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By Liz Nickerson
Since the establishment of the Affordable Housing Program (AHP)
in 1990, the Federal Home Loan Bank of Boston (the Bank) and its
members have benefited from deepening relationships with community
development corporations across New England.
To date, the Bank has helped fund more than 19,000 units of affordable
housing, ranging from new, single-
family homes to group residences for persons with chronic mental
illness. While participation in the AHP is open to both for-profit
and nonprofit housing developers, the majority of AHP applications
have been received from nonprofit developers.
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of Copley House in Morrisville, Vermont, a home for very low-income
residents with chronic mental illness. Developed by the nonprofit
Lamoille Housing Partnership and Lamoille County Mental Health,
Copley House was the recipient of a $250,000 Affordable Housing
Program grant. |
In recent years, many housing professionals have asked how nonprofit
housing organizations are performing in today's challenging development
environment. The challenges faced by nonprofit developers include
all of the usual problems of development: permitting, financing,
and NIMBYism ("not-in-my-backyard" response to
a public-interest project).
A generation ago, an affordable-housing developer could access a
number of federal programs to obtain 100 percent of its financing
and lucrative rental-assistance contracts. But incentives for the
production of rental housing were reduced greatly by the elimination
of the U.S. Department of Housing and Urban Development's (HUD)
Section 8 New Construction program, reduction of the Farmers Home
Administration's 515 program, and changes resulting from the Tax
Reform Act of 1986.
Today's affordable-housing delivery system is heavily dependent
on the use of Low Income Housing Tax Credits and partnerships between
private-sector investors and organizations interested in affordable
housing. Many housing deals funded by the AHP have five or more
permanent funding sources.
The increased complexity of this type of housing development makes
it appropriate to ask how the nonprofit sector is performing. Answers
to a number of significant questions about its performance are provided
in a recently published report on Vermont's nonprofit delivery system.
In 2004, the state of Vermont commissioned an examination of its
network of nonprofit housing-development organizations. The state
chose to focus on nine organizations funded by the Vermont Housing
and Conservation Board (VHCB), a financial intermediary providing
gap financing that has invested in 7,800 housing units over the
last 17 years. The nine groups selected for study are responsible
for 75 percent of VHCB's portfolio and have partnered with the Bank
and its member institutions in numerous successful ventures.
The Consultants
The state selected ICF Consulting of Fairfax, Virginia, a highly
regarded, management consulting firm to conduct the study. ICF Consulting
has significant experience with housing-development organizations
and holds HUD's technical-assistance contract for the HOME program
nationwide.
A team of four consultants traveled to Vermont to perform an in-depth
analysis of 36 projects developed by the nonprofits, ranging from
a 336-unit former HUD 221(d)(3) preservation effort in 1990 to a
160-unit rental initiative developed three years ago.
The report concludes that Vermont is rare among rural states in
having statewide nonprofit coverage that reaches to its smallest
towns. The consultants examined the priorities of its Consolidated
Plan, including downtown reinvestment, historic preservation, creation
of special-needs housing, development of new housing units, and
health and safety issues such as lead and asbestos contamination.
The plan also emphasizes the need to achieve permanent affordability
for the state's limited affordable housing. While the report notes
that fulfilling the goals of the Consolidated Plan may increase
project costs, it concludes that the nonprofits have been effective
in addressing the plan's priorities.
Prior to the study, some Vermont officials questioned whether financial
resources were being targeted appropriately and whether rents could
be raised across the state. In examining rent rolls, the report
concludes that rents should not be raised and subsidies should not
be lowered. It further concludes that Vermont is serving the very
poor at the highest rate of any state in New England. Among rural
states nationwide, only Idaho provided comparable services for its
low-income residents.
High-Quality Projects
In examining project-development practices, the report notes that
project quality was high and no projects had failed. Project timeframes
were considered effective, with elapsed time from conception to
completion amounting to only 2.1 years. The consultants determined
that the 4.1 percent escalation in design cost from conception to
conclusion was reasonable.
"Studied nonprofits exhibit a high level of professionalism
with respect to project development practices," notes the report.
"From their use of third-party cost estimates to their ability
to acquire sites at discounted costs, the organizations are models
for other nonprofits to emulate."
"Development costs have been escalating in recent years,"
the report continues. "However, considering the factors affecting
development and the costs of the projects studied in comparison
to other cost benchmarks, ICF concludes that the cost for studied
projects is within, or in some cases, below expectations."
The report also examines developer fees and operating grants provided
to nonprofits. It notes that developer fees in Vermont were 7.1
percent, compared with a national range of 10 to 15 percent. Even
when operating grants are added to developer fees, the fees still
come in at a relatively low 8.7 percent.
The report concludes that salaries at nonprofit housing organizations
are low and that turnover has been above average. It recommends
maximizing developer fees to help ensure the stability of these
organizations. The report also recommends that the state focus on
expanding the nonprofits' asset-management role and increasing comprehensive
needs-assessment standards and project reserves. It suggests that
nonprofits work together to hedge oil costs, negotiate group insurance,
and achieve other efficiencies to benefit the system.
The report has high praise for nonprofit syndicator Housing Vermont,
which received 19 percent above the market average for tax-credit
investments in the last six years. Vermont banks — most of
which are Bank members — are the largest investors in Vermont
tax credits. Bank investments resulted in an additional $4.7 million
in equity for the state. The report credits Housing Vermont's success
to its expertise in asset management and low rate of project failure.
The report also recommended that the Vermont Housing and Conservation
Board (VHCB) maintain its effective operating style and delivery
system. "Their (VHCB's) collaborative mentoring approach and
flexible underwriting augmented with training and careful organizational
monitoring has strengthened and hardened the nonprofit industry
in Vermont appropriately," the report notes.
Since 1990, nonprofit housing developers in Vermont and elsewhere
in New England have been the region's most consistent players in
affordable-housing development. Without them, New England's affordable-housing
shortage and the resulting impact on job preservation and economic
growth would be far more severe than it is today.
Liz Nickerson is the Federal Home Loan Bank of Boston's senior
community investment manager for Vermont, New Hampshire, and western
Massachusetts.
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