Housing 101
Developing Affordable Rental Housing
Vermont's Housing Stock
Number of Non-Seasonal Housing Units
200,000
150,000
100,000
50,000
Owner Occupied
Renter Occupied
Vermont's Rental Units
35,000
30,000
25,000
20,000
15,000
10,000
5,000
In builings with
1 unit
In buildings
with 2 units
In buildings
Mobile homes
with 3 or more
units
Housing Wage
The housing wage
is the income
necessary to pay
the Fair Market
Rent (40th
percentile rent plus
utilities).
Vermont Incomes Fall Short
Shifts in Federal Rental Affordability
Delivery Mechanisms
• Public Housing
• Section 8
• Tax Credits
Developing Affordable Rental Housing
• Local groups identify need or opportunity.
• Connect with experienced community or
regional housing nonprofit.
• Conduct feasibility analysis.
• Secure property.
• Design and permit development.
• Secure financing.
• Begin construction.
• Occupy.
Federal Low Income Housing Tax Credit
• Created by the Tax Reform Act of 1986.
• Intended to offer investors incentive to invest
in affordable rental housing.
• Provides a 10-year stream of federal tax credits
in exchange for equity investment.
• Promotes affordability by minimizing debt
service.
• Projects must meet occupancy and
affordability criteria.
• IRS sets rules. Administered by VHFA.
LIHTC Project Eligibility Requirements
• Occupancy
– At least 20% of the units occupied by families with
incomes ≤50% of HUD AMI; or
– At least 40% of the units occupied by families with
incomes ≤60% of the HUD AMI.
• Affordability
– Gross rent cannot exceed 30% of the applicable
qualifying income.
– Rent does not fluctuate based on size of family in
unit.
Maximum LIHTC Gross Rents
Location
Burlington
1 Bedroom 2 Bedrooms
3 Bedrooms
$794
952
1,101
Barre
737
885
1,021
Rutland
662
795
918
Brattleboro
677
813
939
Other Features
• Federally required 30-year use restriction.
• VHFA requires restrictive covenant requiring
that low income occupancy in assisted units
continues in perpetuity.
• Nonprofits arrange in advance through right of
first refusal to purchase property after initial
15-year compliance period for pre-determined
price (outstanding debt + any tax liability).
Generic LIHTC Process
The Investors' Perspective
• Why do investors participate?
– Community Reinvestment Act (banks).
– Return on investment.
– Local Involvement.
• What are the investors risks?
– Loss of credits.
– Reduction in return due to late credit delivery.
– Poor financial performance which results in need
for additional capital investment.
Calculating LIHTC Equity Available
• Determine eligible basis.
• Compute percentage of total units which are tax
credit units.
• Determine qualified basis by multiplying eligible
basis by percentage of LIHTC units.
• If applicable, multiply qualified basis by
QCT/DDA adjustment of 130%.
• Multiply qualified basis by 9% (allocated) or 4%
(bond).
• Result is tax credit which can be taken annually
for 10 years.
• Multiply LIHTC available by credit pricing.
• Assumptions:
Example
– Conventional financing.
– 50 units, 45 of which are LIHTC units.
– Property is not eligible for 130% boost.
– Total development cost = $6 million.
– Land and other non-depreciable costs = $1.2 million.
• Calculations:
– Eligible basis = $6 m less $1.2 m = $4.8 million.
– Percentage of LIHTC units = 45 ÷ 50 = 90%.
– Qualified basis = $4.8 m X 90% = $4,320,000.
– Maximum annual LIHTC = $4,320,000 X 9% =
$388,800.
Amount of Equity Created
• Assume that investors are paying 83 cents per
LIHTC dollar.
• In our simplified example:
– $388,800 X 10 years = $3,888,000.
– $3,888,000 X 83¢ = $3,227,040.
• We these assumptions, the use of LIHTC would
produce $3,227,040 in equity.
Other Tax Credits
• Federal Historic Rehabilitation Credit
– One time tax credit equal to 20% of the qualified
rehabilitation costs in a certified historic building.
– Rehab must be approved by US Department of
Interior.
– Credit is available when project is placed in service.
• State Tax Credits
– Affordable Housing Credit.
– Downtown Credits.
Sample Development Budget
• Assumptions:
– 30-unit, new construction project.
– 25 LIHTC units (applicable fraction = 83.33%).
– LIHTC qualified basis + $6,606,637 (includes 130%
adjuster).
– Tax credit percentage = 8.15%.
– Maximum LIHTC available = $539,015
– LIHTC used = $531,700.
– LIHTC available over 10 years = $5,317,000.
– LIHTC price = 83 cents.
– Tax credit equity raised = $4,413,110.
Uses
ACQUISITION
Acquisition/Land
Acquisition/Buildings
Additional Land
Title Insurance/Recording
Appraisals
Property Transfer Tax
TOTAL ACQUISITION
CONSTRUCTION
Construction - Resid.
Site
Cottage Homes Investment
Site Glassberg
Appliances
Conting@
TOTAL CONSTRUCTION
Budget
Residential
Per Unit
300,000
0
0
5,250
3,000
0
308,250
10,000
0
0
175
100
0
10,275
3,901,300
38,000
700,000
450,000
58,000
282,751
5,430,051
130,043
1,267
23,333
15,000
1,933
9,425
181,002
Uses (continued)
SOFT COSTS
Arch./Engin/Estimating
412,000
MSV fee
85,000
Clerk
28,250
Environment /Energy Ass.
2,000
Legal/Accounting(HOME/CDBG Audit)
36,000
Permits/Fees
44,531
Addl. Insurance/Taxes
27,242
Construction Loan Interest
155,000
Market Study
3,500
Loan/Lender Fees
29,050
Operating Reserve/Working Capital61,830
lease up reserve
20,000
Tax Credit Applications/CDBG
21,518
Soft Cost Contigency
10,310
Development Fee - A
8.24% 275,000
Development Fee - B
275,000
TOTAL SOFT COSTS
1,486,231
TOTAL USES OF FUNDS
7,224,532
13,733
2,833
942
67
1,200
1,484
908
5,167
117
968
2,061
667
717
344
9,167
9,167
49,541
240,818
Sources
Source
Equity - Total
Loan - Commercial
VHCB - Loan
HOME - Loan
VCDP - Loan
FHLBB AHP
REEP Loan
VLIHTC
Other
TOTAL SOURCES
$
Amount
% of total
Per unit
4,413,110
510,000
560,000
315,000
750,000
425,360
18,000
225,000
8,062
61%
7%
8%
4%
10%
6%
0%
3%
0%
147,104
17,000
18,667
10,500
25,000
14,179
600
7,500
269
7,224,532
100%
240,818
First Year Operating Expenses
ADMINISTRATIVE
Management Fee
Admin Salaries/Benefits
Advertising
Office Expense
Social Services
Audit
Legal
VHFA Fee
Misc. Admin. Expense
TOTAL ADMINSTRIATIVE
UTILITY
Electricity
Fuel - Gas
Water & Sewer
Fire Alarm/Emergency Call
Other
TOTAL UTILITY
Annual
22,320
0
720
1,440
0
3,240
2,880
1,440
2,880
34,920
10,800
21,600
7,200
1,080
2,160
42,840
PUM
62
0
2
4
0
9
8
4
8
97
MAINTENANCE
Maintenance Salaries
Janitor Supplies
Exterminating
Trash Removal
Snow Removal
Grounds
Painting & Decorating
HVAC
Elevator
Other
TOTAL MAINTENANCE
14,400
3,600
720
4,680
2,880
2,880
5,400
1,800
4,320
2,880
43,560
40
10
2
13
8
8
15
5
12
8
121
30
60
20
3
6
119
GENERAL
Real Estate Tax
Property Insurance
Association Fee
Replacement Reserve
Total General
Total Operating Expenses
23,400
5,760
1,800
14,400
45,360
166,680
65
16
5
40
126
463