7/14/2016. Needed Housing. Workforce Housing. Planning for Needed Housing June 30, 2016 GOAL 10: HOUSING OAR (10)

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1 Needed Housing Planning for Needed Housing June 30, 2016 Damon Runberg, Oregon Employment Dept. Jim Long, City of Bend Affordable Housing Mgr. Tom Kemper, Housing Works Executive Director GOAL 10: HOUSING OAR (10) Needed Housing Units means housing types determined to meet the need shown for housing within an urban growth boundary at particular price ranges and rent levels. On and after the beginning of the first periodic review of a local government's acknowledged comprehensive plan, "needed housing units" also includes governmentassisted housing. For cities having populations larger than 2,500 people and counties having populations larger than 15,000 people, "needed housing units" also includes (but is not limited to) attached and detached single-family housing, multiple-family housing, and manufactured homes, whether occupied by owners or renters. Aaron Henson, City of Bend Senior Planner (Moderator) Workforce Housing Workforce Housing is a term that is increasingly used by planners, government, and organizations concerned with housing policy or advocacy. It is gaining cachet with realtors, developers and lenders. Workforce Housing can refer to any form of housing, including ownership of single or multi-family homes, as well as occupation of rental units. Workforce Housing is generally understood to mean affordable housing for households with earned income that is insufficient to secure quality housing in reasonable proximity to the workplace. Many housing authorities define Workforce Housing as homes aimed at households earning from 60 to 120% of the area's median income (AMI). In contrast, the term affordable housing is generally used for households whose income is less than 60% of AMI. 1

2 Housing is a means to an end, not the end itself Planning for Needed Housing The role of an expanding economy and growing population Damon Runberg Economist Oregon Employment Department Housing construction based on demand and current supply Current Supply Housing inventory Building permits Current Housing Supply Low, Permits Slowly on the Rise Bend's Housing Trends Inventory Demand Population Demographics Economic Growth Building Permits Growing Population Driving Up Housing Demand Tight Supply and High Demand Driving up Home Prices 180, , , ,740 Today, prices remain 10% below the peak 150, ,000 Prices dropped 47% from 2006 to , , , , ,000 90,000 80,

3 Why the Rapid Population Growth? 1. An expanding economy 18% 90,000 Job Growth Forecast to Continue at a Rapid Pace Central Oregon Employment Projections 16% 16.3% 85, ,310 14% 12% Unemployment Rate 80,000 75,000 10% 70,000 8% 6% 4% 4.4% Jobs 65,000 60, % 87,260 92,354 Forecast to add jobs at a faster pace than any other region of the state (+16%) Projection 2% 55,000 0% Apr 2005 Aug 2005 Dec 2005 Apr 2006 Aug 2006 Dec 2006 Apr 2007 Aug 2007 Dec 2007 Apr 2008 Aug 2008 Dec 2008 Apr 2009 Aug 2009 Dec 2009 Apr 2010 Aug 2010 Dec 2010 Apr 2011 Aug 2011 Dec 2011 Apr 2012 Aug 2012 Dec 2012 Apr 2013 Aug 2013 Dec 2013 Apr 2014 Aug 2014 Dec 2014 Apr 2015 Aug 2015 Dec 2015 Apr , Why the Rapid Population Growth? 2. A retirement destination for boomers 25% 22.3% Growth of the Retirement Age Population Forecast to continue 100,000 20% 19.1% 90, and younger 80, and older 15% Deschutes 70,000 10% Oregon 60,000 50,000 5% 5.2% 4.7% 2.0% 40,000 0% 0.2% 17 and under 18 to and older 30, Quick Recap Want to buy a house in Bend? Housing Supply Low Demand high Population growth spurred by strong economy and retirees Home Prices (and Rents) on the rise So, what? Buy a house? Bend Median Sale Price $ 340,000 20% Down Payment $ 68,000 Loan Amount $ 272, year Fixed Rate loan at 3.875% Principal and Interest (a month) $ 1,279 Taxes estimaed at $3,900 a year $ 325 Homeowners insurance $ 50 Total Monthly Payment $ 1,654 Total Monthly Payment w/ Mortgage 10% down $ 1,803 Bend Resident Average Debt Load Average of 2.2 Credit Cards with a balance of $ 5,249 Average Consumer Debt (cars, school, etc) $ 26,670 Monthly Credit Card Payments $ 77 Monthly Consumer Debt Payments $ 385 Tally it up Assumed debt to income ratio of 42% to qualify for loan Buy a house $ 60,500 Buy a house with Mortgage Insurance $ 68,200 *Special thanks to Carl Salvo with Mid Oregon Lending 2

4 Affordability Can Stymie Job Growth Labor Shortage Exaggerated by lack of Housing Affordability and Availability Who can afford the median house in Bend? Computer Programmers Civil Engineers Accountants Elementary School Teachers Median Family Income (2013) Firefighters Plumbers Social Workers Heavy Truck Drivers Pharmacy Technicians Median Wage of all occupations Office Clerks Construction Laborers Retail Salespersons Buy a House? Tellers Assemblers and Fabricators Recreation Workers $ $10,000 $20,000 $30,000 $40,000 $50,000 $60,000 $70,000 $80,000 $90,000 Annual Income Now hiring $10 per hour Plus $250 hiring bonus! Demand for Labor Labor Force Jobs

5 AFFORDABLE HOUSING BEND, OREGON Bend, Oregon Population ,450 Population ,301 Population ,862 Population ,080 Today ,104 JIM LONG, AFFORDABLE HOUSING MANAGER Housing Stock Single unit detached 78% Single unit attached 3% Multi-Family 18% Bend has a higher percentage of its housing as single family detached than the State or Nation as a whole, 16% higher than the Oregon average. It also is a new City, with the majority of its housing having been constructed since 1980 (close to 70%). Median Home Price $162, $168, $183, $195, $227, $279, $351, $396, $310, $268, $229, $209, $206, $230, $282, $298,000 Today -- $359,000 Median Income $41, $44, $45, $54, $57, $57, $58, $58, $58, $63, $63, $65, $59, $59, $62, $59, $59,700 AFFORDABLE HOUSING INITIATIVES, BEND, OREGON $450, $400, $350, $300, $250, $200, $150, $100, $50, $0.00 Home Price and Income Today Year Median Rent $ $ $ $ $ $1, $1, $1, $1, $1, $1,566 Today -- $1,750 $2, $1, $1, $1, $1, $1, $ $ $ $ $0.00 Median Rent Today Average Rent 1

6 Federal Housing Programs Affordable Housing Fund HOME Entitlement process places significant weight on factors that are out of the control of Bend, most specifically age of housing (they have a category for rental housing constructed prior to 1950 occupied by low income tenants, of which Bend has virtually no units meeting that criteria). CDBG -- This is also true of the allocation process for the Community Development Block Grant Program. CDBG, too, relies heavily upon age of housing and condition of housing, and not population or need of new housing for the low income population. Discovery Park Lodge 53 senior housing units at 60% AMI Adopted by Council in 2006, a fee 1/3 of 1% of the total Building Permit Valuation Fee to address lack of workforce housing, low vacancy rates and increase in home prices Capitalized to date at $5.7 million Have loaned out over $13.5 million since inception 770 units funded 631 multi family units 139 single family homes Per direct testimony from developers, the majority of these units would not have been funded without the City of Bend s housing fund s assistance. This year, another 67 multi-family units and 16 single-family units are coming online, with the 16 single-family units targeted to Putnam Pointe 44 units at or below 60% AMI families at 40% AMI. Bend s Affordable Housing Fund is utilized by both non-profit and for-profit developers. The Parks at East Lake 40 units at 60% AMI Leveraging Impact Southern Pines 10 homeowner units at 100% AMI Federal and State Housing Financing Programs, along with most private financing sources typically have a requirement for match funding. A source of local match, in most funding programs, scores significantly higher than all other funding sources. A local funding source also shows a local commitment to a project. To date, the Affordable Housing Fee has leveraged over $62.6 million in State and Federal funding and over $14.2 million in private equity. Most recent application cycle projects an additional $15,025,996 in State and Federal funding and $18,979,404 in private capital. Cottage Code Development Code now allows for Cottage Housing A Cottage Code will provide a housing type that responds to changing household sizes and ages (e.g., retirees, small families, single-person households); provide opportunities for ownership of small, single family detached units within residential zoning districts; encourage creation of more usable space for residents of the development through flexibility in density and lot standards; and support growth management through efficient use of urban residential land. 2

7 Accessory Dwelling Units New & revised definitions Permit ADUs outright Require FAR of 0.55 for all structures on site Allow units up to 800 sq. ft. if the lot is greater than 6,000 sq. ft. Minor amendments Lot Size 5663 Main Dwelling 2,407 Sq. Ft ADU 484 sq. ft. FAR 0.51 FAR w/o basement 627 sq. ft Garage 604 FAR 0.62 Lot 5,662 sq. ft. Main Dwelling Unit 1,871 sq. ft. ADU 571 sq. ft. FAR 0.43 Density Bonus Development Code now allows for a Density Bonus Provide a Density Bonus for projects that provide affordable housing. Projects that are providing up to 50% of the units as affordable (targeting 80% of Area Median Income for ownership projects, 60% of AMI for rental projects) are allowed to go to 1.5 of the base density for that zone. It has a decreasing scale of 1.4 for 40% affordable, 1.3 for 30%, etc. Housing for Heroes 12 units for formerly homeless veterans SDC Exemptions Systems Development Charges may not be waived for projects. However, several cities in Oregon, including Portland, Salem and Eugene do allow for certain classes of housing to be exempted from having to pay Systems Development Charges. Affordable Housing is one such class. Exemptions are for City of Bend SDC s. Bend recently awarded $595,000 in SDC exemptions for 162 units in five projects. It currently has recommendations coming before council for an additional $405,000 of exemptions that will assist in development of 93 additional units. Affordable Housing is a choice for any community. If we want to have a vibrant community for all of our citizens we need to make that choice. Or we can choose not to, but the discussion needs to be had Water and Sewer being exempted 100% and Streets 75% for qualified projects that receive local, state, or federal funds for affordable housing. These projects would be Rental housing that is affordable for households with an income at or below 60% AMI and Owner-occupied or lease-to-purchase housing for households with an income at or below 80% of the AMI. It is common sense to take a method and try it. If it fails, admit it frankly and try another. But above all, try something. Franklin D. Roosevelt 3

8 WE NEED ALL THIS AFFORDABLE HOUSING WHAT S THE PROBLEM? LET S JUST GET IT BUILT! LET S EXPLORE REAL WORLD SCENARIOS FROM THE DEVELOPER S PERSPECTIVE Need land Need zoning Need utilities to the site The reality: You can only build what you can finance! Need money A LESSON IN REAL ESTATE FINANCE: UNDERWRITING A 100 UNIT MARKET RATE APARTMENT COMMUNITY Determination of Income Income feet/ unit units market rent mo rent rent/year 1 bedroom units , ,000 2 bedroom units ,250 75, ,000 3 bedroom units 1, ,600 32, , ,000 1,512,000 Vacancy 5% (75,600) Effective Gross Income 1,436,400 Expenses 4, ,000 Net Operating Income 961,400 1

9 Loan Parameters Fair Market Value Cap rate 6% 16,023,333 Loan Factors Loan to value 75% 12,017,500 Debt service coverage interest 4.0% amortization 360 Coverage % 125% payment 64,093 DSC loan 13,425,069 Loan to cost limitation 85% 14,240,462 Loan Amount 12,017,500 Cost of Development Land 5 1,500,000 Hard cost 87, ,375,000 Soft costs (architects, engineering, consultants, fees ) 1,000,000 SDCs 1,600,000 Financing costs 12,017, ,000 Developer Fee 5% 15,955, ,785 Total cost 16,753,485 Loan 12,017,500 Funding Gap 4,735,985 The $1 million question: Is there enough cash flow return to justify investing that $4.7M Equity Return Net Operating Income 961,400 Debt service 57, ,481 Cash flow 272,919 Equity 4,735,985 Equity Yield 5.76% Underwriting a 100 Unit Affordable Apartment Community What is affordable? Housing cost is not more than 30% of household income 2

10 More than 50% of households in Deschutes County paying more than 30% of their income for housing costs About 25% of households in Deschutes County paying more than 50% of their income for housing costs Determination of Income Income feet/ unit units rent mo rent rent/year We target households below 60% of Area Median Income ($59,600 in Deschutes County) Household of 4: 60% AMI = $35,760 30% rent = $894 1 bedroom units , ,000 2 bedroom units , ,000 3 bedroom units 1, , , , ,000 Vacancy 5% (45,000) Effective Gross Income 855,000 Expenses 4, ,000 Net Operating Income 380,000 Market NOI 961,400 Loan Parameters Fair Market Value Cap rate 6% 6,333,333 Loan Factors Loan to value 75% 4,750,000 Debt service coverage interest 4.0% amortization 360 Coverage % 125% payment 25,333 DSC loan 5,306,351 Loan to cost limitation 85% 13,981,013 Loan Amount 4,750,000 Cost of Development Land 5 1,500,000 Hard cost 87, ,375,000 Soft costs (architects, engineering, consultants, fees ) 1,000,000 SDCs 1,600,000 Financing costs 4,750, ,000 Developer Fee 5% 15,665, ,250 Total cost 16,448,250 Loan 4,750,000 Funding Gap 11,698,250 3

11 Equity Return Net Operating Income 380,000 Debt service 22, ,127 Cash flow 107,873 Equity 11,698,250 Equity Yield 0.92% MOST OF THE AFFORDABLE HOUSING STOCK BEING BUILT IN THE COUNTRY NOW IS DEVELOPED USING LOW INCOME HOUSING TAX CREDITS TWO TYPES: 9% TAX CREDITS + 4% TAX CREDITS Underwriting a 100 Unit Affordable Apartment Community Using 9% Low Income Housing Tax Credits Using the affordable housing example, Income Expenses Debt Cost of building Will be roughly the same Cost of Development Land 5 1,500,000 Hard cost 87, ,375,000 Soft costs (architects, engineering, consultants, fees ) 1,000,000 SDCs 1,600,000 Financing costs 4,750, ,000 Developer Fee 5% 15,665, ,250 Total cost 16,448,250 Loan 4,750,000 Funding Gap 11,698,250 9% tax credits 13,158,250 11,724,000 4

12 9% credits very competitive (more than $3 asked for every $1 available) Oregon Housing gives 9% credits to about projects every year for the whole state 600+ units last year awarded credits by OHCS Nationally tax credits have financed 2.8 million units since 1986 Since 9% credit so competitive- Sponsors usually set rents way lower to serve very low income households Hence: loan amount will be a lot lower So what do you do if you cannot get a 9% credit allocation? Underwriting a 100 Unit Affordable Apartment Community Using 4% Low Income Housing Tax Credits Using Income, expenses, debt and Same costs to build From the affordable housing model Gap Analysis Cost 16,448,250 4% tax credits 13,158,250 4,590,124 Loan 4,750,000 GAP Remaining 7,108,126 5

13 Remember the developer s golden rule: You can only build what you can finance! Two choices: 1. Lower costs Or 2. Get more money Solving remaining gap SDC abatement 1,600,000 City donates the land 1,500,000 Carry developer fee 783,250 Local government loan 1,500,000 State GHAP grant 1,500,000 Sponsor loan 224,876 7,108,126 SO THAT IS WHY BUILDING AFFORDABLE HOUSING IS REALLY DIFFICULT Questions? 6