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Promises of tax credits, municipal bonds motivate private developers to build more affordable housing BY PAULA BENDER
W hen it comes to planning affordable housing projects or executing renovations or design-builds, municipal bonds are often the catalyst that gets the construction process underway. “The bonds themselves cannot fund affordable housing projects,” explains David Oi, executive director of the Hawaii Housing Finance and Development Corporation (HHFDC).
HHFDC will soon launch its
annual funding cycle for 2024 targeting the Dwelling Unit Revolving Fund, Hula Mae Multi-Family (HMMF) Revenue Bond Program, Low-Income Housing Tax Credit (4 percent and 9 percent LIHTC programs) and the Rental Housing Revolving Fund Program. Every year through 2025 (July 1 to June 30), HHFDC releases a consoli- dated plan informational packet that is of interest to those considering or have experience building within this sector. In late August, HHFDC released its 2024 packet — and as usual, it was made available in every county for public review. The new notice states that 4 percent LIHTC application requests are no longer accepted year-round, but only during the official funding cycle. HHFDC recommends reviewing the 2022 consolidated application for more information about this and other new requirements, and also the 2022 consolidated application and the 2022- 2023 qualified allocation plans. “[LIHTC] provides lower inter- est rates to borrowers and developers, which lowers the cost of construc- tion and keeps rents affordable,” says Oi. “Subsidies must be maintained or expanded in order to serve those at the lowest incomes. The low-income hous- ing tax credit allocation amounts and the amount of private activity bonds received are administered by the U.S. Treasury Department. Unless those amounts change, we must find creative ways to work within the confines of what we have.”
THE CONSOLIDATED PLAN PROCESS
The Consolidated Plan process is mandated by the U.S. Department of Housing and Urban Development (HUD) to ensure that jurisdictions receiving direct federal assistance develop and utilize a plan for their hous- ing and related needs of extremely low-, very low-, low- and moderate-income families in a way that improves the avail- ability and affordability of decent, safe and sanitary housing within a suitable living environment. In May 2020, HHFDC adopted the Consolidated Plan for the period from July 1, 2020 through June 30, 2025. The Consolidated Plan established priorities that include: • Construction of affordable rental units for both the general and special- needs populations; • Provision of tenant-based rental assistance; • Development (new construction or rehabilitation of existing buildings) of transitional housing units; • Project development and construc- tion of affordable for-sale homes; • Provision of down payment/clos- ing cost assistance and gap loans; • Housing information and rental assistance to persons with HIV/AIDS; • And support for fair housing education and training. HHFDC will adopt an Annual Action Plan for the one-year period between July 1, 2024 and June 30, 2025, for programs under its jurisdic-
“Affordable hous- ing is different from projects that are either market-rate rentals or for-sale projects because the operating income must be subsidized for the projects to work.”
David Oi
While income from market-rate rentals is enough for operations, funding reserves and paying down construction debt, affordable housing projects cannot rely on rental income alone, given the target population for this type of housing usually has little to no monthly income. “Therefore, subsidies such as Section 8 project-based vouchers, low- income housing tax credit (LIHTC) equity and sponsor capital must be used in conjunction with bond financ- ing,” Oi says. QUALIFYING FOR BONDS To qualify, projects must rent at least 20 percent of units to households with incomes of 50 percent or less of area median income (AMI) or rent at least 40 percent of the units to house- holds with incomes of 60 percent or less of AMI.
30 | BUILDING INDUSTRY HAWAII | OCTOBER 2023
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