The record $162 million awarded for housing development last month by Minnesota Housing Finance Agency (MHFA) will touch thousands of Minnesota households, ensuring that housing is created and preserved for people who need a place to call home. As MHP reported in a recent post, for every dollar awarded there were almost two dollars’ worth of requests that were left unfunded.

Despite the historic nature of the award package, many households in need of housing that they can afford will not benefit from this round of funding. So it seems reasonable to ask: what might the award package have looked like if Congress found a way to fund the National Housing Trust Fund (NHTF)?

The National Low Income Housing Coalition (NLIHC) estimates that Minnesota would receive $77,500,000 for every $5 billion invested in the NHTF. The funds from this new, permanent affordable housing production program are meant to increase and preserve the supply of decent, safe affordable housing for extremely low- (ELI) and very low- (VLI) income households. Under the best case scenario, MHP estimates that Minnesota developers could have constructed and rehabbed an additional 836 multifamily units – without leveraging additional dollars.

Unfortunately, the NHTF has remained unfunded since it was established by law in 2008. The law originally identified Fannie Mae and Freddie Mac as the sources of funding, but the entities were relieved of this obligation when they went under government conservatorship in 2008. Congress has yet to designate an alternate source of funding for the trust.

There are several ways that the NHTF could have been funded.

• Last year, Minnesota Congressman Keith Ellison introduced H.R. 1213, the Common Sense Housing Investment Act of 2013, as a solution to our nation’s housing crisis. H.R. 1213 proposes a reform to the mortgage interest deduction that would create almost $200 billion in government revenue over the next ten years, directing about $109 billion to the NHTF and $86 billion to other housing programs. If this bill passed, Minnesota would receive approximately $155 million annually from the NHTF.
• President Obama included $1 billion in funding for the NHTF his budget proposals for FY10, FY11, FY12, FY13 and FY14. However, Congress has yet to agree on a funding source. If Congress had found a way to generate $1 billion for the NHTF in FY14, Minnesota would have received $15.5 million.
• Had Fannie and Freddie been required to pay into the NHTF, the entities would have deposited an estimated $382 million into the trust fund by the end of  2012.  MHFA could have awarded roughly $6 million more to developers and agencies across the state.

Any of these scenarios would have created or rehabbed additional housing, as the table below shows.

What funding the National Housing Trust Fund could produce in Minnesota in one year

If the Federal government could come together to fund the NHTF, Minnesota developers and agencies could have done even more to prevent and end homelessness, preserve housing stock and assist current and future homeowners. In addition to the money for the NHTF, H.R. 1213 would also direct money to the Low Income Housing Tax Credit (LIHTC) program, Section 8 and the Public Housing Capital Fund. Developers could rehab and build more affordable housing, public housing agencies could modernize properties, and more low-income families could receive scarce vouchers.

To learn more about funding the NHTF, contact Libby Murphy.

Congressman Keith Ellison’s “Housing Funding Strategy is Upside-Down” opinion piece, recently published in the Star Tribune, outlines how the federal government’s investment in housing is “upside-down.” 

Homeowners, especially a small minority of the wealthiest homeowners, benefit significantly from several government subsidies, especially the mortgage interest deduction (MID). The MID alone is a larger tax expenditure than all expenditures for rental housing. Congressman Ellison proposes a sensible modification to a tax policy that is already under bi-partisan consideration. The Congressman’s proposal to convert the MID to a tax credit would generate $200 billion in revenue for rental housing that would be affordable to low-income families. It would also retain tax benefits for the majority of homeowners. The Congressman’s reform better promotes homeownership for low- and moderate-income households and creates a steady stream of funding for much-needed adorable housing – all without increasing taxes or appropriating money from other important programs.

MHP lauds Rep. Ellison for his pathbreaking housing policy work, and supports his proposal as part of the national United for Homes Campaign.

Housing advocates are still rejoicing after the action taken by Federal Housing Finance Agency Director Mel Watt to direct Fannie Mae and Freddie Mac to begin sending a portion of their profits to the National Housing Trust Fund (NHTF) and Capital Magnet Fund (CMF) to meet the housing and community needs for very low-income families. The announcement was a long-awaited victory for housing advocates across the country who labored for six years to secure NHTF funding after the fund was established.  Immediately following Watt’s announcement, however, many legislators, especially Republicans in the House, were adamant in their disapproval of Director Watt’s decision. Several lawmakers vowed to take legislative action to revoke the decision.

On January 27, 2015, Representative Ed Royce (R-CA), Senior House Financial Services Committee member, introduced “Pay Back the Taxpayer Act of 2015.” The legislation would prevent Government Sponsored Enterprises (GSEs) Fannie and Freddie from directing funds to the NHTF and CMF while the GSEs remain under government conservatorship. The legislation also includes a provision that would require any allocations already transferred to or set aside for the funds to be used for deficit reduction instead.

Representative Royce and other congressional Republicans believe that as long as the firms remain in conservatorship, forcing them to divert capital to the NHTF is an unacceptable risk of taxpayer money. Currently, there is no companion bill in the Senate.

Representative Royce has stated on record that the NHTF is a “slush fund” that puts taxpayers at risk by financing housing loans to people in the U.S. who cannot afford to purchase a home. The California Congressman believes that a “larger government presence in housing distorts the market and promotes a boom-and-bust cycle that leaves taxpayers holding the bag.”

Watt defended his action in testimony. He stated that he believes he is following his legal mandate by allowing contributions to the funds, now that Fannie and Freddie have resumed profitability. House Democrats have generally supported Watt’s decision.

Representative Maxine Waters (D-CA) believes Watt has “taken steps to ensure that our housing market remains affordable and works for everyone.” 

Background

Fannie and Freddie went into government conservatorship in 2008 after a $190 billion taxpayer bailout. At that time, the GSEs were relieved of their obligation to direct funds to the NHTF and CMF. In December, 2014, Director Watt reversed the FHFA’s 2008 decision to cut funding following the economic collapse. Starting this year, Fannie and Freddie will make set aside payments based on the amount of unpaid principal balance of mortgages they purchase. They are expected to make their first payments in early 2016.   If not for the suspension, the GSEs would have paid $500 million into the funds in 2014.

The NHTF’s funds are to be used for the construction, preservation, rehabilitation and administration of rental housing and single-family homeownership activities that support the housing needs of extremely low- and very low-income households. The NHTF is a block grant to states, administered by the Department of Housing and Urban Development (HUD).

CMF awards can finance affordable housing activities, related economic development activities, and community service facilities with the purpose of stabilizing low-income areas or under-served rural areas. The CMF awards competitive grants to community development financial institutions (CDFIs) and qualified nonprofit housing organizations. 

It’s been a busy legislative session at the state capitol, and MHP has been actively engaged. We have two main priorities this year: 1) the Homes for All proposal to increase funding for housing and services by $39 million for 2016-17 and 2) expanding workforce housing in Greater Minnesota in ways that are well-targeted, effective, and at a scale more consistent with the need. Read more about where things stand at the Capitol so far this session.

In general, the good news is that there’s a surplus of $1.9 billion. But there are many competing priorities voiced by the Republican-controlled House, the DFL-controlled Senate, and Governor Dayton.

Homes for All bills moving through House and Senate

Homes for All, of which MHP is member, is pursuing a $39 million increase for a wide spectrum of pressing housing needs and essential services. The ask is split into two $19.5 million bills: one for Minnesota Housing funding, and the other for supportive services funding in the Department of Human Services. Both bills are have been introduced in the House and Senate.

Currently, the bills have strong support from many legislators, but face larger hurdles in the House. Earlier this week, House leadership announced a cut in the proposed budget (or “target”) for the committee responsible for funding Minnesota Housing, and an even deeper cut to the committee that funds DHS. These proposed cuts mean that in the House, funding Homes for All programs even at last year’s levels, let alone at higher levels, will be a challenge.

With this development, shoring up support in the Senate now takes on greater importance. Reaching out to House members will also be essential. 

A record 170 organizations have signed on to Homes for All this year, with many people visiting the capitol, writing and calling, tweeting and sharing in support. MHP is deeply involved in Homes for All, and Research and Communications director, Leigh Rosenberg, serves as co-chair of the communications team. See the Homes for All page for bill numbers for the four bills and more info.

Workforce housing takes the stage

In housing committees, and in the media [see here and here], housing for workers in Greater Minnesota has received substantial attention. With the November elections, nearly all the seats that flipped the House to Republican control were in Greater Minnesota districts. This catapulted non-metro issues to center stage.

Legislators in both the House and Senate have been briefed on the need for housing in Greater Minnesota, especially rental housing, in communities where job growth has been constrained by lack of housing. Testimony from Thief River Falls, Roseau, Worthington, Perham, and other cities has been a regular feature in housing committee hearings.

But the need for rental housing is something to take seriously in all communities where vacancy rates are low, and rental housing production has been limited or absent for decades. In these “broken” markets, low prevailing rents can make it difficult for traditional financing to support construction of new apartments. Yet housing for workers supports rural economic vitality, helps prevents long commutes, and can ease housing shortages that squeeze lowest income people the most.

MHP has been coordinating a taskforce of Greater Minnesota housing developers to develop practical responses to workforce housing, which has long been on MHP’s radar.

Several workforce housing proposals are under consideration at the legislature, including:

• From Greater Minnesota Partnership: $40 million in grants to DEED for Greater Minnesota workforce housing development, $60 million for tax credits to incentivize private investment, and the creation of the Office of Workforce Housing in DEED. (H.F. 749 Hamilton / S.F. 764 Sparks)
• From the League of Minnesota Cities: $10 million in grants for Greater Minnesota cities with high job growth (S.F. 468 Stumpf / no companion.)
• From the House Caucus: $5 million for grants to Greater Minnesota; includes land trusts (S.F. 816 Dahms / H.F. 422 Fabian)
• From the governor’s supplemental budget: $10 million to Minnesota Housing to continue the Housing and Job Growth Initiative in the Challenge Program
• And: Two different tax-increment financing (TIF) bills to allow economic development TIF districts to be used for workforce housing development. (S.F. 668 Stumpf / H.F 684 Fabian)

These proposals vary not just in dollar amount and administrative state agency, but in whether there would be income limits, whether they draw from budget appropriations or tax-increment financing, and whether or not they can be paired with other affordable housing sources.

MHP’s positions

MHP is supporting Homes for All as well as selected workforce housing development in Greater Minnesota. In particular, we have been working to ensure that whatever proposals move forward, that there is no prohibition on pairing the program with affordable housing dollars. We are also supporting the Housing and Job Growth Initiative (a subcategory of Minnesota Housing’s Challenge Program), which shows up both in the Homes for All agenda and the Governor’s supplemental budget. We would also welcome any funding for workforce housing, provided that resources are not diverted from affordable housing and homelessness programs.

We are also closely monitoring senior housing and manufactured housing proposals.

What to do now

The Minnesota Legislature will be on Easter/Passover break from March 28 through April 6, making this a good time to meet with legislators in-district. April is also an important time to reach out to the media with letters to the editor.

To get involved or for more info, contact ThaoMee Xiong.

Workforce housing has been a key policy priority for MHP, along with strong support for affordable housing through Homes for All. However, the MN House of Representatives’ budget proposal for housing, released last week, funds workforce housing at the direct expense of programs that serve lower-income Minnesotans. The House proposal cuts key housing and homelessness programs, potentially pits Greater Minnesota against the Metro, and is likely to be inefficient and poorly targeted. The Senate proposal for housing will be released tomorrow (Wednesday). Neither chamber has released proposals for services dollars for homeless Minnesotans yet.

Cuts to affordable housing and homelessness programs

Overall, the House cuts to Minnesota Housing total $10.55 million compared to FY 2014-15. The Family Housing Prevention Assistance Program (FHPAP), which serves households at risk of losing housing, or transitioning out of homelessness, is cut by $1.3 million; the Housing Trust Fund, which provides rental assistance to previously homeless, is cut by $2.4 million; and the Challenge Fund, which finances affordable and workforce housing, is cut by $5 million. Single Family Rehab, Bridges, and the Capacity Building program are not cut, but do not include any of the increases recommended by Homes for All.

Finally, $5 million is committed to the Department of Employment and Economic Development (DEED) for a workforce housing program for Greater MN communities with 18,000 people or fewer.

From MHP’s perspective, the House proposal threatens affordable housing, potentially pits Greater MN against the metro, and includes some of the most undesirable elements of workforce housing proposals that have surfaced.

Approach pits Greater Minnesota against Metro

The House bill requires that half of the Challenge Fund be set aside for Greater Minnesota workforce housing for 2016-17. Also for the 2016-17 budget, 50% of the remaining half of Challenge dollars are set aside for regular projects in Greater MN. Thus, for the next two years, three-quarters of Challenge funding would be earmarked for Greater Minnesota.

Advocates have voiced concern that legislating a geographic split for housing funds not only pits the Metro against Greater MN, but it also sets poor precedent, as the tables could turn with each election. Lawmakers and developers in Greater MN have also asserted that Minnesota Housing has not always funded Greater MN equitably. Minnesota Housing testified that the agency would prioritize Greater Minnesota and set aside some funds for in the coming biennium to better meet those needs.

Workforce housing proposal inefficient, poorly targeted

House leaders have made it clear that they would like to prioritize market-rate workforce housing, and prohibit income targeting of funds to low- and moderate-income households to the extent possible. In the proposal,

• Income limits are removed from the portion of the Challenge program designated to workforce housing in Greater Minnesota in 2016-17.
• The proposed new DEED program prohibits use of dollars in conjunction with any other state or federal resources that have income restrictions.
• During the hearing on Friday, an amendment was introduced that similarly prohibits pairing Challenge funds for Greater Minnesota workforce housing with income-restricted resources, in an apparent attempt to close this “loophole”.

These policies represent an inefficient, ineffective way to use limited state resources.

It’s worth noting that the vast majority of Minnesota renter households have incomes that fall below the current $62,000 income limit for Challenge for rental housing. The statewide median renter household income is only $32,300. 

Minnesota DEED testified in committee that funding for housing programs is best located not in DEED, but in Minnesota Housing, which has far more expertise and capacity to make multi-million dollar project investments. Without expertise, in the case of DEED dollars, developments might be left with financing gaps and unable to break ground, or could be awarded more public subsidy than required to move forward.

Proposals on the horizon

Stay tuned: the Senate budget for housing will be released tomorrow (Wednesday).

CORRECTION: a previous version of this blog post reported that the House proposal removed income limits from the entire Challenge Program, and disallowed pairing Challenge funds with other income-restricted sources. However, the removal of income limits and disallowing pairing with income-restricted sources applies only to the carve out of funds within Challenge for workforce housing in Greater Minnesota for 2016-17.

What do fair housing and equity mean outside the urban core such as in rural areas without visible concentrations of race and poverty?  In the rural regions where MHP worked as a capacity-builder under the Sustainable Communities Initiative, HUD grantees struggled with this question as they faced a requirement to conduct a “fair housing and equity assessment.”

The lessons learned by MHP partners from addressing this question are especially relevant as the United States Department of Housing and Urban Development (HUD) implements a set of new requirements for Affirmatively Furthering Fair Housing for all HUD funding program recipients.  

A report released this summer by MHP and the Kirwan Institute, The Fair Housing and Equity Assessment in Rural and Smaller Metropolitan Regions captures lessons learned from rural implementation of the Fair Housing and Equity Assessment (FHEA), a forerunner of the Affirmatively Furthering Fair Housing Requirement that was included in the federal sustainable planning program.

“Our poorer population lives in very rural areas and those are the areas where it’s hardest to collect data. It’s very scattered and it’s hard to find a cluster like HUD is looking for, like an RCAP.” 

The MHP-Kirwan report focuses on several questions essential to the FHEA: How did rural and tribal grantees interpret equity? What approach did they take in engaging disadvantaged people in the development of a FHEA? How did they respond to HUD’s expectation to practice evidence-based planning when so few data sources were available or useful in sparsely-populated areas? Finally, what were the impacts and lessons learned from the FHEA experience?

The FHEA assessed a broad range of factors. Rural community discussions not only resulted in the creation of projects (e.g. solar panel installations on the homes of low-income people) but also the formation of multi-jurisdictional consortia to share resources and complete these projects. Furthermore, new concepts were introduced to rural areas such as assessing and planning around the social determinants of health.

According to the report, grantees cited the FHEA forced community leaders to consider poverty and find ways to address it as a regional concern. Basic needs such as housing affordability and availability are not well understood by those outside the delivery of social services. The FHEA process fostered this understanding and inspired action to improve the lives of disadvantaged people.

“The challenges [for rural grantees] are surmountable and the outcomes from the FHEA process can be profound.” 

The FHEA experience is now embedded in the requirement that HUD grantees Affirmatively Further Fair Housing. Governmental bodies receiving HUD funds will need to develop plans and initiate community engagement processes that look much like what was done with the FHEA. The understanding of particular challenges facing rural grantees undertaking the FHEA will enable HUD and others to more effectively guide and support the public housing authorities and state agencies serving rural areas as they plan to meet their new fair housing obligations.

More Background:

MHP works nationwide to help organizations and public agencies build capacity to develop and preserve housing and community assets.  From 2010-2014, MHP staff worked with recipients of federal sustainable community planning grantees to build regional capacity to plan for a sustainable future. The authors of the featured report, MHP and the Kirwan Institute, were both part of a team of agencies led by Institute for Sustainable Communities that were under contract with HUD to support recipients of sustainable community planning grants. MHP focused on aiding rural and tribal grantees, while Kirwan, working with the national equity group PolicyLink, provided support to all grantees on issues of racial and ethnic equity.

The Senate Finance Committee, House Ways and Means Committee, Congressional and White House leadership are finalizing details on legislation that would extend dozens of expired tax provisions either temporarily or permanently before the December 11 deadline.

Take action today to influence the bill in support of permanent 9 and 4 percent minimum housing credit rates.

The minimum housing credit rates legislation in the Senate (S. 1193) and House (H.R. 1142) have broad bipartisan support. While our two senators and six of Minnesota’s Congressional representatives are supporting minimum housing credit rates by cosponsoring the legislation, it is critical for advocates to urge our elected officials to include permanent fixed housing credit rates in the final tax extenders package.

Currently, the 9 and 4 percent housing credit rates are “floating” rather than fixed, which has led to 15–20 percent less housing credit equity available for any given affordable housing development. Consequently, more projects are faced with increasingly difficult financing gaps to fill. Fixed 9 and 4 percent minimum housing credit rates will make the development of affordable housing more predictable and financially feasible. Year after year, Congress has extended the minimum housing credit rates retroactively; however, retroactive extensions do not trigger the market effects to enhance more development from affordable housing developers, who might have already received the credits. 

Call your Congressional representatives today and tell them that permanent fixed 9 and 4 percent housing credit rates must be included in the tax extenders package because:

• Fixed rates make the development of affordable housing more predictable and financially feasible (i.e. see the Housing Credit rate fact sheet).
• The housing credit benefits Minnesota communities and our local economy (i.e. see the Low-Income Housing Tax Credit Impact in Minnesota).
• Retroactive extensions do not benefit developments for which the credits have already been awarded.
• Minimum housing credit rates provide significant benefit for minimal cost. The Joint Committee on Taxation estimates fixing the 9 and 4 percent rate would cost only $5 million over 10 years.
• Permanently extending the minimum credit rates will help low-income families.

For information on the impact of the Low Income Housing Tax Credit Program in your Congressional District, check out ACTION Campaign’s district profiles.

MHP’s June 2015 2×4 Report, released today, found that low rental vacancy rates and rising rents have led to competition for lower-priced units, at least in the Twin Cities where regular data is available. Minnesotans with low incomes are at greatest risk in this tight rental market.

According to data in the report, the overall rental vacancy rate for market-rate units was 2.7%. But for those renting for $1,000 or less, only 2.0% of units were vacant in the first quarter of 2015.* To afford an apartment that costs $1,000 per month, a family would need to earn $40,000 to avoid paying 30% or more of its income for housing, the federal standard for housing affordability.

With rising demand for rental units nationwide and in Minnesota, housing construction in the state is beginning to rebound, particularly for multi-family units, the report found. Through May of this year, 7,000 units were permitted statewide, the highest since 2006. Of these units, a record 39% were multi-family units.

While new construction could help ease rental vacancy rates over the long term, thousands of Minnesotans facing homelessness may not benefit from much of the new construction. Financing lower-cost apartments is a challenge for developers.

“Even when developers want to build rental housing that lower-income people can afford, land, labor, and other costs make breaking even impossible without additional public investment,” said Chip Halbach, Executive Director of MHP. “Minnesota is a leader in using state resources wisely for affordable housing, but available public funding assists only a small fraction of Minnesotans living on the edge,” he added.

Homelessness indicators in the report found a reduction in homelessness since last year, but numbers are still notably high. Through March of this school year, about 8,000 children were identified across four major school districts as being homeless at some point.

Also in the report are data on home sales prices and supply of homes for sale in the St. Cloud, Brainerd/Baxter, and Twin Cities metros, as well as evictions, mortgage delinquencies and pre-foreclosure notices statewide.

You can view the full 2×4 Report and add to the conversation on Twitter using #2x4Report and @FollowMHP.

*Rental vacancy data (courtesy of Marquette Advisors) surveys market rate units in buildings with 10+ units.

Affirmatively Furthering Fair Housing | On July 8, HUD released the Final Rule on Affirmatively Furthering Fair Housing (AFFH). The rule provides recipients of HUD funding with guidelines and data to promote fair housing and ensure that everyone has the right to fair housing, regardless of their race, color, national origin, religion, sex, disability or familial status. According to HUD, the Final Rule “simplifies existing fair housing obligations and creates a streamlined Assessment of Fair Housing planning process.” Read more about HUD’s rule on AFFH and access a copy of the Final Rule here. Look for a summary and analysis from MHP soon!

Disparate Impact | In a 5-4 ruling, the Supreme Court upheld the notion that housing discrimination doesn’t have to be intentional to be illegal. Government or private policies that have discriminatory effects or a “disparate impact” on a group of people violate the 1968 Fair Housing Act. The ruling is a huge victory for advocates because it means plaintiffs can challenge unintentional or disguised prejudices that result in segregated housing patterns. Read an in-depth analysis on the ruling on Scotusblog. Learn more about disparate impact from the National Fair Housing Alliance resources. 

Advocates for affordable housing are well aware of the rising costs of multi-family housing development. City fees, parking requirements, utility hook ups and other expenses all contribute to driving up total development costs.

This October, MHP convened affordable housing industry leaders, to explore creative ways to reduce the cost of affordable housing development.

Kristin Beckmann, Deputy Mayor of the City of St. Paul, initiated the conversation by expressing her gratitude for partnerships between developers and cities.

Tim Thompson of the Housing Justice Center provided context for the topic by describing the recently completed Minnesota Challenge report. The Minnesota Challenge represents an “idea competition” sponsored by Minnesota Housing, the McKnight Foundation, ULI Minnesota/Regional Council of Mayors and Enterprise Community Partners. The applicant group led by the Housing Justice Center won the competition and produced the challenge report identifying 11 policy innovations to reduce affordable housing development costs.

Lisa Bender, Ward 10 City Council Member of Minneapolis, drew upon her urban planning background and city council savvy to describe how several Minnesota Challenge proposals are now being implemented in Minneapolis. She began by acknowledging the urgent need for housing options for people with incomes at 30% of AMI (Area Median Income). Bender described her work to pass a resolution that reduced parking requirements for new multi-family housing development near transit lines in the city. She stated that Minneapolis now has “one of the best parking policies in the country.” Such parking reductions potentially allow developers to create more units for less cost. Under Bender’s guidance the city also recently revised ordinances to allow for accessory dwelling units. These units can be an added to existing homes at a relatively low cost and constitute a new, typically affordable, housing option in existing neighborhoods.   

John Duffy of Duffy Development then shared the positive working relationship he has developed with the City of Maple Grove, since completing Bottineau Ridge I, an affordable multi-family development in the northwest suburban community. Duffy emphasized that city resistance to affordable housing shifted dramatically when developers were able to get local officials to tour nearby examples of high quality, well managed affordable housing. Plans for a second phase of the project are now underway, and the City has invited Duffy’s company to build 100 units in the second phase, rather than the 50 originally planned. This “density bonus” will reduce development costs by another $1,850,900—or 10% of the project’s total cost. 

For more on this topic take a look at the Minnesota Challenge report (PDF) or the Minnesota Challenge website. Or the Minnesota Housing (PDF) report on cost containment.

To learn more about the MHP Investors Council and the conversation described here please visit https://mhp.sdho.dev/about/investors-council.