Developers of affordable housing projects shed light on the process
One of the biggest issues facing any of the candidates elected this November is housing. There are many calls for local governments to invest more in subsidizing the cost to provide units to people whose household incomes are below the area median income.
To educate policymakers throughout the wider area, the Central Virginia Regional Housing Partnership has been holding a speaker series to illustrate the challenges and obstacles from the perspective of the building and development community. Yesterday, on April 15, the guest was William Park, the president of Pinnacle Construction. He went through the many line items that go into a financial calculation about how much it costs to build new housing.
He said at the moment, one of the major factors is rising prices for materials, with some elements costing as high as four times as much as they did a year ago.
“Give you an example, I was just writing a purchase order the other day that I struggled to sign it,” Park said. “OSB 716 that we use many times for sheeting on our walls and our roofs. In an apartment project, we may have 30,000 sheets of OSB. Typically I’m in the $10 range. I signed a PO the other day for $42 a sheet.”
Another factors are permits, taxes, insurance, recording fees, financial statements, legal fees, and everything it takes in order to get a building permit.
“And then reserves that we have to set aside for working capital and initial operating deficit,” Park said.
Park also detailed ways to help cover the costs in order to deliver housing units that can be rented out below what the market could bring in. These include grants from the federal or state government, as well as tax-exempt bonds from entities such as economic development authorities. Many projects Park has worked on involve Virginia Housing, formerly known as the Virginia Housing Development Authority.
“They get a large portion of the tax-exempt bond allocation that goes to the state,” Park said. “The other tool that we use almost extensively for anything below the 60 percent area median income is the low-income housing tax credit.”
You’ll often hear the acronym LIHTC for low-income housing tax credits. This has helped subsidize construction of “affordable” projects in Albemarle County ranging from Crozet Meadows to Wood’s Edge. In Charlottesville, recent projects with low-income housing tax credits include Carlton Views. There are different kinds of tax credits for different kinds of projects. (Virginia Housing page on low-income housing tax credits)
“If we’re allocated tax credits, we sell those tax credits to a corporate entity and they in return get a dollar for dollar credit against their federal tax liability,” Park said.
This builds equity in the project which brings down the amount that needs to be financed. This is a competitive process. In this year’s cycle, Virginia Supportive Housing is applying for tax credits for their portion of the redevelopment of the Red Carpet Inn. Piedmont Housing is applying for the tax credits for the 70 apartment units they are building at Southwood. (current applications)
Park said there are other options for projects that seek to provide an affordable rent for households who make between 60 percent and 80 percent of the area median income. Virginia Housing has a mixed-income financing program.
“They have a particular program where they use taxable bonds,” Park said. “Twenty percent would have to be set aside for those tenants at AMI 80 percent or less. The other 80 percent could be unrestricted as far as rents, or you could choose the 40/60 option which would be 40 percent below 100 percent AMI and the balance 60 percent unrestricted.”
The concept of “affordable housing” means different things to different people. Park said there are a lot of misunderstandings based on biases and prejudices.
“When the low-income housing tax credit was first promulgated, one of the worst things they ever did was entitle it the ‘low-income housing tax credit’ because I think at that point everybody thinks you’re talking about people that don’t work, that have no other chance to provide anything to society, which is totally wrong.”
Park said interventions to reduce rents provide places to live for service workers, including first responders and teachers. In an affluent community like Charlottesville, the area median income is high, at $93,900, putting many homes out of reach.
Park suggested ways to help developers lower the cost of projects include expedited initial reviews, reduced parking requirements, and increased building heights. He also said a less adversarial relationship between developer and local government would also help.
“The planning staff needs to be an advocate and really help get us through the process for this affordable housing because time is money and if we’re sitting there with a deal that we’ve looked at and the interest rate needs to be five percent, and all of a sudden this thing has taken eight or nine months to get through, and now interest rates are now six percent, well the deal may not work anymore, and that’s the reality of it,” Park said.
The full recording of the event will soon be made available on the YouTube page for the Thomas Jefferson Planning District Commission.
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