National Housing Trust Fund Bill Sets 1.5 Million Unit Goal

The national trust fund bill (H.R. 2895) passed by the House of Representatives sets a goal to create 1.5 million affordable housing units over the next 10 years.

“The growing shortage of affordable housing is one of the most serious social and economic problems facing our country,” says Rep. Barney Frank (D-Mass.). According to him, the trust fund's main purpose is to build, rehabilitate, and preserve affordable rental housing nationwide. But funds will also be available to promote homeownership.

Trust funds would be made available for rental assistance only to households whose incomes are less than 80 percent of the area median gross income (AMGI) of the local geographic area or of the entire state, whichever is higher. Site owners participating in trust fund programs would have to maintain units as affordable housing for at least 50 years.

Under the bill's terms, housing trust funds would be distributed annually along the following guidelines:

• 70 percent of grant funds would be allocated to households with incomes below 30 percent of AMGI;

• 30 percent of grant funds would be allocated to residents with adjusted incomes that are sufficiently low to make the residents eligible for Supplemental Social Security Income (SSI) benefits; and

• Available funding would be capped at 50 percent of units in any given rental project, in an effort to promote mixed-income housing. However, an exception could be made for a site containing fewer than 25 units that are occupied exclusively by elderly or disabled residents.

Other available exceptions would be for assisted sites that are located in rural areas or in communities with low levels of poverty.

Rents to Be Charged

The bill provides that rent is to be set at the Section 8 rent or 30 percent of the adjusted income of a household with income equal to 65 percent of AMGI, whichever is lower. The income amount could be adjusted up or down from the 65 percent level based on construction costs in the area, fair market rents of comparable units in the locality, or aberrantly high or low incomes of participating households.

The bill also requires that for units being subsidized by national housing trust funds, the amount residents must pay would be limited to 30 percent of household income.

Administration and Source of Funds

The bill calls for HUD to administer the housing trust fund. More than half (approximately 60 percent) of the total available funds are to be earmarked for local municipal government, and less than half (approximately 40 percent) to the states.

The primary source of funding for the trust will be the mechanism established in the government sponsored enterprise (GSE) bill (H.R. 1427) that the House passed in April 2007. (For more information on the GSE bill, see “House Passes Bill to Regulate GSEs, Establish Affordable Housing Fund,” in the May/June issue of our sister publication, Assisted Housing Financial Management Insider, p. 1, available in the Real Estate section of our Web site, http://www.vendomegrp.com.)

Recipients Must Compete for Funding

Grant recipients, including nonprofit organizations, for-profit corporations, agencies, and faith-based groups, would have to compete for a share of available funds. And, once funded, the actual construction of housing projects would be based on local needs. HUD would have the discretion to establish criteria by which local needs would be assessed and funds allocated.

Factors on which allocation would be based include the following: the percentage of very low- and extremely low-income households living in the area; housing affordability; local population size; construction and rehabilitation costs; and the general condition of aging and/or substandard housing.

Types of Assistance

On the housing rental assistance level, the bill provides for the following types of financial assistance:

• Capital grants;

• No-interest (or very low-interest) loans or advances;

• Deferred loans;

• Guarantees; and

• Loan loss reserves.

Where state, local, or private resources are used for building affordable rental units, the bill requires matching funds of $1 for every dollar contributed by the fund. Where federal subsidies from a federal home loan bank's affordable housing program are used, the trust requires matching funds of $1 for every dollar contributed by the trust fund. The bill also provides that funds used for providing services to residents of affordable housing sites may count as matching funds.

The bill grants HUD the authority to eliminate matching funds where grantees can demonstrate evidence of financial difficulties. HUD also has discretion to reduce or eliminate the amount of matching funds if an affordable housing project financed by the trust fund obtains a zoning variance.

Performance

If a grantee fails to follow trust fund rules or is unable to make use of the entire amount of funding, the bill contains instructions for reallocating available financial resources. Administrative costs are allowable for state and local grantees, but only up to a maximum of 10 percent of the amount allocated. Grant recipients are prohibited from using national housing trust funds for political activities, lobbying, counseling, travel expenses, tax preparation, or advice.

“Given our severely constrained fiscal realities,” said Rep. Frank at a press conference held after the bill was introduced, “we are today doing the best we can to address [the affordable housing crisis], creating a low-income housing trust fund that will not draw from federal tax revenues.”

Support from Mayors

The bill's introduction in the House was lauded at the U.S. Conference of Mayors’ annual meeting, in July. The conference passed a resolution reaffirming the mayors’ strong support for the trust fund. The mayors also supported a proposal for full funding of public housing authorities (PHA). The funding amounts supported by the mayors were $5 billion for operating subsidies and $3.5 billion for the capital fund.

The conference of mayors also issued a statement deploring that PHAs have been forced to cease essential services and eliminate staff in response to reduced funding for their programs. According to the statement, HUD was seeking to establish a new operating fund rule.

The previous rule was “inflexible,” said the mayors, and resulted in much higher expenditures by PHAs than under the prior rule. The mayors also agreed that implementation of the operating fund rule should be delayed until the new rule could be proven effective.

Insider Source

Congressman Barney Frank (D-Mass.): U.S. House of Representatives, Washington, DC