Should Should TC TCAC re redesign the the ti tiebr ebreak aker? - - PowerPoint PPT Presentation

Should Should TC TCAC re redesign the the ti tiebr ebreak aker? er?

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“Is the sky blue?” Presen esented by by King Kingdom dom Dev Developmen pment, t, In Inc. c. a Calif liforn

• rnia nonpr

nonprofi fit publ public bene benefi fit co corporat ation

San San Di Diego ego Housi Housing Co Commi mmission

• n
• The San Diego Housing Commission (SDHC) has earned a

national reputation as a model public housing agency.

• Established in 1979, SDHC provides a variety of award‐

winning affordable housing programs and services that:

‒ stimulate the local economy; ‒ revitalize neighborhoods; and ‒ impact the lives of low‐income and homeless San Diegans.

• SDHC has three primary programs:

1. Provide rental assistance 2. Create and preserve affordable housing 3. Address homelessness

Alpha Square 550 14th Street Downtown San Diego

• California is Facing a Housing Crisis
• San Diego faces similar and unique challenges

within our region

• Volatility of Local & Federal Funding Sources
• Federal HOME funding has been reduced by more

than 50 percent since FY 2010

• Dissolution of Redevelopment Agencies in 2012
• Local housing fee collections tend to coincide with

economic cycles

San San Di Diego ego Housi Housing Co Commi mmission

• n

A production rate of 17,000‐24,000 units annually is needed to adequately meet the identified demand for housing in the City by 2028. The top annual production rate in last 5 years was 6,400.

• Ongoing Effects of State & Local Housing Crisis
• Supply of housing is not keeping pace with demand

resulting in rising rents and home values

• Nearly 50 percent of San Diego households are

unable to find rental housing they can afford

• Negative Impact on Gross Domestic Product
• High housing cost reduces disposable income that

would otherwise be spent in the local economy which supports GDP

• Talent available to employers is constrained, which

impacts an employer’s ability attract and retain qualified workforce

• Impacts to Quality of Life & Environment
• Ensuing sprawl and traffic congestion result in

longer commute times and increases to greenhouse gas emissions

San San Di Diego ego Housi Housing Co Commi mmission

• n

• Advocacy
• More effective affordable housing policies and resources
• Incentivize Production
• Maximize resources through operational efficiencies and

innovation

• Increase the number of affordable housing opportunities

that serve low‐income individuals and families

• Incentivize Cost Efficiency Measures
• Reduce development cost through responsible policy

measures

• Maximize the Use of Public Funds

San San Di Diego ego Housi Housing Co Commi mmission

• n

Wh Why is is Ki King ngdom dom Dev Developm pmen ent Concerned? Concerned?

• 1. Nonprofit organization focused on

making a difference

• 2. Experienced with the 9% program
• 3. Serves on advisory committees
• 4. Shares insights with the industry

Should Should TC TCAC re redesign the the ti tiebr ebreak aker? er?

Only If:

• 1. There is an unmet need for affordable housing;
• 2. The tiebreaker doesn’t effectively leverage our resources;
• 3. A more effective tiebreaker could be designed; and
• 4. The benefit to the public outweighs the redesign cost.

1.

• 1. Ther

There is is an an unm unmet et need need fo for af affordabl able housing. housing.

2.

• 2. The

The ti tiebr ebreak aker er doesn’ doesn’t le leverage our

• ur re

resources

Topics:

• A. Role of the tiebreaker
• B. Recent outcomes
• C. Tiebreaker correlations
• D. Resulting behaviors

2. 2.A.

• A. The

The ti tiebr ebreak aker er’s ro role

i. Set‐asides and geographic regions ensure we distribute funding evenly across the state and to certain project types ii. Points ensure every project provides sufficient public benefit

• iii. Minimum construction standards ensure projects are of sufficient quality
• iv. Housing type goals ensure we don’t over‐invest in certain housing types

v. The tiebreaker decides between: i. equally meritorious projects, ii. that meet all quality standards,

• iii. that equally fulfill a housing need,
• iv. within each set‐aside and region.

Need for affordable housing Developers Conventional & Public Financing The Tiebreaker

2. 2.A.

• A. The

The ti tiebr ebreak aker er’s ro role

i. When the current tiebreaker was proposed its stated goal was to reduce the amount of credits awarded to projects by inducing local investments ii. Simply stated, the tiebreaker’s purpose is to leverage the credit

2.B. 2.B. Re Recent out

• utcom
• mes

es

0.78 0.81 0.83 0.82 0.89 0.93 0.95 1.02 1.03 1.02 1.06 0.5 0.6 0.7 0.8 0.9 1.0 1.1 1.2 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Credits (in Billions) Credits Awarded over Time

2.B. 2.B. Re Recent out

• utcom
• mes

es

0.78 0.81 0.83 0.82 0.89 0.93 0.95 1.02 1.03 1.02 1.06 0.5 0.6 0.7 0.8 0.9 1.0 1.1 1.2 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Credits (in Billions) Credits Awarded over Time

Adjusted for:

• cost inflation
• credit pricing
• Interest rates

2.B. 2.B. Re Recent out

• utcom
• mes

es

0.78 0.77 0.75 0.68 0.79 0.88 0.92 0.97 1.00 1.02 0.94 0.78 0.81 0.83 0.82 0.89 0.93 0.95 1.02 1.03 1.02 1.06 0.5 0.6 0.7 0.8 0.9 1.0 1.1 1.2 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Credits (in Billions) Credits Awarded over Time

2017’s 940 million is 20% more than 2007’s 780 million

2.B. 2.B. Re Recent out

• utcom
• mes

es

4,126 5,037 4,230 4,170 5,802 6,045 5,080 4,846 4,842 4,513 3,776 2,000 2,500 3,000 3,500 4,000 4,500 5,000 5,500 6,000 6,500 7,000 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Units Units Produced over Time

2.B. 2.B. Re Recent out

• utcom
• mes

es

2.B. 2.B. Re Recent out

• utcom
• mes

es

190k 161k 197k 197k 154k 153k 186k 210k 212k 227k 279k 50,000 100,000 150,000 200,000 250,000 300,000 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Credits / Unit Credits per Unit over Time

121k 118k 145k 143k

Public Funds per Unit Gov Governm rnment Funds Funds per per Uni Unit

331k 330k 372k 422k

2.B. 2.B. Re Recent out

• utcom
• mes

es

• No correlation to credits/unit

270k Avg. 44%Avg.

2. 2.C.

• C. Ti

Tiebr ebreak aker er co correlat ations (Most recent 238 New Con. awardees)

• Moderate correlation to high cost

400k Avg.

2. 2.C.

• C. Ti

Tiebr ebreak aker er co correlat ations (Most recent 238 New Con. awardees)

130k Avg.

2. 2.C.

• C. Ti

Tiebr ebreak aker er co correlat ations (Most recent 238 New Con. awardees)

• Strong correlation to public funds

2. 2.C.

• C. Ti

Tiebr ebreak aker er co correlat ations

Credits/unit

2. 2.C.

• C. Ti

Tiebr ebreak aker er co correlat ations

Cost/unit

2. 2.C.

• C. Ti

Tiebr ebreak aker er co correlat ations

Public Funds/unit

$5m PF 70 units $5m PF 50 units $5m PF 30 units = 71k/unit = 35 TB = 100k/unit = 39 TB = 166k/unit = 50 TB 30 units = 50 TB 50 units = 39 TB 70 units = 35 TB

2.D 2.D. Re Resulting beha behavior viors

$5m PF 70 units $5m PF 50 units $5m PF 30 units = 35 TB = 39 TB = 50 TB

2.D 2.D. Re Resulting beha behavior viors

2.

• 2. Qualit

alitativ ive sc scor

• rec

ecar ard

Measure Current TB Production C Fairness D Adjustable F Policeable D Game‐able D Understandable F Defensible D Behaviors C Simple D Familiar A

2.

• 2. The

The ti tiebr ebreak aker er isn isn’t wo working pr properly

• perly

$5m PF 30 units = 50 TB

Rising credits/unit Correlation with high cost Downward pressure on units

3.

• 3. A mo

more eff effective ti tiebr ebreak aker er co could be be desi designed gned

Topics:

• A. The design process
• B. A better way to measure leverage
• C. Resulting behaviors
• D. Avoiding bad outcomes
• E. Overall benefits

Thank Thanks to to those those who’ who’ve ve pr provided ided feedback eedback so so fa far.

3. 3.A.

• A. Ti

Tiebr ebreak aker er desi design gn pr process

• cess

Process: i. Decide the tiebreaker’s purpose ii. Use the most direct measurement

• iii. List the undesirable outcomes
• iv. Decide which outcomes must be avoided

v. Include adjustments to avoid such outcomes

How to measure leverage directly:

• Return on investment
• Units divided by Credits

3.B. 3.B. A bet better er way way to to me measure le leverage

3.B. 3.B. A bet better er way way to to me measure le leverage

= Score

Base case

3. 3.C.

• C. Re

Resulting beha behavior viors

Motivates

• Increasing units
• Decreasing credits
• Reducing costs
• Increasing sources
• Debt
• Equity
• Public funds

Raise more capital Base case Add units and costs More PF Save costs

3. 3.C.

• C. Re

Resulting beha behavior viors

3. 3.C.

• C. Re

Resulting beha behavior viors

Raise more capital Increase density Get parking reduction Better stack units Negotiate pricing Get public funding Build at scale Trim excess costs Get fees waived Operate efficiently

Unadjusted, a production oriented tiebreaker would result in two types of bad outcomes:

• 1. Ancillary public benefits would be ignored by the score
• 2. Projects that require more credits would be disadvantaged

3.D 3.D. Avoi

• idi

ding ng bad bad out

• utcom
• mes

es

• Adjustment Modules
• Incentivize policy goals
• Level the playing field
• Types
• Multiplicative modules (incent)
• “Affects all units”
• Additive modules (equalize)
• “Incremental effect”

3.D 3.D. Avoi

• idi

ding ng bad bad out

• utcom
• mes

es

Multiplicative adjuster example (Incent)

3.D 3.D. Avoi

• idi

ding ng bad bad out

• utcom
• mes

es

High Opp. Family Project Other Projects

Additive adjuster example (Equalize)

3.D 3.D. Avoi

• idi

ding ng bad bad out

• utcom
• mes

es

Prevailing Wage Project Non P.W. Projects

Current adjusters

• 1. Size factor
• 2. NPV subsidies
• 3. Commercial proration
• 4. Offsite deduction
• 5. Requested basis
• 6. Divide by 3
• 7. Basis addback
• 8. Opportunity areas

3.D 3.D. Avoi

• idi

ding ng bad bad out

• utcom
• mes

es

Potential adjusters

• 1. Rehab – New Con.

* multiplier

• 2. Square footage

± equalizer

• 3. Location based cost ± equalizer
• 4. Supportive service

‐ equalizer

• 5. Opportunity area

* multiplier

• 6. Prevailing wage

‐ equalizer Unfair to: new con. Family Infill PSH PW Multipliers ± Equalizers

3.D 3.D. Avoi

• idi

ding ng bad bad out

• utcom
• mes

es

3.E. 3.E. Ov Over eral all bene benefits fits

Redesigning the tiebreaker could: i. Increase production by simply measuring it ii. Make it easier to understand, explain, and defend

• iii. Involve the entire development team in improving the score
• iv. Foster creativity in achieving density, lowering costs, and raising capital

v. Reduce the amount of certification, gaming, and policing

• vi. Increase flexibility to address emerging policies
• vii. House more Californians

3.

• 3. Qualit

alitativ ive sc scor

• rec

ecar ard

Measure U/C Structure Current TB Production A C Fairness B D Adjustable A F Policeable A D Game‐able A D Understandable B F Defensible A D Behaviors A C Simple D D Familiar F A

Co Comme mments and and co concerns

3.

• 3. A mo

more eff effective ti tiebr ebreak aker er co could be be desi designed gned

4.

• 4. The

The bene benefits fits outw

• utweigh

eigh the the co cost st

Topics:

• A. Retrospective results
• B. Rough cost calculation
• C. Return on investment

4. 4.A.

• A. Re

Retrospective re results

Performed mock allocations for the past 4 years Used units/divided by credits with two simple adjusters:

• 50% multiplier for Rehab deals because they require half the

credits and provide less new affordability

• 10% subtraction for Family deals because they require more

square footage than other housing types Note: this is not a proposal, it’s merely an example

4. 4.A.

• A. Re

Retrospective re results

Measure Historic Results Mock Results Units awarded 17,686 19,620 Increase 0% 11% Credits per unit 230k 207k Credits awarded 4.07b 4.07b New construction 78% 85% Rehabilitation 22% 15% Family Housing Type 49% 52% Other Housing Types 51% 48% 2k additional 484 per year * *

4.B. 4.B. Ro Rough co cost st es estim timatio tion

Effort Base Qnty Hours Subtotal Taskforce meetings 20 12 8 1,920 Taskforce research 10 12 8 960 Public hearing 100 1 6 600 Developers respond 50 1 6 300 Committee considers 7 3 1 21 Excel tools published 3 3 10 90 Developers update models 50 1 5 250 Developers train staff 50 4 3 600 Total: 4,741

4. 4.C.

• C. Re

Return on

• n in

investment

Total Investment = 4,741 hours * $250/hour = $1,185,250 Break Even = Investment / Average cost per unit $400k = 3 units Annual Return = (19,620 ‐ 17,686) / 4 years = 484 units Savings = units * government funding/unit = 484 * 363k = 175m First year ROI = 175m / 1.2m = 15,000%

$1,185,250 3 to break even 484 first year 175m saved

4.

• 4. The

The bene benefits fits outw

• utweigh

eigh the the co cost st

Should Should TC TCAC re redesign the the ti tiebr ebreak aker? er?

Only If:

• 1. There is an unmet need for affordable housing;

1.5 million

• 2. The tiebreaker doesn’t effectively leverage our resources;

279k credits per unit in 2017 422k government funds per unit in 2017

• 3. A more effective tiebreaker could be designed;

Units/Credits motivates desired outcomes Adjusters ensure fairness

• 4. The benefit to the public outweighs the redesign cost.

175m > 1.2m

Should Should TC TCAC re redesign the the ti tiebr ebreak aker? er?

Should Should Uni Units / Cr Credi edit wi with adjus adjuster ers be be the the st structure?