'Affordable housing' means different things to different people. We suggest that you take a glance at the Housing Timeline in this Resources section for an overview of legislative efforts in this country spanning almost 100 years. The United States Housing Act of 1937 created the U.S. Housing Authority which established the first national public housing program. This subsequently lead to the construction of what we now frequently refer to as 'housing projects', and although controversy still surrounds the public housing movement, most would acknowledge that evolution of public housing, along with all of its blemishes, did in fact place the need for 'affordable housing' squarely on the map.
By the 1970's, there was clearly a shift in the federal housing strategy from locally owned public housing to privately owned rental housing. And since the early days of 'public housing', affordable housing legislation has been passed on a frequent basis, focusing on topics ranging from infrastructure for home improvements, land acquisition discounts, modification of land use controls and zoning codes, inclusionary housing, federal tax credits, tax exempt bond financing, subsidies for rentals, weatherization, assistance for homeless veteran's, and funds enabling state and local organizations to finance their own housing and community development programs with more planned growth.
By no means is the list of programs highlighted below meant to be exhaustive in any way. Rather, we have merely chosen a handful of the programs that, given the right project, Purple Vetch Properties will most likely turn to for partial funding or financing of acquisition and rehabilitation costs. Hopefully, as you review some of these programs, you will see the breadth of ways ~ and creativity ~ in which the Federal government has chosen to tackle the need for high quality 'affordable housing'.
- Community Development Block Grant (CDBG)
- HOME Investment Partnership Program
- Neighborhood Stabilization Programs (NSP)
- Federal Home Loan Banks Programs
- National Housing Trust Fund of 2008 (HERA)
- Weatherization Assistance Program
- Low Income Housing Tax Credit (LIHTC)
- Historic Tax Credits
- New Market Tax Credits (NMTC)
- Section 8 Programs
- VASH Program
The CDBG program was enacted in 1974 through the Housing and Community Development Act of 1974, which makes the program one of the longest continuously run programs at HUD. The Community Development Block Grant (CDBG) program is a flexible program that enables States and local governments with resources to address a broad range of unique community development needs.
The annual CDBG appropriation is allocated between States and more than 1,100 local jurisdictions called "non-entitlement" and "entitlement" communities, respectively.
Entitlement Communities are:
- Central cities of Metropolitan Statistical Areas (MSAs);
- Metropolitan cities with populations of at least 50,000; and
- Qualified urban counties with a population of 200,000 or more (excluding the populations of entitlement cities).
States distribute CDBG funds directly to 'non-entitlement' localities which are not qualified as 'entitlement communities'.
Over a 1, 2, or 3-year period, as selected by the grantee, not less than 70 percent of CDBG funds must be used for activities that benefit low and moderate income persons. In addition, each activity must meet one of the following national objectives for the CDBG program:
- Principally benefit low and moderate income persons;
- Eliminate or prevent slums or blight;
- Address community development needs that pose a serious and immediate threat to the health or welfare of the community.
Relevant to PVP, CDBG funds may be used for real estate acquisitions, and rehabilitation of multifamily housing, as well as for the preservation and restoration of historic properties in low income neighborhoods. However, the approximately $4 billion CDBG budget is in jeopardy of substantial cuts going forward. Visit the PVP blog for updates on developments with respect to Federal appropriations for this, and other government funding programs as well.
The HOME Investment Partnership Program, or simply the 'HOME' program, was established by Congress in 1990, for the specific purpose of expanding the supply of decent, safe, affordable housing in the United States through partnerships with Federal, State, and local governments and non-profits and for-profit entities. This program is funded by the Department of Housing and Urban Development (HUD) and is the largest Federal block grant to State and local governments designed exclusively to create affordable housing for low-income households. Each year, the HOME program allocates approximately $2 billion among the States and hundreds of localities nationwide.
HOME funds can assist property owners such as PVP with the acquisition, construction, and rehabilitation of affordable multifamily rental housing. Qualification provisions for HOME funds require that at least 90 percent of benefiting families must have incomes that are no more than 60 percent of the HUD-adjusted median family income (MFI) for the area. In rental projects with five or more assisted units, at least 20% of the units must be occupied by families with incomes that do not exceed 50% of the HUD-adjusted median. The incomes of households receiving HUD assistance must not exceed 80 percent of the area median income. HOME income limits are published each year by HUD.
All States are automatically eligible for HOME funds, and each receives a minimum of $3 million for the program, while local governments receive a minimum of $500,000 (unless Congress assigns $1.5 billion or less to the program, in which case local governments receive a minimum of $335,000). However, federal regulations require that every State or local government that receives funds must provide 25 cents for every HOME dollar used.
The Neighborhood Stabilization Program (NSP) was established by U.S. Department of Housing and Urban Development (HUD) for the purpose of stabilizing communities that have suffered from foreclosures and abandonment of properties that have become a blight on the community. The program aims to stabilize neighborhoods by purchasing and redeveloping foreclosed and abandoned homes and residential properties and then putting them back into productive use. The program's goal is to help low and moderate income persons — households or individuals earning less than 120% of the area median income. Moreover, at least 25% of NSP funds must benefit households or individuals who earn less than 50% of the area median income.
NSP is a component of the Community Development Block Grant (CDBG) program. The CDBG regulatory structure is the platform used to implement NSP and the HOME program and provides a framework for NSP affordability requirements. However, NSP grantees develop their own programs and funding priorities.
NSP1: references the first round of NSP funds authorized under Division B, Title II of the Housing and Economic Recovery Act (HERA) of 2008, and provides grants to all states and selected local governments on a formula basis.
NSP2: references the NSP funds authorized under the American Recovery and Reinvestment Act of 2009, and provides grants to states, local governments, nonprofits and a consortium of nonprofit entities on a competitive basis.
NSP3: references the NSP funds authorized under the Dodd–Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) of 2010, and provides a third round of neighborhood stabilization grants to all states and select governments on a formula basis.
The Neighborhood Stabilization Program is still in its infancy; therefore, it is too early to determine the extent to which NSP will make a significant impact on addressing the waves of residential foreclosure in this country since 2008.
The Federal Home Loan Banks are 12 regional cooperative banks used by U.S. lending institutions to finance housing, community development, infrastructure, small businesses, and jobs in their communities. These Federal Home Loan Banks, which are government sponsored enterprises (GSEs), were established in 1932 by the Federal Home Loan Bank Act. The FHLBank System represents the largest collective source of home mortgage and community credit in the United States today. The primary purpose of the Federal Home Loan Banks is to provide their members with liquidity
Presently, the Federal Home Loan Banks are regulated by the Federal Housing Finance Agency (FHFA). This agency was created by the Housing and Economic Recovery Act of 2008 (HERA) and the FHFA also regulates the activities of Fannie Mae and Freddie Mac.
Federal Home Loan Banks contribute 10% of their net income to affordable housing through the Affordable Housing Program (AHP), which is now more than 20 years old. This competitive grant program is the largest source of private sector grants for housing and community development in the country. The Federal Home Loan Banks have distributed nearly $4 billion in Affordable Housing Program funds since 1990. AHP funds have been responsible for the building of close to 700,000 housing units, including more than 400,000 units for very low income residents.
AHP is a flexible program that uses funds in combination with other programs and funding sources, such as Low Income Housing Tax Credits and Community Development Block Grants. Member lending institutions work with nonprofit organizations and developers in serving a wide range of community needs, including important projects designed for older adults, people with disabilities, addressing homelessness, and first-time homebuyers. This is one of the reasons why PVP chose to highlight the existence of the AHP program through the Federal Home Loan Banks. When Purple Vetch Properties seeks funds for multifamily affordable housing projects from a lending institution, it's a good chance that FHLBanks are in the background, since 80% of all lending institutions in the United States rely on the Federal Home Loan Banks.
National Housing Trust Fund
The National Housing Trust Fund became law with the passage of H.R. 3221, the Housing Economic Recovery Act of 2008 (HERA). This is the first new federal housing production program specifically targeted to extremely low income household families since 1974. HUD's definition of 'extremely low income' is that a household must earn 30% or less than the median family income (MFI) for the county in which they live.
However, the NHTF has not yet been funded, but when or if it is, the assertion by its supporters is that NHTF will reduce the shortage of quality affordable rental housing, create thousands of jobs, and bring immediate gains to national, state and local economies, all without adding to the national debt. We have chosen to place this in limbo program on this page since we believe it is an important development to follow for you, and for PVP.
The NHTF's most important features are:
- It is a permanent program that seeks to have dedicated source(s) of funding not subject to the annual appropriations process. Funding sources under consideration will not compete with annual HUD appropriations;
- At least 90% of the funds must be used for the production, preservation, rehabilitation, or operation of rental housing. Up to 10% can be used for first- time home buyer assistance for down payments, closing costs, and interest rate buy-downs;
- At least 75% of the funds for rental housing must benefit extremely low income households and all funds must benefit very low income households.
Stay tuned to the PVP blog for updates on the status of funding for the National Housing Trust Fund and also visit the link for the National Low Income Housing Coalition, a non profit organization dedicated solely to achieving socially just public policy that assures people with the lowest incomes in the United States have affordable and decent homes. The advancement of the National Housing Trust Fund remains the highest priority for the NLIHC.
The Weatherization Assistance Program (WAP), authorized by the Energy Conservation in Existing Buildings Act of 1976, Title IV of the Energy Conservation and Production Act, was established to:
". . . increase the energy efficiency of dwellings owned or occupied by low income persons, reduce their total residential energy expenditures, and improve their health and safety, especially low income persons who are particularly vulnerable such as the elderly, the handicapped, and children."
The U.S. Department of Energy (DOE) provides funding to states, U.S. overseas territories, and Indian tribal governments, which manage the day-to-day details of the WAP program. These governments, in turn, fund a network of local community action agencies, nonprofit organizations, and local governments that provide these weatherization services in every state, the District of Columbia, U.S. territories, and among Native American tribes.
WAP serves low income households, primarily those living in privately owned existing homes. However, many HUD-assisted multifamily buildings and other rental units are also eligible. As we all know, rising energy costs frequently pose a significant threat to maintaining affordable rental housing. Energy efficiency upgrades or 'green retrofits' in rental housing is a cost-effective approach to lowering operating expenses and maintaining affordability for low income households. This is a 'win-win' situation for residents and property owners.
The American Recovery and Reinvestment Act of 2009 (ARRA) recently provided $5 billion of funding for WAP over the next three years. The Weatherization program must now expand from servicing 175,000 units yearly to more than three times that size, in order to weatherize almost 600,000 additional homes by March 2012. The ARRA also increased the average expenditure limit per home from $2,500 to $6,500 to achieve greater energy savings. Increased coordination amongst the Department of Energy, HUD, and the U.S. Department of Agriculture (USDA) for whole building weatherization was another outcome of the enhanced attention to WAP through ARRA.
A multifamily property may be eligible by the DOE for the Weatherization Assistance Program if at least two-thirds of the residents of the building larger than four units must meet DOE's income eligibility requirements, which is currently set at 200% of the federal poverty level. However, funding for individual projects will be a function of state or local weatherization priorities and funding availability.
Needless to say, the WAP program, when appropriate, will be on PVP's radar screen as a potential partial funding source for our 'sustainability' and 'green retrofit' endeavors.
The Low-Income Housing Tax Credit (LIHTC) may very well be the most important resource for creating affordable housing in the United States today. Created by the Tax Reform Act of 1986, and based on Section 42 of the Internal Revenue Code, the LIHTC program gives State and local LIHTC allocating agencies the equivalent of nearly $8 billion in annual budget authority to issue tax credits for the acquisition, rehabilitation, or new construction of rental housing targeted to lower-income households.
Federal housing tax credits are awarded to developers of qualified projects and the developers in turn sell these tax credits to investors to raise capital for the projects. The sale of these tax credits results in a reduction of debt that the developer would otherwise have to borrow, and since the debt is less, a tax credit property can in turn offer lower, more affordable rents for its residents.
Tax credits can be used to finance projects and developments serving families with children, elderly residents, the homeless, or disabled individuals as well as other special needs groups. Projects eligible for LIHTC must meet either of the following requirements:
- 20% or more of the units must be rented to households whose incomes do not exceed 50% of the Median Rental Income (MRI); or
- 40% or more of the units must be set aside for households whose incomes do not exceed 60% of the Median Rental Income (MRI)
By statute, LIHTC projects must adhere to the rent restrictions for a minimum of 15 years ('compliance period'). As long as LIHTC program requirements continue to be met, those who invested in the project through the purchase of tax credits receive a dollar for dollar credit against their federal tax liability each year over a period of 10 years. Simply put, the developer sells the rights to the future 'Section 42' (Internal Revenue Code reference) tax credits in exchange for up-front cash to pay for development costs.
Purple Vetch Properties will avail itself of the LIHTC program if the project under consideration requires significant rehabilitation, and in so doing, we will create vibrant and healthy 'mixed income' living communities.
The Federal Historic Preservation Tax Incentives Program – the 20% Historic Tax Credit (HTC) – began in 1976 when the tax code was revised to provide tax incentives that promoted the preservation of 'certified historic structures' that can become income-producing properties through substantial rehabilitation. A 'certified historic structure' is an property that is subject to depreciation, as defined by the Internal Revenue Code, listed individually in the National Register of Historic Places, or which is located in a registered 'historic district' and certified by the Secretary of Interior as contributing to the historic significance of the district. Since the program's inception, the National Park Service (NPS) of the U.S. Department of Interior has administered it in partnership with the Internal Revenue Service (IRS) and with State Historic Preservation Offices (SHPOs).
These Historic Tax Credits allow for a dollar-for-dollar reduction of federal tax liability for 20% of the costs of certified rehabilitation activities to certified historic structures. A five-year compliance rule requires that the historic buildings cannot be transferred nor can any additional construction work be performed that would adversely affect their historic integrity. If compliance is not achieved, a portion of the credit must be recaptured, or returned to the government. The portion subject to recapture is reduced 20% per year over the five-year period. There is also a 10% tax credit available for rehabilitation of non-historic non-residential income producing properties that were built prior to 1936.
The Preservation Tax Incentives Program is one of the federal government's most long standing, successful and cost-effective community revitalization programs. HTCs reward private investment in rehabilitating historic properties such as offices, rental housing, and retail stores, while abandoned or under-used schools, warehouses, factories, churches, retail stores, apartments, hotels, houses, and offices in many cities have been restored to life in a manner that retains their historic character. The Preservation Tax Incentives Program has also helped to create thousands of jobs over the years and housing in historic buildings for low to moderate income families.
"Rehabilitation" is defined in the regulations governing Historic Preservation Certifications [36 Code of Federal Regulations (CFR) Part 67] as:
"The process of returning a building or buildings to a state of utility, through repair or alteration, which makes possible an efficient use while preserving those portions and features of the building and its site and environment which are significant to its historic, architectural, and cultural values."
Purple Vetch Properties is very much in alignment with the Federal Historic Preservation Tax Incentives Program since we believe that adaptive re-use and retrofitting pre-existing older buildings is the most sustainable thing we can do. Therefore, it is only logical that we will avail ourselves of HTCs when a PVP project under consideration qualifies for favorable treatment under this program. Recall that the identification of historic or heritage properties is a major thrust of the initial work of PVP in any market of choice. We start from the place of preservation. And then, we infuse 'green' affordable multifamily housing into the equation, with sustainability as our guiding light.
The New Markets Tax Credit (NMTC) program was enacted in December 2000 by the U.S. Treasury Department as part of the Community Renewal Tax Relief Act. The initial purpose of the NMTC program was to spur private investment in businesses operating in low-income communities, characterized by either: (a) a poverty rate of at least 20% ; or (b) a median income no more than 80% of Area Median Income (AMI).
The Community Development Financial Institutions (CDFI) Fund, established by the Riegle Community Development and Regulatory Improvement Act of 1994, functions within the U.S. Department of the Treasury, and amongst other responsibilities, administers the NMTC program.The NMTC program allocates 'tax credits' to 'Community Development Entities' (CDEs) embarking on various qualifying business projects as varied as office, retail, education, health care, industrial, hotel, and rental residential, so long as no more than 80% of the gross property revenue comes from residential units. Therefore, in the event that Purple Vetch Properties was participating in a mixed use (residential / commercial) project, the NMTC program may a financial resource for development assistance.
An organization wishing to receive awards under the NMTC Program must meet the following qualifications to be certified as a CDE by the Fund:
- be a domestic corporation or partnership at the time of the certification application;
- demonstrate a primary a mission of serving, or providing investment capital for, low-income communities or low-income persons; and
- maintain accountability to residents of low-income communities through representation on a governing board of or advisory board to the entity.
The New Markets Tax Credit (NMTC) Program permits taxpayers to receive a credit against Federal income taxes for making Qualifed Equity Investments (QEIs) in designated Community Development Entities (CDEs). The tax credit provided to an investor totals 39 percent of the cost of the investment and is claimed over a seven-year credit allowance period. In each of the first three years, the investor receives a credit equal to five percent of the total amount paid for the stock or capital interest at the time of purchase. For the final four years, the value of the credit is six percent annually. Investors may not redeem their investments in CDEs prior to the conclusion of the seven-year period.
Investors can only claim the credits over the seven-year compliance period if the CDEs use substantially all of the QEIs from investors to make Qualified Low Income Community Investments in Qualified Active Low Income Community Businesses located in Qualified Low Income Communities.
Today, people often equate affordable housing with a direct rent subsidy through Section 8 vouchers. However, as this web page hopefully suggests, the ways in which affordable housing is created and maintained in this country are many and varied.
Various provisions of the United States Housing Act of 1937 authorized the Federal government to provide funds for the development of high-quality 'public housing' units for low-income tenants. Local public housing authorities maintained and managed the units, and in many instances, still do. However, over the years, for an assortment of reasons, the classic 'public housing' model has fallen into disfavor, typified by the recent demolition of Cabrini Green in Chicago, and the classic 'public housing' model receives less and less sustenance by the Federal government.
By the 1970's, if not before, it became clear that a compelling problem for low income families was the share of income residents were paying for their rent. Thus, Congress passed the Housing and Community Development Act of 1974, further amending the U.S. Housing Act of 1937, and a decade later, passed the Quality Housing and Work Responsibility Act of 1998, both, in conjunction with on-going legislative amendments, created the Section 8 Program that we recognize as such today.
Today, what we think of as Section 8 programs are really divided into three basic components:
- Project-Based Certificates (PBCs)is the 'old' Section 8 program;
- Project-Based Vouchers given to owners of housing units; and
- Tenant-Based Vouchers given directly to the individual household
The Project-Based Certificates (PBCs) stemmed from a program that was created in 1974, and these original Section 8 project based Housing Assistance Payments (HAP) contracts were entered into between HUD and property owners for terms as long as 40 years for the purposes of keeping the apartments affordable to low income households. Residents continue to live in existing project based units, and property owners still under contract continue to benefit from the program subsidies. However, no additional units are being produced under these programs. As such properties come up against an 'expiring use', opportunities may be created for Purple Vetch Properties in the realm of affordable housing preservation.
The Project-Based and Tenant Based Voucher programs of today are under the umbrella of what is called the Housing Choice Voucher (HCV) program, which stems from the Quality Housing and Work Responsibility Act of 1998, and subsequent legislation such as the Housing and Economic Recovery Act of 2008 (HERA).
In "Project-Based" voucher programs, the property owner reserves some or all of the units in a building for low-income tenants, in return for a Federal government guarantee to make up the difference between the tenant's contribution and the rent specified in the owner's Housing Assistance Payments (HAP) contract with the government. A tenant who leaves a subsidized project will lose access to the project-based subsidy since the assistance is tied to the 'unit'. These 'project based' programs are administered on the Federal level by HUD and the U.S. Department of Agriculture Rural Development. Since 2001, local Public Housing Agencies (PHAs) have been permitted to reserve up to 20% of its Housing Choice Vouchers for project-based rental assistance.
The "Tenant-Based" voucher program is really at the heart of the Housing Choice Voucher program. A qualified resident can move with assistance from one unit of at least minimum housing quality to another. Under both the Project-Based and the Tenant-Based voucher programs, individuals or families with a voucher find and lease a unit and pay a portion of the Fair Market Rent (FMR), based on income, but generally no more than 30% of the family's adjusted monthly income. The PHA pays the owner the difference between the 30% of adjusted family income and a PHA determined payment standard, or the gross rent for the unit, whichever is lower, all specified in a Housing Assistance Payment (HAP contract.
Eligibility determinations for Federal housing subsidies are based on HUD categorizations with respect to where families 'fit' in comparison to the Area Median Income (AMI):
- Moderate income households earn between 80% and 120% of AMI;
- Low income households earn between 50% and 80% of AMI;
- Very low income households earn no more than 50% of AMI;
- Extremely low income households earn no more than 30% of AMI.
Initial eligibility for Housing Choice Voucher programs require that families are, at a minimum, classified as 'very low income', with a few specific categorical exceptions for families with 'low' incomes up to 80% of the AMI. However, local PHAs must ensure that 75% of households newly admitted to the HCV program each year have incomes at or below 30% of the AMI – in other words, extremely low income households.
When a voucher family selects a residence and it is approved for leasing under the program by the PHA, the family signs a lease with the landlord for at least one year. Under the terms of the lease, the tenant may be required to pay a security deposit, and the landlord may initiate a new lease or allow the family to remain in the unit under a month-to-month lease after the first year elapses.
Tenants are expected to comply with the lease and the program requirements, pay their share of the rent on time, maintain the unit in good condition, and notify the PHA of any changes in income or family composition. PHAs must review and update the family's income and composition at least annually, and they must inspect each unit at least annually to ensure that it meets the minimum housing quality standards for participation in the program.
Purple Vetch Properties will participate in the Housing Choice Voucher program under the appropriate circumstances in any given multifamily project. This program is a critical piece of the 'affordable housing' puzzle, and despite its challenges and deficiencies, it is a program that merits our involvement.
The HUD-Veterans Affairs Supportive Housing (HUD-VASH) program was commenced in 1992 under a memorandum of agreement between HUD and the U.S. Department of Veteran's Affairs (VA). Congress later codified the HUD-VASH program in the Homeless Veterans Comprehensive Assistance Act of 2001. The HUD-VASH program combines HUD based Housing Choice Voucher (HCV) rental assistance for homeless veterans with case management and clinical services provided by the Department of Veteran's Affairs.
The HUD-VASH Program, through a cooperative partnership, provides long-term case management, supportive services and permanent housing support for the most vulnerable of homeless Veterans. In order to be eligible for this program, Veterans must be VA Health Care eligible, homeless based on the McKinney Act standards, and need and participate in case management services in order to obtain and sustain permanent independent community housing
Eligible homeless Veterans receive VA provided case management and supportive services to support stability and recovery from physical and mental health, substance use, and functional concerns contributing to or resulting from homelessness. The VA provides these services for participating veterans at VA medical centers (VAMCs) and community-based outreach clinics. The program goals include promoting maximum Veteran recovery and independence to sustain permanent housing in the community for the Veteran and the Veteran's family.
The VA identified 132 VAMCs that participate with the program, by taking into account the population of homeless veterans needing services in the area, the number of homeless Veterans served by the homeless programs at each VAMC, geographic distribution and VA case management resources. There is at least one VAMC site in each of the 50 states and in the District of Columbia and Puerto Rico.
According to the Department of Veterans Affairs, HUD provides 20,000 "Housing Choice" Section 8 vouchers designated for HUD-VASH to participating Public Housing Authorities to assist with rent payment. When and where appropriate, Purple Vetch Properties intends to participate in providing housing to eligible homeless Veterans through the HUD-VASH program in order to promote this path to independent living for this 'special needs' segment of our population that have honorably served our country.
*Unless otherwise indicated, the photos on this page have been provided to PVP courtesy of Business and Professional People for the Public Interest, a Chicago-based public interest law and policy center that addresses compelling issues of social justice and quality of life around the country. Please note that the physical placement of the photos on this page is in no way intended to be linked to any particular funding source or grant program, although all photos represent projects from around the country that have do have some connection to affordable housing.