AFFORDABLE LIVING HOUSING TYPES HOUSING NEEDS HOUSING SOLUTIONS

AFFORDABLE LIVING HOUSING TYPES, HOUSING NEEDS, HOUSING SOLUTIONS

GOALS • Discuss various types of housing, related terminology and financing paths. • Discuss Housing needs in Manistee. • Discuss what other communities are doing.

DISCUSS VARIOUS TYPES OF HOUSING, RELATED TERMINOLOGY AND FINANCING PATHS

WHAT ARE THE DIFFERENT TYPES OF HOUSING? • Market Rate • Subsidized • Public • Workforce • Affordable

MARKET RATE • Rental rates based on current market prices, with no regulation on increases at lease renewal. There are no income limits or special requirements of the residents; however, residents typically have to prove they have the income to pay rent and meet the general guidelines established by the landlord. • This is the type of housing every community wants, and then discovers much of their population cannot afford. • Financing Path: • Conventional Lending – typically 65 -75% loan to value, likely lower end of the scale in smaller communities. • Equity – need an equity investor for the remainder. Tough to attract investors in small towns.

SUBSIDIZED HOUSING • A government sponsored economic assistance program aimed towards alleviating housing costs and expenses for people in need with low to moderate incomes. Commonly referred to as ‘Section 8 housing’ though there are other code sections that may be used as well. • Residents must income qualify. Income limits are set by the government and updated annually. • Residents pay a small portion of their rent (typically 30% of income), with the government paying the remaining rent to the landlord.

SUBSIDIZED HOUSING • Total rent is based on a government agency established ‘market’ rate rent for the area. • Subsidized housing is typically owned and operated by private owners who receive subsidies in exchange for renting to low- and moderate-income people. Owners may be individual landlords or for-profit or nonprofit corporations. • Subsidized housing can be obtained through vouchers. The three main voucher programs are: • Housing Choice Voucher: Very low-income people who find their own housing, subsidy stays with the tenant. • Project Based Voucher: Program that targets very low-income, typically elderly and/or supportive housing populations, subsidy stays with the housing project. • Veterans Administration Supportive Housing (VASH): Provides assistance to homeless veterans by combining Housing Choice Voucher rental assistance with case management and clinical services provided by the Department of Veteran Affairs.

SUBSIDIZED HOUSING • Financing Path: • Regulated Lending – typically 75 -90% loan to value, likely lower end of the scale in smaller communities. • Rental Assistance - HUD is typically not issuing new contracts for Section 8. MSHDA may issue project based rental assistance for projects that meet additional qualifications (such as creating permanent supportive housing). If project based, will be used in underwriting the project. • Equity – need an equity investor for the remainder, common these days to pair with a housing credit to gain specific equity sources.

PUBLIC HOUSING • The local housing authority owns the building and is the landlord. A private company manage the building for the housing authority or may be part of the ownership, but the building is still controlled by the housing authority. Public housing was established by state law to provide affordable housing for low-income people. • Manistee Housing Commission owns several properties in the community so it is anticipated everyone is familiar with this concept. • Financing path – similar to subsidized housing.

AFFORDABLE / WORKFORCE HOUSING • This is the most complex category of housing to understand; however, it is also the most critical. • Let’s start by discussing income and rent levels as it pertains to these two categories. • Area Median Income is the household income for the median – or middle – household in a region.

Source: https: //www. deptofnmbers. com/income/michigan/

Source: https: //www. deptofnumbers. com/income/michigan/

Each year, the Department of Housing and Urban Development (HUD) calculates the median income for every metropolitan region in the country. HUD focuses on the region — rather than just the city — because families searching for housing are likely to look beyond the city itself to find a place to live.

Using the standard rule of thumb that a household should not pay more than 30% of income toward the cost of housing, HUD publishes the below gross rental limits:

Utility allowances must then be factored in and deducted from these rents as residents typically are responsible for their own heat and electric, while landlords pay water, sewer and trash. The Michigan State Housing Development Authority (MSHDA) publishes a chart that is typically used for housing projects in Michigan. Anticipated utility allowances in Manistee County for an average project would be: 1 BR Apt 2 BR Apt 3 BR APT 2 BR TH 3 BR TH Heating – Gas $ 23 $ 27 $ 31 $ 45 $ 48 Cooking – Electric $ 7 $ 10 $ 13 Other Electric $ 25 $ 35 $ 43 $ 55 Hot Water – Gas $ 6 $ 8 $ 10 $ 13 Gas Svc chg $ 12 $ 12 Electric Svc chg $ 9 $ 9 Total $ 82 $ 101 $ 120 $ 129 $ 150

What does this mean for rent charged to residents? 60% AMI Gross Rents $ 660 $ 793 $ 915 $ 793 Less UA $ (82) $ (101) $ (120) $ (129) Net Rents $ 915 $ (150) $ 578 $ 692 $ 795 $ 664 $ 765

CURRENT AVERAGE RENTAL RATES FOR MANISTEE COUNTY Research in this area noted very few multi-family developments. Most of the comparables that were generated were single family homes or buildings with 10 or fewer units (converted houses, etc). • Cherry Hill Apartments, 48 units built in 1978, average size 653 SF, $559 for a 1 bedroom, $587 for a two bedroom. • Manistee Place, 46 units built in 1975, average size 752 SF, $497 for a 1 bedroom, $565 for a two bedroom. • Rietz Park Village, 48 units built in 2002, average size is 1, 094 SF, rates not available • Horizon Point, 49 units of senior, built in 2002, average size is 721 SF, $445 -$795 for 1 or 2 bedroom apartments

WHAT IS AFFORDABLE / WORKFORCE HOUSING? • This category really encompasses three different levels of housing. • Low Income – for households at 60% AMI and below • Affordable – typically households at 50 -60% AMI • Workforce – typically households at 60 -120% AMI • Notice – there is overlap between these categories!

WHAT IS AFFORDABLE / WORKFORCE HOUSING? • Workforce is the latest ‘buzz word’ in housing, but realistically, it covers all of these categories, as these are the working class. • The term is increasingly used by planners, government, and organizations concerned with housing policy or advocacy. It is also increasingly used by debt/equity sources as a component of housing they wish to focus on. • Workforce housing is generally understood to mean affordable housing for households with earned income that is insufficient to secure quality housing in reasonable proximity to the workplace. Also referred to as ‘the missing middle’.

LOW INCOME HOUSING TAX CREDITS • One of the common tools in the toolbox for building affordable/workforce housing is a credit source that provides equity via the Low Income Housing Tax Credit (LIHTC) program. • First and foremost, this really should be called the ‘affordable housing tax credit’. Multiple efforts over the years to change the name of the credit have been unsuccessful, though most people who work in the industry use the term affordable housing rather than low income housing.

WHAT IS THE LIHTC PROGRAM? The low-income housing tax credit (LIHTC) program, created in 1986 and made permanent in 1993, is an indirect federal subsidy used to finance the construction and rehabilitation of low-income affordable rental housing. Washington lawmakers created this as an incentive for private developers and investors to provide more low-income housing. Without the incentive, affordable rental housing projects do not generate sufficient profit to warrant the investment. The LIHTC program is governed by Section 42 of the Internal Revenue Code. Additionally, each state is required to have a Qualified Allocation Plan (QAP). The QAP is required to set forth selection criteria used to determine housing priorities for each state, within the confines of Section 42.

WHAT IS THE LIHTC PROGRAM? The LIHTC gives investors a dollar-for-dollar reduction in their federal tax liability in exchange for providing financing to develop affordable rental housing. Investors’ equity contribution subsidizes low-income housing development, thus allowing some units to rent at below-market rates. In return, investors receive tax credits paid in annual allotments, generally over 10 years. The investors receive a dollar for dollar reduction in their tax liability; however, the project receives less than $1 per credit. Typical rates right now are about $. 88/$1. So for every $1 of credit the investor receives to offset their tax liability, they pay $. 88 into the project.

WHAT IS THE LIHTC PROGRAM? Financed projects must meet eligibility requirements for at least 30 years after project completion, meaning units remain rent restricted and available to low-income tenants. Claimed pro rata over 10 years, the tax credit can be used to construct new or renovate existing rental buildings. The LIHTC is designed to subsidize either 30 percent or 70 percent of the low-income unit costs in a project. The 30 percent subsidy, known as the so-called automatic 4 percent tax credit, covers new construction or rehab that uses additional subsidies or the acquisition cost of existing buildings. The 70 percent subsidy, or 9 percent tax credit, supports new construction or rehab without any additional federal subsidies.

WHAT IS THE LIHTC PROGRAM? Credit is allocated on a per capita basis of state population. For 2018, the allocation is $2. 40. The overall Michigan allocation for 2018 is $27 million, which once fully allocated will leverage $235255 million in equity investments into housing projects.

WHAT IS THE LIHTC PROGRAM? The program has undergone few changes since its inception in 1986, . A few notable recent changes: • The Protecting Americans from Tax Hikes Act of 2015 made permanent the 9% credit rate. • The Consolidated Appropriations Act of 2018 increased the volume cap by 12. 5% for the next four years and created a new occupancy set aside known as ‘income averaging’. • Income Averaging allows a project to include units at the 80% AMI category in the credit basis calculation, thereby opening up the availability of the equity resource to cover the 80% AMI households as well. This is a win-win as it brings more debt into the deal (higher NOI) along with more equity (higher basis).

WHAT IS THE FINANCING PATH FOR A LIHTC PROJECT? • Equity – discussed above. Typical equity is 40 -60% of the total cost to develop the property, which helps alleviate pressure on the debt. • Debt – typical loans are 35 -40 years through regulated lenders such as HUD, MSHDA, etc. Due to the restricted income limits on the property, debt is typically 40 -60% of the total cost to develop the property. This is well below conventional terms that would allow for 65 -75% loan to value, or a personal home loan which could loan up to 80% loan to value. • Soft Debt – some cities/states have additional funding that may be available, such as HOME, CDBG, Federal Home Loan Bank grants, etc. These sources are more common to larger communities. For instance, the City of Detroit has a HOME loan program that has specific criteria for loaning money to projects in Detroit.

ARE THERE OTHER TYPES OF CREDITS / INCENTIVES THAT ARE HELPFUL TO CREATING HOUSING? • The New Markets Tax Credit Program was established as part of the Community Renewal Tax Relief Act of 2000. The goal of the program is to spur revitalization efforts of lowincome and impoverished communities across the United States and Territories. The NMTC Program provides tax credit incentives to investors for equity investments in certified Community Development Entities, which invest in low-income communities. A Community Development Entity must have a primary mission of investing in low-income communities and persons. • Location Driven. • Highly competitive – The CDFI Fund recently announced 214 applicants requested $14. 8 billion in NMTC allocation authority under the 2018 round. , more than four times the $3. 5 billion in authority available.

ARE THERE OTHER TYPES OF CREDITS / INCENTIVES THAT ARE HELPFUL TO CREATING HOUSING? The Federal Historic Preservation Tax Incentives program encourages private sector investment in the rehabilitation and re-use of historic buildings. It is one of the nation's most successful and costeffective community revitalization programs. It has leveraged over $84 billion in private investment to preserve 42, 293 historic properties since 1976. The National Park Service and the Internal Revenue Service administer the program in partnership with State Historic Preservation Offices.

DISCUSS HOUSING NEEDS IN MANISTEE

IDENTIFY THE NEED Target Market Analysis 2014 prepared for Networks Northwest clearly supports a need for housing and outlines why Manistee is a good choice. The absence of affordable housing is a significant quality of life and economic development priority for Manistee County. This is reflected in the recently adopted Strategic Plan for Manistee County by the County Board of Commissioners, the City of Manistee’s Strategic Plan Update, and the Lakes to Land Regional Initiative process involving 16 governmental agencies. • Lakes to Land Regional Initiative website, memo October 29, 2014.

IDENTIFY THE NEED 2015 Growing Business with Workforce Housing Guidebook http: //www. networksnorthwest. org/userfiles/filemanager/4435/ Manistee County Strategic Plan, 2014 -2019

IDENTIFY THE NEED Downtown Manistee Strategic Plan, May 2017 – June 2020 Downtown Manistee is brimming with opportunity for the creation of thriving businesses (and the resulting jobs), recreational destinations, attractive landscapes and housing to support the needs of a growing workforce, retirees and visitors. Downtown development is at a critical juncture where decisions made now will define and influence our city and the surrounding region for many years to come. The work of the Manistee Downtown Development Authority (DDA) is more critical than ever and thus, the importance of this strategic plan.

IDENTIFY THE NEED Housing references in the Downtown Manistee Strategic Plan: Of the 12 properties that are noted in this section of the plan, how many have taken proactive steps to convert 2 nd+ floor space to housing, with these restrictions in mind? This really exemplifies the need for an actual housing project, which can meet these requirements in a cost-effective manner.

IS MANISTEE REALLY A REDEVELOPMENT READY COMMUNITY? • The paperwork is done, the MEDC certification is in hand, now what? • Third Coast Development proposed a PILOT and MSA combo for the old Olseon’s grocery store site to redevelop this into senior housing and senior center. This deal does not appear to be moving forward. • Hollander Development Corporation attempted to redevelop 400 River into a housing project. This deal does not appear to be moving forward. • Letter to the editor comment – “strongly suggested that Manistee is reluctant to grow, and his project challenges our comfort with growth. ” • Developers are watching. Both Third Coast and Hollander Development are well respected for building quality projects. This lack of progress will discourage other developers and greatly impede progress. • Is Manistee truly Redevelopment Ready?

IS MANISTEE REALLY A REDEVELOPMENT READY COMMUNITY? • How many new homes have been built in Manistee? • How many new multi-family housing developments have been built in Manistee? • Has the enrollment of Manistee Public Schools increased? • Have houses sold and property tax base increased? • For the largest employers in the community, how many of their employees live outside of city limits? Out of the county? These folks go home after work and take their dollars with them.

DISCUSS WHAT OTHER COMMUNITIES ARE DOING

TOOLS IN THE TOOLBOX • State and local governments use density bonuses, inclusionary zoning policies, and other land use regulations to require and/or encourage housing developers to build a certain percentage of new housing units at a particular level of affordability. For example, inclusionary zoning will require developers to build a certain percentage (often 10 -20%) of new units for low-income families. Density bonuses serve as an incentive, and offer developers the opportunity to build higher density buildings than they would be allowed under normal zoning regulations if they build new units at a certain level of affordability. • A Form-Based Code (FBC) is a means of regulating land development to achieve a specific urban form. Form-Based Codes foster predictable built results and a high-quality public realm by using physical form (rather than separation of uses) as the organizing principle, with a lesser focus on land use, through municipal regulations.

TOOLS IN THE TOOLBOX • Examples: • Wyoming, Michigan – has a form-based zoning plan in place, and we are in the process of working through a site plan for a large site there. At the meeting with the city two weeks ago, we were told to increase density (# of units/acre) and decrease the parking count. • Detroit, Michigan – Beginning in 2017, housing developers who receive a certain threshold of public subsidies or discounted city-owned land in Detroit will now be required to set aside at least 20% of their units for lower income residents. Projects that receive at least $500, 000 in monetary support -- either from the city or different federal and state programs -- would be impacted, along with projects that involve the sale or transfer of city-owned property at "less than true cash value. "

TOOLS IN THE TOOLBOX • Grand Rapids, Michigan – has a form-based zoning plan in place and a Housing Advisory Committee that is actively working through a series of affordable housing recommendations (6 of 11 recommendations have been approved in the past 12 months). • Affordable housing is a huge priority for us. We're reframing our outlook on affordable housing as affordable living. We believe that everyone should have the opportunity to live in healthy and safe housing. We've partnered with residents and housing developers to recommend progressive housing solutions. Our goal is to create housing choices and opportunities for all. • https: //www. grandrapidsmi. gov/Government/Programs-and-Initiatives/Housing-Now • http: //www. grbj. com/articles/89903 -grand-rapids-approves-affordable-housing-recommendations • https: //fox 17 online. com/2018/03/27/affordable-housing-policies-debated-at-grand-rapids-citycommission-meeting/ • https: //www. mlive. com/news/grand-rapids/index. ssf/2017/01/5_zoning_changes_proposed_for. html

TOOLS IN THE TOOLBOX Public housing authorities across the country have used the federal HOPE VI program to rehabilitate distressed public housing and revitalize surrounding neighborhoods by building mixed income housing developments. They have also used the RAD program. RAD was created in order to give public housing authorities (PHAs) a powerful tool to preserve and improve public housing properties and address the $26 billion dollar nationwide backlog of deferred maintenance. RAD also gives owners of three HUD "legacy" program (Rent Supplement, Rental Assistance Payment, and Section 8 Moderate Rehabilitation) the opportunity to enter into long-term contracts that facilitate the financing of improvements.

TOOLS IN THE TOOLBOX • Five Things You Should Know About Public Housing Conversions: • RAD allows public housing agencies to leverage public and private debt and equity in order to reinvest in the public housing stock. This is critical given the 25. 6 billion dollar backlog of public housing capital improvements. • In RAD, units move to a Section 8 platform with a long-term contract that, by law, must be renewed. This ensures that the units remain permanently affordable to low-income households. • Residents continue to pay 30% of their income towards the rent and they maintain the same basic rights as they possess in the public housing program. • RAD maintains the public stewardship of the converted property through clear rules on ongoing ownership and use. • The RAD program is cost-neutral and does not increase HUD's budget. This program simply shifts units from the Public Housing program to the Section 8 program so that providers may leverage the private capital markets to make capital improvements.

TOOLS IN THE TOOLBOX Some state and local housing finance programs offer incentives or have prerequisites for certain levels of affordability. HUD, MSHDA and RD all have different programs. The most viable programs are HUD and MSHDA. Since MSHDA is the allocating agency for LIHTC in Michigan, a summary of a few focal points MSHDA looks at specific to housing projects is summarized on the following slides.

TOOLS IN THE TOOLBOX • Low income Targeting, for units at 30 -40 -50% AMI. • Mixed Income Development, for up to 20% of the units being market rate. • Long Term Affordability commitment, extending the affordability for up to an additional 15 years, beyond the statutory required 30 years. • Community space per unit • Green Policies • Tax Abatement • Credit Efficiency • Caps on developer fees

TOOLS IN THE TOOLBOX • Proximity to Transportation • Manistee County Transportation – a demand/service door to door system, six days / week • Proximity to Amenities • Within one mile of Full service grocery, pharmacy, general practice doctor office/clinic, park, • Within one mile of a public school or park • Developments near Downtowns or Corridors • Within a 1/3 to 1/2 mile of the highest walk score in the municipality. Individual site walk scores are less important. • 400 River Street (Glik’s) – 77 walk score • 254 River Street (Iron Works) – 56 walk score • 28 Arthur Street (Blarney) – 41 walk score • Developments near an Employment Center • Manistee is considered a ‘Rural Community’, within ½ mile of a business that employees 125 full time year-round staff

TOOLS IN THE TOOLBOX • Neighborhood Investment Activity Areas • For projects located in a municipality with a population of less than or equal to 10, 000 people, demonstration that there have been at least $5 million in public and private investments within 1 mile of the project within the last 5 years as part of the plan to invest in the area. Further, projects must demonstrate that there is at least $1 million of total investment located within 1 mile of the project that is planned for the future. MSHDA reserves the right to determine which investments are considered significant in order to count towards the minimum investment requirements above.

TOOLS IN THE TOOLBOX • Affordable/Market Rate Differential • Within ¼ mile of a property with 20+ units, that are renting units at 40% above the 60% AMI rent limits • Opportunity Zones • Census Tract #9 – see map • Rising Tide Communities • No

TOOLS IN THE TOOLBOX • Qualified Census Tract • Census Tract #6 • Difficult to Develop Area • No • Redevelopment Ready Community • No specific points with MSHDA. • Does open the door for MEDC monies.

TOOLS IN THE TOOLBOX • Private developers and/or non-profit community development corporations build mixed income housing. Diverse tax credits, tax abatement programs, and funding streams available from local, state, and federal governments support them. • How can a community work with a private developer to help gain and/or improve housing in their community? Public-Private Partnerships are the key to success.

TOOLS IN THE TOOLBOX • Tax Increment Financing Authority. Tax increment financing (TIF) is a public financing method that is used as a subsidy for redevelopment, infrastructure, and other community-improvement projects. Through the use of TIF, municipalities typically divert future property tax revenue increases from a defined area or district toward an economic development project or public improvement project in the community. TIF subsidies are not appropriated directly from a city's budget, but the city incurs loss through foregone tax revenue. [1]

TOOLS IN THE TOOLBOX • Brownfield. A Brownfield Redevelopment Authority may be formed to facilitate the sensible redevelopment of numerous underutilized or vacant commercial and industrial properties throughout the city. The Brownfield Redevelopment Authority utilizes several sources of funding to inventory, investigate, cleanup and promote the redevelopment of Brownfield sites. Sources of funding have included Environmental Protection Agency's (EPA) Brownfields Grants, Michigan Department of Environmental Quality (MDEQ) environmental cleanup grants and loans, and other State of Michigan grants to assess and/or demolish blighted properties to prepare them for redevelopment.

TOOLS IN THE TOOLBOX • Payment in Lieu of Taxes. (PILOT) • Considered to be an additional financing tool as it assists in diminishing annual expenses and therefore assists the property in providing restricted rents to low income tenants. Generally, the PILOT is intended to be calculated on all housing units in the property. Should commercial space be included in the same development, that is typically still subject to ad valorem taxes. • A PILOT limits the real estate taxes charged to a property by utilizing an agreed upon calculation instead of the millage rate assessed by the taxing authority. • Calculation is typically: (Rents Collected – Utilities) x a % = taxes paid • Common percentages may range from 4% to 10% and are not to exceed the amount that would be paid at normal ad valorem rates

TOOLS IN THE TOOLBOX • Municipal Services Agreement. (MSA) • Typically done in conjunction with a PILOT, enables the taxing municipality to direct a specific portion of monies to the municipality rather than sharing it prorata through the PILOT ordinance. The funds are typically designated for public safety and emergency services. May be done as a flat fee or percentage basis per unit, with inflation adjustments included. • Do the math. If a project was subject to full ad valorem tax, how much does the local municipality really receive? In many cases, a PILOT/MSA combination may actually generate MORE revenue for the local municipality, so this is a ‘win-win’ situation – the developer achieves feasibility, the lender/equity providers see pubic involvement which may be worth competitive points and the municipality gains more revenue. • Example – Cadillac recently passed a 2% PILOT and a 2% MSA for a senior housing project. The city of Sturgis as well as Blackman Charter Township (near Jackson) and Oshtemo Charter Township (near Kalamazoo) have also used MSA’s on affordable housing projects.

TOOLS IN THE TOOLBOX • Where can the municipality have some control over the development process and end result? • Form Based Zoning. Example – Wyoming (MI), Grand Rapids • Development Agreement • A community may also consider asking the developer to execute a development agreement to ensure the developer performs on certain items. For instance, if the developer is to participate in improving the streetscape adjacent to the building, doing certain façade improvements to meet certain historic district requirements, etc. Example - Jackson • Request for Proposals • Several communities have put together a Request for Proposal for parcels they specifically wish to see designated for housing. This provides a bit more control for the City to ensure the housing project is the best fit for the community. • Examples – Kalamazoo, Hastings, Muskegon, Mt. Pleasant

THANK YOU! Lori L. Pung, CPA PRHC, LLC 561 -789 -8206 lori@prhcllc. com www. prhcllc. com Affordable housing is a huge priority. Affordable housing is affordable living.