Transcript Meeting Your Housing Obligation

Subsidy Retention
in New Affordable Housing
October 24, 2008
Hampton, New Hampshire
Benjamin D. Frost, Esq., AICP
Director of Public Affairs
New Hampshire Housing
Municipal Desire: Create Opportunity
for Affordable Home Ownership
Use incentives to create units having a lower
purchase price (RSA 674:21)
Match the long term effects of incentives with the
term of affordability
Incent the creation of units having a lower
purchase price
Don’t allow “cheap” units
Don’t allow instant equity
Impose long term affordability restrictions
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Subsidy Retention in New Affordable Housing
Developer’s Desire: Maximize Profit
and Minimize Risk
Produce units to sell at a profit
Maximize margin per unit
 Reduce Cost per Unit
Maximize the number of units
Minimize restrictions on sale
Have a predictable permitting and development
process
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Subsidy Retention in New Affordable Housing
Assurance of Continued Affordability
Binding Commitment
Maximum Resale Value
Maximum Rent Increase
Documentation of Restrictions
 Planning Board Records
 Registry of Deeds
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Subsidy Retention in New Affordable Housing
Choosing a Term of Affordability
High
Subsidy
Retention
Model
Degree of
Municipal/3rd Party
Control of Property
Land
Trust
Model
Administrative
Burden
Buyer’s Rights
Potential Wealth
Building in Unit
Conventional
Lender
Participation
Public
Housing
Fee Simple
Low
Duration of Affordability
First Buyer Only
“Long Term”
Subsidy Retention in New Affordable Housing
“Permanent”
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Affordability Retention Model:
Basic Principles
Long-term affordability
 Initial sale—80% area median income (AMI)
Subsequent sales—up to 120% (market based)
Fairness to all
 Municipality / Developer / Buyer
Little impact on conventional financing
No decrease in local tax revenues
Ease of administration
Suitable for use with inclusionary zoning ordinances
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Subsidy Retention in New Affordable Housing
Converting Incentives to Subsidies
Incentives: Inclusionary Zoning
 Density bonus and others
The Regulatory Crux: Developer must receive
something of value, which in turn allows the purchase
price to be lower—a quid pro quo
Subsidy: There must be a measurable subsidy to future
buyers that can stay with the property and be passed
to the next buyer
Converting the incentive to the subsidy is the
municipality’s role
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Subsidy Retention in New Affordable Housing
Model Municipal Ordinance
Inclusionary zoning provides a density bonus in
exchange for some affordable units
Base value of all units must be similar in construction,
appearance, and value to others
Affordable units must be sold at less than base value
(creating the subsidy)
Lien: When affordable units are sold, a lien to the
municipality is recorded (value of subsidy accrues to
municipality)
 Lien value = FMV – affordable sale price
Restrictive covenant is filed, controlling future sale
price and limiting future buyer’s income
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Subsidy Retention in New Affordable Housing
Sales Under the Subsidy Retention Model
HOUSING COST
Fair Market
Value
2nd
Mortgage
+ CPI
Appreciation
Admin Fee
Seller’s
Equity
2nd
Subsidy
Mortgage
Downpayment
1st Mortgage
Paid Principal and
Downpayment
Limited
Selling
Price
Based on
Income
Initial Sale
1st Re-Sale
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Subsidy Retention in New Affordable Housing
Sales Under the Subsidy Retention Model
HOUSING COST
Fair Market
Value
Appreciation
2nd
Mortgage
2nd
Subsidy
Mortgage
+ CPI
Subsidy
Admin Fee
Downpayment
Paid Principal and
Downpayment
Seller’s
Equity
1st Mortgage
Limited
Selling
Price
Based on
Subsidy
st Re-Sale
2
1nd
Re-Sale
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Subsidy Retention in New Affordable Housing
Example: Year 2000
Appraised Value of Unit =
Targeted Sales Price =
Initial Subsidy with the Property =
$152,400
- $132,000
$20,400
Initial 2nd Mortgage
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Subsidy Retention in New Affordable Housing
First Re-sale Target Income
(Initial 5 Years)
Beginning of:
2001
2002
2003
2004
2005
Appreciation
Rate (prior Year)
13%
17%
13%
10%
3%
$151,200
$179,846
$205,390
$227,489
$234,314
$49,459
$57,054
$61,891
$68,600
$69,937
86%
97%
94%
101%
103%
Re-Sale Price
Required Income
Buyer’s Income
Cap
(Percent of Median)


Subsidy increased by $2,560 to $22,960
If the income cap exceeds 120%, the lien can be paid off
(recaptured) and the funds can be reinvested in another
affordable housing project.
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Subsidy Retention in New Affordable Housing
Subsidy-Based Formula
Formula
Notes
Initial Purchase Price (2002)
Affordable to 80%
AMI ~ $45,840
Example
$140,000 (includes $7,000
downpayment)
Initial Appraised Value (2002)
$215,000
Initial Municipal Lien (2002)
($215,000 - $140,000) =
$75,000
Current Appraised Value (2007)
$280,000
Current Municipal Lien (2007)
CPI-Shelter Boston
increased 17.04%
from 2002 to 2007
$75,000 + 17.04% =
$88,000
Current Market Price (2007)
Affordable at 93%
AMI ~ $66,000
($280,000 - $88,000) =
$192,000
Administrative Fee to
Municipality
2% of Sale Price
$192,000 x 2% =
$4,000
Seller’s Potential Equity
Includes initial 5%
downpayment
$192,000 - $4,000 $140,000 + $7,000 =
$55,000
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Subsidy Retention in New Affordable Housing
Administrative Tasks
Income Testing
Calculations of Price and Income Caps
Verification of Home Buyer Training
Municipally Required Buyer Priorities
Procurement of Appraisals
Second Mortgage Issuance
Participation at Closings
Subordination Requests
Pay-offs, foreclosures
Reporting
Most occur at the
time of property
transfer
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Subsidy Retention in New Affordable Housing
Considerations
Most municipalities don’t want to administer the long
term covenants or qualify buyers
Other local or regional entities may lack the capacity,
credibility, longevity, or desire to administer the
requirements
The model is suitable for use with an inclusionary
zoning ordinance
If local or regional entities are not available to
administer the re-sales, New Hampshire Housing
will do it (if you adopt our model unamended!)
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Subsidy Retention in New Affordable Housing
Resources
Workforce Housing Council
www.workforcehousingnh.com
Documents tab
"Housing Affordability”
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Subsidy Retention in New Affordable Housing
Finis
Ben Frost
(603) 310-9361
[email protected]
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Subsidy Retention in New Affordable Housing