Affordable Housing Online
Click here to read answers to questions about Section 8 Housing: http://www.affordablehousingonline.com/section8housing.asp

Amy Sample Ward

The following categories of funding exist in Oregon to help support affordable housing development:

From a developer’s standpoint, a grant is the best kind of money to get – free, in return for which the developer must typically promise to restrict the housing for a certain number of years to residents below a certain income level.  Examples of grant subsidies include the following programs:

1)   Grants

Housing Trust Fund.  This subsidy for rental housing provides a maximum grant of $100,000 per project.  This subsidy is administered by Oregon Housing and Community Services (OHCS).  This program provides funding for about a dozen projects a year.

HUD § 811.  This program pays a major part of the construction cost for rental housing that serves disabled people who earn less than 50% of AMI.  This subsidy is administered by the United States Department of Housing and Urban Development (“HUD”) and is generally awarded to 1-2 projects in Oregon per year. 
 
HUD § 202.  This program functions similarly to the HUD 811 program, but it is designed to fund construction of affordable housing for elderly people who earn less than 50% of AMI. 

RD § 516.  This program funds development of housing for farm workers and their families.  It can be used to pay a major portion of project development costs.  This program is administered by the United States Department of Agriculture’s Office of Rural Development (“RD”) and generally funds 1-2 projects in Oregon per year.  This subsidy is often used in conjunction with an RD 514 1% loan, described below, and Rental Assistance for tenants.

HOME.  This subsidy can be used either to fund home ownership (through down payment assistance) or development of rental housing.  The program contains no maximum for assistance, but assistance is typically awarded at a level of $5,000 to $10,000 per unit.  This is a HUD program, administration of which is delegated to cities and counties for large metropolitan areas (PDC administers this program in Portland) and Oregon Housing and Community Services for the rest of the state.  

Affordable Housing Program, Federal Home Loan Bank of Seattle (“FHLB”).  This subsidy can be used either for home ownership (through down payment assistance) or development of rental housing.  It is usually awarded at a maximum of $4,000 per unit.

Community Development Block Grant (“CDBG”).  This program provides a maximum subsidy of $225,000 to pay costs related to infrastructure improvements (streets and utilities) for rental housing projects.  Oregon’s Economic and Community Development Department administers this program. 

HELP.  This program provides a maximum $75,000 in grant funds to pay for development of housing to help the homeless, domestic violence victims, and farm workers.  Oregon Housing and Community Services administers this program.

2)    Low Interest Loans

These loans, usually for 5% interest or less, can come from government or from private lenders.  If repayment is required, these are “hard” loans; if repayment depends on whether cash flow from the project is available, these are “soft” loans and are often referred to as “soft seconds.”  Sometimes no repayment is required at all, if certain conditions are met for a certain period of time (for example, the housing is kept affordable to very low income households for 20 years), in which case the loan is a “forgivable loan.”  Sometimes repayment is required only when the home is resold, in which case the loan is a “deferred payment loan.” 

HOME.  This subsidy, discussed above under the Outright Grants section, is provided by some jurisdictions as a loan.  It can be used either to fund home ownership (through down payment assistance) or to fund development of rental housing.  The program contains no maximum for assistance, but assistance is typically awarded at a level of $5,000 to $10,000 per unit.  This is a HUD program, administration of which is delegated to cities and counties for large metropolitan areas (PDC administers this program in Portland) and Oregon Housing and Community Services for the rest of the state. 

RD § 514. This is a 1% loan that funds development of housing for farm workers and their families.  It can be used to pay a major portion of project development costs.  This program is administered by the United States Department of Agriculture’s Office of Rural Development (“RD”) and generally funds 1-2 projects in Oregon per year.  This subsidy is often used in conjunction with an RD 516 grant, described above, and Rental Assistance for tenants.

RD § 515. This program funds development of rental housing in rural communities.  It is similar to the RD § 514 loan, but is not limited to farm worker housing.  It can be used to pay a major portion of project development costs.  This program is administered by the United States Department of Agriculture’s Office of Rural Development (“RD”) and generally funds 1-2 projects in Oregon per year.  This subsidy is often used in conjunction with Rental Assistance for tenants.

Tax-Exempt Bonds. Tax Exempt Bonds provide low-interest loans for first-time homebuyers and for multi-family rental housing.  The bonds are issued by state and local governments, sold to investors, and the sale proceeds are used to make loans through banks and other private lenders to homeowners and developers.  For multi-family housing, there are a number of different bond programs, some simply for housing targeted to tenants at or below 50% or 60%  of AMI, and some targeted to elderly or disabled residents.

Community Development Block Grant (“CDBG”).  In addition to the grant program described above, CDBG funds are also used to fund low-interest loans to lower-income homeowners for home repairs.  While there is no maximum loan, loans are typically in the $5,000 to $20,000 range.  Cities and counties receive the CDBG funds, pass them through to CDCs, which establish revolving loan funds from which loans to homeowners are made.  Oregon’s Economic and Community Development Department administers this program. 
 
Oregon Rural Rehabilitation (ORR) Loans.  These are 1% loans made for farm worker housing projects.  OHCS administers this program.

Loans from Private Entities.  In the last several years, several new loan products have become available from private lenders.  These products, briefly introduced here, are discussed further in Part IV.F, Trends.

EQ2 Loans.  Private banks have recently started issuing some Equity Equivalent Investment (“EQ2”) Loans to fulfill their obligations under the federal  Community Reinvestment Act.  These loans can have extremely favorable terms. 

CASE STUDY:  One Portland CDC recently obtained a 10-year $250,000 loan from Wells Fargo Bank at 2% with quarterly interest-only payments, to be used for acquisition, predevelopment and/or construction of affordable housing.

CDFI Loans.  The U.S. Treasury Department provides grants and loans to nonprofit organizations certified as “Community Development Financial Institutions” (“CDFIs”).   The CDFI can then loan these funds, at below market rates, to support development of affordable housing projects.  This is a potential use for PRI Fund money.  Because the Treasury Department provides its grants and loans as match for local dollars raised by the local CDFIs, PRI funds could leverage significant federal dollars.  Local CDFIs include the Network for Oregon Affordable Housing (“NOAH”), CASA of Oregon, Portland Housing Center and Albina Community Bank.  Several CDCs are in the process of becoming CDFIs.  CDFIs are discussed in Section IV.F. below, on page 29.

3)    Tax Credit Equity

Tax credit equity is a lot like a grant, but rather than provide a direct grant, the government provides tax credits to the project developer.  The developer in turn sells the credits to corporations and other private investors.  The sale proceeds are then used to help pay the development costs for rental projects.

Federal Low Income Housing Tax Credits (“LIHTC” or “Section 42”).  This program is now the federal government’s primary funding source for financing low-income rental housing.  Federal tax credits are allocated to developers, who sell them to corporations and use the proceeds to construct or rehabilitate rental housing.  Tenants must be below 60% of AMI; projects often target tenants below 50% of AMI.  OHCS allocates the credits, and both OHCS and the IRS make sure that the credits are used in accordance with the law.  This program funds about 15 projects each year. 

Oregon Farm worker Tax Credits.  This state tax credit program works similarly to the federal tax credit program.  However, it is limited to farm worker housing.  OHCS allocates the credits to developers, who sell them, typically to banks, and use the proceeds for construction or rehabilitation for housing for farm workers and their families.  This program funds about five projects each year. 

4)    Interest Rate Subsidies
 
Oregon Affordable Housing Tax Credits (OAHTC).  This is a tax credit to banks that reduces the interest rate on their conventional loans by 4%.  Thus, for example, a loan that would be made at 7% instead will have only a 3% interest rate.  The borrower must in turn promise to reduce rents by the amount of the interest payment reduction.  This program is administered by OHCS.

5)    Predevelopment Loans

Predevelopment loans are low-interest loans that are used to pay for land, architect fees, and other costs that must be paid before construction financing or permanent financing is in place.  These loans are made by OHCS, by CDFIs and by national nonprofit groups such as Enterprise Foundation.  This is a potential use for PRI fund money.

Ann Lininger