The NLIHC educates, organizes, and advocates

2018_Q1_NLIHC logo copy

There are many national groups working to preserve and expand affordable housing, but the National Low Income Housing Coalition (NLIHC) is the primary organization that focuses on making sure that Americans with the lowest incomes have access to decent housing.

Founded in 1974 by Cushing N. Dolbeare, NLIHC is made up of more than 1,100 individuals and organizations across the country, including Housing Action NH and the Maine Affordable Housing Coalition (MAHC).

Greg Payne, a Development Officer at Avesta Housing, is the Director of MAHC. He is also the Chair of the Board of Directors of NLIHC.

“Fundamentally, NLIHC is a policy advocacy organization,” said Payne. “Their staff educates lawmakers about housing needs to help shape socially just public policy, and they mobilize members, like MAHC, to do the same.”

In addition, NLIHC has a research arm that studies trends and analyzes data to create a picture of the need for affordable housing. One important study is the annual Out of Reach report, which uses HUD data to document the gap between renters’ wages and the cost of rental housing. According to Payne, when Maine policymakers call, Out of Reach is “one of the go-to” education tools.

Tax policy and budget bill

Along with groups like NNEHIF and the National Association of State and Local Equity Funds (NASLEF), NLIHC was deeply involved in the advocacy work around tax reform legislation. While NLIHC fought to protect the LIHTC program, they are also very concerned about the pressure on future budgets that will likely occur from the increased deficit as a result of the tax bill.

Housing advocates were worried that the two-year budget agreement that Congress recently passed would exacerbate the problem by making massive cuts to non-discretionary programs. The agreement did not contain those budget cuts, but Payne and NLIHC leadership keep the good news in perspective.

“We are relieved that these programs weren’t killed, but the status quo is still woefully inadequate to meet housing needs,” explained Payne. “The recent budget agreement combined with the new tax policy still puts us in a worse place than before the 2016 election – here in Maine, we can expect to see about a 10% decline in the number of affordable apartments that we’ll be able to build.”

Going forward

In the coming year, the NLIHC will continue to put a focus on the level of unmet housing needs in the U.S. One policy item that they’ll be actively engaging with is housing finance reform and the opportunity to expand the National Housing Trust Fund.

NLIHC is also anticipating that the federal government will likely propose changes to housing programs, such as raising minimum rents for extremely low income people and proposing work requirements. The coalition will work to ensure that those kinds of policy debates are based in a factual understanding of who lives in assisted housing.

Another important issue is the need for housing for people affected by the devastating hurricanes in 2017. NLIHC has been bringing organizations and communities together to speak to what the housing needs are in recovery, both in Puerto Rico and on the mainland. The goal is to make sure that the federal response to disaster recovery is equitable – and keeps the need for housing front and center.


Two Studies mean good news for LIHTC

Development costs for properties financed through the Low-Income Housing Tax Credit (LIHTC) program are generally no more or no less expensive than market rate projects. That’s the conclusion of two recent studies, one by the Government Accountability Office (GAO) and the other by the National Council of State Housing Agencies (NCSHA).

“Low-Income Housing Tax Credit: Improved Data and Oversight Would Strengthen Cost Assessment and Fraud Risk Management” measured development costs of LIHTC properties in 10 states between 2011 and 2015. The GAO report (the fourth and final in a series of GAO studies on the Housing Credit program) found that the median total development cost per unit in its survey was $204,000 – with significant variation depending on the area of the project. The least and most expensive projects ranged from as little as $104,000 per unit (Georgia) to as much as $606,000 per unit (California), for example.

The NCSHA’s study, conducted by Abt Associates, was a larger survey of Housing Credit construction costs. “Variation in Development Costs for LIHTC Projects,” analyzed a multiyear database of 160,000 homes in all 50 states that used the LIHTC program during 2011-2016. The study shows that although there is a small minority of outlier costs among the developments, the median development cost was $164,757, adjusted for inflation. The report also concludes that land, labor, and materials are the primary factors driving development costs and not state agency administration.

In its report, the GAO recommends some changes in the administration of the Housing Credit program: standardization of development cost data collection between housing finance agencies, a central federal agency to collect that data, more thorough general contractor cost certification requirements, and collection of additional information on syndication fees.

While these recommendations don’t necessarily strengthen the Housing Credit, everyone welcomes the opportunity to work with Congress and the IRS to strengthen and improve the program. Already, state housing finance agencies have begun to collect more cost data (as the NCSHA-commissioned report shows). In addition, last December NCSHA released new Recommended Practices for state agencies which included a recommendation consistent with the GAO recommendation that states institute more thorough cost certifications than required by the IRS.

With these studies showing a general parity in Housing Credit and market-rate development costs, those in the affordable housing industry are glad to have answered what was once a looming question.

“These reports corroborate what we’ve believed all along: LIHTC units are not extraordinarily expensive,” said Bill Shanahan, president of NNEHIF. “Now we can move on and have a meaningful discussion about costs.”


Ticking Clock

Genesis Fund works to preserve rural rental housing

The paucity of affordable housing isn’t limited to urban areas. People who live in rural and remote counties of Northern New England can also have a tough time finding an affordable place to live, for several reasons.

Over the past several decades, rural communities have watched once-thriving industries decline. The loss of manufacturing, forestry, and agriculture jobs has resulted in widespread unemployment and under employment. Plus, as the population ages, there is an increasing demand for homes for seniors and people with disabilities

One mechanism for developers to create affordable rental housing for low-income families, the elderly, and people with disabilities has been Section 515 Rural Rental Housing, mortgages made by the U.S. Department of Agriculture (USDA) for rural development (RD).

Since the program’s inception in 1963, Section 515 has financed nearly 28,000 rental properties, comprising more than 533,000 apartment units. Maine has 333 Section 515 RD-funded multifamily properties, providing 8,035 rental units. New Hampshire and Vermont, combined, have 150 Section 515 properties.

In 2010, Congress stopped funding Section 515, so no additional housing was built through the program. According to the Housing Assistance Council, as these loans mature or leave the portfolio, significant numbers of affordable housing properties will be lost: “Assessed on a timeline ‘curve,’ mortgage maturity projections indicate that an average of 74 properties (1,788 units) per year will leave the program from 2016 to 2027. Over 20 percent of the properties are expected to exit the program during each of these three phases.”

2019_Q1_Rural America is Losing its Affordable Rental Housing by the Housing Assistance Council

Another integral part of the USDA program is Section 521 Rental Assistance. Approximately two-thirds of all Section 515 tenants live in units that are rent subsidized through this program. When a Section 515 loan ends, the property also loses its rental assistance. This is significant considering that tenants’ annual income averages only $13,600.

According to Bill Floyd, Executive Director of the Genesis Community Loan Fund, one way to preserve rural housing properties is to help owners sell to housing authorities or other nonprofits. However, because of numerous requirements imposed by USDA RD regulations, the ownership transfer of these properties can be challenging.  One challenge, for example, is determination of value. At the time of the sale, the owner’s equity is payable through the property and is determined by a market rate appraisal and replacement reserves, less outstanding debt. But borrowing is limited to 97% or 95% (for LIHTC deals) of security value, which is based on restricted rent and low-rate financing. But if the owner pays off the debt, they can sell the housing to whomever they like – and rental assistance goes away.

The Genesis Fund is addressing RD preservation in a number of ways. Last year, they received a grant of $1.165 million from the Capital Magnet Fund at the U.S. Treasury Department and a $500,000 Federal Home Loan Bank grant, which provided new lending capital for rural rental housing. They’re also working with MaineHousing and other funding partners to secure additional resources in the form of subsidy to help fill the remaining gaps.

“What we’re trying to do is find other forms of housing subsidy to fill the gaps to make the transfer of USDA RD 515 properties feasible,” said Floyd. “It’s a challenge to secure those resources, but the amount is small compared to the cost of new construction.”
Additionally, Genesis Fund was one of only four technical assistance (TA) providers in the country to secure USDA RD funds to provide TA to buyers and sellers of 515 properties with maturing mortgages.

As the clock ticks down on Section 515 properties with maturing mortgages, The Genesis Fund remains committed to developing resources and expertise to preserving housing in rural communities. .


NNEHIF Broadens Its Commitment

Listen. That was the charge from NNEHIF President Bill Shanahan and the rest of the senior management team when they began creating a strategic plan for the years of 2018-2021. NNEHIF enlisted the services of consultant Valerie Landry who had in-depth conversations with more than 40 people, including staff, board members, developers, investors, regulators, and community organizations.

“Listening to the observations of NNEHIF staff and partners was the priority,” said Landry. “While the goal was to develop a blueprint for decision making, NNEHIF wanted the process itself to be a vehicle for engaging these important stakeholders.”

Expand, Enhance, Invest

After hours of interviews and analysis, many perspectives were woven into NNEHIF’s 2018-2021 strategic plan entitled “Broadening Our Commitment.” The plan lays out three overarching priorities: 1) Expand our business model, 2) Enhance business value, and 3) Invest in people.

While NNEHIF remains firmly committed to its core mission of Low Income Housing Tax Credit (LIHTC) syndication, the organization intends to explore new sources of financing and services to assist its partners. One option may be to offer short-term lending for partners that might not have that available to them through banks or other institutions. Other possibilities include expanding NNEHIF’s asset management consulting and service platform, or growing the HIF Consulting business even more.

The first priority to expand the business model goes hand in glove with the second priority: enhance business value. One practical example is NNEHIF’s goal to improve customer service through professional coaching.

“We’re constantly reminded of the fact that we’re in a competitive environment,” said Holly Burbank, VP of Finance & Administration. “We want to take a close look at how we do things and consider if there’s a new, better way that adds more value for our partners.”

Finally, NNEHIF has always understood that success depends on a top-notch team that enjoys their work and is good at it. The company’s plan to invest in people includes mapping out what skills and strengths currently exist among the staff, as well as providing guidance and training to people in areas where they need support.

“We want working at NNEHIF to be a great experience where staff can grow professionally,” said Burbank.

The More Things Change
NNEHIF is still the leading syndicator in Northern New England, and their level of LIHTC expertise and regional relationships in the affordable housing industry remain unparalleled. Now, the organization is ready to implement their strategic plan, gradually and with intention.

“We can’t remain static,” said NNEHIF President Bill Shanahan. “The environment for investors, developers, property managers, community organizations, and regulators is continuously changing. We must stay attuned to their needs to preserve and expand the supply of affordable housing.”

After more than two decades of leadership in this arena, NNEHIF will continue to play an integral role in affordable housing for many years to come, by listening – and responding – to the communities it serves.

A Conversation with Bill Shanahan on Tax Reform

Bill Head Shot

For much of 2017, we were all anxiously waiting to see what tax reform would look like. The affordable housing community was concerned about the possibility of a cut in the corporate tax rate. Rumors of tax reform in late 2016 and early 2017 produced a drop in Low-Income Housing Tax Credit (LIHTC) pricing: nationally the average price dropped from $1.02 to $0.93 in a short period of time, leaving many projects with credit reservations with a funding gap that had to be made up with other scarce resources.
Now that the tax bill has been passed, we know the corporate tax rate is 21%, which will probably mean further erosion in equity pricing. Still, many questions remain. In this article, NNEHIF President Bill Shanahan offers his thoughts.

First things first: was the LIHTC program ever in jeopardy?
When tax reform was taking shape, the LIHTC program was not a sure thing. NNEHIF worked alongside local and national groups to educate legislators about the program and its importance. Eventually, there were only two expenditures that found their way into the House’s version of tax reform: housing tax credits and R&D credits. We all breathed a sigh of relief…and then the other shoe dropped.

Before we talk about that other shoe, explain how changes to the tax code – especially the corporate rate cut – affect the LIHTC program.
Although the Housing Tax Credit was preserved, the corporate tax rate was lowered from 35 percent to 21 percent. The two most significant drivers in calculating a return on a housing tax credit investment are the credits and the non-cash losses that the properties provide investors. Both reduce an investor’s tax liability, and with a lower corporate tax rate there are fewer non-cash losses for the investor. In order to get the same return at 21% that an investor would get at 35%, the investor will now pay less for the housing credits.

Now that investors have a lower tax rate they may not have the same motivation to seek tax credits to reduce their tax liability. Other tax code changes that deal with interest deductibility and depreciation will also affect LIHTC investments, and we are still trying to sort those out. Many will need clarification from the IRS or a legislative fix. Additionally, everyone with a portfolio of housing credit investments now has to think about the value of that portfolio vis a vis the new tax rules.

All of these factors are causing investors to pause. I expect that investors will certainly stay in the market, but it’s going to take time for them to adjust to this new legislation. Most of our investors still have to consider their CRA obligations – that will likely create demand, but it may happen later than usual this year.

Are housing investment funds still good investments?
Absolutely. The fundamentals have not changed; this is a mature asset class that has performed very well with virtually no defaults or foreclosures and very high occupancy rates. The 15-year holding period is a long-term investment, but the after-tax returns are better than investment alternatives. CRA rules also still apply and continue to be a strong motivator for investors.

Let’s go back to that other shoe…private activity bonds.
One of the biggest shocks came when the House came out with their tax reform package: it eliminated private activity bonds (PAB’s). These tax-exempt bonds are used extensively in the public sector for municipal projects, school and infrastructure improvements as well as housing production and preservation.

The Senate preserved the PAB’s in their version of the tax bill, so during the reconciliation process we did tons of advocacy, alongside groups like Maine Affordable Housing Coalition, Housing Action NH, and the Maine Real Estate Developers Association. We fought really hard to preserve PAB’s, talking constantly with our congregational delegation and educating legislators about the importance of keeping the bonds. In fact, we drew a lot of attention from other states in New England – and across the country – because Susan Collins is our Senator, and she has such a pivotal role in the Senate.

Are there any other highlights in the tax bill?
New Market Tax Credits (NMTC’s) will be preserved until 2019, however, there’s still some uncertainty about whether they’ll continue after that. Historic Tax Credits were adjusted to a 5-year credit, reducing its potency (and pricing) from the first-year “high premium” credit that it once was. There’s also something in the tax code called Opportunity Zones, which are closer in kind to NMTC’s than Housing Tax Credits. It’s a bright spot for low-income communities, but it’s complicated and unclear exactly what it is – or if it will help increase affordable housing.

Since the tax bill has been passed and parsed, now what?
We got through tax reform and we’ve got some ground rules, but it’s a challenge in early 2018 to understand them all. The fact that LIHTC survived with bi-partisan support is huge. Now we have budget battles to fight to preserve the other programs that buttress LIHTC. The most disappointing thing about the advocacy experience was that we were fighting from a very defensive position and not finding many allies. Right now it’s hard to find housing heroes that are championing housing initiatives, although there are a few. Meanwhile, the demand for affordable housing is not slowing down. We in the industry need to keep beating the drum and make policy makers understand why housing is a priority.


Meet Dan Brennan, MaineHousing Director

2018_Q2_Dan Brennan

Dan Brennan was confirmed the new director of MaineHousing in early 2018, succeeding John Gallagher who retired. Brennan has been with MaineHousing for 25 years, and before his appointment as director, he was Senior Director of Programs.

How did you find your way to MaineHousing 25 years ago?
I was working in Portland as an auditor, first for Maine National Bank, then for RECOLL Management Corp, which was set up by the federal government following the failures of Maine Savings and Maine National Bank. Banking positions were tenuous back then and I needed more stability for my young family.

I answered a blind ad in the Portland Press Herald for someone to start an internal audit function for a “$1.2 billion financial institution in Central Maine.” Little did I know that it was Maine State Housing Authority! I moved from a staff position in a corporate audit environment to an opportunity to start an audit function from scratch, reporting directly to the Board of Commissioners. What is interesting is I did not come with a passion for solving affordable housing issues, however, it didn’t take long for that passion to take hold!

How has affordable housing in Maine changed in the last 25 years?
The challenges just seem to get bigger and bigger. Wages have not kept pace with inflation, higher paying jobs in manufacturing and mills have been replaced by lower paying jobs in retail and the service sectors, and more hard-working people are having a difficult time making ends meet. The needs of older Mainers also continue to grow, but fortunately, there are a host of for-profit and non-profit organizations that are willing to provide affordable housing opportunities. We rely greatly on these partnerships.

What are some of the strategies that MaineHousing is working to implement?
When we look at cost-effective strategies we are constantly looking for the right balance of cost and value. The lower the cost, the more people we can help with the limited funds we have available, but at the same time, maintaining good quality can be cost-effective in the long term. We’re also committed to research-based approaches to addressing housing needs. We are often willing to try experimental or pilot projects to see if they will work in our environment.

Can you give an example of a program that’s designed based on best practice?
MaineHousing offers a home modification program for older adult homeowners based on a best practice model developed by Sarah Szanton of John Hopkins. Working through local public housing authorities, we fund low-cost home improvements that keep residents safe and allow them to stay in their own homes. We track data before and after the improvement on the number of falls, trips to the emergency room, or calls to the fire department. We also track the cost of the home improvement. A research-based approach is a good way to bring good ideas to reality.

What are you most excited about in the next few years? 
I am most excited about finding the most efficient ways for MaineHousing to help those in need of our programs and services. The needs are great in our state, and we owe it to those who we help to deliver our resources to them in the most efficient manner possible.

We’ve also developed an in-house leadership development program for our staff, which is comprised of some of the most talented people in the country when it comes to affordable housing. My goal is to foster their development and cultivate the state’s affordable housing leaders of the future.

Affordable housing can be challenging work. What do you do to relax?
I am blessed to use the talents I have to help others every day. I love to golf, travel with my wife, listen to live music, and build relationships with friends and family. At the end of the day, it’s the memories and relationships that truly matter.

Q&A: Opportunity Zones

When Congress passed the new tax code in late 2017, a community development program was created to drive long-term investments in underserved areas across the country. NNEHIF’s president Bill Shanahan explains Opportunity Zones and what’s next for this new program.

What is the Opportunity Zone program and how would it work?
The “Investing in Opportunity Act” had been in the works, led by Senator Tim Scott, R-NC, Senator Corey Booker, D-NJ, when it was added to the tax bill. Essentially, it is a federal tax incentive that allows investors to shelter capital gains. For example, an investor has a capital gain event – it can come from real estate, stock sales, sale of a business, etc. – and can then take the proceeds and invest them in an Opportunity Fund for projects within an Opportunity Zone. Investors would reduce or eliminate their tax liability on their capital gains , and there is no cap on the amount of capital gains invested.

What are the actual Opportunity Zones?
They are designated low-income census tracts eligible for these tax-favored investments. Governors nominated up to 25% of low-income census tracts in each state, which were then approved by Treasury, the department that oversees the program. 8,762 tracts nationwide were designated and certified. Unfortunately, the program does not allow for changes in these designated zones.

What are Opportunity Funds?
They are any investment vehicle organized (as a corporation or a partnership) for the purpose of aggregating and deploying investments in Qualified Opportunity Zone Property. Any eligible investor can “self-certify” and create an opportunity fund by filling out a one-page IRS form. The fund can have a private or public manager; have a national, regional, state, or local focus; or be a multi- or a single-asset fund. Also, funds are limited to making equity investments and cannot provide project debt.

That sounds quite broad. Are there other fund parameters?
There is no limit on where Opportunity Funds can invest (or how many projects), as long it is in one of the 8,762 approved census tracts. A fund must deploy at least 90% of its assets within an Opportunity Zone, and there must be an appreciation in value of the asset over time. The Treasury Department and the IRS recently issued its first guidance and revenue ruling.  It’s a good first step in clarifying how these funds will work and will go a long way in helping fund managers and investors structure investment funds.

How can this program help create more affordable housing?
There are very few rules or restrictions in the law itself. Funds can invest in real estate, but also in new or existing businesses, partnership, or stock. We in the industry are continuing to figure out how we can take advantage of Opportunity Funds and identify potential investors.

Has anyone in Northern New England moved forward with Opportunity Zones?
Both Maine and New Hampshire have certified Opportunity Zones, but New Hampshire has already made strides toward an Opportunity Fund for the state. The Granite Opportunity Fund is a partnership between the NH Department of Business and Economic Affairs, the NH Community Development Finance Authority, and other agencies, including the Community Development Finance Authority, NH Housing, the Community College System of New Hampshire, and NNEHIF. As the partners anticipate further guidelines, they continue to gather information, review projects funded by other programs, and engage local stakeholders.

2018_Q3 _opportunity zones