Financial crisis ripples through affordable housing corporations in Portland
From the Dec. 12 special affordable housing edition, "In need of a new deal."
In 1986, while the Reagan administration was busy slashing and burning its federal housing resources, Congress created the affordable-housing tax credit program. The program shifted funding for the nation's housing needs to the balance sheets of bankers and corporations who offset profits with tax credits. In the process, it turned the Internal Revenue Service - not the Department of Housing of Urban Development, or the homeless assistance programs under the McKinney-Vento Act - into the single largest affordable-housing generator in the federal government.
For many in the business, it worked well: banks and corporations invested in affordable housing by buying the credits, which, for the investors, cut their tax obligation. But it only worked as long as the investors had profits that needed offsetting, which they did in spades during the '80s, '90s - right up until 2008.
The profits are gone. The tax credit market is in the toilet. And as the pink slips and foreclosures pile up, the number of people who need affordable housing is one of the few rising economic indicators you can bank on. Fannie Mae and Freddie Mac, once 40 percent to 50 percent of the tax credit market, have all but dropped out of the game.
"Homeless Giant" by Eric Drooker . His graphics have appeared on countless posters, books and CD covers and his paintings are often seen on covers of the New Yorker Magazine. He makes his work available to social-justice nonprofit organizations at no cost.
This spring, when the tax credit market was softening, affordable-housing developers tightened their belts around a drop in credit revenues from 95 cents on the dollar to 85 cents. The prognosis was recently lowered to about60 cents on the dollar, with a one-in-three chance of even getting an investor on qualifying projects, says Robin Boyce, executive director of the Housing Development Center, the largest tax credit developer in Oregon.
"One of the challenges is, if we knew which one of us was going to get funded, the other people would do a whole lot of layoffs right now, and we wouldn't keep working on those projects," Boyce said. "And the challenge is that you can be $200,000 to $300,000 into a project before you know whether you're going to get an investor."
Those can be catastrophic figures for the dozens of nonprofits across the state trying not only to create but also preserve the existing portfolio of affordable housing.
"It is catastrophic," Boyce says. "We're Russian roulette players right now in the Housing Development Center, because - do we not try? Obviously, the need is there. Obviously, some are going to be successful."
Dee Walsh, executive director of the community development corporation REACH, says her organization is in a good position, with financing in place for current projects, but for the industry at large, she describes the situation as "awful."
"There are people out there with projects ready to go that just lost their investors recently. Or who were counting on getting tax-exempt bonds for their deal, and now they can't," Walsh says. "So they have to put things on hold, and if their carrying costs are a lot while they're waiting on that money coming together, it could cause them real problems."
"It has changed so much so quickly that nobody really knows what's going to happen," said Megan McLennan, executive director of Milwaukie-based Northwest Housing Alternatives, a CDC with 2,100 units across 14 counties.
"On the street, it's going to get harder to get into a unit. The criteria for renting is likely to get more stringent, the vacancy rates are going to be low, the waiting lists are going to get long, and that's going to get worse and worse the lower down the line of the income stream."
***
In the wake of the federal government's decision to get out of the public and affordable-housing business, some private developers, and more notably nonprofits in the form of community development corporations, or CDCs, formed to fill the void. They do so by scraping together not only tax credits, but also housing subsidies such as Section 8 and Supplemental Security Income, supportive service funds, community development block grants through the city, and a myriad of gap funding to cover the difference between what rent a person is able to pay, and the actual cost of maintaining the rental unit. In fact, a single project could have 15, 20 or more funding sources to make it pencil out. If you are an affordable-housing developer, your job becomes tougher every year, as subsidies - including Social Security and Section 8, Medicaid and Temporary Assistance for Needy Families - lag behind the rising costs of simply maintaining an affordable-housing unit. Central City Concern, for example, relies on housing subsidies for almost all of its 1,600 units in the Portland area.
"It's really hard to get a rent subsidy for somebody who makes no money," says CCC's Traci Manning. "A couple of our buildings are really struggling," Manning said, declining to name which buildings. "And I think it will keep getting worse."
"In an ideal world, every unit of permanent supportive housing or affordable housing would come with the absolute appropriate level of support services with it," says Mary Li, manager of Human Services for Multnomah County. "In reality, different funding sources require different kinds of populations to be served or impose different regulations on the target population, and that's probably the biggest struggle."
Now in the fourth year of its 10-year plan to end homelessness, the city targets the chronically homeless. In addition to federal funding sources for the plan, it has the flexibility of working from its own general fund to pay for projects at will. The cash-strapped county relies on federal funding, which prioritizes those cases that meet Medicare and Medicaid criteria, such as programs for mental health and the elderly. And those benefits stay with the individual, not the building.
If you're an affordable-housing developer today, funding streams incentivize you to create not just cheap housing, but permanent supportive housing, with services for mental health, addiction treatment, employment training and a gamut of other needs. In order to access enough funding to move forward, your project is now leveraged against a whole category of government agencies and nonprofit organizations that are under the same, if not worse, financial screw. In Portland, service contracts usually run year-to-year, or two years at best, provided that the service provider stays in business. But under city funding requirements, you're obligated to keep units affordable for 60 years.
"You can't do it without services and there are only so many services available," says Manning. The city expects service components with the 10-year plan, but the longevity of the services is in question, Manning says. "Are they going to be there next year?"
In 2004, the county suffered a major financial blow when the state did away with General Assistance funding, which supported qualifying individuals in housing while they waited for SSI or SSDI benefits to clear the requisite years of red tape. It was a critical gap subsidy for affordable housing in Multnomah County.
"When the state cut General Assistance, you saw a direct impact on the number of people who were homeless and the number of people who found themselves without support services that they once had access to," Li says.
Boyce says she supports permanent supportive housing, but that it is doomed to failure for the poorest renters if rent subsidies and service funding continue to fall short.
"I just don't think we have the resources to do it well. I don't think we've dedicated the resources to do it well on the governmental level," Boyce says. "I think to pretend that we have puts the nonprofits in this place where they're housing people without operating subsidies or the services dollars they need to do it well."
"The question is how much that housing can save all the other systems that are failing, is really where it comes from a policy perspective. It's really easy, as owners, to want to save the world, and we're all in this because we're mission-driven. We can't fix the fact that Social Security hasn't gone up, yet we're faced with the fact that we could displace people if we raise rent. If we don't raise rent, our properties are going to fail, and then we put more people at risk, so it's really a hard choice, but it's an essential choice that we keep doing, so that we balance our fiscal mission."
The irony in affordable housing is that it often costs more than market rate housing to maintain - not just because of the work to procure funding options and secure services, but because the revenue over time seldom keeps up with the operating costs, even with rent increases. As a result, affordable-housing projects are failing across the state. The Oregon Housing and Community Services analysis for 2007 showed that 78 projects - nearly 33 percent of all reporting projects - have a negative cash flow. In the Portland Metro Area, 25 percent of the 121 reporting projects are losing money, in some cases drawing off the reserves from the nonprofit sponsors responsible for the projects.
Nationally, Boyce says, nonprofit housing managers are selling off properties to generate operating revenue.
More bad news: This year, Living Cities, a philanthropic organization that supported affordable housing efforts across Oregon, said it no longer will supply $800,000 to sustain operating costs for nonprofit developers.
***
There is no mandate, federal, state or otherwise, that says we will house our citizens - only an economic reality.
The Department of Housing and Urban Development defines affordable housing as tenants paying no more than 30 percent of their income for housing expenses (rent plus tenant-paid utilities). Families with basic jobs just don't cut it. Minimum wage, even at Oregon's elevated rate, comes nowhere near matching the market rate for apartments. The market rate for a three-bedroom apartment in Portland is $1,100 - nearly an entire month's gross for a full-time minimum-wage position.
"If we look at who lives in our affordable housing, it's our service industry," Boyce says. "It's our hotels, our restaurants, our retail. All of our landscapers, our nursery workers, truck drivers, our delivery folks."
About half the people the Housing Development Center houses make 30 percent of median family income or below - that's less than $23,000 per year for a family of four. Because of the lack of funding for housing, many of them are paying much more than a third of their income for rent. Boyce says that only about 17 percent to 20 percent of the units in Portland are structured to meet income levels of 30 percent of median family income or less.
"That means they pay more than half their income on housing. Which is much better than if they were on the market rate, but it's still putting a housing burden on them," Boyce said. "We simply don't have the gap dollars to do that many units."
Today, in order to bring in more operating revenue, affordable housing projects typically provide a mix of rents to accommodate many levels of incomes, from zero to the highest levels allowed to qualify for funding. But clearly, across Portland, the greatest need is in the poorest income bracket - zero to 30 percent of median family income. It's a trade-off between public policy and what lenders will bear: fewer housing units for the poorest population in exchange for longer financial stability to keep lenders happy and supportive.
Northwest Housing Alternatives provides housing to more than 2,100 people in 14 counties. Their building at 333 Oak St. in downtown Portland houses people who are very low-income, elderly and disabled.
"One of the things I say about the folks that live there is they are homeless except that I haven't evicted them," McLennan of Northwest Housing Alternatives says. "Their life stories are not much different than many of the life stories of people who are homeless.
"It almost becomes this kind of cycle. If I evict somebody for behavior issues related to mental illness, related to addiction, then they go out and they become homeless. But then they come right back into the population that I'm targeting. So it becomes: Have you been homeless three years? Five years? One year? One month? Are you a week from being evicted? The life story doesn't change that much, but we've now divided our attention into those categories. With a shortage of resources, you try to get very precise about your efficiency, but I think we're almost going too far down that road."
Workforce housing is the buzzword for housing for people in the service sector and low-wage blue collar positions. These positions often are full time, but wages fall well below the income levels necessary to afford market rate housing.
The Rose Quarter's Ramada Inn is a workforce housing project by Central City Concern unveiled in 2004. Four years later, the project remains offline, experiencing several speed bumps on its way toward reality. When completed, it will bring 176 new units, 80 at the poorest income levels, all for low-wage workers in the surrounding service district.
Mary Li with Multnomah County says she doesn't expect to see the full impact of the economic downturn until the projects currently in the pipeline begin to reach fruition, 12 to 18 months out. That's when she foresees even more pressure on service providers to meet the requirements set by permanent supportive housing initiatives such as the 10-year plan. The sky isn't falling now, she says, but it will soon - and it's going to land hard.
nnnn
The financial meltdown has placed the creation of needed affordable housing units in jeopardy. The preservation of existing units is equally in peril, but much easier to fix.
"It is much more efficient to preserve what we've got," Boyce says. She and many other advocates across the state are pushing for legislation to create a document recording fee on real estate transactions. Estimates from the statewide advocacy organization The
"Our statewide resources have shrunk tremendously. Our federal resources have shrunk in housing every year for decades. And nonprofits can't do it alone," Boyce says. "I believe it is a shared responsibility. I believe there is a role for charitable foundations and churches, and I believe there is a big role for government. And there is this big consequence to not doing it. If people are not housed, we know that children will lose a tremendous amount of progress every time they move. We know that people are using emergency rooms and other emergency systems when they're not housed. We know that if you don't have an address, you can't put a job application in. We know that people who live in substandard housing with mold are going to have huge asthma problems, and we know that it takes housing in order to build a life, and we haven't said that's the government's responsibility to the level we need to in this state."
By Joanne Zuhl
