A1 Affordable Housing Finance Working Group Report (PDF)

Jackie Biskupski MIKE REBERG Mayor Community and Economic Development

SALT LAKE CITY CORPORATION Community and Economic Development

City Council Transmittal

Date Received:8/12/2016 Date Sent to Council:8/15/2016

TO: City Council James Rogers - Chair

FROM:

SUBJECT: Housing & Neighborhood Development Presentation of Potential Affordable Housing Solutions

STAFF CONTACT: Michael Akerlow, HAND Director [email protected]

COUNCIL SPONSOR: Council Member, District 5 - Erin Mendenhall

DOCUMENT TYPE: Information Item

RECOMMENDATION: Council and the Administration pursue key strategies & solutions that will result in the funding, policy, and incentives necessary to create sustainable affordable housing throughout Salt Lake City

BUDGET IMPACT: None

Summary:

to address this gap. HAND staff has presented these initial findings to Mayor Biskupski and will continue to provide specifics around budget and process required for each recommended solution.

Background/Discussion:

HAND has become increasingly aware of the need for affordable housing and, as such, has launched several efforts to create more access to affordability in the city. Through the analysis of data and community input the lack of funding has been identified as the main barrier in creating and sustaining affordable units in Salt Lake City. Specifically this refers to the subsidy needed in order to have rents lowered to serve people below 80% area median income (AMI) with a special emphasis on 40% AMI. In an effort to find solutions to the lack of funding HAND has been working closely with affordable housing experts to understand the more intricate nuances of funding affordable housing and any associated policy implications. Currently, the only city administered incentives are the waivers of impact fees, building permit fees, and the Housing Trust Fund.

HAND brought together two working groups: the first a Finance Working Group and the second a Housing Strategy Working Group. Both groups explored how Salt Lake City could be a catalyst for creating short term and long-term solutions, and are helping contextualize important issues that the 2017 – 2021 Housing Plan will address. The Housing Strategy Group is still in process and HAND expects to produce a brief this fall on its progress. This brief highlights preliminary findings from the Finance Working Group and funding solutions for this complex issue.

Affordable Housing Finance Working Group In order to respond to the challenge of building and financing affordable housing and advancing the 2017 – 2021 Housing Plan, the HAND Division has been working on identifying innovative strategies from other cities to inform our local discussion. In order to ensure that such strategies and research are relevant, financially sound, and socially responsible HAND launched an Affordable Housing Finance Working Group. This group consists of experts in our community, not only in housing issues, but development. They were carefully selected for their commitment and their ability to produce sound financial models that can sustain affordable housing. Further, two members sit on the Housing Trust Fund Advisory Board which currently is the most utilized tool in the city to build affordable housing. This group met for a very concentrated period of time (just over 2 months) to explore the options that might work best for the City, Residents, and Developers as we commit to long-term strategies for Salt Lake City residents. The group had 2 major goals: 1. Explore alternative funding mechanisms for affordable housing 2. Offer recommendations to the Housing Trust Fund that ensure it is functioning at its best use for our community The group consisted of the following members: Finance Working Group Claudia O’Grady – Utah Housing Corporation Jeff Nielson - Wasatch Group Ryan Hackett – Western Region Nonprofit Housing Marion Willey – Utah Nonprofit Housing Irena Edwards - Housing Trust Fund Joni Clark – SL Community Action Program Steve Akerlow - Morgan Stanley Michael Lohr - Goldman Sachs Ali Oliver - Housing Trust Fund Chris Parker - Giv Group

feasible and at what percent of AMI. A secondary take away is the need for solutions and systems to work together. One recommendation will not solve the housing crisis but will require the combination of several tactics. This includes leveraging existing resources like vouchers and working closely with Utah Housing Corporation through their tax credit allocation plan process. These main factors were weighed deeply during this process and while the recommendations are flexible, finding a solution that overcomes land cost and financing gap is key to any successful model. In conclusion, determining a funding source with a sound strategy that is reliable and well managed is key to the preservation, assistance, and creation of affordable housing. Below is a highlight a few of the top recommendations of the working group. While not comprehensive this provides highlights of the variety of tools explored including policy, incentive, and funding tools.

Working Group Recommendations

Inclusionary Zoning This policy tool has been used in hundreds of cities throughout the Po US with mixed levels of success. Provides a regulated mechanism lic ensuring affordable housing be considered in every development. y Missing Middle Housing Through zoning changes, missing middle housing could create a wider range of housing types and could contribute to a more equitable distribution of affordable housing stock. Community Land Trust Tool used to acquire and retain land for the primary purpose of and/or Land Banking affordable housing. This is a key component for long-term preservation and directly counteracts the rising price of land. Tax Abatement While considered a very effective incentive, the abatement process would need to be approved by the State of Utah. This tool provides Inc significant room for developers to increase their ability to take on ent more debt and further subsidize units. ive Increased City Access This would be an expedited process and comprehensive fee waiver s system. In addition a housing ombudsman was a top priority in developing affordable housing. Equity Investing This method of investment has the potential for higher returns but also carries significant risk. Since this is not widely used it is difficult Inc to know the accuracy with which this could be used to produce ent additional affordability. ive City Issued Bond or Levy A bond or levy has the ability to provide funding that could be s committed to a variety of housing needs. This has the potential to meet the needs of those experiencing homelessness to those looking to buy their first home. The limitations of a bond are directly related to restricted use and purpose that are inherent in the structure. A levy, on the other hand, is a consistent source of revenue and could be used in a variety of ways from prevention to preservation. Real Estate Document Fees Document fees are common across the country and are considered to have a direct correlation to the housing market. A nominal fee could be used to increase the dollar amount in the Housing Trust Fund but would not be large enough to begin to close the housing gap the City is currently experiencing. Linkage and/or Impact Currently the state statute prohibits the use of impact and/or linkage Fees fees outside of listed activities within the statute. This mechanism is used across the country and could be considered as a long term and comprehensive strategy for the State. This fee structure is based on a measurable link between development and housing.

Peer-to-Peer Rental Fees This revenue source would continue to grow over time as the market progresses. Currently, there isn’t a framework in which to regulate this process in Utah. Salt Lake City could consider both an occupancy fee and/or a permit fee for residents who operate a peer- to-peer rental.

The tools outlined above vary in implementation, compliance and cost. So while all should be considered in relation to those factors it is also important to weigh impact. Below is a preliminary assessment on potential impact of those tools with numerical foundations that could be quantified. The impact analysis below is a highlight of potential impact based on the estimated cost of predicted revenue and the gap financing needed per unit. Such scenarios vary widely and can continue to be narrowed and solidified as HAND’s housing strategy is defined.

Impact Analysis

Tools Potential Impact Funding Inclusionary Zoning If the City had imposed an affordable housing “in lieu” fee requirement since the inception of the TSA between $50,000 – zone roughly 1,658 units would have been 100,000/unit produced Community Land Trust Lasting impact through affordable preservation No direct funding in perpetuity Tax Abatement Reduce subsidy needed to $10,236/unit while No direct funding increasing availability of debt Increased City Access No direct funding 1 unit per $15,000 in waivers Equity Investing Impact would vary depending on market 10% Rate of return variables. Bond Roughly $2,000 one time unleveraged units $20,000,000 would be produced Levy Over $8,000 units would be produced in $80,000,000 addition to funding all administrative costs Real Estate Document $50/per document based on the recording of $1,500,000 Recording Fees roughly 32,000 documents annually Linkage/Impact Fees $100,000 - $2.75 per square foot would produce $2.3MM $4,000,000 in linkage fees for the convention center hotel Peer-to-Peer Rental Fees Ability to produce roughly 22 units via a loan $450,000 through the Housing Trust Fund

HAND Analysis

A long term strategy can only be achieved after alignment with City initiatives, consultations with subject matter experts, and a full evaluation of the City’s options. While each recommendation has merits and deficiencies the Administration believes that a multifaceted approach combining a few key tools will provide the greatest good now, and, for the future of Salt Lake City. The preliminary work that was achieved with local experts resulted in a recommendation to identify a sustainable funding source in order to truly impact the affordable housing shortage. However, this recommendation should be used as a framework for the Administration and the Council to have an in depth and relevant policy discussion based on data, expert input, community feedback and overall sustainability. The working group and HAND agree that each solution needs to be explored fully with technical experts to understand the potential impact and cost. Further, it should be noted that each recommendation varies in time and

resources; some solutions can be acted on immediately while others merit a period of research and evaluation.

In closing it is important to note that affordable housing is a key component of a healthy and sustainable community. Providing an environment for such structures to thrive is a complex and ongoing process. The solutions presented in this brief will enable the Mayor and the Council to respond to the unique needs of their communities and ultimately provide households a stable and safe place to call home.

ATTACHMENTS:  a1 Affordable Housing Finance Working Group Report (PDF)

CITY COUNCIL TRANSMITTAL

______Date Received: ______Patrick Leary, Chief of Staff Date sent to Council: ______

TO: Salt Lake City Council DATE: July 22, 2016 James Rogers, Chair

FROM: Mike Reberg, CED Director ______

SUBJECT: Housing & Neighborhood Development Presentation of Potential Affordable Housing Solutions

STAFF CONTACT: Michael Akerlow, Housing & Neighborhood Development Director 801-535-7966, [email protected] Melissa Jensen, Deputy Director 801-535-6035, [email protected]

COUNCIL SPONSOR: Erin Mendenhall, District 5

DOCUMENT TYPE: Briefing

BUDGET IMPACT: None

Summary:

This transmittal summarizes the attached brief “Affordable Housing Finance Working Group: Report & Recommendations”. This brief is a product of a 2 month process with a small working group of experts tasked with exploring the current financial gap in affordable housing development and possible solutions to address this gap. HAND staff has presented these initial findings to Mayor Biskupski and will continue to provide specifics around budget and process required for each recommended solution.

Background/Discussion:

HAND has becoming increasingly aware of the need for affordable housing and, as such, has launched several efforts to create more access to affordability in the city. Through the analysis of data and community input the lack of funding has been identified as the main barrier in creating and sustaining affordable units in Salt Lake City. Specifically this refers to the subsidy needed in order to have rents lowered to serve people below 80% area median income (AMI) with a special emphasis on 40% AMI. In an effort to find solutions to the lack of funding HAND has been working closely with affordable housing experts to understand the more intricate nuances of funding affordable housing and any associated policy implications. Currently, the only city administered incentives are the waivers of impact fees and building permit fees for nonprofit entities.

Affordable Housing Finance Working Group In order to respond to the challenge of building and financing affordable housing and advancing the 2017 – 2021 Housing Plan, the HAND division has been working on identifying innovative strategies from other cities to inform our local discussion. In order to ensure that such strategies and research are relevant, financially sound, and socially responsible HAND launched an Affordable Housing Finance Working Group. This group consists of experts in our community, not only in housing issues, but development. They were carefully selected for their commitment and their ability to produce sound financial models that can sustain affordable housing. Further, 2 members sit on the Housing Trust Fund Advisory Board which currently is the most utilized tool in the city to build affordable housing. This group met for a very concentrated period of time (just over 2 months) to explore the options that might work best for the City, Residents, and Developers as we commit to long-term strategies for Salt Lake City residents. The group had 2 major goals: 1. Explore alternative funding mechanisms for affordable housing (outside of 9% credits & vouchers) 2. Offer recommendations to the Housing Trust Fund that ensure it is functioning at its best use for our community The group consisted of the following members: Finance Working Group Claudia O’Grady – Utah Housing Corporation Jeff Nielson - Wasatch Group Ryan Hackett – Western Region Nonprofit Housing Marion Willey – Utah Nonprofit Housing Irena Edwards - Housing Trust Fund Joni Clark – SL Community Action Program Steve Akerlow - Morgan Stanley Michael Lohr - Goldman Sachs Ali Oliver - Housing Trust Fund Chris Parker - Giv Group

Summary of Findings The attached brief describes the key findings and recommendations from the working group and the recommendations of HAND. A main take away from the group is that land cost continues to be the most influential factor in how and where affordable housing is built. While not traditionally used as a subsidy, land cost has the largest effect on the ability of the developer to determine how many affordable units are feasible and at what percent of AMI. A secondary take away is the need for solutions and systems to work together. One recommendation will not solve the housing crisis but will require the combination of several tactics. This includes leveraging existing resources like vouchers and working closely with Utah Housing Corporation through their tax credit allocation plan process. These main factors were weighed deeply during this process and while the recommendations are flexible, finding a solution that overcomes land cost and financing gap is key to any successful model. In conclusion, determining a funding source with a sound strategy that is reliable and well managed is key to the preservation, assistance, and creation of affordable housing.

Contents of the Report  Introduction & Background  Glossary of Affordable Housing Terms  Findings  Recommendations o Policy o Incentives o Funding Resources  Staff Recommendations  Addendums

Working Group Recommendations Inclusionary Zoning: This policy tool has been used in hundreds of cities throughout the US with mixed levels of success. This policy initiative provides a regulated mechanism which ensures affordable housing be considered in every development. Missing Middle Housing: Through significant zoning changes citywide, missing middle housing would create a wider range of housing types throughout the city and would significantly contribute to a more equitable distribution of affordable housing stock. Community Land Trust and/or Land Banking: These mechanisms acquire and retain land for the primary purpose of affordable housing. This is a key component for long-term preservation and directly counteracts the rising price of land. These have been shown to be extremely effective models that stabilize communities and help retain market strength. The impact of this strategy is incremental and develops over a long period of time. Tax Abatement: While considered a very effective incentive, the abatement process would need to be approved by the State of Utah. This tool provides significant room for developers to increase their ability to take on more debt and further subsidize units. Increased City Access: The group spent a great deal of time evaluating what efforts internally could incentivize more units. A comprehensive fee waiver and a housing ombudsman were a top priority in developing affordable housing. Equity Investing: This method of investment has the potential for higher returns but also carries significant risk. Since this is not widely used it is difficult to know the accuracy with which this could be used to produce additional affordability. City Issued Bond or Levy: A bond or levy has the ability to provide fundig that could be committed to a variety of housing needs. This has the potential to meet the needs of those experiencing homelessness to those looking to buy their first home. The limitations of a bond are directly related to restricted use and purpose that are inherent in the structure. This leaves little room for revolving loan funds or mortgages and requires debt service. A levy, on the other hand, is a consistent source of revenue and could be used in a variety of ways from prevention to preservation. Further, it has the flexibility to be leveraged over time. Real Estate Document Fees: Document fees are common across the country and are considered to have a direct correlation to the housing market. A nominal fee could be used to increase the dollar amount in the Housing Trust Fund but would not be large enough to begin to close the housing gap the City is currently experiencing. Linkage and/or Impact Fees: Currently the state statute prohibits the use of impact and/or linkage fees outside of listed activities within the statute. This mechanism is used across the country and could be considered as a long term and comprehensive strategy for the State. This fee structure proves to be valuable as there is a measurable link between development and housing. Peer-to-Peer Rental Fees: This revenue source would continue to grow over time as the market progresses. Currently, there isn’t a framework in which to regulate this process in

Utah. Salt Lake City could consider both an occupancy fee and/or a permit fee for residents who operate a peer-to-peer rental.

Impact Analysis

Tools Potential Impact Funding Inclusionary Zoning If the City had imposed an affordable housing “in lieu”fee requirement since the inception of the TSA between $50,000 – zone roughly 1,658 units would have been 100,000/unit produced Community Land Trust Lasting impact through affordable preservation No direct funding in perpetuity Tax Abatement Reduce subsidy needed to $10,236/unit while No direct funding increasing availability of debt Increased City Access No direct funding 1 unit per $15,000 in waivers Equity Investing Impact would vary depending on market 10% Rate of return variables. Bond Roughly $2,000 one time unleveraged units $20,000,000 would be produced Levy Over $8,000 units would be produced in $80,000,000 addition to funding all administrative costs Real Estate Document $50/per document based on the recording of $1,500,000 Recording Fees roughly 32,000 documents annually Linkage/Impact Fees $100,000 - $2.75 per square foot would produce $2.3MM $4,000,000 in linkage fees for the convention center hotel Peer-to-Peer Rental Fees Ability to produce roughly 22 units via a loan $450,000 through the Housing Trust Fund

HAND Analysis

A long term strategy can only be achieved after alignment with City initiatives, consultations with subject matter experts, and a full evaluation of the City’s options. While each recommendation has merits and deficiencies the Administration believes that a multifaceted approach combining a few key tools will provide the greatest good now, and, for the future of Salt Lake City. The preliminary work that was achieved with local experts resulted in a recommendation to identify a sustainable funding source in order to truly impact the affordable housing shortage. However, this recommendation should be used as a framework for the Administration and the Council to have an in depth and relevant policy discussion based on data, expert input, community feedback and overall sustainability. For illustrative purposes HAND has outlined a possible strategy that would can help guide the future discussion and debate around how affordable housing should be built.

7,500 Affordable Units

Internal Policy Funding Source Increased City Access Changes

Internal Housing New Inclusionary Missing Middle Preservation Homeownership incentives / Stability Development Zoning Housing waivers

Community Innovation / Prevention / Emergency Land Trust / multifamily / vouchers / home repair / Enforcement removing slums & blight capital operation program funds home mortgages improvements subsidies

Compliance and Management

The working group and HAND agree that each solution needs to be explored fully with technical experts to understand the potential impact and cost. Further, it should be noted that each recommendation varies in time and resources; some solutions can be acted on immediately while others merit a period of research and evaluation. HAND will continue to vet these solutions while working with the Strategic Housing Group on their overlay of guiding issues and policy implications which have been identified as 1) Equitable distribution of housing 2) The cultivation of more diverse funding sources and 3) A lack of affordable housing stock. In closing it is important to note that affordable housing is a key component of a healthy and sustainable community. Providing an environment for such structures to thrive is a complex and ongoing process. The solutions presented in this brief will enable the Mayor and the Council to respond to the unique needs of their communities and ultimately provide households a stable and safe place to call home.

TABLE OF CONTENTS

Attachment A: Affordable Housing Finance Working Group 2016 – Report and Recommendations

draft

SALT LAKE CITY HOUSING AND NEIGHBORHOOD DEVELOPMENT

AFFORDABLE HOUSING APRIL FINANCE WORKING GROUP 20 REPORT AND RECOMMENDATIONS 16 TABLE OF CONTENTS

1 INTRODUCTION PAGE 1

2 GLOSSARY PAGE 3

3 FINDINGS PAGE 6

4 RECOMMENDATIONS PAGE 8

5 POLICY RECOMMENDATIONS PAGE 9

6 INCENTIVES PAGE 11

7 FUNDING RESOURCES PAGE 13

8 STAFF RECOMMENDATIONS PAGE 16

ADDENDUM PAGE 17 1 INTRODUCTION

In 2013, Housing and Neighborhood Development (HAND) identified a gap of 8,240 rental apartment units for those at 40% or below the area median income of Salt Lake County. In 2016, updated numbers revealed a slightly smaller gap of approximately 7,600 units however the decrease is a result of a growth income level and not additional housing units. Salt Lake City renters are cost burdened with half paying more than 30% of their income on housing costs; more troublesome is that a quarter of renters in Salt Lake City are paying more than 50% of their income toward housing costs.

Salt Lake City has seen a market rate multifamily boom with rents at all-time highs and vacancy rates at historic lows. Yet affordability remains an issue in the city despite the increase draftin new units. A projected multifamily pipeline created by HAND staff shows a healthy number of new units coming to market over the next few years, with a good number targeted to those with low incomes; however, even with these new units, there remains a large gap in Salt Lake City’s affordable housing market.

One of the predominant impediments to the creation of affordable housing is the lack of funding resources available to the for-profit and non-profit housing development communities. The primary sources for funding construction of new or rehabilitation of existing housing consist of 4% and 9% Low Income Housing Tax Credits and other gap funding sources that include the State’s Olene Walker Housing Trust Fund and the City’s Housing Trust Fund. Other federal sources include HUD financing tools such as a 221(d)4, Section 8 vouchers, and federal grants such as HOME and Community Development Block Grants. While tax credits are a useful tool they are very competitive and may require the developer to take on more expensive debt thus requiring

SALT LAKE CITY AFFORDABLE HOUSING FINANCE RECOMMENDATIONS | 1 higher rents. Funding from federal grants, such as THE PROCESS CDBG and HOME, has been reduced over the past ten years and also as stringent restrictions. The group met over a two month period for a total of six meetings during which time they identified a Understanding the difficulties of funding affordable number of tools and then developed financial pro housing, HAND created a Finance Working Group formas on specific case studies using those tools. comprised of for-profit and non-profit developers, The agenda was as follows: CRA lending institutions, representatives from Utah Housing Corporation and the National Development Meeting 1 – Discussed meeting schedule, goals, and Council, and Housing Trust Fund Board members expectations who met over a two month period with the objective to identify possible financing tools and policy Meeting 2 – Created and discussed list of possible recommendations. These include potential funding financing and policy tools sources on city, county, and statewide levels and changes to current city ordinances and policies to Meeting 3 – Reviewed Case Study 1: Sugar House incentivize and help finance the large gap in development affordable housing. Meeting 4 – Presentation from UTA regarding The group understands that to see an increase in Transit Oriented Development; reviewed Case Study affordable housing in the city, that new funding 2: High Opportunity Area; reviewed Case Study 3: sources must be created in conjunction with Small Scale Acquisition changes to City policies and ordinances. Meeting 5 – Presentation and discussion of WORKING GROUP MEMBERS recommended solutions

Steven Akerlow - Morgan Stanley draftMeeting 6 – Joint meeting between Finance Working Joni Clark - Salt Lake CAP Group and Non-Profit Housing Strategy Group to Irena Edwards - Key Bank and Housing Trust Fund gather input on solutions and gained consensus on Board member recommendations Ryan Hackett - Utah Non-Profit Housing Corp Michael Lohr - Goldman Sachs The Housing Finance Working group recommends Jeff Nielsen - Wasatch Development Group that the Housing Trust Fund Board, Mayor Biskupski Claudia O’Grady - Utah Housing Corporation and the Salt Lake City Council endeavor to explore Ali Oliver - UTA and Housing Trust Fund Board the following recommendations as possible member solutions for the affordable housing shortage in Salt Chris Parker - Giv Group Lake City. Affordable housing requires a long-term Amy Rowland - National Development Council strategy with some short-term solutions that make Marion Willey - Utah Non-Profit Housing Corp building, acquiring, and preserving units actionable and sustainable. The group presents these Salt Lake City Staff included: Mike Akerlow, Melissa recommendations with the understanding that Jensen, Sean Murphy, Todd Reeder, Tammy public input, feasibility, and detailed analysis of Hunsaker, Marina Scott impact is further required.

SALT LAKE CITY AFFORDABLE HOUSING FINANCE RECOMMENDATIONS | 2 2 GLOSSARY

AFFORDABLE HOUSING DEFINITIONS AFFORDABILITY RENT FORMULA: The industry standard for calculating affordable rents according The following list of terms is by no means inclusive to area median income. The formula uses the but serves as a reference for informed discussion. published income limit tables from HUD with a The term “affordable housing” truly means housing combination of FMR. For example, a family of 3 at that is affordable for anyone. Categories within 50% AMI is making roughly $33,250 annually and affordable housing include moderate income, low can afford a 2 bedroom apartment at about $800/ income and extremely low income. To foster clear month minus utilities. The formula is technical and communication, HAND staff has compiled the also accounts for slight variances but ensures that following list of often used terms and definitions projects have consistent rent rates that and where possible, the source of those definitions. accommodate a variety of incomes. AFFORDABLE MARKETS: This refers to AFFORDABLE HOUSING: A home is generally communities that are driven by market forces that considered affordable if the household pays 30% or also align with HUD’s definitions of “affordable less of their gross income (beforedraft taxes are taken rent”. These markets can change at any time and out) towards rent/mortgage payments. The term have no obligation to remain affordable. usually refers to homes affordable to people with AREA MEDIAN INCOME (AMI): The median income low, very low and extremely low income, including of each Metropolitan Statistical Area (MSA) and low-wage working families, seniors on fixed incomes, each county based on all wage-earners in the area. veterans, people with disabilities and the homeless. The U.S. Department of Housing and Urban There are different kinds of affordable homes, Development (HUD) issues a listing of AMIs each including public housing (owned by the local year. AMI is used to determine the eligibility of housing authority), Section 8 vouchers that help applicants for both federally and locally funded people rent privately owned homes, and privately affordable housing programs and depends on family owned housing developments with restricted rents. size. HUD Definitions of Affordable Housing: http://nonprofithousing.org/wp-content/uploads/ Low Income: Income does not exceed 80% of Area Media-Packet-Affordable-Housing-Glossary.pdf Median Income (AMI) AREAS OF OPPORTUNITY: Areas of opportunity Moderate Income: Income does not exceed 60% of have been best described this way “places that AMI effectively connect people to jobs, quality public Very Low Income: Income does not exceed 50% of schools and other amenities” (HUD Secretary Shaun AMI Donovan). HUD frequently refers to these as Extremely Low Income: Income does not exceed “geographies” of opportunity and has created an 30% of AMI opportunity index in order to quantify such http://nonprofithousing.org/wp-content/uploads/ opportunity throughout the US. The most notable Media-Packet-Affordable-Housing-Glossary.pdf work has been done by Jim Woods in 2004.

SALT LAKE CITY AFFORDABLE HOUSING FINANCE RECOMMENDATIONS | 3 FAIR HOUSING: Title VIII of the Civil Rights Act of HOUSING CHOICE VOUCHER / SECTION 8 1968 (Fair Housing Act) prohibits discrimination in PROGRAM: Federal rent-subsidy program under the sale, rental and financing of dwellings based on Section 8 of the U.S. Housing Act, which issues rent race, color, religion, sex or national origin. In Utah, vouchers to eligible households. The voucher state law also includes source of income as a payment subsidizes the difference between the recognized protected class. gross rent and the tenant’s contribution of 30% of http://portal.hud.gov/hudportal/HUD?src=/ adjusted income, (or 10% of gross income, program_offices/fair_housing_equal_opp/progdesc/ whichever is greater). There are two main types of title8 voucher programs: Tenant Based: The subsidy remains with the tenant FAIR MARKET RENT (FMR): Rental rates set by the and allows them to move to a unit that best suits U.S. Department of Housing and Urban their needs. Development (HUD), that represents the estimated Project Based: The subsidy remains with the unit monthly rent for a modest apartment. FMRs and the property qualifies tenants according to the determine the eligibility of rental housing units for parameters of the program. the Section 8 program and serve as the payment http://nonprofithousing.org/wp-content/uploads/ standard used to calculate subsidies under the Media-Packet-Affordable-Housing-Glossary.pdf Rental Voucher program. http://nonprofithousing.org/wp-content/uploads/ HOUSING FINANCE AGENCY (HFA): Each State has Media-Packet-Affordable-Housing-Glossary.pdf a Housing Finance Agency in Utah it is Utah Housing Corporation (UHC). UHC manages Utah’s low HOUSING ASSISTANCE PAYMENT (HAP): Section 8 income housing tax credit program and allocation Housing Assistance Payment Contracts (“HAP process, distributing over $6.7MM in 2016. HFAs Contracts”)provide that the resident pays a portion are State-chartered, were established to help meet of the Contract rent (the resident’s portion is the affordable housing needs of State residents, limited to a percentage of the resident’sdraft income), have statewide authority to finance affordable with the remainder of the Contract Rent bein paid housing, and typically are governed by a board of under the HAP contract as a Housing Assitance directors appointed by the Governor. Payment. For example, if the Cotnract Rent is $600 https://www.hudexchange.info/resources/ and the resident’s protion is $200, the HAP portion documents/Glossary-of-Multifamily-Affordable- would be $400. Housing-Preservation-Terms.pdf https://www.hudexchange.info/resources/ documents/Glossary-of-Multifamily-Affordable- INFILL DEVELOPMENT: A strategy for Housing-Preservation-Terms.pdf accommodating growth and preventing sprawl through greater density and efficiency in land use HOUSING COST BURDEN: When 30% or more of a development within existing urban boundaries. household’s income is spent on housing costs. Many http://nonprofithousing.org/wp-content/uploads/ households are severely over-burdened and pay Media-Packet-Affordable-Housing-Glossary.pdf more than 50% of their income towards housing (see Severe Cost Burden). http://nonprofithousing.org/wp-content/uploads/ Media-Packet-Affordable-Housing-Glossary.pdf

SALT LAKE CITY AFFORDABLE HOUSING FINANCE RECOMMENDATIONS | 4 LOW INCOME HOUSING TAX CREDIT PROGRAM disabilities. Public housing comes in all sizes and (LIHTC): The LIHTC program was created in the Tax types, from scattered single family houses to high Reform Act of 1986, and it includes both rise apartments for elderly families. There are competitively allocated “9 percent” tax credits and approximately 1.2 million households living in non-competitive “4 percent” tax credits. Developer- public housing units, managed by some 3,300 HAs. owners of LIHTC properties can claim credits http://portal.hud.gov/hudportal/HUD?src=/ against their federal income tax liability, for up to program_offices/public_indian_housing/programs/ ten years after the property is completed and leased ph up, provided that the property remains in compliance with LIHTC requirements. Typically, a PUBLIC HOUSING AUTHORITIES Local government LIHTC property is owned by a limited partnership or agencies that are authorized to manage housing for limited liability company in which the real estate very low- and extremely low-income households, developer is the general partner or managing either as public housing, through Section 8 member and in which corporate investors hold the vouchers, or with other types of affordable housing. remaining ownership interests. In Utah, many of the Generally, households pay no more than 30% of industrial banks are the primary investors in these their income for rent and the remainder is partnerships providing a unique market for subsidized by the Federal government through HUD. purchase of these credits. http://nonprofithousing.org/wp-content/uploads/ https://www.hudexchange.info/resources/ Media-Packet-Affordable-Housing-Glossary.pdf documents/Glossary-of-Multifamily-Affordable- Housing-Preservation-Terms.pdf QUALIFYING CENSUS TRACTS: A Qualified Census Tract (QCT) is any census tract (or equivalent MARKET RATE HOUSING: Rental housing that is geographic area defined by the Census Bureau) in privately owned but charges rents consistent with which at least 50% of households have an income the property amenities as well as local housing less than 60% of the Area Median Gross Income market prices and conditions. draft Typically, these (AMGI). HUD has defined 60% of AMGI as 120% of property owners do not receive direct subsidies. HUD's Very Low Income Limits (VLILs), which are Conventional market-rate properties may offer rental based on 50% of area median family income, housing that is also considered “affordable”. adjusted for high cost and low income areas. https://www.fanniemae.com/content/fact_sheet/ wpworkhouse.pdf RACIALLY/ETHNICALLY CONCENTRATED AREAS OF POVERTY: A census tract where the number of MIXED-USE DEVELOPMENT: A building or group of families in poverty is equal to or greater than 40 buildings that combines multiple revenue producing percent of all families, or an overall family poverty uses in an integrated and coherent plan. As an rate equal to or greater than three times the example, a mixed-use development might include metropolitan poverty rate, and a non-white retail space on the ground floor, offices on the population, measured at greater than 50 percent of middle floor, condominiums on the top floors and a the population. garage on the lower level. http://nonprofithousing.org/wp-content/uploads/ SEVERE HOUSING COST BURDEN: When 50% or Media-Packet-Affordable-Housing-Glossary.pdf more of a household’s income is spent on housing costs. PUBLIC HOUSING: Public housing was established http://nonprofithousing.org/wp-content/uploads/ to provide decent and safe rental housing for eligible Media-Packet-Affordable-Housing-Glossary.pdf low-income families, the elderly, and persons with

SALT LAKE CITY AFFORDABLE HOUSING FINANCE RECOMMENDATIONS | 5 3 FINDINGS

OVERVIEW 9% TAX CREDITS

During the group’s discussions, several key findings The working group recognizes that the 9% tax emerged as issues facing developers and those credits are the single most important tool for financing affordable housing. While there are many providing financing for affordable housing. issues, the following are five key findings from the Because of the amount of equity created as a group that helped inform the recommendations. result of the 9% credits, many projects using this

tool are able to provide units to those with SUBSIDY AMOUNTS extremely and very low incomes. However, the

process to get these tax credits is extremely The working group dedicated significant time to competitive and occurs only once each year. Many determining what kind of subsidy would be needed for the development of affordable housing units. times developers will have to wait 2 to 3 years Scenarios from throughout the city were presented before they may get the credits which can to the group for their consideration of varying sizes, increase costs. a range of AMI’s, and uses. Land draftlocation continues to be the key determining factor in the subsidy 4% TAX CREDITS needed. The working group concluded that the gap ranged from $12,000 - $50,000 per unit when used The 4% tax credits do not provide as much equity in conjunction with 4% credits and $67,000 - as the 9% tax credits and therefore require other $360,000 per unit without any other subsidy. funding sources. To be eligible for the tax credits, Concluding that in order to increase the affordable a developer must also get a Private Activity Bond housing stock a significant financial commitment which is more than 50% of the cost of the would need to be made. project. These bonds are expensive to finance and thus drive up the costs of the project resulting in WORKING WITH THE CITY higher rental rates. As a result, 4% tax credit projects often are targeted to those at 60% of The development professionals in the working group area median income. The Private Activity Bonds felt that the City could be a better and more are allocated by the State and have an annual cap collaborative partner in affordable housing which over the past couple of years has been development. They are unsure of what’s available to expended by the spring. However, these credits them as far as incentives, fee waivers, expedited may change and become less desirable if interest processes, etc. If the City wants more affordable rates increase. housing developers building new units, the working group felt that the City needs to create a more streamlined and productive environment.

SALT LAKE CITY AFFORDABLE HOUSING FINANCE RECOMMENDATIONS | 6 SMALL ACQUISITION AND DEVELOPMENT

The working group believes that a critical component missing is affordable housing in smaller developments. These may include townhomes, cottages, small apartment buildings, etc. However, land and development costs are typically higher which results in a higher sales or rental rate. The group stated that these types of units are an effective tool for addressing affordability but the financing is not available for medium density projects.

SALT LAKE CITY HOUSING TRUST FUND

The City’s Housing Trust Fund is recognized as a valuable and necessary tool to maximize the tax credits and to leverage other available funding sources. The working group discussed the need for the fund to be sustainable with a constant funding source in addition to more flexibility to do projects that might not fit the status quo. draft

SALT LAKE CITY AFFORDABLE HOUSING FINANCE RECOMMENDATIONS | 7 4 RECOMMENDATIONS

OVERVIEW

The Finance Working Group began their work by creating a list of over 20 financing tools and policy changes that may result in additional funding or incentives for developers to build affordable housing in Salt Lake City. They categorized their recommendations into three groups: policy, incentives, and funding resources.

The working group notes that concessions may need to be made within each recommendation and continued conversation is needed on how each solution could be modified for the greatest good. This includes dialogue on not only solutions but the ability to monitor and administer those draftsolutions. The group also noted that further clarity of the definition of affordable housing is needed in order to ensure consistency on the parameters in which each solution is discussed. In addition, the group generally felt the Housing Trust Fund Board should be the main body that manages and recommends subsidies either in the form a loan or a grant to the Mayor and City Council. Each recommendation also had various discussions on ease, convenience and timeliness as key factors to offering any incentive or subsidy to developers. Lastly, it is noted that each solution should be explored in the context of leveraging legislative dollars, county collaboration and feedback to the State’s affordable housing group.

SALT LAKE CITY AFFORDABLE HOUSING FINANCE RECOMMENDATIONS | 8 5 POLICY RECOMMENDATIONS

INCLUSIONARY ZONING could range from $60,000 - $250,000 per unit should a developer decide not to include any Inclusionary Zoning policies are common around the affordable units. Pricing would vary depending on country and ensure that as cities change and the location of the units and the need for develop, affordability is included in the early stages affordability in the desired area. Distinct policy of development. An inclusionary zoning ordinance elements would have to be designed for multi-family requires that any new residential construction has a developments and single-family developments. certain percentage of affordable units included. Variations could be added to this policy including Some cities will also allow developers to make “in targeting geographic areas where there is a lack of lieu” payments should they decide not to include affordable housing, incentive zoning and upzoning affordable units. Inclusionary zoning throughout the waive certain parameters in order to allow for more country has typically been targeted at those between density at which time the developer would include 40%-120% AMI. These policies also have the ability an affordable component. to limit concentrated areas of affordability and poverty. While other policies arounddraft zoning could be In addition, the group recognizes the need and explored to include density and other incentives the expense to ensure that the inclusionary zoning group focused on inclusionary zoning due to its requirements are being met. Such compliance would success throughout the nation. include auditing rent rolls and incomes, inspecting units, and enforcing when necessary. Salt Lake City continues to be a high performing market that attracts businesses, residents, and CASE STUDIES developers. In the opinion of the group inclusionary zoning would not be an outright deterrent for Seattle, Washington development however, considerations for compliance San Francisco, California and design of the policy would be critical in the Washington D.C. long-term impact of the policy. IMPACT RECOMMENDATION A citywide ordinance would ensure that affordability A citywide inclusionary zoning policy should be is being included in all housing projects or providing considered as a long-term strategy for ongoing a revenue to subsidize future housing. The impact of affordability. This zoning would require that 5%-10% this policy would most likely be seen through infill of new construction of over 50 units be affordable to development and development on the west side people with low to moderate incomes. The group where the majority of land is still available. was amenable to the option of “in lieu” fees which

SALT LAKE CITY AFFORDABLE HOUSING FINANCE RECOMMENDATIONS | 9 THE MISSING MIDDLE

Over the past 5 years, Salt Lake City has seen a types such as these are ideal for the city’s shifting multi-family renaissance with thousands of units demographics including those who are aging in built, under construction, or in the permitting place, students graduating from college, young process. While new single family construction, families who want to remain in the city, and those especially in subdivisions, has been somewhat who are living on a working wage. limited due to a scarcity of undeveloped land, there is still a strong market particularly where homes are RECOMMENDATION torn down and rebuilt or go through extensive Creating missing middle housing in the city will remodeling. While much of the new construction in require changes to current zoning ordinances. Any the city has been at market rate, there has been a solution or proposal will need to be coordinated slight increase in affordable multi-family and single through the Planning Division. family homes.

To create more affordable housing opportunities, the The “Missing Middle” refers to an absence of multi- working group recommends that the City Council unit, clustered housing or other medium density seriously consider Accessory Dwelling Units as a housing types compatible in scale with single family tool to providing affordable housing units homes that help meet the demand for not only throughout the city. ADU’s provide affordable urban living, but for affordability as well. Examples housing to family members, aging adults, young of these unit types include townhomes, duplexes, families, single parents with children, those with accessory dwelling units such as carriage homes or disabilities. mother-in-law apartments, and small scale apartment buildings or bungalow courts. The group also recommends that the City Council

address the efficacy of density bonuses. In some Current zoning in Salt Lake City tendsdraft to favor either cities, density bonuses are used as an incentive for single family or high density multi-family with affordable housing, yet most developers in Salt Lake limited opportunities for missing middle type City do not take advantage of them because of the housing. The Residential Multi-Family zone (RMF) increased cost of other building systems. allows some of this type of housing to be built however the density requirements in that zone are such that large land parcels would be necessary for development. As a result of the larger parcels and therefore higher price, it becomes difficult to build medium density housing at an affordable price. The Planning Division recognizes that there are barriers in building this type of housing in the current ordinance.

Accessory dwelling units, townhomes, and small scale apartment buildings are sensitive to the look and feel of single family neighborhoods and can be sold or rented to those with fixed incomes. Housing

SALT LAKE CITY AFFORDABLE HOUSING FINANCE RECOMMENDATIONS | 10 6 INCENTIVES

INCENTIVES RECOMMENDATION

Incentives are items that would increase some Land Banking and participating in Community Land affordability but may not have a direct monetary Trust are some of the most powerful tools for long- correlation. In addition, the working group believes term preservation of affordable housing. The group these are some of the more immediate actions that agreed that any revenue targeted for affordable might be able to be taken. housing should be partially used for land acquisition and preservation in either of these entities. Further, COMMUNITY LAND TRUST the land within the trust should be developed by a wide variety of public and private entities according A Community Land Trust is an entity that develops to what each community needs. Both a Community and stewards affordable housing, community Land Trust and a model of land banking bring gardens, civic buildings, commercial spaces and extreme value and it is recommended that the other community assets on behalf of a community. administration prioritize the analysis of these They are public or community-owneddraft entities unique models. generally created to acquire, manage, maintain, and repurpose vacant, abandoned, and foreclosed CASE STUDIES properties. In addition, they can be used in an opportunistic fashion to purchase land at an Champlain, Vermont affordable price in an attempt to preserve it. While a Albuquerque, New Mexico public entity may manage the Trust, a nonprofit Durham, North Carolina structure allows public entities like a city to contribute but also provides an opportunity for tax- IMPACT deductible donations to be made in the form of property.

An alternative to a trust is the strategic effort of land banking for affordable housing purposes. This would include a committed plan for buying and preserving land and buildings that are currently hard Salt Lake County Median Sales Price to access or it is anticipated as communities gentrify that the property will be hard to access. An annual investment of $1,000,000 would produce This method also ensures affordability by roughly 5 pieces of land and while that may appear maintaining ownership but offering long-term leases. minimal, this would be preserved in perpetuity ensuring long-term affordability.

SALT LAKE CITY AFFORDABLE HOUSING FINANCE RECOMMENDATIONS | 11 TAX ABATEMENT INCREASED CITY ACCESS

Abatement is a reduction in the level of taxation The ease in which developers are able to do faced by an individual or company. Examples of business with Salt Lake City was a key area abatement include tax decrease, a reduction in identified to help incentivize affordability. The group penalties or a rebate. If an individual or business discussed many variations of how this might work overpays its taxes or receives a tax bill that is too and the value it would bring to each project. The high, it can request abatement from the taxing intention of this recommendation is to expedite authorities. This incentive would allow affordable current affordable projects and increase mixed housing developers the ability to increase their income development. financial capacity for debt service and therefore add some affordability in the overall project. RECOMMENDATION

RECOMMENDATION The City should create a decision making body represented by each department that reviews Salt Lake City should consider sponsoring a project transactions jointly, commits to a response statewide tax abatement program in collaboration time and has the ability to waive fees (in accordance with the State and Salt Lake County. The tax with policies). This group could only be accessed by abatement should be in proportion to the level of developers who commit to a percentage of units at affordability in any given housing project. Meaning a specific level of affordability. Authority is a key that if the percent of affordability is 50% the tax component of this policy and the group would need relief should correlate at 50% and should be to be able to act quickly to waive fees and expedite validated annually. The group agreed that this long- affordable housing developments through the term strategy would significantly incentivize permitting process. For example: affordability on an ongoing basis. • Impact Fees draft• Density CASE STUDIES • Parking Requirements • Design Changes Washington, D.C. New York City, New York In addition it is recommended that a housing Portland, Oregon ombudsman be the point person to facilitate and communicate with the group and the developers. IMPACT IMPACT A tax abatement of roughly $40,000 per year would leverage an additional $600,000 in available debt Based on a recent affordable housing development increasing the developers ability to add affordable in Salt Lake City: units.

SALT LAKE CITY AFFORDABLE HOUSING FINANCE RECOMMENDATIONS | 12 7 FUNDING RESOURCES

FUNDING RESOURCES EQUITY INVESTING

A committed revenue source is an integral part of Currently Salt Lake City issues a Request for funding the subsidies needed for affordable housing. Proposals for a development, negotiates a purchase While incentives create lasting partnerships and price and then sells the property to the developer. support for affordability they are not sufficient to Equity investing would allow the City to contribute house those at 40% AMI and below long term. These equity through a land or cash donation in exchange may be the most challenging yet critical for a return on its investment. The group recommendations to consider. contemplated several forms of equity and joint venture scenarios with diverse return expectations. This form of contribution is seen as a way to create sustainable funding over a long term period but requires a much higher risk tolerance than generally seen from public entities. draft RECOMMENDATION

The City should explore a limited partnership agreement structure in which they offer a percentage of equity for a higher return. This would require a comfort in investing in projects with a limited amount of affordability in order to produce revenue that could be reinvested as a subsidy for existing or future projects.

IMPACT

The standard for general investors is a 10% return, however, since the City’s main interest is sustainability the target would range from 4-5% returns which would be fully reinvested in subsidy, loans, or land acquisition for future affordable housing development.

SALT LAKE CITY AFFORDABLE HOUSING FINANCE RECOMMENDATIONS | 13 CITY-ISSUED BOND OR LEVY affordable housing and mixed use/income developments. Notably, fees can also be a polarizing A general obligation bond, revenue bond, other issue for communities drawing out opposition to types of bonds or levy would supply an initial affordable housing and whose role it is to pay for it. investment in affordable housing. This type of This is seen as an approach that should be viewed revenue would help address the current gap that through a long-term lens with the most-long term exists by providing immediate subsidy to impact. developers, however, without a plan to issue a bond every 5-7 years it doesn’t provide much REAL ESTATE DOCUMENT FEES sustainability. Document Fees (Transaction Fees) are a mechanism RECOMMENDATION designed to produce revenue from specific transactions at the City/State level. Such revenues A bond issuance should be explored in order to are then a dedicated source of funding for a specific address the current gap. It is recommended that the public purpose. While variations are wide the group administration and Council explore the feasibility of specifically explored a document/real estate being a bond issuer. Further, if there is a model that recording fee which is the most common fee used allows the bond dollars to be revolving through the across the country for this purpose. This would loan fund that would be a very effective tool for produce significant revenue and provide a consistent leveraging such dollars. As a supplemental source of funding for affordable housing. recommendation the group favors a legislative appeal to increase the amount the Private Activity RECOMMENDATION Board issues toward multifamily housing as a way to leverage additional 4% tax credits. While a document fee would provide significant revenue the group preferred options that remained CASE STUDIES draftin the jurisdiction of the city. They felt that any fee would be valued so long as the city had the Charlotte, North Carolina: $15MM every 2 years for authority to charge it and that it was in some way 8 year cycle related to the real estate/housing markets. However, Austin, Texas: $55MM one time bond should the possibility arise to impose a fee that Miami, Florida: $3B over 40 years ($195MM for could benefit both the county and the city it would affordable housing) be favored within the working group. California: $3B over 30 years Seattle, Washington: $140MM levy voter approved CASE STUDIES every 7 years Philadelphia, Pennsylvania: $12MM annual revenue Washington State: $27MM IMPACT Oregon State: $12MM

IMPACT

At a $25 fee for each home sold in Salt Lake County, CITY AND/OR COUNTY FEES revenues and potential units would be as follows: 2014: 14,767 homes sold Fees arose in the group as the most consistent, fair, $369,175 in revenue and long term solution to begin to fill the gaps on $50K-$100K per unit cost 5 affordable units

SALT LAKE CITY AFFORDABLE HOUSING FINANCE RECOMMENDATIONS | 14 LINKAGE FEE AND/OR IMPACT FEES PEER-TO-PEER RENTAL FEES

Commercial linkage fees are a form of impact fee Peer-to-peer fees are increasingly common in urban, assessed on new commercial developments or tourist, driven cities. This approach could supply major employers based on the need for workforce revenue that would see an increase over the next 10 housing generated by new and expanding years, however, there is consideration for businesses. An impact fee would be imposed on compliance in a gig economy like peer-to-peer rental property developers by municipalities for the new such as Airbnb. Hotel fees would be easier to infrastructure that must be built or increased due to administer but could garner larger opposition. new property development. These fees are designed to offset the impact of additional development and RECOMMENDATION residents on the municipality’s infrastructure and services, which include the city’s water and sewer The city should explore how an occupancy fee could network, police and fire protection services, schools be charged in the peer-to-peer market. Currently, the and libraries. These fees can also be levied against compliance and implementation of enforcing fees is any individual or entity where its actions create an new and best practices are still being formed. In externality within a municipality. These fees are one addition, this is an opportunity to be innovative in of the more consistent mechanisms to fund our approach and curve the impact this market is affordable housing seen throughout the country. having in urban areas throughout the county. In Salt Lake City there is no zone clarity for this type of RECOMMENDATION rental and Housing & Zoning Enforcement is currently shutting down these enterprises in The working group recommends that either a residential zones. It is recommended that a permit linkage fee or impact fee be explored. With fee and occupancy fee are explored to determine the anticipated growth of the Salt Lake City market over best benefit to the community. the next decade these fees would playdraft a critical role in supporting affordable housing. Lastly, it is IMPACT recommended that the City conduct the necessary diligence of a nexus study as quickly as possible in It is estimated that Airbnb has approximately 150 order to validate how much revenue would be units available online in Salt Lake City. If a permit produced and assess the actual link of development fee of $350 were charged that would generate on affordable housing. The group also notes that $52,500 in revenue. If an occupancy fee of $5 per exceptions can and should be made for industry person were charged (average stay of three people specific businesses that the city is trying to attract. with 200 stays per year at each location) it would generate $450,000 in revenue. CASE STUDIES

Somerville, Massachusetts: $500,000 Boston, Massachusetts: $7MM

SALT LAKE CITY AFFORDABLE HOUSING FINANCE RECOMMENDATIONS | 15 8 STAFF RECOMMENDATIONS

OVERVIEW COMMUNITY LAND TRUST To ensure preservation of existing affordable housing and to secure The working group understands that the preceding property in high opportunity areas HAND staff recommendations are effective tools but they may recommends that the City work with a non-profit to require more due diligence, public outreach, and create a community land trust. support and/or action from legislative bodies including the City Council, the County, and the State. HAND staff has evaluated the proposals and recommends the following: ZONING HAND staff recommends that the Mayor and City Council approve ADU’s throughout the city; create a density program that would be an incentive INCLUSIONARY ZONING A form of inclusionary to developers; and examine the RMF density zoning may work in Salt Lake City in certain requirements so that medium density products geographically targeted areas. These areas could could be built on smaller parcels in neighborhoods. include transit corridors and east side locations. HAND staff recommends that thedraft Mayor and the Council evaluate best practices and determine how inclusionary zoning could work in Salt Lake IMPACT FEE/LINKAGE FEE As an ongoing funding City to produce more affordable housing. source to the Housing Trust Fund, HAND staff recommends that the City impose an affordable PEER-TO-PEER HAND staff recommends that the housing impact fee or linkage fee. Mayor and Council consider peer-to-peer occupancy and permit fees as a source of revenue. While this may be new to many cities and possibly difficult to INCREASED CITY ACCESS The creation of a team enforce, it could be a strong generator of revenue for within the City that could make quick decisions and affordable housing. an ombudsman who could help navigate city processes would reduce costs for affordable housing HOUSING BOND OR LEVY To generate a funding developers. Reduced costs translate into more source large enough to address the affordable housing units. The ability for this team to waive fees housing needs in the city, HAND staff recommends and make quick decisions is crucial to its success. that the Mayor and Council approve a housing bond or levy that is voter approved and repeated every predetermined number of years.

SALT LAKE CITY AFFORDABLE HOUSING FINANCE RECOMMENDATIONS | 16 ADDENDUM

CASE STUDIES FOR THE WORKING GROUP

COMPREHENSIVE LIST OF TOOLS EVALUATED BY THE WORKING GROUP

draft Affordable Housing Development - Case Study Summaries

The Process: Teams were asked to consider three different housing development opportunities. The goal was to model a mixed-income development financing scenario for each case study that didn’t use the 9% Low Income Housing Tax Credit (LIHTC), but still included some units affordable to households with incomes below 40% of the Area Median Income. The projects could include market rate units as well. Teams were allowed to consider a reduction of the land cost and use of other available affordable housing subsidies to make the proposed projects feasible. The proposals are summarized below, in a format which illustrates the subsidy amount needed per affordable unit.

CASE STUDY 1: Sugarhouse Land - Old Deseret Industries Property

This 1.4 acre site at 2234 S Highland Dr. is city-owned and is in a High Opportunity (low poverty) neighborhood. It is zoned CSHBD-1 (Sugarhouse Business District), with a potential building height of 105 feet, and is valued at $3MM. The site is not in an area that qualifies for the tax credit basis boost.

With 4% Credits Conventional (no LIHTC) Proposal Specifics Note s Note s # Units Proposed 110 60 Development Cost Per Unit $142,844 $1MM land cost $140,740 $0 land cost # of Units @ 60% ami 77 70% 0 # of Units @ 40% ami 33 30% 12 20% affordable 100% affordable Sources per Unit Bank Debt Supported $53,499 $88,733 Equity $50,023 1.18 pricing $29,901 10% IRR Developer Loan $4,545 $0 Public Debt $18,182 $2MM OW+City $22,106 $1MM City Remaining Gap/unit $16,594 $0

Total Subsidy $5,825,386 w/ full land cost $4,326,350 w/ full land cost Subsidy Required per Affd. Unit $52,958 $360,529 Findings: The 4% LIHTC provided additional equity, but the project still needed significant subsidy to be feasible; over $5.8MM for a 110 unit project, with all units meeting the tax credit rent requirements. This is primarily because the location does not provide the 30% boost in credit basis that makes downtown 4% tax credit projects more feasible.

With 20% of the units affordable, the conventionally-financed project required an extremely high subsidy per affordable unit of $360K. The model assumes that a conventional equity investor would need to receive the same rate of return a 100% market rate project would provide in order to allow the developer to commit the affordable units. The project would require 100% of the land cost to be contributed, as well as requiring an additional $1MM in soft subordinate financing.

SALT LAKE CITY AFFORDABLE HOUSING FINANCE RECOMMENDATIONS | 17 CASE STUDY 2: Vacant Land at 454 E South Temple

This site is privately-owned land in a Historic Landmark District and High Opportunity Area. The site is 1.14 acres, and was listed for $3.7MM. The zoning is R-MU. Site is located in a LIHTC Basis Boost Area. The teams were asked to do essentially the same exercise as in Case Study #1; provide as many units affordable to households at or below 40% ami as possible, either using 4% credits or within a market rate development.

With 4% Credits + Boost Conventional (no LIHTC) Proposal Specifics Note s Note s # Units Proposed 110 70 Development Cost Per Unit $174,760 $3.5MM Land $171,844 $2.7MM Land # of Units @ 60% ami 77 70% 0 # of Units @ 40% ami 33 30% 7 10% affordable 100% affordable Sources per Unit Bank Debt Supported $53,207 $129,423 Equity $107,727 1.18 pricing $42,421 10% IRR Developer Loan $4,545 Repaid in 15 yrs $0 Public Debt $9,281 $1MM OW $0 Modeled Gap/unit $0 $0

Total Subsidy $1,220,900 w/ full land cost $800,000 w/ full land cost Subsidy Required per Affd. Unit $11,099 $114,286

Findings: With the same unit mix as the previous case study, the 4% LIHTC model yielded a much more feasible project, requiring only an $11K per unit subsidy. The difference was almost entirely due to the additional equity available with the tax credit basis boost which the location provides. This example illustrates the value of a basis boost eligible sites in creating affordable units with minimal additional subsidy.

Once again, the conventionally-financed project was much less feasible, with a required subsidy of $114K per affordable unit; and only 10% of the units restricted at a 40% ami affordable rent level.

SALT LAKE CITY AFFORDABLE HOUSING FINANCE RECOMMENDATIONS | 18 CASE STUDY 3: Acquire Existing Downtown Apartment Building

Subject is a 20 unit, 1925 vintage multi-family building located at 254 S 300 E. The building sits on .20 acres and includes 16 parking spaces. The building is privately-owned and is being marketed for a purchase price of $2,935,000. It was substantially renovated in 1998, and has had other major capital improvements in the last few years.

The teams were instructed to investigate the feasibility of providing some portion of the units at affordable rent levels without using tax credits.

Conventional (no LIHTC) Conventional (no LIHTC) Proposal Specifics half@ 40% ami Note s all @ 60% ami Note s # Units Proposed 20 20 Development Cost Per Unit $152,625 $60K in rehab $173,775 $500K in rehab # of Units @ 60% ami 0 20 100% affordable # of Units @ 40% ami 10 50% affordable 0

Sources per Unit Bank Debt Supported $67,226 $78,750 Equity $17,941 10% IRR $21,000 10% IRR Developer Loan $0 $0 Public Debt $50,000 $1MM City $50,000 $1MM City Modeled Gap/unit $17,459 $24,025

Total Subsidy $1,349,171 $1,480,500 Subsidy Required per Affd. Unit $67,459 $74,025

Findings: Though the existing rents in the building are very close to 60% ami rents already (avg. $853/unit), the teams found that the operating expenses provided by the seller were unreasonably low, making the building essentially overpriced. Using a market level of operating expenses, and assuming some level of capital improvements were likely to be necessary (this amount varied between teams), the result was a necessary subsidy of around $70K per unit, depending on the depth and percentage of affordability being modeled.

SALT LAKE CITY AFFORDABLE HOUSING FINANCE RECOMMENDATIONS | 19 COMPREHENSIVE LIST OF TOOLS EVALUATED BY WORKING GROUP

Tool Name Description Tool Parameters Type This would be designed to address the current gap in the community General Obligation Bond Funding to support the preservation, assistance, and new development of affordable housing (8,200 units) One time funding This would be designed to address the current gap in the community Private Activity Bond Funding to support the preservation, assistance, and new development of affordable housing (8,200 units) One time funding Tax Allocation Would provide subsidy from General Fund to affordable housing developers Roughly $39K annually for 15 years Incentive Policy can vary and the requirement may be substituted with "in lieu" Inclusionary Zoning Ordinance that requires a given share of new construction to be affordable fees Policy Develop and steward affordable housing and other neighborhood spaces on behalf of a Community Land Trust community Generally held by a nonprofit group but contributed to by the city Preservation Offering a letter of credit for a certain percent of an affordable housing transaction so that the Letter of Credit developer can access higher LTV and lower cash flow transactions Varied Incentive Using the Housing Trust Fund allocation to leverage private dollars. The money would act as a first loss position but actual dollars loaned would come from a financial institution pool. City Varied but the loan parameters are likely to be less flexible then Loan Loss Reserve would be the first in and then subordinate its own position. current structure Incentive Zoning tool that that permits developers to build more housing units, taller buildings, or more Density Bonus floor space than normally allowed, in exchange for provision of a defined public benefit Varied Incentive A cross functional team (similar to RDT) that meets to review applications and apply waivers. Decisions would be based upon certain parameters but also leave SLC Deal Team Important that the group have decision making authority some discretion to the team Incentive Energy Efficiency Waiver Having a standard that is more cost effective such as Enterprise Green Certification Varied Incentive Car Charging Requirements Flexibility on requirement based on the merits of the project Varied Incentive Impact Fee Waiver Additional fee waiver on properties that have some affordable housing but is not 100% Varied Incentive Reduce Parking Restrictions Reduce ratio of parking needed and encourage finance institutions to support that ratio Instead of 1:1 it would be 1:2 Incentive Flexible design standards on hard to develop properties (like historic or environmental land Design Leniency for "Hard to Develop" issues) Varied Incentive Currently HTF ordinance has a 55 year term. A fee could be instituted The term in which a property needs to remain affordable to access certain benefits such as tax in cases in which the developer changes the affordable units to market Affordability Term in Housing Trust Fund Ordinance credits or Housing Trust Fund dollars rate Preservation

Can vary but include whether or not it is a primary residence or Peer to Peer Short Term Rental Services (Airbnb) Additional Tax on overnights stays in single family homes. additional property etc… Revenue Generation

Deed & Mortgage Document Recording Fees Fees collected when deed and mortgage documents are being recorded Generally all transactions and fees can range from $50 - $130) Revenue Generation .50% & 1% Can be limited or equally instituted (i.e. no fee for family Real Estate Transfer Fee Charge on real estate based on the sale price of the property being transferred transfers) Revenue Generation

Commercial linkage fees are a form of impact fee assessed on new commercial developments or major employers based on the need for workforce housing generated by new and Generally determined by studies that can equate impact on Impact/Linkage Fee expanding businesses community to a dollar amount. Revenue Generation

SALT LAKE CITY AFFORDABLE HOUSING FINANCE RECOMMENDATIONS | 20