Outline of Ideas for For Increasing Production of
Affordable Home Ownership Units
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- Land banking - local governments should engage in efforts to acquire land that can be used for new affordable housing. The acquisitions can be done either directly or through an intermediary.
- Assist developers to acquire vacant lots. There are *thousands* of privately owned vacant lots in Miami-Dade's distressed neighborhoods. Local governments should collaborate with experienced infill developers and private lenders in an aggressive strategy of acquisition followed quickly by new construction
- Fact: A capable developer experienced with working in low income neighborhoods has no trouble obtaining construction loans PROVIDED THAT the following two items are available:
- readily available and reasonably priced building lots
- subsidized purchase loans for the homebuyers
- Even in distressed neighborhoods land is becoming increasingly expensive.
- Government sponsored 2nd mortgage loan programs (such as Surtax and SHIP) place a cap on the size of the purchase prices that can qualify. For this reason higher land cost can't always be absorbed into the development cost of a house and then passed on to the customer in the form a higher sales price.
- In other words, overly high land prices may make an otherwise desirable acquisition economically unfeasible
- Solution - Surtax line of credit to pay for part of land acquisition cost.
- Miami-Dade County should provide pre-qualified infill developers with a line of credit of Surtax funds. The financing would be used to pay for a portion of the acquisition costs of vacant building lots in distressed neighborhoods.
- Private Sector Match: the Surtax funds for particular acquisitions would be matched with bank financing procured by the developer. Other potential sources of private sector financing might include: a Section 108 loan to an intermediary; a FannieMae loan to an intermediary; a "program related investment" from a foundation; or, an equity pool (built on a possible use of the New Market's Tax Credit program).
- The amount of Surtax funds made available would be limited to only what was needed to achieve the economically feasibility of the acquisition in question.
- The Surtax loans would be forgiven upon sale of the completed house to the low income family (provided, of course, that all County affordability and other criteria had been satisfied).
- The Key; The line of credit would have to be readily accessible once a purchase contract for a parcel had been executed (most contracts require closing within 30 days)
- Pre-Designed and Pre-Permitted Plans: It may seem ridiculous, but it can take up to 9 months to get a building permit for a simple single family home. Developers of affordable units (where profit margins are extremely low) are frustrated and discouraged by the expensive and time consuming process.
- Why not create a collection of 10 or 12 of pre-approved and pre-permitted building plans that developers of affordable housing could "take off the shelf" at no charge.
- There is an existing mechanism for doing this! The Florida Department of Community Affairs administers a plan review and approval process called the "FLORIDA PROTOTYPE BUILDING PROGRAM". Housing designs that are to be constructed over and over again can be submitted to the program. Such plans need only to undergo review and approval one time at the State level. Once an approval number has been issued the design can be used anywhere in the State over and over again. Local building departments are required to grant quick approval.
So what's the bottleneck? Local government must show some some leadership in implementing such an effort. They need to spearhead a collaboration that can provide leadership in creating the plans and having them approved. The effort could start off with a modest three or four initial designs and then eventually expand to ten or twelve.
- End Double Underwriting of Home purchase loans made by local governments - Several South Florida jurisdictions make affordable second mortgage home purchase loans to low income buyers. An example is the "Surtax" program of Miami-Dade County. Under the present system closings on home purchases are often delayed for weeks or months while local government does a full underwriting of the loans even though the private sector lender has already done the same thing. There should be a single unified underwriting. Local government could establish its underwriting criteria which it would require the participating bank to to adhere to. Under such an arrangement the government lender would limit itself to certificaty the income of borrowers. . The participating lenders would originate, process, and underwrite the loans based upon the agreed upon criteria. When the bank had finished its underwriting local government would review the borrowers income, family size, amount of the loan, and interest rate. If the file had been underwritten correctly a request would sent expeditiously to the local government's finance department for funding. This procedure what is currently being used by the Miami-Dade Housing Finance Authority and Broward Housing Finance Authority
- Improve City of Miami "Homeownership Zone" program. The City should more aggressively implement all of the seven Homeownership Zones promised in their 2004 five year Consolidated Plan that was approved by HUD. None have been created (!). There should be better coordination with the Miami Dade County Housing Agency's Infill Housing Initiative. The new zones should have governance or advisory boards composed of lenders, developers (both nonprofit and for profit), and residents.
- Ease Access to Predevelopment Financing. Developers of single family affordable infill housing need easier access to financing for predevelopment and construction costs. Small-scale developers, without the deep pockets, need predevelopment financial assistance to cover the extraordinary costs associated with building scattered site houses distressed neighborhoods.
- Comprehensive Inventory of Available Land: Create a comprehensive inventory of the ALL vacant lots in distressed neighborhoods. The inventory of properties should posted to a website in a user friendly format that allows potential developers to easily browse through the available properties. The inventory should have "clickable" aerial photos to zoom in on particular neighborhoods. The ideal system would have in one location information on ownership, code enforcement liens, back taxes, zoning, infrastructure, etc.
- Pay Government Fees After Completion of Construction: Allow governmental permit, impact and utility connection fees to be paid at the time an affordable house is sold rather collecting them "up front". Such fees are a burden to small builders because they are not financiable. Some local governments, in theory, provide such relief put the procedures are often poorly implemented and of little use to developers.
- Promote a New Model for Joint Venture Development of Single Family Home Ownership Units. The old model was for local governments to encourage inexperienced small nonprofits to single handedly take on an entire project. Typically the nonprofits were not given enough money to retain effective project and construction management expertise. Good general contractors are reluctant to work on small projects in distressed neighborhoods. A newer model is emerging. There are a handful of specialized developers (both nonprofit and for profit) that excel at doing construction and project management in distressed neighborhoods. There is a useful role for the a nonprofit in joint ventures with these types of companies. The developer partner brings its own construction financing and offers a "turnkey" solution with no money being disbursed until the houses are constructed and sold. The nonprofit focuses is thus freed up to focus on things such as land acquisition, sales, customer relations, homebuyer eduction, the acquisition of subsidy, and community organizing.
- Use Sales Tax Exemption to Lower Cost: Nonprofit developers can qualify for state sales tax exemption. Normally general contractors (and subcontractors) pay sales tax when they purchase building materials. A contractor, however, can purchase materials in the name of the nonprofit. The contractor's draw request reflects the full price. The draw request is submitted to the lender. The nonprofit then pays the invoice out of its working capital and reimburses itself out of the lender's draw. The general contractor submits a "change order" that lowers the project's price reflecting the amount of the savings.
- Sell SHIP/Surtax Loans on a Secondary Market - During 2004 Miami-Dade County, for the first time, sold a small percentage of its huge inventory of closed Surtax/SHIP loans on the secondary market to an affiliate of the Neighborhood Reinvestment Corporation. Doing this generated over $2 million that can be used for making additional loans. Why not sell ALL closed Surtax/Ship loans on the secondary market (the way banks sell their all their loans to Fannie Mae and Freddie Mac)?
- Speed up the Permitting Process. The approval process needs to be streamlined and accelerated for scattered site, single family infill development. Suggestions include: "One-Stop Shopping" (all services surrounding the permitting process should be obtained from one designated department); set mandatory deadlines for smaller projects, assignment of facilitators, fast tracking smaller infill projects; pre-application meetings; adhere to minimum standards (reviewers should not be able to required small infill developers to build above and beyond the stated minimum code standards); self help inspections (allow inspections by certified architects rather than county staff). Click here for an excerpt from a university study recommending specific Miami-Dade permitting reforms
- Expand (and Improve) Miami-Dade Infill Housing Initiative. The primary activity of the County's current program consists of distributing lots to developers that the County had obtained through tax foreclosure. Surtax loans are made available to homebuyers. The program should be expanded to (somehow) acquire title to large numbers of non-county owned vacant lots in distressed neighborhoods. Creative new ways should be found for the County to acquire ownership of vacant lots beyond the current reliance on tax foreclosures (the number of which are rapidly declining as land prices rise). Click here to see report card
- Infill Housing Initiatives for Broward & Palm Beach Counties. Local governments in Palm Beach and Broward should institute new initiatives to encourage the development of housing on vacant lots in distressed neighborhoods.
- Lien Clearance Assistance - Vacant lots in distressed neighborhoods are often infested with code violation liens and penalties having huge payoff amounts that adversely affect the economic feasibility of acquisition and redevelopment. Local government should have programs to assist developers with clearance of pre-existing liens when such parcels are acquired on the private market or at tax deed sales.
- Better Align Subsidy Programs: Public homeownership subsidy programs (such as HOME, Surtax, and SHIP) often have different maximum allowable purchase price limits making it difficult to mix the programs together.
- Better Use of Section 8 for New Rental Construction: The federal Section 8 vouchers (funneled through local governments) can be used as a tool to help finance new rental construction. The idea is for local government to convert blocks its current "portable" Section 8 vouchers and make them "project based" for use in with specific new apartment complexes. Doing this would make it easier for selected projects to obtain favorable financing.
Affordable Housing from Existing Condo Units. Local government should
- implement partnerships with nonprofits to allow low income families to become owners of existing condominium units by providing them subsidized purchase loans and other assistance (Miami Beach CDC currently operates such a program).
- Encourage Rehab of Older Apartment Complexes: The idea is to bring existing substandard rental units up to market standards while maintaining affordability. Miami Beach CDC and others have successfully pursued such strategies using innovative packages of financing for the acquisition and rehabilitation of aging apartment complexes.
- Allow "Granny Flats": Adjust zoning codes to allow construction of more "accessory dwelling units" (ADUs), also known as granny flats, garage apartments, carriage houses, or ancillary units. For some home owners, the most attractive aspect of ADUs is the potential for extra income from renting out the units. ADUs offer density without making the street appear overbuilt.
- Section 8 Home Ownership. HUD regulations now allow local governments to let people use Section 8 vouchers to pay mortgage payments in addition to rent.
- Home Ownership Training & Pre-Closing Processing: Existing programs should be strengthened and new programs should be implemented. The objective is to ease the burden and expense to the developer and hold down potential for homebuyer failure. Homeownership training for first-time buyers reduces the potential for future foreclosure. In addition, low income purchasers often have spotty credit histories and need a lot of hands on assistance in qualifying for financing and preparing for closing.
- Transit Oriented Development: Developing housing near transit stops reduces the need to own cars and thus increases the amount of income available for housing. It also opens access to employment opportunities in distant locations. Local government, working with local coalitions, should encourage public/private partnerships to develop mixed use projects near significant transit stops. Placing housing within walking distance of transit stops increases the marketability of housing developments.
- Location Efficient Mortgages: Create mortgage products that recognizes the savings available to people who live in location efficient communities that are rich in public transit access. It is possible for residents of such communities to survive without an automobile. Using such a mortgage product lenders can count the available savings as additional income for people buying homes in location efficient communities so that people who might not otherwise qualify for a mortgage can become homeowners and qualified homebuyers can secure larger mortgages than would otherwise be available. This lending product complements transit oriented development.
- Density Bonuses: reward builders who agree to build a certain number of affordable units or contribute money to a housing trust fund by authorizing them to construct more units than otherwise would be allowed.
- Replacement Housing Ordinance: under such ordinances developers who demolish or convert affordable units would be required to restore the lost housing with replacement units.
- Severable Use Rights: Under such schemes development rights (such as density allowances) can transferred to locations where they could be better utilized.
- Housing Linkages: local government could condition approval of commercial or office building projects with a requirement that affordable housing units be provided.
- Employer Sponsored Homeownership Programs: Encourage large businesses to include homeownership assistance in the benefits package offered to employees at the workplace. Such a program could include a partnership with the local public/private affordable housing developer network with the employer either helping individual employees with down payment assistance or paying into a fund for such assistance.
- Waive all Impact Fees: To spur development in distressed neighborhoods, all impact fees should be waived. In Miami Dade County the impact fees for roads, police and parks are already waived but NOT for education.
- Water and Sewer Infrastructure: Inadequate water and sewer lines in distressed neighborhoods should be an obligation of local government to fix rather than placing the burden on the developer of affordable single family homes.
- Tax Base Sharing: Create a mechanism through which fiscal benefits of growth within a metropolitan area can be shared by all residents regardless of where the actual development occurs.
- Adopt a Holistic Approach to Neighborhood Development: Putting a few houses into distressed neighborhoods, by itself, will not necessarily reverse the downward spiral of social and economic conditions. Housing should be done as part of a holistic process that visualizes a neighborhood's future and includes attention to commercial revitalization, job creation, schools, public safety, transportation, etc. The visioning and implementation should be done in close partnership with residents, nonprofits, and the private sector.
- Ease Burden on Small Condo Associations in Affordable Developments: More and more new subsidized homeownership developments are being done as condominiums. There needs to be a better mechanisms for helping small condo associations to collect the required maintenance fee from the members. High delinquency rates can threaten the continuing viability of the association. Local government lending programs (such as SHIP and Surtax) should be open to working with nonprofit developers and participating first mortgage lenders to set up mechanisms where the owner's condo maintenance fee payment can be made a part of the month mortgage payment similar to the way taxes and insurance payments are escrowed.
- Land Assembly - Lien Foreclosure: Many local governments have a huge inventory of unpaid lot clearance citations affecting vacant parcels in distressed neighborhoods. These governments should formally record the citations in the Public Record so as convert them into liens under the provisions of a state statute. This should be followed by an aggressively policy of judicial foreclosure. At present most of these so called "liens" are never recorded in the Public Record. An aggressive program of judicial foreclosures would provide an incentive for the owners to sell some of these long vacant parcels to people who would actually use them for a productive purpose. Many of the parcels, especially those in the most distressed neighborhoods, would end up being owned by local government and thus become available for redevelopment.
- Increase Homestead Exemption on Property Tax - It was set years ago when $25,000 made a huge difference. It should be changed to increase it to around $100,000.
- Inclusionary Zoning: As a condition for approval, require residential developments above a certain size to include a specified number affordable units.
- Property Insurance Relief. The huge recent increases in property insurance (especially windstorm coverage) has made the creation of affordable home ownership much more difficult to achieve