The Housing Bond Explained

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In addition to choosing candidates, Raleigh residents will cast their votes Oct. 11 for or against two bonds worth $56 million to fund transportation and affordable housing projects.

Of that $56 million, $16 million will be put towards affordable and work force housing endeavors. So here is a breakdown of the housing bond.

If approved, the bonds would enable the city, acting as a lender, to provide loans to non-profit and for-profit developers to build or rehabilitate homes for low- and moderate-income residents. It will also provide loans to first-time home buyers and residents whose homes were damaged during the April 16 tornado. The city will also use some bond money to condemn dilapidated homes in high-crime areas and build new ones.

What is a bond?
“A bond is nothing more than an IOU,” said Raleigh Debt Manager Fred Blackwood.

Investors purchase bonds from the city, and then the city uses that money to invest in various housing programs or transportation projects.

Some programs will supply income toward the repayment of the bond, but there will never be enough income to completely pay it back, Blackwood said.

This is why there is an increase in taxes associated with the bond. The funding from this tax increase will be used to pay the debt service on the bond. For a home assessed at $188,139 — the median-assessed residential property in Raleigh — taxes will increase $5.26 annually.

How it Works
Community Development Director Michele Grant said if the housing bond passes, the city will put out a request for funding to developers seeking additional project money. Once funding is lined up, a developer will go through the general development process.

While most of the developments are owned by the companies that built them, Grant said that the city has a small portfolio of city-owned rental housing, which is made available to low- and moderate-income residents.

To qualify, developers must follow certain guidelines to make sure the houses are affordable. They get extra points for energy efficiency, financial strength and locating their development in certain parts of the city. Top-priority areas are parts of the city that have a low availability of affordable housing, such as northwest Raleigh.

What is Affordable Housing?
Grant explained that affordable housing falls in between public and private housing.

“Depending upon the program, the income [requirement] would vary,” she said.

Affordable housing is sometimes referred to as work force housing. Work force housing is geared toward working families who may not be able to afford to live in the city.

“You have a lot of families who were opting to live outside the city because they found it cheaper,” said Grant, adding that those that work in the city should be able to live there.

Work force housing differs from public-assistance housing because of the different income requirements used to determine who is eligible for which programs.

As a marker, the city uses the median household income provided by the U.S. Department of Housing and Urban Development (HUD), which is $77,700 for a family of four.

Residents who qualify for affordable housing programs will make anywhere between 40 and 80 percent of that number,
taking family size into consideration.

For example, Grant said, a family of four could have an income as low as $31,000 or as high as $62,000. A single person could potentially qualify with an income between about $21,000 and $44,000.

In contrast, public housing requires a much lower income rate.

“We have developments that are serving a vast spectrum of the population within that affordable range,” said Grant.

Affordable housing is also used to provide homes to elderly residents who are often retired and on fixed incomes. The income requirements for an elderly applicant would be lower than that of a first-time home buyer.

The 2005 Bond
The 2011 housing bond is the city’s fourth since 1990; the most recent passed in 2005. According to documents provided by the city’s Community Development Department, the $20 million 2005 bond funded mostly joint venture rental housing throughout the city.

“We do have an affordable housing shortage here in the city,” Grant said of the intent of the last bond. “So the city has always acknowledged that quality of life factors should be shared by all households within the city.”

The bond was paid out in loans to contractors in amounts between $146,000 and $1 million.

The Downtown Housing Improvement Corporation (DHIC) was awarded a $1 million loan for the construction of Glennbrook Crossing, an affordable rental community with 68 units.

The largest project was Raleigh Gardens, a 125-unit development built by Ambling Developments. Grant said that almost all of the projects funded by the 2005 bond have been completed, but Raleigh Gardens remains under construction. While the bond was approved in 2005, the city has seven years to issue those funds, Blackwood said.

The city can then ask for a three-year extension. He said less than $10 million of the housing bond remains to be spent, but the city has until 2012 to do so. Grant said that the remainder of the money will continue to be spent on programs for first time homebuyers and the elderly. While the city does not have to do any direct reporting of how the bond money is spent, records are subject to the yearly audit.

Grant said the city monitors how borrowers are spending the money by doing on-site visits of facilities.

The city checks financial records, but also checks to see that facilities were built at the same quality level of market rate housing.

Who Is Using the Money?
The housing bonds are used by both for-profit and non-profit developers, as well as the city to run programs for first-time homebuyers and the elderly. In a change from previous years, the city will use $1 million to provide assistance to those whose homes were damaged in the April 16 tornado. Loans up to $20,000 could be made available for homeowners who can’t get traditional loans or lack insurance coverage to get their homes back up to code.

DHIC President Gregg Warren said that the organization often uses city programs to fund its developments, which are considered affordable housing for families and seniors.

Getting funding from the city makes it easier to also get funding from other sources, such as the federal or state government, which helps bring down the rent, Warren said. While the cost of rent varies depending on the community and the resident, Warren said the apartments typically cost about $200 less than market rate and often even less than that.

DHIC also uses bond funding for multi-family rental housing which, depending on the community, is all income-restricted or mixed-income, meaning that some apartments are rented at market rate.

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