CHAPTER 3: Best Practices in Affordable Housing
Cities and states across the country have created diverse partnerships and
programs to address their unique housing needs. Austin can learn from their
experiences. All rely heavily on federal monies primarily from the Departments
of Housing and Urban Development and Treasury to assist people of low- and moderate-incomes
to become self sufficient.
Innovative partnerships, however, have developed
with the private and nonprofit sectors to stretch scarce federal
resources. This chapter is designed to give an overview of some of the
housing practices across the United States. The majority of the programs
highlighted in this chapter are from "A Rich Tapestry: States and
Localities Take the Lead in Affordable Housing," an unpublished
manuscript for the Urban Land Institute,
by Professor Michael A. Stegman of the University of North Carolina.
It is important to note that these are model programs -- each tailored
to meet the distinct needs of their area. To adopt them in Austin, some
features may need to be adapted to local characteristics. To address the
broadest categories possible, this chapter summarizes programs that address
homeownership, rental housing, services related to housing, and augmenting
resources. The first section highlights successful programs in Texas.
Typically programs address the basic barriers to affordable housing --
acquisition of land or properties, construction expenses, and funding
for rehabilitation/renovation of an existing structure.
Several programs in Texas have received national recognition for their
ability to fill housing needs locally.
San Antonio Housing Trust Fund,95
established in 1988, is a nonprofit foundation that provides affordable
housing opportunities for low- to middle-income residents and assists in
the revitalization of downtown. The SAHTF was capitalized with $10 million
from the sale of a cable television franchise in 1988 and the Trust is
currently worth $10.9 million. Its current leveraging ratio is $11 private
dollars to every $1 of Trust monies. All efforts are targeted at residents
earning 120 percent of median area income or less. The board is appointed
by the San Antonio City Council; the board reviews funding requests and
makes recommendations. Proposals are received during open, competitive
funding rounds held approximately every 18 months. The Foundation's "Affordable
Parade of Homes" is a collaborative initiative between the Trust,
builders, lenders, community groups and public officials, whereby city
lands were sold to the Trust for $1 and then individual lots were sold
to developers for $1. The Trust provided assistance to low-income residents
to purchase these homes. This program is the model for the City of Austin's
Indian Hills Smart Housing Showcase, off East William Cannon Drive.
The Homeward Bound Programin Austin provides homeownership opportunities
through public and private partnerships to promote community and economic
development through education, counseling, and financing opportunities.
Specific activities include housing counseling and downpayment assistance.
Started in 1994 as a program within the Central Texas Mutual Housing Association
to help renters become homeowners, Homeward Bound became an independent
nonprofit in 1996. Since then, it has assisted over 500 families, including
16 disabled individuals. All residents of Hays, Travis and Williamson Counties
are eligible; specific lending programs may carry income and other eligibility
restrictions. Homeward Bound is part of a national network of 181 NeighborWorks
organizations working to create 25,000 new homeowners, counsel 200,000
families and leverage over $1.8 billion in investments by 2002.96
Austin's award-winning Casa Verde Builders,
operated by the American Institute for Learning (AIL), has implemented
an innovative housing model that combines production of new affordable
housing with community service and job training for at-risk youth. By partnering
with public and private-sector organizations, including Home Depot, and
others, AIL has built over 40 energy-efficient homes for residents at or
below 50 percent of area median income. Homebuyers received down payment
and closing cost assistance from the City of Austin, the State of Texas,
and, recently, Guaranty Federal Bank. At-risk youth selected to participate
in the program are given construction skills, academic education, supportive
services, and, in some cases, scholarships. The homes are constructed using
"green building" techniques that reduce energy consumption by
as much as 50 percent from conventionally built homes.97
According to the American Planning Association, 56 percent of the nation's
wealth is in real estate.98
Thus, homeownership programs are popular because they stabilize neighborhoods
and families and provide new taxpayers to local rolls. There is much evidence
that with proper counseling, low- and moderate-income people create no
more risk to the mortgage lender than homebuyers in higher income brackets.
Typically assistance is given to help acquire land or properties, finance
new construction or renovation/rehabilitation of existing properties and
to meet downpayment and closing costs. A substantial amount of funding
for such activities comes from HUD through its Community Development Block
Grant, HOME program, and the Federal Housing Administration, which provides
mortgage loans and insurance.
There is significant risk involved in both the construction/rehabilitation
of a single-family home and the placement of a mortgage on that home. To
sell those homes, then, at below-market prices requires some form of subsidy.
In order to share the risks and rewards of affordable housing programs,
partnerships have developed between the private and public sectors to build
safe, affordable homes. A major incentive in bringing banks to the table
was the Community Reinvestment Act of 1977. CRA is intended to encourage
depository institutions to help meet the credit needs of their communities,
including low and moderate-income neighborhoods. The law requires that
each depository institution's record in doing so be evaluated periodically.
That record is taken into account in considering an institution's application
for deposit facilities.99
Tampa Bay Community Reinvestment Corporation100
was created in 1991 in response to poor lending practices by area banks
in minority communities. This nonprofit mortgage banking corporation allows
member financing institutions to combine resources and share the risks
of financing affordable housing. Every member -- currently 37 institutions
with a total loan pool of $50 million -- has a pro-rata share in every
loan; this allows member banks to make community development loans with
low administrative overhead and allows smaller institutions to participate
without hiring staff. Membership is for two years with a minimum participation
amount of $100,000 with loan apportionment pools of up to $24 million.
Underwriting standards are set so that loans may be sold in the secondary
market, further increasing resources. As loan volume increases, the Corporation
expects to fund operations through fees.
New Opportunities for Homeownership in Milwaukee
is a partnership of 46 banks, thrifts, credit unions, community-based homebuyer
counseling agencies and the City of Milwaukee that seeks to increase homeownership
for low and moderate-income families. The partnership, administered by
a community-wide information clearinghouse for nonprofits, focuses on the
needs of member lenders and homebuyer counseling agencies. The credit institutions
gain from having a pool of educated potential buyers, and the counseling
agencies benefit from the access to unique loan products and flexible underwriting
guidelines of member financial institutions. Each organization pays a one-time
initiation fee based on the size of their firm and a nominal annual administrative
fee. Members agree to use standardize eligibility requirements, including
minimal loan origination fees, prompt servicing, and referral if client
is denied. NOHIM also provides training and workshops for lenders and real
estate professionals not in the partnership to educate them on neighborhoods
and programs available to buyers.
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PROGRAMS FOR TARGET POPULATIONS
Organizations also use public and private monies to achieve policy goals
-- assisting certain populations, revitalizing declining neighborhoods,
and/or encouraging the development of certain housing.
The City of Memphis' Downpayment Assistance Program102
offers low- and moderate- income homebuyers up to $3,500 in downpayment assistance
for a new or existing home located anywhere in the city.
[This is typical local housing assistance;
the City of Austin currently provides up to $7,000 in downpayment assistance
to qualified borrowers anywhere in the city.] Caps are raised, however,
for homes in targeted neighborhoods (up to $10,000) and for certain populations.
Public housing residents purchasing a home anywhere in the city may receive
up to $10,000 and police officers who purchase homes in target areas may
receive up to $15,000. Over four years, 4,500 residents bought their first
homes through the program, and $6 million in public funds leveraged more
than $140 million in private mortgages.
provides downpayment and closing cost assistance to qualified first-time
homebuyers in Hartford, Connecticut. HouseHartford was granted a waiver
from HUD to allow federal monies to be used to assist properties of two
to four units where one or more are occupied by market-rate tenants. For
instance, a purchaser who does not meet federal income eligibility requirements
may still use city program to purchase a duplex as long as the other unit
is rented at restricted levels to someone who meets federal income standards,
and the purchaser lives in the other half of the duplex. If the purchaser
is eligible under federal income standards, then there is no income or
rent restriction for the other unit.
Boston Community Capital's sponsors the One-to-Four
Family Homeownership Program104 to
rehabilitate severely dilapidated properties that are too small to attract
developers and too costly for a single investor. A partnership of Cities
of Boston and Cambridge, the State of Massachusetts, nonprofits, and
the Local Initiatives Support Coalition offer loans for nonprofits and
individual homebuyers to rehabilitate homes.
The properties must be
sold to low- and moderate-income families who live in one unit and
rent the others to income-qualified tenants. A common project is a three-unit
home with total development costs of $250,000. The home would be sold
for maximum price supported by low-income buyer and renters approximately
$140,000. The gap would be filled with city and state soft-second
The award-winning Bridge
of San Francisco is a nonprofit corporation that uses a variety of innovative
and aggressive efforts to produce large volumes of homes for families earning
between $12,000 and $25,000 annually. Since inception in 1983, they have
participated in the development of more than 7,500 homes valued at more
than $700 million. Its working capital fund of more than $15 million is
the result of grants, fees, and corporate loans. Bridge has expanded its
role to address related issues in poverty, such as job creation and supportive
services. Under California law, Bridge purchases surplus public lands at
fair market value. They vigorously use density bonuses and other land use
concessions to lower rents or sales prices since the reduced cost of infrastructure
and per unit land prices are passed on to the consumer. Their construction
lending pool is a $340 million revolving loan pool created in partnership
with two state pension funds, the Ford Foundation, and the World Bank.
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As Chapter 1 shows, roughly 45 percent of Austin residents rent their
homes and face significant challenges in finding and keeping them. Recognizing
the critical need for rental housing, several cities developed programs
tailored to special concerns of renters.
Paca House106 is an innovative
public-private partnership in Baltimore, Maryland. This single-room occupancy
(SRO) project links two rehabilitated structures, one of which is a former
fire station. Consisting of 30 efficiency apartments and 76 SRO units,
the residential facility serves a population of elderly and disabled, including
a section which serves persons who are disabled as a result of HIV -- all
of whom are homeless or at risk of becoming homeless. Appropriate services
are provided to all residents, depending on each person's level of need.
Although there are shared community facilities and shared grounds, there
are separate, more private, community areas for each population subset.
The design of the facility makes it easy for persons to interact as part
of the whole facility or within their separate niche. Paca House required
five sources of financing: Federal Low Income Housing Tax Credits; Federal
Home Loan Bank housing funds; State and city housing funds, and a rebate
from Baltimore Gas and Electric. Opened in December 1996, the facility
has enjoyed a successful history of operations and has been the focus of
public attention to due its innovative use of existing structures, its
creative and colorful design elements, and its successful ability to serve
a diverse population.
After conducting a statewide assessment study,
the Colorado Housing and Finance
the Small Affordable Rental Transactions (SMART) Program to encourage
development of rental properties with less than 20 units. These were
especially needed for certain markets rural residents, very-low
income people, and special needs populations. The SMART program offers
fixed-rate, fully amortizing, non-recourse, first mortgage loans
of no more than $1 million to developers. For-profit developers may
for loans. General obligation bonds provide much of the capital;
tax-exempt 501(c)3 bonds are available for nonprofit and public sponsors
activity bonds and taxable bonds are available for private sponsors.
Trust fund monies may also be tapped; these are generally used for
areas and census tracts. Developers benefit from a consolidated application
process, streamlined processing and documentation, and less costly
and environmental requirements. SMART program has approved more than
$60 million in loans to fund 1,240 family units, 53 elderly apartments,
18 units for disabled individuals.
Workforce Housing Preservation Programs108
in the Pacific Northwest were created to address the competitive rental
market where the private sector has not responded to demand. Three organizations
are operating programs to spur development of rental properties. The public
housing authorities use bond monies of varying terms so that when the shorter
term, subordinate bond is paid off the additional funds may be used to
reduce rents in the properties. Rents are typically only slightly below
market rates; in some complexes, only a certain number of units are reserved
for below-market renters. The deals must be carefully structured to assure
adequate cash flow to repay bond monies and maintain reserves. In Kitsap
County, projects are maintained through a private contractor and are advertised
on the web. In one project, tenants may purchase the units as condominiums.
The Vancouver Housing Authority began workforce housing because the gap
between housing costs and income has widened despite a booming economy.
The VHA partners with county government, private developers, builders,
realtors, and property management firms to finance the purchase of 766
units since 1992. The complexes require that at least 51 percent of the
renters earn 80 percent or less of area median income.
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A critical component of providing affordable housing is working with
tenants and potential homebuyers to improve their credit and adopt better
money management practices. Many cities and states provide credit counseling
and homebuyer education courses.
Some cities are developing programs that
work in conjunction with efforts to build more affordable rental units.
The City of Minneapolis Inspection Department offers
city code abatement loans to property owners who cannot afford repairs
on their properties. The Department conducts "sweeps" of
given neighborhoods and issues citations to those who fail code inspection.
Loans of up to $8,000 are available to those owners/renters who are
but cannot qualify for other financing. The Minneapolis Community
Development Agency109 offers matching
loans of up to $16,000 interest-free to property owners who receive market-rate
loans from private lenders to make repairs on rental properties of up
to six units for tenants earning under 80 percent of area median income.
The amount of loan is subject to the number of units. Funds are from
the city's CDBG allocation.
A inner-ring suburb of Minneapolis, the City of Richfield sweeping Neighborhood Revitalization Strategy110addresses
its aging population and housing stock. The Richfield plan targets
improving neighborhoods by offering incentives that will increase overall
values over time. By helping homeowners remodel and improve aging
buildings, the city hopes to keep families. The city uses tax increment
(see tax section below).
The Richfield Housing and Redevelopment Authority launched the program with
$1.5 million in funds borrowed from long-term capital improvement funds.
These monies finance the acquisition and demolition of deteriorated properties.
Vacant lots are sold to developers and the loan is repaid with the tax increment
on the improved properties. The city requires new construction be for owner
occupied housing and sets minimum size and amenities with a recommended market
value. The city also provides remodeling advice and deferred no interest
second mortgage loan of up to 10 cent of a remodeling contract between $30-50,000
and 15 percent for remodeling over $50,000. The loan is payable upon sale
or forgivable after 30 years. City advisers help homeowners with general
cost estimates, a remodeling manual, and how remodeling affects future home
value. Recently Richfield developed a pilot program of owners of apartment
buildings who wish to remodel.
The City of Akron, Ohio manages a comprehensive housing strategy to strengthen
neighborhoods. Based on declining physical characteristics, high owner-occupancy
levels and adequate resident income levels, neighborhoods are selected for
the Neighborhood Improvement Program.111 The
city makes available a number of resources for these neighborhoods through
grants and loans. A broad assessment of the neighborhood is conducted with
all violations noted. Repair estimates and contractor selection are provided
free of charge. Public infrastructure streets, sidewalks, parks are
improved as needed. Renters may receive matching grants to address their
code violations. Buildings in serious disrepair may be demolished free of
charge through another city program. Elderly and disabled persons with very
low incomes are eligible for grants of up to $2,000.
Homeownership is encouraged through other city programs one where
the city contracts with local builders to provide infill housing at below
$60,000 for three-bedroom, 1-1/2 bath homes with garages and another to
provide downpayment and closing cost assistance to eligible buyers.
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Communities have developed additional means to fund affordable housing
and related services for their residents.
About 150 cities, counties, and states augment federal housing resources
with additional funds from local and statewide taxes and fees.112 These housing
trust funds can be targeted to serve narrow or wide populations and funded
in a variety of ways depending on the purpose of the trust fund. The State
of Florida operates the largest in the country with annual revenues from
a real estate transfer tax of $120 million annually.113 Below are profiles
of existing local trust funds, their roles, and source of funding.
The City of Memphis created a housing trust
fund in 1994.114 Monies can be used
to develop and operate programs that increase housing opportunities for low-
and moderate-income residents, to provide information, public education, and
technical assistance on Memphis' housing, and to support efforts to revitalize
distressed neighborhoods and address poverty issues. The City of Memphis provided
one-time funding from several sources of $750,000 in 1994, and since that time
has agreed to provide savings from a waste-disposal contract (approximately
$250,000 annually) and unclaimed deposits from the utility department (close
to $240,000 initially and between $40-50,000 expected annually). The Ford Foundation
granted the city $1 million in 1998 to be matched by local corporations. When
this funding is in hand, the city will have approximately $750,000 to spend
on neighborhood-based organizations annually.
Seattle's Housing Bonus and Transferable Development
enables developers to increase the allowable floor-area ratio and add square
footage to the projects in exchange for creating units of affordable housing
or paying cash into the city's housing trust fund. These incentives allow
commercial developers to maximize the size of their projects in exchange
for building affordable housing units. Developers may build the affordable
housing on the same site as their commercial project; build it off-site
in the downtown area or make a cash payment to the city's housing trust
fund or a city-approved nonprofit housing developer. The contribution amounts
are set by a formula that encompasses a ratio of commercial space approved
for construction and service to target populations for affordable housing.
Seattle also allows the transfer of development rights (TDR); a retail-office
developer, for instance, may "purchase" development rights from
a nonprofit housing developer. The city operates a TDR Bank to manage the
The federal and state tax codes provide tremendous resources for the
development of affordable housing across the country. In fiscal year 1998
alone, the Federal Low Income Housing Tax Credit program operated by the
Department of Treasury was responsible for producing an estimated 60,000
units of affordable housing nationwide.116
Tax abatements are also a popular ways at the local level to encourage
production of affordable housing.
Low Income Housing Tax Credits (LIHTC).
Under the housing tax credit program, investors in affordable housing can
receive credits against their payments of federal income tax provided the
housing is developed and operated in accordance with the Low Income Housing
Tax Credit program. Credits are usable by owners of these affordable housing
projects to reduce dollar for dollar their federal income
The Texas Department of Housing
and Community Affairs administers the LIHTC program for Texas. The
amount of tax credits the Department can award is calculated on a federal
formula of $1.25 per capita. The amount of credit awarded to a housing
development is based on both the cost of the development and the percentage
of low-income units in the development. Competition for these credits is
keen with only one in four applications for tax credits actually awarded
credits each year. In 1998, the City of Austin received three awards of
funding: St. John's Village, a 156-unit multifamily development on Whatley
Avenue; Trails at the Park, a 200-unit multifamily development on Slaughter
Lane; and The Lodge at Merrilltown, a 204-unit development for seniors.
Tax Abatements/Increment Financing.
Localities often forgo tax payments to encourage development of commercial
activities in desired areas. These same means are also used to encourage
the development of housing and businesses for low and moderate-income residents
and revitalize neighborhoods, called tax increment financing.
The City of San Antonio created
a tax-increment financing zone to revitalize 28 acres of the Rosedale neighborhood,
three miles west of downtown. The redevelopment will include construction
of 64 single-family units, 182 multifamily units, and 30 units of elderly
housing. In addition, the project will provide for the creation of a park
on Apache Creek, a commercial zone, and street improvements. The new housing
will serve to help stabilize a declining inner-city neighborhood. Development
costs for public infrastructure total $2.5 million and will be repaid through
a financing plan that ultimately increases the city's tax base. The developer
will borrow funds from local and national housing organizations; these
will be repaid through the capture of appraised value, which will be contributed
by the school district, city and county governments, and other taxing entities.
Once the funds have been repaid -- in approximately 10 years -- the future
capture appraised value will provide significant funds for these taxing
"This Old House" Program118
in Hennepin County, Minnesota allows homeowners to make improvements in
their homes without paying property tax on the increased market value for
up to ten years, then their tax payments are gradually increased over the
next five. This provides an incentive to improve and stabilize older homes,
which are primarily located in inner city neighborhoods.
NON-GOVERNMENTAL HOUSING LEADERS.
Though city and state governments often lead efforts to provide affordable
housing opportunities, they are by no means the only actors in a community
who do so. More and more business communities are recognizing the critical
link between housing and attracting and retaining a workforce. Other organizations,
such as unions, are also involved in housing their members.
Silicon Valley high-tech employers alarmed by the rising cost of housing
in their region established a trust fund to help moderate-and low-income
and homeless people find housing. The average home sells for $320,000,
and rents have increased 30 percent in two years. Companies working with
state and local governments expect to raise $20 million over two years
and leverage these funds with government monies for a total of $100 million.
The Trust Fund will support first-time homebuyer programs, rental housing,
and homeless shelters.119
Select Milwaukeeworks with area employers through the "Walk
to Work" program.120Employers help their employees pay downpayment and closing costs
of buying a home within a designated area around the work location. Amounts
range up to $3,000 and may be offered as a loan, grant or salary advance.
Select Milwaukee, an information clearinghouse organization, estimates
that an additional $22 in neighborhood investment follows each dollar an
employer provides for home purchasing. Funds are provided by the Wisconsin
Department of Transportation.
Boston Hotel Restaurant Employees Union
started a housing trust to assist its members in becoming homeowners. The
Trust Fund sponsors a homebuyer savings club matches members' savings for
a downpayment and offers to pay part of the mortgage (a "buy down")
to help families afford the monthly mortgage payments. Programs are targeted
to members below a certain area median income and for homes in neighborhoods
often denied credit by conventional banks. Union members pay 8 cents per
hour to the fund, which has helped 1,000 families purchase homes.
The North Carolina State Employees' Credit
Unionoffers two home-financing
packages for homebuyers who have not owned a home within three years.122
As part of its charter to assist members improve their lives, the credit
union has set aside $125 million for first-time homebuyers and $15 million
for the Homestead Mortgage program for full-cost financing of homes for
qualified members. The former program offers adjustable-rate mortgages
of no more than $125,000; purchasers must pay closing costs from their
savings; be employed for 12 months; and have a good credit record for the
past year. The Homestead Mortgage Program was designed to assist members
who do not qualify as first time buyers and is less restrictive. For both
programs, mortgage payments must be made by payroll deduction or automatic
withdrawal from the SECU account.
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