TOD-Targeted Housing Financing
Local jurisdictions control multiple pools of funding that can be used to support affordable and mixed-income housing in transit zones. In addition, higher levels of government and government sponsored entities control the allocation of another pool of affordable housing funding. Each of these programs comes with its own set of funding qualifications that can be adjusted or targeted to assist affordable housing development in station areas.
- Partner controlled funding
- Locally controlled funding
Partner controlled funding
Low-Income Housing Tax Credits (LIHTC)
At the federal level, LIHTC is the dominant funding mechanism for the development and rehabilitation of affordable housing in the US. Although funding originates at the Internal Revenue Service, the program is administered by each state.
The actual funding process is too complex to be explained here, but it is important to note that LIHTC includes two programs, commonly known as “9% tax credits” and “4% tax credits.” The 9% program offers significantly more money than the 4%, but is more difficult to obtain and, in practice, is limited to developments in which 100% of units are affordable. The 4% program offers tax-exempt bonds rather than full tax credits, but is somewhat more flexible and can be used in mixed-income projects.
California’s LIHTC program provides additional points for projects that take on additional expenses while furthering public policy objectives. The program grants transit-accessible projects up to 7 out of 15 total points in its amenities category. Scoring is as follows (at www.treasurer.ca.gov/ctcac):
- 7 points: The project is part of a transit-oriented development strategy where there is a transit station, rail station, commuter rail station, or bus station, or bus stop within a quarter mile of the site, with service at least every 30 minutes during the hours of 7-9 a.m. and 4-6 p.m. The project’s density must exceed 25 units per acre.
- 6 points: The site is within a quarter mile of a transit station, rail station, commuter rail station or bus station, or bus stop with service at least every 30 minutes during the hours of 7-9 a.m. and 4-6 p.m.
- 5 points: The site is within a third of a mile of a bus stop with service at least every 30 minutes during the hours of 7-9 a.m. and 4-6 p.m.
- 4 points: The site is within 500 feet of a regular bus stop, or rapid transit system stop.
- 3 points: The site is within 1,500 feet of a regular bus stop or rapid transit system stop.
State housing programs
State housing programs can be powerful tools to promote affordable housing development. They vary in their scale and methods, ranging from direct development grants to tax breaks. Working with a state to prioritize transit accessibility in the funding criteria can make MITOD more feasible in the station area of interest as well as all station areas in a state.
California Multifamily Housing Program
Administered by the California Department of Housing and Community Development, this program offers low-interest, 55-year loans for new construction, rehabilitation, or acquisition, rehabilitation of permanent or transitional rental housing, as well as the conversion of nonresidential structures to rental housing. Funding under this program is highly flexible, but is only available to projects that have not received LIHTC funding.
Massachusetts State Law
‘Chapter 40 R’ rewards municipalities that adopt transit village overlay zoning.
Cities receive grants based on whether they:
- Submit comprehensive plans outlining housing development;
- Zone for a minimum density of 8 units/acre for single-family homes, 12 units/acre for duplexes and triplexes, and 20 units/acre for multifamily buildings — all “as of right,” which means development does not require discretionary action;
- Require that at least 20 percent of residential units be affordable in projects with more than 12 units.
In return, cities receive:
- From $10,000 for projects with 20 units or less to $600,000 for 501 or more units;
- Bonus payments of $3,000 for each unit of new housing that actually gets permitted;
- Eligibility for favorable treatment when state discretionary funding is disbursed for water and sewer improvements, traffic control and environmental cleanup.
Federal Home Loan Bank Affordable Housing Program
The federal home loan bank and its membership organizations are the largest source of residential mortgage and community development credit in the nation. Composed of 12 highly independent regional banks, FHLB sets aside 10% of its assets for grants and low-interest loans to affordable rental and homeownership housing.
Providence, Rhode Island
Photo by Scott Lapham / Courtesy of AS220
The central business district in Providence is in the midst of a slow but steady revival with increasing business investment and housing development. Unfortunately, much of the housing that has been built or planned consists of high priced or luxury units that are unaffordable for most. However, in 2005, a local arts organization called AS220 saw an opportunity to develop affordable housing in the heart of transit-rich downtown. AS220 purchased the Dreyfus Hotel, which had been sitting vacant for some time, from Johnson & Wales University and, through the Federal Home Loan Bank of Boston's Affordable Housing Program, received a $300,000 grant to restore the building and a $710,047 subsidized advance loan. With the help of other funding sources including state and federal tax credits, local development funds, and HUD's HOME program, which is targeted for funding housing development in transit zones, the Dreyfus now contains 11 affordable live-work spaces for very low- and low-income artists, three market-rate units, as well as 10 work studios, gallery space, and a first-floor restaurant.
Locally controlled funding
HOME
The HOME program, administered by the US Department of Housing and Urban Development (HUD), is a highly flexible funding source that can be targeted to a jurisdiction’s transit zones. HOME Grant blocks are given to jurisdictions on a formula basis and can be allocated for a range of activities promoting affordable housing, including land acquisition, land improvement, building acquisition and rehabilitation, homeowner assistance, and – unlike CDBG funds – new housing construction.
Community Development Block Grant
The federal Community Development Block Grant (CDBG) program is another key source of affordable housing funding from HUD. Like HOME funds, to receive CDBG funds jurisdictions must be the primary municipality in a Metropolitan Statistical Area (MSA), have a population of over 50,000, or qualify as an “urban county.” CDBG funds are somewhat less flexible than HOME in that CDBG funds cannot be used for new affordable housing construction. CDBG can be used however for pre-development, site acquisition, site improvements, property acquisition, property rehabilitation and first-time homebuyer assistance. CDBG funds can also be used for other purposes, such as the construction of public facilities, public services and economic development activities. At least 70 percent of CDBG funds must be used for the benefit of low and moderate-income households.
Tax Increment Financing Set-aside Funding
Tax increment financing utilizes a locally controlled, state enabled financial instrument that freezes taxes and uses future incremental taxes to repay bonds. Legislation describe how bond funds can be used and almost all states allow funds to be spent on affordable housing. In some states it is mandated that a percentage of all TIF funds be “set aside” for low-income housing.
From a developer’s perspective, set-aside funding is highly desirable because often it can be used more quickly than HOME and CDBG funds. Accordingly, targeting set-aside funding to transit zones can be a highly effective incentive for focusing new construction or low-cost housing retention activities in these areas.
California
At least 20 percent of funds collected through Tax Increment Financing (TIF) in California Redevelopment Areas must be “set aside” in a Low and Moderate Income Housing Fund (LMIH) and used for affordable housing. For many cities in appreciating housing markets, this amounts to a very large funding source for affordable housing – even larger for cities like Oakland and San Francisco that have elected to increase the required set-aside to greater than 20 percent. In San Francisco, for example, the set-aside requirement is 50 percent. Cities decide how and where affordable housing set-aside funding will be spent through their Redevelopment Implementation Plans.
Texas
Texas authorizes municipalities to form TIF districts to finance public improvements and stimulate private investment in declining areas or on raw land on the suburban fringes. This power is divorced from traditional redevelopment powers such as eminent domain; TIF boards can choose to partner with redevelopment authorities, but this isn’t required. A law called the Homestead Preservation Act authorizes the city of Austin to create “Homestead Preservation Reinvestment Zones” where all tax increment is dedicated to the preservation of affordable housing. A traditional TIF district and a homestead preservation reinvestment zone can be used in tandem. A TIF district around a station can generate revenue for infrastructure improvements while the homestead preservation district prevents displacement in the surrounding neighborhood. The Homestead Preservation Act authorizes a Homestead Land Trust to acquire and hold land for affordable housing in the reinvestment zone district. The act also authorizes a Homestead Land Bank to expedite the process of clearing title to vacant and abandoned lots with delinquent taxes in order to make these sites available for affordable housing.
Other affordable housing funds
Affordable housing funding can be gathered and allocated in a number of ways. In all cases, funds can be targeted towards projects in transit station areas.
The funding might come from multiple sources:
- In-lieu fees
- Linkage fees
- Condo conversion fees
- Transfer taxes
- Transit occupancy taxes
- Special tax levies
And might be administered by:
- Housing trusts
- Housing department
- Housing authority
- Redevelopment agency
- Special office for affordable housing
If you know of an excellent case study that utilizes this tool, please let us know about it by emailing a description to info@MITOD.org
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