At the start of the September MN Housing Board Meeting, Commissioner Tingerthal announced she has been appointed to the Federal Reserve Board of Governors’ Consumer Advisory Council. She represents one of 15 people nationally recruited to provide advice to the Fed on the impact of its policies on various types of consumers. Tingerthal also announced that Paula Beck, the general counsel, was leaving the Agency to work for Sherman Associates; Tingerthal asked the board for attorney recommendations to fill that post.
Final 2016 Affordable Housing Plan
The board passed the final 2016 Affordable Housing Plan. Changes from the earlier draft included an additional $100,000 from Agency resources to the enhanced homeownership capacity initiative. The Agency also added a policy item in the section that addresses critical local housing needs and would support the Metropolitan Council in its implementation of the Council’s recently adopted Housing Policy Plan. In passing the Agency plan, board chair John DeCramer stated that he liked what the staff was doing to solicit input on the plan and said that all of the comments would be considered as the Agency progresses throughout the program year.
Board Adopts Conversion Program of Housing Tax Credit Rental Units
The board adopted a program guide for the conversion of housing tax credit rental units to tenant homeownership at the end of the initial federal compliance period. The guide provides details on allowed purchase price, property condition and other measures helpful for long term success in homeownership. Board member George Garnett asked why the Agency was doing this when affordable rental housing was so scarce. Commissioner Tingerthal replied that tax credit rules require this option; further, this approach was only likely to be used on Indian reservations where many of the tax credit units are single family homes. For example, the Red Lake Tribe had developed single family tax credit units with a homeownership goal as their objective. A couple of other tribes might be interested in this conversion to ownership also. Tingerthal added that very few places in the country have put procedures in place for the tenant purchase of tax credit units.
Approval of 1.5 million in HECAT Funds
After considerable discussion concerning whether housing counseling was effective in helping people of color become homeowners, the board approved staff recommendation of $1.5 million in homeownership (HECAT) counseling funds. Member Garnett attempted to stop the funding award and wanted staff to bring back a spending plan in which proposals submitted by organizations of color were fully funded. Garnett said that the homeownership disparity by race would not decline unless the Agency made radical changes in how they approach housing counseling. Garnett added that in a variety of endeavors experience shows that culturally competent agencies rooted in communities were most effective in reaching successful outcomes for community residents. Board members asked staff for data on the success of HECAT awardees in assisting households of color reach homeownership. Tingerthal cautioned the board by saying that one goal of counseling is to help a potential homebuyer make an informed decision regarding home purchase. Sometimes success, she said, is a family concluding that home ownership would not be in their best interest.
Regarding distribution of federal housing tax credits among local government jurisdictions, the board gave final approval to a staff recommendation that reduced credits for some suballocators, particularly the cities of Minneapolis and St. Paul. The reallocation originated by utilizing the existing formula for distribution of credits among issuing jurisdictions but now updated with current census data. Garnett, who argued for a revision of the formula in prior meetings, restated his point that it was a mistake to take financial resources away from communities that needed and wanted the funding and give them to communities that did not.
Cost Containment Report
John Patterson, Director of Research, Planning and Evaluation, provided an overview of the Agency’s just completed report on cost containment. Patterson said that in its efforts to hold down development costs the Agency was balancing a lot of factors. He said that some policies of the Agency, the green building standards for example, actually increased costs, at least in the short run. Board member Gloria Bostrom stated her opposition to use of Agency funds to pay for non-housing costs, like remediation of soil contamination. Bostrom urged that these costs should be paid by other agencies; she added this is one reason affordable housing development looks so expensive. Furthermore, Patterson said that the Agency’s efforts are bearing some fruit. About 8 years ago the cost of housing financed by the Agency was twenty percent higher than comparable market-rate development; that percentage has now dropped to seven. Over the coming months Patterson said that the Agency will be reviewing its own processes and development standards from the perspective of adding costs and will return to the board this coming spring with a report on these cost drivers.
Selected paraphrased statements from the Minnesota Housing 2015 Cost Containment Report
- While soft costs account for a smaller share of Total Development Costs (TDC)(ranging from 14 to 25 percent), they should be a key focus of cost containment strategies... While soft costs are a necessary component of a housing development, eliminating inefficiencies in these costs will not affect the quality of the housing.
- Low-Income Housing Tax Credits (LIHTC) appear to add five to nine percentage points to the share of TDC attributable to soft costs… For developments without tax credits, soft costs account for 14 percent to 17 percent of TDC. That percentage jumps to 21 percent to 25 percent for developments with tax credits.
- Starting with the competition for the 2014 tax credits, the credit applications for projects having lower than median TDC per unit costs are eligible to receive four competitive scoring points. Four points is meaningful and should influence the decisions of developers. For example, with the October 2014 selections, 12 of the 52 tax credit applications scored within four points of the selection threshold.
- As part of the document revision process in preparation for the upcoming consolidated RFP, the Agency will place an emphasis on cost containment, with a focus on life-cycle costs such as maintenance, repair and utility costs.
- Starting in 2016 the Agency also will use a systematic approach for assessing costs of single-family development. The benchmark will be the 80th percentile in costs, by location, of Agency funded projects. For example a Twin Cities TDC per home above $313,625 would be flagged for additional scrutiny.