Community Developments Investments (March 2017)

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Barry Wides, Deputy Comptroller for Community Affairs, OCC

While the demand for affordable multifamily housing continues to grow, the number of such units at risk of loss or conversion to market-rate units is also growing. The resulting shortage of affordable multifamily housing has created increasing financial hardship for low- and moderate-income (LMI) households.

According to the Joint Center for Housing Studies of Harvard University, there were 18.5 million low-income renter households in the United States in 2013, but there were only 18 million rental units with rents these households could afford.¹ Affordable housing units for rental households are units with rents equal to or less than 30 percent of household income. Low-income households are those with annual incomes of 50 percent or less of their area median incomes.

Preserving existing affordable multifamily units has become a priority for housing policymakers. In most cases, when compared with newly constructed multifamily rental units, a more cost-effective approach is to preserve and rehabilitate existing multifamily housing units that are at risk of being demolished or abandoned. Rehabilitated units may be available for occupancy sooner than newly constructed units. An important benefit of preserving affordable multifamily properties that are at risk of conversion to market-rate housing is that these properties often are located in vibrant communities that offer LMI households better services and job opportunities.

This edition of Community Developments Investments examines regulatory and transactional issues related to preserving affordable multifamily properties. The articles explore how national banks and federal saving associations (collectively, banks) use subsidy programs and other investment tools to preserve affordable multifamily housing in urban and rural areas.

To provide context about the challenges facing the supply of affordable multifamily housing, the National Housing Trust (NHT) describes the growing gap between the number of cost-burdened households and the available supply of affordable multifamily units. The NHT explains why the existing stock of affordable rental housing is at risk and highlights how banks could increase their support of affordable multifamily preservation efforts. The NHT also describes several financing transactions, ranging from predevelopment financing to new debt products and a mission-driven real estate investment trust investor.

Several articles in this edition of Community Developments Investments highlight federal affordable housing programs that banks can leverage to preserve subsidized affordable multifamily housing, such as the U.S. Department of Housing and Urban Development's Rental Assistance Demonstration program. The OCC examines issues associated with low-income housing tax credit properties after the initial 15-year compliance period. Robyn Bipes of the Twin Cities Habitat for Humanity shares her experience preserving properties financed under the U.S. Department of Agriculture's Section 515 Rural Rental Housing Loan Program and how banks have participated in preserving affordable multifamily properties in rural areas.

Preserving the supply of affordable multifamily housing presents unique challenges. This edition of Community Developments Investments also includes articles from financial institutions that are developing innovative financing approaches to rehabilitate and finance affordable multifamily housing. PNC Bank's Todd Crow explains how the current high demand for multifamily housing is leading investors to purchase and convert affordable rental properties to market-rate developments, and describes the fund that PNC has established to address this trend. In addition, Fannie Mae and Freddie Mac highlight their efforts to enhance liquidity for affordable multifamily housing by securitizing loans. These concerted financing efforts are necessary to address the threat of a diminishing supply of affordable multifamily housing.

Because these properties are providing affordable housing to low-income households and in LMI areas, loans to and investments in this housing meets the definition of community development under the Community Reinvestment Act guidelines if properly documented. The OCC's Vonda Eanes describes how this documentation can be accomplished.

We hope that by sharing various preservation financing efforts in which banks have engaged, this edition of Community Developments Investments will contribute to the collective effort to preserve affordable multifamily housing in the years and decades ahead.

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