Monday, January 29, 2018

Affordable Housing Options and Pitfalls, part 4

Rubber Stamping or Thoughtful Planning?

In the quest for more affordable units, some want any and all 4% and 9% HTCs approved without discussions or conversations--even if they don't make sense. If anyone raises questions about developments, costs, appropriateness, HTC concentrations in certain areas, or special requests by developers, they must be against helping low-income people, or worse. This all or nothing outlook can be detrimental to financial responsibility, transparency, and it may even hinder the cause down the line. There are also people who don’t want any below-market housing at all. They’ll come up with all sorts of reasons not to approve or pay for something. Some reasons to deny a resolution of support may be legitimate, though. There’s got to be somewhere in the middle to meet between those who want any and all units no matter how expensive or illogical they are and those who will find any real or imagined reason not to support any units.

There is money to be made off the 9% and 4% HTCs. Most LIHTC developers are for-profits and they bring with them many who are also seeking profits: land owners, land brokers, property management companies, consultants, tax credit syndicators, etc. Cities should do their due diligence as they would for any other project that will get government funding, even if its indirect funding and even if direct funding won't happen for a few decades. 

For example, if cities want to protect the existing below-market housing stock in the future, they will most likely have to make a financial investment of some sort to keep the housing affordable. Otherwise, the properties will possibly go to market rate, especially in areas where property values are high (or will be high in 15-20 years). Looking 15-20 years down the road is responsible. Looking 15-30 years down the line prevents opportunistic property parking too.  

Sometimes, unfortunately, one of the last thoughts is of the needs of the people who will actually be living in the HTC developments short and long term. If there is multifamily land somewhere, anywhere, developers will find a way to put an HTC apartment there— whether there is street access or not, whether there are enough parking spaces for residents, or whether there are water or sewer connections or not. 

Recently, a developer came before the City Council in search of points for a 9% HTC application called Maddox Square that would be located on property that had no direct access to any street. Instead, the residents would have to enter through other business parking lots to get to it. There were also issues with where the easements to the entrances were located.  City Council declined to give its support because of the questions about appropriateness, safety, and easements. Due to the time constraints of the application process, the developer chose to not wait until the easement issue was settled before pulling out.

The next day, a 
Dallas Morning News article was published about the missed opportunity and much of the blame was put at the feet of a church nearby that didn't want their busy parking lot used as an entrance to an apartment. 
The same article also stated that there was more oversight with LIHTC apartments:
...Those kinds of properties have more oversight than market-rate rentals because, if they are not managed properly and become neglected, their tax credits could be yanked back. 
This is just not an accurate statement to make if we go by the PBS and Frontline joint investigation into HTCs that was posted in part 3 of this series. 

Here's testimony from a government official from an NPR article about the lack of federal oversight of the program:

Diaz [Daniel Garcia-Diaz, an auditor with the Government Accountability Office while testifying before the U.S. Senate Committee on Finance] noted that the IRS has only audited seven of the 58 state agencies that administer the program in more than 30 years, and when audits were completed, significant problems were found.
"The LIHTC program is a very hard program to review," he told lawmakers at the hearing, called as the committee revisits the tax code to look for solutions to a growing shortage of low-income housing in the U.S. "The lack of information at a federal level, basic information about allocations awarded to projects, placed-in-service dates, are just very difficult for us to review." 
The IRS is able to take the tax credits back from developers and investors when projects go bad, but Garcia-Diaz said the IRS is unable to tell auditors how many times that has happened, if ever. NPR and FRONTLINE found at least three instances where some of the largest affordable housing developers in the country were charged with stealing money from the program.
Even though this potential affordable housing project was declined for a serious logistical concern, many were unhappy that it wasn’t rubber stamped and approved anyway. If we operate on an “at all costs” or “approve it now and worry about it later” mentality, we’re not being smart. Is our bottom line that we just want to be able to say we have a certain number of affordable units or do we care about the quality of life for those who live in and around the units? We can care about both by taking each potential development on a case by case basis. We don’t need to rubber stamp all proposed developments to prove we care about providing rent-capped housing.

Sometimes, the City Council approves parking variances or other exceptions for LIHTC projects that later prove problematic. Limiting parking spots saves developers money. Limiting or removing all enclosed or covered parking also saves money. But, allowing developers to save money in this way lowers the quality of the developments for the city and for the residents. Either the city has parking requirements, or it doesn’t. 

On 12/5/17 at about the 1:10 mark on the City Council meeting video, a land broker speaking on behalf of the developer for the Sphinx Throckmorton planned 4% HTC on the east side of McKinney, told the City Council that they were requesting an exception to the city-wide parking requirement of 1 space per unit and 0.5 per bedroom of the city to a flat 1.7 spaces per unit. He told City Council:
“We’re asking for the reduced parking being 1.7 spaces per unit because the research and the experiences [have] shown that these people don’t have as many cars, that the clients for this project won’t have as many cars, and the 1.7 parking spaces per unit is sufficient to meet that requirement.”
In the letter of intent to Planning and Zoning, he gave this explanation, “6. As noted in the attached Development Regulations, parking for the multifamily units is computed at 1.7 parking spaces per unit, which is in keeping with parking ratios for similar TDHCA multi-family projects” as the reason they were asking for an exception. 

The Sphinx development is slated to have 39, 1 bedroom/1-bathroom units, 131, 2 bedrooms/2-bathroom units, and 50, 3 bedrooms/2-bathroom units. This exception means that 181 units that are 2 bedrooms or more will be missing at least 1 more spot that they would have gotten in any other apartment in the city. And, why is it that workforce apartment dwellers wouldn’t have as many cars as other people anyway? We know that a lack of parking spots caused a problem at Newsome Homes (a 4% HTC project) this year. Management tried to restrict who could park in the parking lot because there were not enough parking spaces. Why wouldn’t there be a problem at the new development too? 

After the presentation by Sphinx and during the discussion of the same item, one of McKinney’s City Councilmen berated the entire City Council body (which included the Mayor) on video for wanting details of the project and for questioning the details of the role the McKinney Housing Finance Corporation (MHFC) is planning to take on as co-developer of the deal. The plan is to have the MHFC purchase 2 tracks of land as a non-profit, including an entire tract of retail land that isn't planned to have any affordable housing on it and lease it back to the developers (watch the 12/5/17 Sphinx Throckmorton video for details). 

Westridge Villas is off Westridge and Custer. In 2015, a developer decided to apply for a 9% HTC for a mixed-income apartment building in a very small sliver of an area that happened to be in Frisco’s ETJ. The developer picked the ETJ because if it had been in Frisco, there would have been development standards and an apartment wouldn’t have been allowed on that land due to logistical issues. She asked the city of Frisco to give her a resolution of support even though the development wasn’t in the city of Frisco. Frisco denied the points because she hadn’t asked to be annexed, hadn’t built according to Frisco code, and didn’t have or ask for a development agreement with the city. See documentation here.

The developer also had no way of getting sewage or water to the apartments. Her 9% HTC application wasn’t competitive enough because Frisco didn’t give her a resolution of support. She then applied for a HOME loan from TDHCA. TDHCA awarded it to her even though there was no way for her to get water or sewer connections to the apartment. She then asked TDHCA to make the HOME loan a 0% with 40 year payback even though HOME loans are 3% and 30 years. She was denied. She continued building. She, McKinney, and Frisco had issues because she demanded they provide her utilities even though she was on county land. She then threatened to sue Frisco through the Public Utilities Commission. Frisco finally annexed her property 2 years later. Her apartment complex hasn’t been built to city code. Many people who watched the PBS video on the subject didn't know about all these details because they weren't presented in the video. If you watch the entire PBS expose video on the link above, you'll get to see some of the abuses of the LIHTC program by developers in Florida that highlights the lack of oversight of the program. 

Do we want City Council to rubber stamp every single LIHTC application because we're only looking at units, or do we want some sort of thought process or evaluation of each and every application?

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