Private Capital at Work in Affordable Rental Housing

While theyrnaren’t a new concept, the second issue of the HUD publication Evidence Matters highlights the growingrnimportance of multibank efforts in financing affordable housing developments.  This “consortia” of private banks share the risk, reduce therncost of lending, and pool together their expertise to meet affordable housing needs in their respective communities.</p

“Consortia”rncame about as a result of the federalrnLow Income Housing Tax Credit (LIHTC) program in 1986. Private commercial banks, accustomed to workingrnprimarily with short-term capital, were asked to provide long-term capital,rnpermanent mortgages, and related services to affordable housing projects and,rnin response, formed the first multibank consortia in the early 1990s. </p

The consortia helps banks meet Community Reinvestment Act (CRA) requirements whilernsatisfying local affordable rental housing needs. These consortia are able to expand their funding resources byrnqualifying with the Treasury as a Community Development Financial Institution (CDFI).  This allows member banks to apply for more funds to be used specifically for economic revitalization and communityrndevelopment works.</p

Thernconsortia can be flexible in their approach to development activity as long asrnit profits the public and includes low and middle income members of therncommunity.  Their activities mightrninclude forming community development corporations or forming partnerships withrncommunity-based organizations; creating loan pools to finance affordablernhousing development, revitalizing low-moderate income areas or underservedrnrural areas and participating in tax credit programs.  The member banks must determine whatrncredit issues need to be addressed in their community and decide how to contribute to solvingrnthose problems.</p

The bankrnconsortia provide services that generally fall into two categories;rncapital-based backing of loans or knowledge-based services such as thernprovision of technical assistance, guidance in underwriting, loan services, andrnasset management.</p

Memberrnbanks determine their own geographic coverage area. rnThis is a crucial decision that must take into account the ability tornprovide adequate coverage, the potential to expand and diversity borrowers, and the need to spread out risk.  Members also decide on the lending products they offer and the appropriate operational structuresrnto adopt. </p

The Spring 2011 Evidence Matters article features thernNetwork for Oregon Affordable Housing or NOAH, a 22-member non-profitrnconsortium operating in one of the country’s least affordable rental markets asrnan example of the consortia’s operations and potential.  </p

More than 63 percent of Oregon’s renterrnhouseholds are low, very low, or extremely low-income and one quarter of thernrenter households spend more than 50 percent of their income on housing.  Federally subsidized housing is shrinking atrnan alarming rate with 8.1 out of 10 privately owned subsidized units scheduledrnto disappear within the next five years. rnAn additional 2,700 households were displaced between 1999 and 2008 asrnmanufactured home parks closed.</p

NOAH wasrnestablished by the Oregon Bankers Association in 1990 and uses variousrnfinancing and technical assistance tools to help developers build and renovaternaffordable housing throughout the state.  The member banks contribute to a blind loanrnpool where the banks participate in any loan that the 12 member board and itsrnloan committee approve.  The committee isrncomposed of bankers and two public-sector representatives charged withrnevaluating the public benefit of any loan under consideration. NOAH’srnprofessional staff works out the details of each loan.</p

NOAH alsornhas a permanent loan program which, as of last June, had financed 6,445 unitsrnof housing with 139 permanent loans.  Thernloans, totaling more than $158 million, were used to leverage $726 million inrnproject costs.  NOAH also offersrnpredevelopment loans and staffs a statewide initiative to preserve at-riskrnfederally subsidized rental properties. rnThis initiative had preserved 416 units of subsidized housing by the endrnof last year. </p

Theserninvestments are not without return.  Arnmodel developed by the Association of Oregon Community DevelopmentrnOrganizations with the assistance of the National Association of Home buildersrnattempted to measure the economic impact of the affordable housing developed byrnthe Associations’ members between 1990 and 2002.  It concluded that the $94 million invested inrn7,562 affordable housing units had helped generate 12,212 jobs, $393 million inrnwages, and $23 million in income taxes. rnIn addition, the original investment leveraged $408 million from privaternand federal sources.  </p

The most important impact: Renters in thernunits constructed by these organizations paid about $267 less per month in rent</bthan if they lived in market rate units and the increased purchasing power (arntotal of $24 million) of these families supported 833 ongoing jobs </p

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