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Washington Report | April 27, 2018

Published on April 27, 2018

NCSHA Washington Report

Preservation of existing affordable housing has been a long-running priority for the affordable housing community, for good reason. Sixty percent of rental units affordable in 1985 were lost by 2013, according to a major study by the Hudson Institute last year. Current estimates suggest that losses now significantly outpace new additions to the affordable supply on an annual basis.

According to the National Housing Preservation Database, almost half-a-million federally assisted homes and apartments will reach the end of their current subsidy contracts and affordability restrictions in the next five years. Roughly 25 percent of them are units financed with the Housing Credit.

While affordable housing preservationists have long had to contend with declining subsidies and expiring rent restrictions, a more recent challenge has arisen as a result of the overall strength of affordable housing as a real estate asset class in the current economic cycle: a new set of investors looking to maximize the economic opportunities in the inventory.

As one investor said to an industry newsletter last year: “Affordable housing is the sexiest space alive right now, and everybody wants in.”

Some of the new players are committed to keeping properties they acquire affordable to current residents or others of similar incomes. Others are openly looking for ways to “reposition” affordable apartments as market-rate developments through tried-and-true “value-added” real estate strategies: low-cost upgrades “that can generate higher rents, leading to rapid ROI growth.”

State HFAs are finding ways to compete and save some of this precious stock. Minnesota Housing, for example, is a lead partner in the innovative new $25 million NOAH Impact Fund, which aims to preserve the affordability of 1,000 unsubsidized affordable units in the Twin Cities over the next three years.

The Colorado Housing Finance Agency’s leadership in establishing a statewide preservation network generated improvements and extended rental assistance and affordability periods at 65 properties with a total of nearly 5,000 units in 2016 – earning CHFA recognition as a 2017 winner in NCSHA’s Annual Awards for Program Excellence.

HFAs are also proactive in addressing unintended consequences that can occasionally occur in connection with even the most effective programs. The “qualified contract” provision of the Housing Credit statute, which permits limited exceptions to the 30-year affordability commitment otherwise required by the program, is one such example.

The provision, in the current real estate investment environment, appears to be contributing to significant and growing affordable housing losses. Most state HFAs have taken or are taking action to address the issue, consistent with NCSHA’s new recommended practices for state HFA administration of the program. NCSHA is doing additional analysis to ensure HFAs have a complete picture of qualified contract activity and its impacts on the affordable housing supply, described in more detail below.

Stockton Williams

Stockton Williams | Executive Director

In This Issue

HUD Releases Rent Reform Legislative Proposal 

On April 25, HUD released its long-awaited rent reform legislative package, the Making Affordable Housing Work Act. The bill is the official proposal anticipated in HUD’s FY 2019 budget and the Administration’s recent Executive Order on Reducing Poverty by Promoting Opportunity and Economic Mobility.

The proposed bill would require public housing agencies (PHAs) and owners of buildings with project-based rental assistance to increase tenant contributions to 35 percent of gross income (with exemptions for persons with disabilities or who are at least 65 years old); allow PHAs and owners to use alternative rent structures and establish work requirements; and require verification of income every three years instead of annually. The proposed bill would also allow determination of HOME program rents on the basis of gross, instead of adjusted, income.

The proposed bill has not been introduced in Congress. A somewhat similar bill is expected to be introduced soon in the House by Representative Dennis Ross (R-FL). It was the subject of a House Financial Services Subcommittee hearing, summarized below.

House Financial Services Subcommittee Examines Rent Reform Legislation

The House Financial Services Housing and Insurance Subcommittee held a hearing on April 25 to discuss a draft of the Promoting Resident Opportunity through Rent Reform Act (PROTRRA), which Representative Dennis Ross (R-FL) plans to introduce soon.

As written, PROTRRA would provide public housing agencies (PHAs) options to select different rent models, including tiered rents and stepped rents based on tenure; allow PHAs to design their own rent structure subject to approval by the HUD Secretary; and make other reforms to rent requirements for public housing, Housing Choice vouchers, and project-based rental assistance properties previously converted under the Rental Assistance Demonstration.

At the hearing, Ross criticized the HUD-imposed income-based rent structure, suggesting it makes rent calculations burdensome, discourages tenants from working, and disincentivizes dual-income households. He added, “We have forced PHAs to administer a one-size-fits-all policy that zeros out what should be a strength of our system: proximity and sensitivity that PHAs have to meet the needs of their local communities.”

Subcommittee Ranking Member Emanuel Cleaver (D-MO) expressed concern that PROTRRA, as written, could lead to large rent increases for HUD-assisted households, and because of the potential for PHAs to choose a variety of different rent structures, PROTRRA could also limit voucher mobility and make it more difficult for HUD to oversee these rental assistance programs.

Witnesses at the hearing included William O. Russell III, President and Chief Executive Officer, Sarasota, Florida, Housing Authority; Will Fischer, Senior Policy Analyst, Center on Budget and Policy Priorities; Adrianne Todman, Chief Executive Officer, National Association of Housing and Redevelopment Officials; and Richard C. Gentry, President and Chief Executive Officer, San Diego, California, Housing Commission.

More information on the hearing is available in this NCSHA blog post.

House Appropriations Subcommittee Reviews Federal Housing Administration Budget Request

On April 25, the House Appropriations Subcommittee on Transportation, Housing, and Urban Development (THUD) held a hearing with General Deputy Assistant Secretary for the Office of Housing Dana Wade. She is also currently serving as the Acting Director of the Federal Housing Administration (FHA), as President Trump’s nominee, Brian Montgomery, has yet to be considered by the Senate.

The hearing focused on the progress of FHA’s programs and how they would be impacted by HUD’s proposed FY 2019 budget. Wade thanked the Subcommittee for including language in the FY 2018 omnibus that would allow Section 202 project rental assistance contracts to convert under the Rental Assistance Demonstration. She informed the Subcommittee that HUD’s rental reform proposal released earlier in the day would hold harmless elderly and disabled households currently served by HUD.

Much of Wade’s testimony focused on the financial health of FHA’s Mutual Mortgage Insurance Fund, which funds FHA’s single-family mortgage insurance programs. Wade cited several actions the Administration has taken that she said have helped to preserve the fund’s health and keep it above its statutorily mandated minimum capital ratio.

These actions include suspending a scheduled reduction in annual mortgage insurance premiums for new FHA loans that was previously announced by the Obama Administration, changes to FHA’s Home Equity Conversion Mortgage (HECM) program, and no longer insuring loans for homes with Property Assessed Clean Energy liens.

Committee members asked Wade about FHA’s HECM program, expressed concerns about proposed cuts in the Housing Counseling program, suggested FHA should respond to lender concerns about liability for small administrative errors, and raised issues about how well FHA single-family mortgage insurance serves minority borrowers. Read more on the hearing in this NCSHA blog post.

Housing Credit Industry Groups Recommend Additional State Action on Housing Credit Qualified Contracts

This week, NCSHA received this letter and supporting documents from a group of national organizations involved in the Housing Credit program urging state HFAs to take action to address the losses of affordable housing units caused by growing utilization of Housing Credit “qualified contracts.”

The materials recognize state HFA action on the issue to date and commend NCSHA for including guidance on qualified contracts consistent with the group’s recommendations in NCSHA’s recently revised Recommended Practices in Housing Credit Administration.

The materials also recommend additional allocating agency action, including implementing a waiver requirement for qualified contracts for 2018 allocation rounds, rather than waiting to make changes in 2019 allocation plans, and ensuring the same treatment for Housing Bond-financed Credit properties receiving determination letters in 2018.

The signatories to the letter are Enterprise Community Partners, Local Initiatives Support Corporation/National Equity Fund, National Association of Affordable Housing Lenders, National Association of State and Local Equity Funds, National Housing Trust, Housing Partnership Network, and Stewards of Affordable Housing for the Future.

Senate Finance Committee leaders currently are considering introducing legislation to revise the qualified contract provision of the Housing Credit statute to protect against continued losses of affordable units before the end of the 30-year affordability period elsewhere established in the law.

NCSHA will continue to assess the impact of qualified contracts, state HFA action to address them, and any congressional action that may affect them. Qualified contracts will be a key topic of discussion during several sessions at Housing Credit Connect, NCSHA’s upcoming national conference.

Groups Discuss Fair Housing Act’s 50th Anniversary

Garth Rieman, NCSHA’s Director of Housing Advocacy and Strategic Initiatives, joined a group of public officials, advocates, and academics in Washington, DC, this week at a conference to commemorate the 50th anniversary of the signing of the Fair Housing Act entitled “How Far Have We Come? Where Are We Going?”

Hosted by the Lawyers Committee for Civil Rights Under Law and the Poverty and Race Research Action Council, the event featured sessions on historical perspectives, Affirmatively Furthering Fair Housing, emerging legal issues, and federal threats to fair housing objectives.

The conference explored the status of HUD’s Affirmatively Furthering Fair Housing rule and efforts to reinstate the requirement for HUD grantees to submit Assessments of Fair Housing; implementation of HUD’s Small Area Fair Market Rent rule; the importance of the Low Income Housing Tax Credit and other housing supply programs to produce more affordable housing; and attempts to use litigation related to disparate impact under the Fair Housing Act to address a variety of issues, including the denial of housing to individuals with criminal records, displacement of people in protected classes caused by gentrification, and state preemption laws related to fair housing concerns.

Events Planned to Promote Affordable Housing Concerns

The National Low Income Housing Coalition and other groups are sponsoring the Our Homes, Our Voices National Housing Week of Action May 1 – 8. As of this writing, the Week of Action will include more than 60 events in more than 25 states, as well as national events in DC and online, to stress the need for affordable housing and call for increased investments in housing and community development programs. Local events will include affordable housing site visits, educational sessions, and political rallies in support of affordable housing program funding.

While NCSHA has not formally endorsed and is not directly participating in Week of Action events, we will promote our priorities in communications efforts during the week.