Ideas from other states…Michigan

Indiana Conference on Housing & Community Economic Development

September 13, 2005

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

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…

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

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.

Ideas worth sharing…

• Cool Cities program

• Neighborhood Preservation Program

• Homebuyer Construction Loan

• Employer Assisted Housing

• Community Land Trusts

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

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

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

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

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

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

NPP Funding Sources

• Housing activities supported by HOME, CDBG, and MSHDA funds

• Non-housing activities supported with CDBG or MSHDA funds

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

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

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

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

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

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…

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

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.

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

CLT Funding Sources

• CLT projects are HOME eligible using resale requirements

• Some projects funded with MSHDA funds

• Significant technical assistance investment

For more information…

Stephen LathomHomebuyer Development SpecialistMSHDA Office of Community Development735 East Michigan Avenue, PO Box 30044Lansing, Michigan 48909517-373-8853lathoms@michigan.gov

www.michigan.gov/mshda