As most everyone in the affordable housing business or local government is aware, the California State Supreme Court is considering the arguments regarding the legality of ABx1-26 and ABx1-27, the two Redevelopment Restructuring Acts. It is clear that the Legislature expected that both statutes would be found constitutional and would work together to create a stream of revenue to help close a substantial part of the Budget gap projected to occur over the coming years.
However, the statutes have been challenged and the Supreme Court has accepted briefs and oral arguments regarding their legality. Most observers have expected that both statutes would be found constitutional together, or that they would be found unconstitutional together. But the County of Santa Clara and others argued for a different outcome – that ABx1-26 be validated and that ABx1-27 be overturned. This would result in local redevelopment agencies going out of business (ABx1-26) and not having the option of resurrection through “voluntary” payment of an annual remittance (ABx1-27).
There is, however, a twist to this outcome that most people have not considered. Continue reading
While much though is expended on how the financing side of the housing market needs support for a recovery, a BusinessWeek article by Steve Matthews posits an interesting and powerful, if underappreciated, factor in the recovery of the housing market – a slowing birthrate in the United States. Data from the National Center for Health Statistics show that births in the US numbered just slightly more than 4 million in 2010, the fewest since 1999 and down by 6% from 2007 (table below). Why do fewer children matter to the housing market? When couples delay marriage and starting a family because they lack of confidence in the economy, the move from apartment (renter) to a home (owner) is also delayed. This may be a good sign for continued strength in the apartment industry, but it will certainly keep the single family residential market down, in most the country, for the next several years.
[from BusinessWeek article] The fall-off in births is part of a vicious cycle that stems partly from the housing slump. States with the largest economic declines in 2007 and 2008 were most likely to have relatively large declines in babies from 2008 to 2009, based on an analysis in October by the Pew Research Center.
Seal of the U.S. House of Representatives
The Low-Income Housing Tax Credit (LIHTC) program is now the nation’s most important source of financing for the development of affordable homes. Like all public subsidy programs, LIHTCs come with restrictions to make sure that the money is being spent to help the intended population. But those rules sometimes have unintended consequences.
A couple of years ago, Century Housing ran into one of those situations. The Internal Revenue Code governing LIHTCs prohibits full-time students from living in tax credit-funded housing. Originally, these rules seem to have had a sound basis, but like so many such hard and fast rules, it also has some impacts that were not thought of when adopted.
Luckily, Representative Jim McDermott of Washington State has introduced a bill, H.R. 3076, to fix the rules so they make sense. Continue reading
Getting back to work
Let’s dust off Economics 101 and review “barriers to entry,” a key factor in assessing competition and dynamics in a market. Recent posts at The Atlantic Cities (here and here), and David Smith’s Affordable Housing Institute blog (regarding a fight in peaceful Woodstock, part 1, part 2 and part 3), with a slightly contrasting view from Megan McArdle discuss the “low cost of admission” that NIMBYs have to the development process. From Ryan Avent:
People tend to have a proprietary feeling about their neighborhoods, particularly when they have large sums of money on the line thanks to their investment in their home. This feeling leaves urban property rights in a gray area. Residents are remarkably willing to dictate to private property owners what can and can’t be done with their land. They’re willing to approve restrictive zoning rules and lobby against permitting in ways that dramatically reduce potential land value, without ever dreaming of compensating owners and would-be developers.
Finally, an honest sign
Developers have to cultivate local political and civic relationships, find equity investors, locate sites appropriate for developing, obtain entitlement approvals, and secure a whole passel of capital before they can turn one shovel of dirt. Affordable housing developers often have three or four (or ten) extra steps, cobbling together political support (which always has a cost) for zoning changes and securing a complete financing package. All of this takes months or years, for every project. NIMBYs, on the other hand, they just need to go to Kinko’s, run off a few hundred flyers, and organize a few vocal folks to attend a couple planning commission or city council meeting to derail a project.
Century is happy to announce the renewal of our relationship with American Communities with the closing of a $1,071,000 acquisition loan for a site in Hollywood where American Communities will build The Gordon, 21 new apartments for very low-income families. Century and American Communities worked together on six developments in Koreatown and Westlake between 2003 and 2007, helping them get almost 300 affordable apartments under construction. Those six developments have been completed and are operating successfully, and now AC is getting started on a new series of projects, starting with The Gordon.
New state legislation, and a resulting court challenge, affected redevelopment agencies statewide and could have derailed a high-impact affordable housing development in Sylmar. But a smart partnership and timely bridge financing between Century Housing, developer DDCM and the Community Redevelopment Agency of the City of Los Angeles has kept the project on track.
CRA/LA approved purchase of a Sylmar development site in August, planning to lease it to DDCM to build Sylmar Court, a project with 150 units of senior affordable housing plus ground-floor retail. But the California Supreme Court put the deal on hold when it issued a stay while it reviewed new redevelopment legislation. CRA/LA faced losing the property when sellers declined to extend an option on the lot beyond September 30th.
On September 1st, CRA/LA contacted Century to arrange a $3.1 million bridge loan for the Sylmar property. Century was able to underwrite, approve and close the loan in 29 days, thanks to close cooperation with CRA/LA’s East Valley Region staff and DDCM President Kurken Alyanakian.
Pretty much everyone knows that the Federal Reserve has been working hard to keep short-term interest rates very low. Recently, the Fed also began taking action to reduce long-term interest rates as part of their efforts to prop up the financial services industry and support economic growth. No one knows how long these efforts will continue, but there is at least one indicator that the need to keep rates low will last for at least another year. Continue reading
On August 11, 2011, the California State Supreme Court issued a partial Stay of Execution of the two statutes that together make up the Redevelopment Restructuring Act (ABx1 26 and ABx1 27). Many questions continue to come up regarding what redevelopment agencies can do until the Court finally decides the case, sometime in January 2012.
The outline below is adapted from guidance provided to local redevelopment agencies by their counsels. If you have questions, you should seek specific advice from your own attorneys, but this seems to be consistent with what attorneys around the state are telling their clients. Continue reading
A few weeks ago Tim O’Connell posted about AB 710 and the impact it could have on apartment developers, if the parking mandated by local codes is capped at 1 space per home/apartment. The effects could be positive - reducing development costs that aren’t really economic – and negative – less leverage to encourage low-income set asides – for affordable housing developers. AB 710 is visible on a larger stage, as the topic of Stephen Smith’s blog on Friday in Forbes. Not surprisingly, his position is that using zoning codes (“entitlements” in our California vernacular) to extract concessions is rarely the “win-win” it is made out to be.
But an unfortunate side effect is that affordable housing advocates and agencies
then have an incentive to oppose zoning or parking reform, because without the
onerous development restrictions, builders would no longer have to seek relief
through affordable housing programs. Housing activists might not even like
parking minimums – indeed, Housing California claims that they “agree with the
basic concept” of reform – but their allegiances (not to mention salaries) are
to affordable housing programs, not to affordable housing in general. Continue reading
From Josh Rosa at PublicCEO.com, an interesting proposition – what if the California Supreme Court, in ruling in the lawsuit, CRA v Matosantos, over the constitutionality of the Redevelopment Death and Resurrection laws, AB1X 26 and 27, decides to split the difference and allow one law to stand and strike down the other?
There is, however, a third possible outcome. The Supreme Court could uphold the first law (eliminating redevelopment) and strike down the second. This potential “split decision” would inevitably end redevelopment, without any backup plan to compensate cities for such a dramatic loss. Bundled together, the two laws effectively form a policy of shrinking redevelopment radically, but allowing it to go on in a smaller version. To continue existing, for example, the Sacramento Housing and Redevelopment Agency is preparing to make a $21.9 million payment, which is roughly 40 percent of its total tax-increment funding. These cuts are painful but, in theory, SHRA will survive and persevere. Throughout the state, hundreds of agencies are preparing their own voluntary payments and adjusting to a new reality of scarcer resources. But that safety net might be taken down. Stripped of the reinstatement law, the Legislature’s last budget deal could potentially end redevelopment permanently [emphasis added].
Whichever way the Supreme Court rules, redevelopment funding for all development, including affordable housing, is going to stay shrunken for some years to come, if it is available at all. Lenders and developers should be well down the road of planning for this very-likely outcome – what is your organization doing to prepare?