Affordable Housing Making Development Match Need

Affordable Housing Making Development Match Need

Miami, Florida 2006

Affordable – What does it mean? • City of Miami - Least affordable City in the country • Miami-Dade County – Least affordable County in the country for renters.

Affordable – What does it mean? • Affordability is defined as paying less than or equal to 30% of your gross income for housing expenses (including taxes, utilities,etc.).

Affordable – What does it mean? • Census looked at all renters households and of the Counties measured Miami-Dade had the highest percentage that paid more than 30% of their income in rent. • Census looked at all households and of the cities measured, City of Miami had the highest percentage that paid more than 30% of their income in rent.

Affordability – What does it mean? • It is increasingly common to pay over 30% of your income in rent. • Extremely high rates of payment – over 50% - is seen as evidence of extreme unaffordability. • HUD defines paying over 50% as a “worst case housing problem.”

INCOME STRATIFICATION • Affordability is one way at looking at the cost of housing – many analyses stop there. • What is wrong with that?

INCOME STRATIFICATION • Household earning $100,000 a year and paying $40,000 in housing costs is living in unaffordable housing - just like someone who is making $10,000 a year and pays $4,000. • $100,000 family has $60,000 remaining for other expenses - the $10,000 a year family has only $6,000.

INCOME STRATIFICATION • So income is stratified • • • • •

120% of area median income Area median income (ami) 80 % of area median income (ami) 50% of area median income (ami) 30% of area median income (ami)

INCOME STRATIFICATION • Definitions “low income” “very low income” vary from jurisdiction to jurisdiction, from program to program. • What is the percentage of AMI?

INCOME STRATIFICATION Income Levels Fla StatutesHUD Definition HUD 24 CDBG CFR 5.603 City of Miami 30% of Median extremely low extremely low 50% of Median very low very low moderate is low 80% of Median low low >50 & < 80 moderate Median Income 120% of Medianmoderate moderate middle income

County of Miami (family of 4) $16,750.00 $27,950.00 $44,700.00 $55,900.00 $67,080.00

INCOME STRATIFICATION • AMI is based on County-wide, SMSA data • In wealthy counties, 50% of AMI may be higher than most low wage workers. • In poor counties, 50% of AMI may be SSI level income.

INCOME STRATIFICATION • Palm Beach County – HUD Median Income $62,100 – 30% Median Income $18,630

• Hamilton County – HUD Median Income $34,950 – 30% Median Income $10,485

Full time salary at $10.00 hour $20,800

Affordability and Income Levels • What does it mean when we say - housing in a certain development in Miami is affordable to families earning less than 30% of median? • Does it mean that it is affordable to a family of four making $10,000 a year? (less than 30% of median)

Affordability and Income Levels • 30% of median income – for a family of four – in Miami Dade County is $16, 250 • In most housing production programs rents are not figured on the income of the actual tenant • “Affordable to 30% of median income in Miami” normally means that – for a family of four – they will be paying 30% of their income for rent only if they make exactly $16,250.

Important To Remember • If the rents are figured for a family of four earning $16,250, it is not “affordable” to a family earning less than $16,250.

Affordability and Income Levels • WHY IS IT TRUE THAT THE INCOME LEVELS ARE SO FIXED? • It is because of how we develop affordable rental housing.

Affordable Housing Development Readers Digest Version

• Assumptions • Cost of Developing One Apartment $100,000 • 100% financing (no developer investment) • No Developer Return on Investment

Monthly Operating Budget (1 unit) • Mortgage

• $600

• Taxes, maintenance, reserves

• $350

• Total Monthly costs (minimum)

• $950

• Minimum Rent

• $950

Little Haiti Project Affordable to families earning $10 an hour • Mortgage

• $160

• Taxes, maintenance, reserves

• $350

• Total Monthly costs (minimum)

• $510

• Maximum Rent (30% of income of full time worker at $10 hr. ($20,800))

• $510

Little Haiti Project Monthly Operating Budget (1 unit) • To reduce mortgage payment to $160 the financing being undertaken by the developer has to be reduced to $27,000 • If the cost of development is $100,000 and the maximum conventional loan is $27,000 how do you fill the $73,000 “gap”?

How to reduce the mortgage payment – “gap financing” • One possibility – Gov’t provides second mortgage of $73,000 with no payments. • Reduce the interest rate on the entire mortgage - HUD financing programs • Increase developer investment (equity) in the project by $73,000 – Low Income Housing Tax Credits (LIHTC)

Affordable Housing Development Readers Digest Version

• Most current low income housing production program incorporate several of these methods of reducing costs • Results in fixed rents • Results in “layered” financing • Is difficult to operate at lowest incomes.

Overtown Housing Project Monthly Operating Budget (1 unit) • Mortgage

• 0

• Taxes, maintenance, reserves

• $350

• Total Monthly costs (minimum)

• $350

• Minimum Wage Rent ( 30% of income of full time worker at $6.40 an hour)

• $332

Affordable Housing Development Readers Digest Version

• For very low income households there is another form of subsidy • Public Housing and Section 8 - based not on affordability to an income level but on what the tenant can pay • So if a tenant in Overtown can pay only $ 332 and the rent is $1,200 a month then Section 8/Public Housing pays the difference or $868

Affordable Housing Development Readers Digest Version

• From the policy side - The problem with this is you have to pay it forever. • From the tenant side - there is no new public housing or Section 8.

WHERE IS THE NEED? • There is increasing pressure to subsidize housing for those earning 100% - 140% of median income. • Who is spending over 50% of their income for housing?

HOUSING NEED Miami-Dade County Cost Burden 50%+ Percent of Median Income Household Count Percent of Total <20% 21503 26.9% 20-29.9% 21314 26.7% 30-39.9% 12503 15.6% 40-49.9% 9032 11.3% 50-59.9% 5724 7.2% 60-79.9% 5283 6.6% 80-119.9% 2969 3.7% 120+ % 1627 2.0% Total 79955 100.0% Household Size 1-2 Household Income

HOUSING NEED Household Size 3-4 Miami-Dade County Household Income Cost Burden 50%+ Percent of Median Household Count Percent of Total <20% 11091 29.1% 20-29.9% 6781 17.8% 30-39.9% 6460 17.0% 40-49.9% 5066 13.3% 50-59.9% 2935 7.7% 60-79.9% 2582 6.8% 80-119.9% 1966 5.2% 120+ % 1197 3.1% Total 38078 100.0%

Federal Government Funding Policy Has Decreased Extremely Low Income Housing • Congress has reduced the funding for Section 8 tenant based vouchers. • There are no new appropriations of project based Section 8. • The housing affordable to the lowest income households is aging.

How Financing Drives Housing Policy Major Sources of Gap Financing • Federal Government • Florida • Local

Federal Government Policy Has Decreased Extremely Low Income Housing • The number of Public Housing units is significantly decreased. • There is no federal production program targeted at extremely low income households.

State of Florida • Sadowski Act Housing Trust Fund – Funded by Surtax on each recorded transfer of property – – – –

Increases as the cost of property increases Currently over $900 million in Trust Fund 70% to local governments (SHIP) 30% to State government (SAIL, etc.)

State of Florida • Current governor opposes Trust Fund • Has been recommending only spending $243 million of the Trust Fund • Hurricane Recovery housing boosted spending to $500 million for the past two years. • $243 statutory “cap” to take effect in FY 07-08.

STATE FUNDING • Florida administers State Apartment Incentive Loan Fund (SAIL) and federal Low Income Housing Tax Credits. • State sets qualifying standards – Amount of subsidy – Targeted rents – Single competitive distribution each year.

State Funding • Traditionally targeted at 50 – 60% of median – Required by LIHTC – Very difficult to target to lower income – All Rentals targeted to 50 – 60% of median

• After 2004 storms, State hurricane recovery funds targeting required 15% of units for less than 30% of median income (but added more “gap” funds). – All rentals now include 15% of units for less than 30% of median income.

Local Funding • SHIP funds (from Sadowski Trust Fund) – 60% must be used for home ownership – up to 30% can be used for rental \

• Miami Dade also has a local Surtax fund – Spending of these funds were recently criticized by the Miami Herald article “House of Lies”.

Local Funding • Local Funds targeted to Home Ownership. • Home Ownership subsidized by second mortgages or grants. • Home Ownership subsidies increasingly problematic as price of homes increase. • More local governments exploring limited equity forms of ownership (Community Land Trusts) to preserve affordability.

The Affordable Housing Crisis • Greatest Need is lowest income. • Hardest to develop is lowest income. • Federal assistance targeted to lowest income is decreasing or non-existent. • Existing resources for lowest income are hardest to obtain.