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Housing: Program Models
and Activity Alternatives
2019 COSCDA Annual Training Conference
Traverse City, Michigan
29 September, 2019
Housing 101 1
Presenters• Donna Enrico, Program Manager
Pennsylvania Department of Community and Economic Development
• Rick Ballard, Principal
Richard G. Ballard, LLC, Housing and Community Development Solutions
Moderator:
• Rebecca Frawley, HOME Program Director,
Massachusetts Department of Housing and Community Development
Housing 101 2
HOME and CDBG Objectives
• Keep in mind – HOME and CDBG have a different history
and different strategic objectives.
– CDBG is primarily a resource intended to help local
governments support community and economic development
activities to improve the quality of life for low and moderate
income households and communities
– HOME is primarily a resource intended to help housing
developers, especially community-based nonprofits, to improve
the availability and quality of affordable housing
Housing 101 3
HOME and CDBG Objectives
• HOME and CDBG typically exist in different administrative
environments at the State level (but not always!)
– CDBG is often housed within community and economic
development agencies;
– HOME is often housed within state housing finance agencies.
• In entitlement communities, the programs are often
housed together.
• How are HOME and CDBG organized in your State?
Housing 101 4
Other Housing Resources
• HOME and CDBG are by no means the only resources:
– Low-income housing tax credit
– Federal Housing Trust Fund
– Homeless facilities funding
• State-level funds
– State housing/ community development funds
Housing 101 5
HOME and CDBG
• Both HOME and CDBG can be used for home ownership
and rental housing
– HOME is often used as a direct development resource;
– CDBG is often used “in support of” housing development
• Lots of overlap, but lots of nuances for how the resources
can be used in different but complementary ways
Housing 101 6
HOME Eligible Activities
• Eligible Uses of HOME
– Used to assist affordable housing in
acquisition, new construction, rehabilitation
and tenant-based rental assistance
– May be used to refinance existing debt if
HOME funds are used to rehabilitate the
property
Housing 101 7
Eligible Uses of CDBG
• Labor and materials
• Replacement of principal fixtures and
components of existing structures.
• Reconstruction of housing is permitted.
• Both HOME and CDBG now require
broadband service to projects with 4 or
more units.
Housing 101 8
Housing with HOME and CDBG
• CDBG does not fund:
– Creation of a secondary housing unit attached to a primary unit
– The value of sweat equity
• HOME and CDBG do not permit funding of:
– Luxury items
– Costs of furnishing or other personal property
Housing 101 9
10
Assisting Homeownership
under HOME and CDBG
The Basics of Homebuyer Programs
• Eligible Homebuyer Incomes
– Under 80 percent of Area
Median Income in HOME and
CDBG
– Typically single-family homes,
but includes fee simple
ownership in 1-4 unit building
or a condo unit
– Often community-based
developers
Housing 101 11
HOME Homebuyer Development
• A versatile resource
• Think about objectives for specific projects
– Neighborhood revitalization?
– Long-term affordability?
– Income diversity in high-cost markets?
– Produce as many units as possible?
Housing 101 12
Homeownership Under HOME
• Ownership in fee simple title or 99 year leasehold interest
• One-to-four unit dwelling or condo unit or equivalent
approved by HUD
• Ownership interest may be subjected to restrictions, i.e.
on resale.
• Buyers must receive homeownership counseling from a
HUD-approved counselor.
Housing 101 13
HOME Homebuyer Eligible Activities
• Property acquisition
– Acquisition by eligible households
– Acquisition for development and resale by developers
• Construction/rehabilitation
• Soft costs
– Including developer fees.
– Developers are not subrecipients, developing property not
administering a program to develop property
Housing 101 14
Homeownership Activities:
“Down Payment Assistance”
• What we call DPA is comprised of three eligible parts
– Down payment: CDBG is restricted to ½ the minimum down payment required by the lender
– May additionally include closing costs and prepaid expenses such as taxes, insurance
– Principal reduction
– Other methods of structuring assistance include subsidized interest rates, financing or loan guarantees
Housing 101 15
HOME Resale and Recapture Requirements
• HOME requires that all assisted property meet wither a “resale” or
“recapture” requirement for an affordability period determined by
the amount of HOME funds used on the project.
– For example: Over $40,000 of assistance, minimum period of affordability
15 years.
• HOME resale requirements carry substantial compliance risk for
HOME grantees; but it can be managed (for example, by limited-
equity ownership).
Housing 101 16
Beyond the
Regulations
• Eligible buyers need to be:– Eligible for mortgage
financing under reasonable terms
– Ready to invest their own funds
– Prepared to undertake the responsibility of homeownership
Housing 101 17
The Key Variables
in a Homebuyer Deal
• Total Development Cost:
– the cost to create a homebuyer unit
• Market Value:
– the amount a ready, willing and able buyer will pay for the unit in an arms-length, unsubsidized transaction
• Affordable Mortgage:
– the amount an eligible family can afford to pay for the home
18
Total Development Cost
Market Value/Sale Price
Affordable Mortgage
$0
$
$$
$$$
The Homebuyer
Development
Project:
Setting the Stage
19
The Basics of Gap Financing
• Market value: the most likely price that would be paid for the property by a ready, willing and able buyer from the general public in an arm’s length transaction
• Market value – affordable mortgage = homebuyer subsidy
• Actual affordability gap based on the actual income and debt level of the specific prospective borrower.
Housing 101 20
Market Value/Sale Price
Affordable Mortgage$
$$
$$$
The Homebuyer Subsidy
(the assisted portion of the
buyer’s equity, subject to
recapture)
$0
Total Development Cost
21
Total Development Cost
• Cost of the project
• Development costs
include:
– Acquisition
– Rehabilitation/construction
– Developer fee
– Allowable soft costs
Housing 101 22
Considerations in
Prioritizing
Development
Costs
• Flexibility in determining specification for rehab
or new construction beyond minimum standards
• Must have written standards
• Homebuyer grantees are often concerned about
the challenge of the marketability of constructed
or rehabilitated units.
Housing 101 23
Cost vs. Value: The Development Subsidy
• Development
cost – market
value =
development
subsidy
Housing 101 24
Market Value/Sale Price
Affordable Mortgage$
$$
$$$
The Homebuyer Subsidy
(the assisted portion of the
buyer’s equity, subject to
recapture)
The Development
Subsidy (not subject to
recapture, i.e., a grant)
$0
Total Development Cost
25
Location: A Continuum of Neighborhoods
• Neighborhoods can be
categorized as:
– High-Cost Markets
– Stable neighborhoods
– Revitalization
neighborhoods
– Redevelopment
neighborhoods
Housing 101 26
Market Value/Sale Price
Affordable Mortgage$
$$
$$$The Homebuyer Subsidy
(the assisted portion of the
buyer’s equity, subject to
recapture)
$0
Total Development Cost
High-Cost Area:
Achieving and
Preserving
Affordability
27
$$$
The Homebuyer Subsidy
(the assisted portion of the
buyer’s equity, subject to
recapture)
The Development
Subsidy (not subject to
recapture, i.e., a grant)
$0
Market Value/Sale Price
Affordable Mortgage$$$$$$
$0
Total Development Cost
Stable
Neighborhood:
Stimulating Owner
Investment through
Moderate Subsidy
Gaps
28
$$$
$0
Market Value/Sale Price
Affordable Mortgage$
$$
$$$
The Homebuyer Subsidy
(the assisted portion of the
buyer’s equity, subject to
recapture)
The Development
Subsidy (not subject to
recapture, i.e., a grant)
$0
Total Development Cost
Revitalization
Neighborhood:
Achieving feasibility
and creating demand
29
HOME and CDBG
for Rental
Housing
Housing 101 30
HOME/CDBG Affordable Rental Development
• Primary Federal government
resources for financial assistance for
rental housing construction and
rehabilitation:
– LIHTC,
– Housing Trust Fund
– Tax-exempt bonds
– HOME and
– CDBG. Housing 101 31
Rental Development and the HOME Program (continued)
• Tenant-based Rental Assistance (TBRA)
– Permits HOME grantees to provide financial
assistance to low-income households to
permit them to rent market rate units.
– TBRA helps individual households rather than
subsidizing particular rental project.
– TBRA may not exceed two years.
Housing 101 32
Rental Development and the HOME and CDBG
Programs (continued)
• Rent and Occupancy Requirements
– Every HOME-assisted unit is subject to rent
limits.
– The maximum rents are referred to as “HOME
Rents.”
– CDBG has no federally determined rent limits
(defined by local written policy)
Housing 101 33
Rental Development and the HOME and CDBG
Programs (continued)
• Occupancy Requirements– HOME-assisted rental units can only be occupied by
households earning under 80% of AMI (low-income
household)
– HUD requires additional deep targeting called
“Program Funds rule”.
• 90% of total households assisted through the
rental or TBRA program have incomes that do not
exceed 60 % of AMI
– CDBG requires 51% of all households be at 80% AMI
(low to moderate income)
Housing 101 34
Required HOME and CDBG Units
10 unitsHOME
$400,000
CDBG
$200,000
Total
Development
Costs $1
million
How many
HOME
units?
How many
LMI units for
CDBG?
HOME & LMI
Market rate
HOME & LMI HOME & LMI
LMI LMI
Market rate
HOME & LMI
Market rate Market rate
35
Rental Development and the HOME Program (continued)
• Affordability Period
– HOME-assisted rental units carry rent and
occupancy restrictions from 5-20 years
depending on the amount of HOME funds
invested per unit and rehabilitation,
refinancing or new construction.
– CDBG does not have a minimum affordability
period (exception is CDBG NSP)
Housing 101 36
Rental Development and the HOME and CDBG
Programs (continued)
• HOME: CHDOs or Community Housing
Development Organizations
– Private, non –profit, community-based organizations
that meet certain criteria
– HUD hopes to help CHDOs build the necessary
capacity to produce affordable units.
• CDBG: CBDOs or Community Based
Development Organizations
– Can use CDBG for new construction, but only in a
revitalization area
Housing 101 37
Subsidy Layering
HOME and CDBG
• Before committing funds to a project that
combines the use of any other local, state
or Federal assistance, HOME and CDBG
grantees must evaluate the project in
accordance with subsidy layering
guidelines.
Housing 101 38
Other Federal Requirements on HOME and
CDBG• Environmental Review
• Davis Bacon
• Section 3
• Minority and Women’s Business Enterprise
• Lead-Based Paint
• Fair Housing and Equal Opportunity
• Affirmative marketing
• Equal employment opportunity
• Conflict of Interest
• Relocation
Housing 101 39
Key Programmatic Differences in
HOME and CDBG in Assisting
Rental Properties
• CDBG new construction may be done only
through Community-Based Development
Organizations (CBDOs).
• HOME units can only be occupied by low-
income households.
• The HOME regulations require a
maximum HOME subsidy.
Housing 101 40
Key Programmatic Differences in
HOME and CDBG in Assisting
Rental Properties (continued)• Incomes need to be re-examined for HOME-
assisted units annually.
• Units assisted under HOME must meet applicable codes/standards.
• Units under HOME must meet long term affordability rules on occupancy, rents and property condition.
• CDBG can be used for specialty rehab programs.
Housing 101 41
Support of New Housing with CDBG
• Acquisition
• Clearance
• Site Improvements
• Street Improvements
Housing 101 42
Support of New Housing with CDBG
• Acquisition
Acquire the land / property for a public purpose – must be
acquired by grantee or non-profit
LIHTC – is a public purpose
Donate, sell property to developer for housing
– Agreement
– Underwriting
– Rent Restrictions
– Recordkeeping and Reporting Requirements
Housing 101 43
Support of New Housing with CDBG
• Clearance
– Clear site to make ready for construction
– Demolish structures on the site
– Residential units (may need to consider 104(d) compliance)
Housing 101 44
Support of New Housing with CDBG
• Infrastructure
– Assist with water, sewer, as long as the improvements are in
the public Right Of Way (ROW)
– Sidewalks in public ROW
Housing 101 45
Small Elderly Rental Project
Housing 101 46
CDBG Infrastructure
Housing 101 47
CDBG Infrastructure – Elderly Rental
Housing 101 48
Rental Housing Existing Units
• Available space/structures
• Adaptive reuse
• 51% of the units low and moderate – so mixed use is an
option
• Rent restrictions driven by local written policy
Housing 101 49
Identify Your Needs
• Demographics
– Age of Housing Stock
– Existing vs new construction
– Type of Housing – single story; multi-story
– Elderly versus Young Couples, Families
• Market Study
What can the market bear
Housing 101 50
Home Ownership Assistance - CDBG
• 50% of required down-payment
• Other financing mechanisms
• Pairing of CDBG and HOME funds?
Housing 101 51
HOME and CDBG
• Some projects can be similar:
– Down payment assistance
– Homeowner rehab
– Rental rehab…
Housing 101 52
HOME and CDBG
• …but strategic objects and methods differ:
– HOME emphasis on affordability vs. CDBG allowance for some income
diversity (51% low-mod)
– HOME assistance to developers vs. CDBG assistance for local units of
government
– HOME can promote new construction to expand supply of affordable
units, where CDBG focuses on rehab and public investment support for
development
– HOME emphasis on affordable units, vs. CDBG focus on projects (inc.
mixed income, mixed use, etc.)
Housing 101 53
National Housing Trust Fund
• Federal Code of Regulations can be found at
24 CFR Parts 91 and 93
• January 30, 2015, HUD published an Interim Program Rule(FR-
5246-I-03). The interim rule provides the guidelines for States to
implement the HTF
• Still Interim Rule--awaiting the Final Rule!
• Functionality is similar to HOME, but with a heavier ELI focus,
which accommodates more of a supportive-service-enriched
element.
Housing 101 54
National Housing Trust Fund
• Goal of the Fund - increase and preserve the supply of
decent, safe, and sanitary affordable housing for
extremely low (0-30% AMI)- and very low-income (30-50% AMI)
households, including homeless families.
– production or preservation of affordable housing through the
acquisition, new construction, reconstruction, and/or
rehabilitation of non-luxury housing with suitable amenities.
Housing 101 55
National Housing Trust Fund
• HTF is a formula grant program, which is to be administered by
States
• Formula grant program with funds from GSEs
• Grantees are required to use at least 80 percent of each annual
grant for rental housing;
– All HTF-assisted rental housing must meet a 30-year affordability period;
• Some differences in ERR process:
– See https://www.hudexchange.info/programs/environmental-review/htf/
Housing 101 56
National Housing Trust Fund
• up to 10 percent of annual allocation may be used for
homeownership housing of extremely low-income (ELI)
and very Low-income (VLI)
– All HTF-assisted homeownership housing must meet the
minimum affordability period of 10, 20 or 30 years based on the
amount of HTF investment in the unit
• up to 10 percent of the annual allocation for the grantee's
reasonable administrative and planning costs.
Housing 101 57
Massachusetts HTF Allocation Plan
• Supportive Housing
• Dedicated Funding Round and typically MA state HOME
is not a participating resource.
• Supportive Service
Partnerships
• Rental Assistance
and Service Stipend
Housing 101 58
Examples of Massachusetts HTF Projects• 242 Spencer, Chelsea
– 34 units of family housing, including 3 units targeted to low income persons with
disabilities and 8 units for formerly homeless families, who will receive supportive
services.
• House of Hope 3, Lowell
– 16 units of permanent supportive housing
for formerly homeless families.
• Abby’s House, Worcester
– Preserves 53 units and adds 3 more
for formerly homeless women
with extensive trauma histories.
Housing 101 59
Massachusetts HTF Projects
• Montello Welcome Home II, Brockton
– 23 new supportive housing units for homeless veterans and other
homeless individuals.
• 21 Jaques Avenue, Worcester
– 4 units of affordable rental housing
for families with very low
and extremely low incomes.
Two units will be targeted
to households with disabilities.
Housing 101 60
Hillside Residence, West Springfield
• The non-profit, Sisters of
Providence, proposed the new
construction of a supportive
housing residence for medically
compromised elders who are
homeless and at risk of
institutionalization. The project
will result in 34 units of PSH and
2 respite units.
Housing 101 61
Hillside Residence, West Springfield
• Sited on the campus of an
existing elder service
compound, with on-site
services available through a
federal Program of All-inclusive
Care for the Elderly (PACE). 6
Hillside Residence, West
Springfield
Housing 101 62
Hillside Residence, West Springfield
• PACE is a Medicare/Medicaid
funded community based health
program designed to keep frail
elders living in the community
safely for as long as possible.
Eligibility is restricted to those
who are 55 or older, meet the
definition of “nursing home level
of care” and agree to receive all
their health care from PACE.
Housing 101 63
Resources
• https://www.hudexchange.info/resource/269/basically-cdbg-for-
states/
• https://www.hudexchange.info/programs/home/
• https://www.hudexchange.info/programs/htf/
• https://www.govinfo.gov/content/pkg/FR-2015-01-30/pdf/2015-
01642.pdf
Housing 101 64