop documents.

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Funding Sources: Inclusionary Development & Investment Fund(TIF Pooling) Why would this work?:

1. Leverages tax increment from new market-rate housing to preserve & build more affordable housing 2. Does not discourage new supply by increasing costs. 3. Funds can be applied where they are needed the most (i.e. deeply affordable units) 4. Would help prevent displacement – Tax increment from new homes could go to keep existing residents in their existing homes

BMT Policy Recommendation:

• 1. (Align TIF housing district with areas that are being up-zoned for housing within the 2040 plan built form & land

use maps)

• 2. Apply funds towards creation & preservation, prioritizing transit routes:
• 4d -> Market Rate to Mixed-Income Conversions & NOAH Preservation
• Funds for 100% affordable projects(incl. Deeply Affordable(30%-40% AMI)
• Funding tool to help facilitate more mixed-income development
• 3. Capture the density bonus values in these new transit/density zones with TIF, and funnel into the ID&I Fund.

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Funding Sources: MPHA Property Tax Levy on all property types Why would this work?:

1. The City formerly dedicated 1% of levy to MPHA. 2. A small % across all property classes would “lock-in” funding for more Housing Choice Vouchers. 3. A small tax increase across all property types would have a more muted effect on new supply. 4. Disburses cost of affordable housing across all of Minneapolis – not just on residential renters.

BMT Policy Recommendation:

1. Dedicate a portion of City General Levy specifically to MPHA in all Classifications. 2. Apply funds directly to boosting the MPHA’s Housing Choice Voucher Program

• Increase in both the number of vouchers and the dollars provided per voucher

3. Create a damage guarantee letter program equal to two months rent, to motivate private property owners.