ideas from other states… michigan indiana conference on housing & community economic...
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Ideas from other states…Michigan
Indiana Conference on Housing & Community Economic Development
September 13, 2005
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Michigan Context
Michigan State Housing Development Authority (MSHDA) is the state’s:
• Housing Finance Agency—both single family and multi-family lending
• HOME Participating Jurisdiction• CDBG Housing recipient—25% of total CDBG • LIHTC Allocating Agency• Public Housing Authority — $120M in vouchers• Emergency Shelter Grant recipient
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Keep in mind…
• Michigan’s budget has been structurally imbalanced for the last several years and economic recovery is lagging other states…
• MSHDA rolls its own profits into grants supporting a variety of initiatives; however, we do not receive a state budget appropriation for programs or operations…
• Our new programs have focused on making the most of limited resources or identifying creative applications of resources already available…
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Office of Community Development
• CDBG County Allocation program for non-entitled county governments—biannual allocation mostly for homeowner rehabilitation
• Housing Resource Fund provides competitive grants to local units of government and nonprofit organizations using HOME, CDBG, and MSHDA funds
• Technical Assistance Program pays for direct training for nonprofits and local units of government
• Other Initiatives include Cool Cities, Homebuyer Construction Loan, and other special projects
• Inter-divisional Projects such as Employer Assisted Housing, ADR/DPA program, Links to Homeownership
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Housing Resource Fund
• Our competitive funding activity is driven by the following goal:• All communities will be vibrant, affordable,
sustainable, diverse environments where people choose to live and stay.
• Affordable Housing is a given, and
• The impact of housing investment in local market is equally important.
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Ideas worth sharing…
• Cool Cities program
• Neighborhood Preservation Program
• Homebuyer Construction Loan
• Employer Assisted Housing
• Community Land Trusts
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What is Cool Cities?
• Governor’s Initiative • “This is about creating hot jobs in cool
cities throughout Michigan. It’s about attracting and encouraging people – especially young people – to live, work and play in the cool cities we are working hard to create.”
- Governor Granholm
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So what’s it really mean?According to participants in survey of college students, attendees at state kickoff conference, and local advisory committees, Cool Cities should …
• have a 24/7 atmosphere, dynamic, vibrant
• be a revitalized, energized downtown with “3rd places”
• provide creative opportunities (a “thick” job market), diverse housing, and wired for technology
• be a well-designed and cared-for public space
• have respect for historic structures
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So where is the program?
• $100,000 Cool City “Catalyst Grants” to local projects bringing more residents and/or more activity to mixed use neighborhoods
• Michigan Main Street designations and technical assistance from national experts
• Blueprints for Downtown matching grants for downtown market analyses and 5 year action plan
• Blueprints for Neighborhoods provides neighborhood redevelopment analyses and action plans
• “Priority access” to a Tool Box of over 150 state grants, loans, and assistance programs for Cool Cities designated projects and neighborhoods
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Cool Cities Funding
• Not really a lot of money, about $1 million per year in catalyst grants mostly pieced together from very tight budgets of flexible state funds
• Better coordination of other state resources around “tipping point” neighborhoods—have you ever seen so many bureaucrats excited at once?
• The bully pulpit effect is free—drawing attention to vibrant urban neighborhoods, changing attitudes, attracting investment
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Neighborhood Preservation Program (NPP)
• Most non-NPP grants cover one activity—homeowner rehab, rental rehab, or homebuyer projects—and are targeted to achieve both affordable housing and community impact
• NPP program provides funding for several activities at one time to address multi-faceted neighborhood needs simultaneously
• Includes up to 40% of total funding for non-housing costs associated with beautification, infrastructure, and neighborhood marketing
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NPP
• Focus on creating “neighborhood of choice”
• Experienced grantees with proven capacity
• True buy-in by neighborhood is critical
• Often multiple phases over several 2 year grant cycles
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NPP Funding Sources
• Housing activities supported by HOME, CDBG, and MSHDA funds
• Non-housing activities supported with CDBG or MSHDA funds
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Homebuyer Construction Loan
• Brand spanking new program• Provides mezzanine debt at attractive
rates to small/midsize urban pioneer developers
• Actual construction loan—not subsidy—to facilitate market rate development in “tipping point” neighborhoods
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Interesting Features
• New underwriting process compared to MSHDA’s traditional multi-family lending programs
• Significant reliance on due diligence reviews of primary lender
• Goal is processing time—exclusive of developer responses periods—of 60 days from intake to commitment
• Willingness to finance mixed use projects without requiring split ownership
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Homebuyer Construction LoanFunding Sources
• $10 Million in MSHDA reserves to capitalize the initial revolving loan fund
• Fannie Mae American Communities Fund may provide additional capital as program ramps up
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Employer Assisted Housing (EAH)
• Matched DPA for employer assisted housing programs—currently in 3 pilot cities, hoping to expand to 20 largest cities
• Providing up to $5,000 of non-amortizing, no interest DPA ($10,000 including employer portion) and MRB financing at discount rates to buyers up to MSHDA income limits ($69,800 in most cases)
• Focused on encouraging employees to invest in neighborhoods near their job—“walk to work” programs with some participants
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EAH Participants
• Initial focus of pilot program is on large institutional employers including medical, higher education, financial services, and local government
• Detroit Medical Center, Sparrow Hospital, City of Lansing, Lansing Board of Water & Light
• Currently working to roll out more broadly across the state
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EAH Funding Source
• MSHDA portion of DPA is financed from MRB bond proceeds
• Small interest rate premium (25 basis points) is applied to EAH-DPA loans to maintain returns—current rate is 5.375% fixed for 30 years
• Expansion of program has been limited by administrative demands of marketing to multiple employers and managing those relationships…
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Community Land Trust (CLT)
• A mechanism for providing permanently affordable homeownership by separating the ownership of the land from the house
• Limited equity/appreciation formula provides home for less than market value and passes on benefit to subsequent buyers
• Provides supply of affordable units in otherwise high-cost markets, especially along west Michigan lakeshore in resort areas such as Traverse City, Charlevoix, Petoskey, and Mackinac Island
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CLT Example• Locally based nonprofit CLT receives grant funding to
help develop a home with a market value of $150,000.• CLT identifies eligible buyer and sells home for $90,000.• CLT retains ownership of the underlying land which is
leased back to the buyer• After five years, for example, the market value of the
house is $200,000 and the buyer is ready to move on.• CLT has pre-emptive option to repurchase house for
original sales price plus 20% of market appreciation ($90K plus $10K)—$100,000
• If studies and projections are accurate, $100K is equally affordable to a similarly situated family in five years.
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CLT Caveats
• Legal implications of the ground lease model are complex and significant
• Application of property tax code to CLT model is still murky and handled differently by each jurisdiction
• Financing leasehold mortgages is less readily available, though Fannie Mae helps
• Assumes high capacity, stable, well-established nonprofit sponsor
• MSHDA is proceeding cautiously and seeking outside legal advice on possible alternative mechanisms to accomplish extended affordability
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CLT Funding Sources
• CLT projects are HOME eligible using resale requirements
• Some projects funded with MSHDA funds
• Significant technical assistance investment
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For more information…
Stephen LathomHomebuyer Development SpecialistMSHDA Office of Community Development735 East Michigan Avenue, PO Box 30044Lansing, Michigan [email protected]
www.michigan.gov/mshda