Barriers to affordable housing

Limited tax credits and industry pushback stymie low-income units

Oct.October 05, 2016 11:00 AM
The Courtside Family Apartments, an affordable housing project being developed by Alonzo Mourning and Matt Rieger

The Courtside Family Apartments, an affordable housing project being developed by Alonzo Mourning and Matt Rieger

It’s no secret that affordable housing projects need to pass through a complex maze of tax-credit lotteries and official approvals. Even when former Miami Heat basketball player Alonzo Mourning decided to shine some of his prodigious star power on the issue, such was the case.

In 2008, Mourning teamed up with affordable housing advocate Matt Rieger, the president and CEO of the Coconut Grove-based Housing Trust Group, to develop the Courtside Family Apartments on four acres of county-owned land at 1699 Northwest 4th Avenue in Miami’s Overtown neighborhood. Their goal: Create an atypical affordable housing project packed with such amenities as a fitness center, computer lab, library and outdoor barbecue area.

They planned to finance most of the $23 million estimated cost of construction by selling lucrative federal low-income housing tax credits, a common strategy used to finance the building of such projects. But after failing to win the more profitable of these tax credits, which are doled out annually by the housing agency in each state via lottery, the partners decided they needed a Plan B. And relatively fast. According to the terms of their lease with the county, they needed to line up construction financing within three years of securing the land, or risk losing it.

Mourning and Rieger cobbled together the funds from a commercial bank, the local community redevelopment agency, the sale of some less lucrative tax credits — which they were able to obtain at lottery — and their own pockets. Public officials even stepped in to help, with Miami City Commissioner Keon Hardemon granting public funds and Miami-Dade County Commissioner Audrey Edmonson leading the charge for a county loan.

Eventually, the project broke ground in 2015, and the 84-unit first phase opened in September — with a waiting list of 400. Plans currently include a second phase  with an additional 120 units and a third and final phase with 80 units.

Federal tax credits

As the Courtside project demonstrates, navigating the challenges and obstacles  in securing financing can trip up many affordable housing projects.

The low-income housing tax credits — which come from a finite federal pool and are distributed through a state-run lottery system — are at the heart of the nation’s financing structure for affordable housing. The system is a legacy of the Tax Reform Act of 1986, enacted when President Ronald Reagan’s administration set about closing loopholes and simplifying the nation’s tax code. In the property development world, the tax credits — which are dollar-for-dollar offsets of federal income taxes — are awarded as either 4 percent or 9 percent of the total cost of a project per year, typically for a period of 10 years.

From left: Alonzo Mourning; Housing Trust CEO Matt Rieger; Commissioner Barbara Jordan.

From left: Alonzo Mourning; Housing Trust CEO Matt Rieger; Commissioner Barbara Jordan.

The Reagan-era tax reform created a market to trade the credits so that developers could sell them to investors in order to raise financing for construction. The ultimate buyers, often financial institutions required to meet certain investment obligations under the Community Reinvestment Act, then receive the benefit of the tax credits until they expire.

Developers that win the more valuable 9 percent tax credits at lottery are frequently able to raise much of the necessary project financing through these transactions. However, the pool of those tax credits is much smaller than it is for the 4 percent credits. “The 9 percent low-income housing credit oftentimes generates 80 to 90 percent of all the money you need to build an affordable housing development,” Rieger said. “You win that and you’re there.”

In 2015, some $49 million in 9 percent credits were distributed by the Florida Housing Finance Corporation, funding the development of about 3,200 affordable units.

There are efforts afoot on Capitol Hill to increase the availability of low-income housing tax credits. Two members of the U.S. Senate Finance Committee — Senator Orrin Hatch, a Republican from Utah, and Senator Maria Cantwell, a Democrat from Washington State — have sponsored a bill that would raise the annual allotment of these tax credits by 50 percent nationwide over five years. “There’s probably no single piece of legislation out there that would have a more dramatic effect,” Rieger said.

On the one hand, the program has contributed to many affordable housing projects that have hit the market since the 1980s. The Florida Housing Finance Corporation says the tax credits that it distributes contribute to the building costs of roughly one-third of the low-income units that open in the state each year. Since 1987, the tax-credit program has helped finance the construction of 53,000 new affordable housing units in the state.

On the other hand, affordable housing advocates say there’s still a vast unmet need. According to a 2016 study from the University of Florida’s 2016 Shimberg Center for Housing Studies, which Florida’s housing agency frequently cites to guide its policies, the state’s production of rent-regulated units hasn’t kept pace with the demand from low-income households. From 2000 to 2014, some 840,000 rental units were added to the Florida housing market, according to the study, but only 116,000 of them qualified as affordable housing, meaning that households earning less than 60 percent of their neighborhood’s median income could pay the rents.

“Are we able to address each and every need when you talk about the units that are needed throughout the state? No,” said Cecka Green, the communications director for the Florida Housing Finance Corporation. “Our mission is to try and keep making as much of a dent in that need as possible.”

Workforce housing

Advocates say that many Floridians — not just those who qualify for affordable housing — struggle to pay their rent.

A second-quarter 2016 report from the listing website Zumper ranked Miami as the eighth most expensive rental market in the country, with the median price of a one-bedroom apartment in the city hitting $1,900. In order to afford that, housing advocates said, a renter would need to earn an annual salary of about $76,000 — a far cry from Miami-Dade’s median household income of $48,100.

Therein lies the rationale to create middle-class workforce housing. Unlike the state’s system of affordable housing — where tenants are required to have an income far below the area’s median — the residents of workforce units can have incomes ranging from 60 to 140 percent of median incomes. Miami-Dade County Commissioner Barbara Jordan describes workforce housing residents as nurses, firefighters and teachers.

Jordan has put forward a proposal requiring all new development projects within Miami-Dade County to set aside a certain percentage of their units for workforce housing, and her proposal would require 10 percent of those units in a development of 20 or more units. The residents would need to go through an income vetting process similar to the system for affordable housing, but with the higher limits.

Jordan’s proposal would essentially turn an existing voluntary program into a requirement. However, the current county-wide voluntary program — which awards a 15 percent density bonus to projects with more than 20 units in exchange for setting aside 10 percent of the units for workforce housing — has met with little success in the eight years since its creation.

Local critics have been outspoken on the issue. The city attorney in Sunny Isles issued a written notice against Jordan’s proposal. The city council of Aventura, another well-heeled municipality, passed a resolution in opposition to it. Robert Shelley, an Aventura City Commissioner who is also a real estate developer, said that mandating workforce housing would be “almost impossible” in a city that is primarily made up of condominium towers.

Howard Weinberg, another of Aventura’s city commissioners, concurred during the meeting where the resolution opposing the ordinance passed. “This is so easy for the county to say ‘here’s the solution,’” he said. “In practice, it’s a very complex problem, and what they’re proposing is certainly not the workable solution.”

The public will get a chance to give feedback on Jordan’s proposal in October. If it passes into the next phase, it could become law after a second vote in November.

“Will profit margins be as high as they are now? Probably not,” Jordan said. “To me, that is something I feel has to be considered against whether or not our citizens can even afford to live here. It’s a balance.” 


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