Colorado-Real-Estate-Journal_355045

August 2023 — Multifamily Properties Quarterly — Page 29 www.crej.com I f you find yourself at a city council or county commission meeting where the short- age of housing comes up (as it almost always does, these days) – in public comments about the people sleeping in parks, or as part of a discussion about allow- ing greater density for multifamily housing – you may have had heard city or county leaders ponder ques- tions like: “Are we sure this is the type of hous- ing we need?” “How many affordable housing units are we short?” “How likely is it that these units will be priced to meet our affordability gaps?” Housing needs assessments answer these questions. They are broader than market studies, which are conducted to support new development and/or acquire public funding. Site-specific market stud- ies answer: How many seniors may choose to move into a newly built assisted living community? Or, what is the demand for a new low- income housing tax credit develop- ment? Needs assessments, in contrast, study an entire market area and estimate current and long-term housing needs as communities experience demographic, employ- ment and economic shifts. Cities, counties and regions depend on needs assessments to ensure they have the right policies and zoning ordinances in place to facilitate the types of housing needed to address current affordability gaps and ensure that affordability challenges are met as communities change and grow. The typical components of a housing needs assessment are: n Demographic analysis: This stud- ies how a community has changed over time in terms of age, income, household size, race and ethnicity, and how demo- graphics are likely to shift in the next five to 20 years. n Housing sup- ply analysis. This examines trends in building per- mits by type and composition of housing stock – single-family detached homes, con- dos and townhomes, multifamily units, manufactured homes – and the share of a community’s housing stock that is dedicated affordable or “naturally occurring” afford- able based on price point. Regional needs assessments compare hous- ing supply across communities to determine how well individual communities are accommodating regional workforce and residents’ housing needs. n Housing gaps and needs projec- tions. The primary focus of a needs assessment, this typically examines needs using several indicators: the number and share of people paying more than 30% of their incomes for housing (“cost burden”); the mis- alignment of housing and incomes of people occupying housing (“gap analyses”); and projected growth in workers and residents relative to the type of housing being developed in a community. Communities can use this data to set goals for hous- ing development and benchmark new and adjust existing policies and land use initiatives against these goals. n Disproportionate housing needs. This examines how resident groups experience housing markets dif- ferently. Lower-income residents have fewer choices in housing markets, and these residents often have fixed incomes, are people of color and may have disabilities. Failure to build affordable housing has an exclusionary effect on these resident groups. Similarly, pre-civil rights discriminatory behavior by builders, lenders, insurers and the public sector limited the ways in which persons of color and women could attain homeownership and build generational wealth, which makes it harder for some to accu- mulate savings for the down pay- ment needed for homeownership. n Income measures. The income categories at which housing needs are analyzed are typically defined by the U.S. Department of Housing and Urban Development as area median because federal housing programs use AMIs for eligibility and reporting. The AMI is liter- ally the income of households in the middle (median) of an income distribution of all households in a community. A median is a better reflection of the “average” house- hold than a statistical average, because the median is less influ- enced by very low and very high outliers. AMI is by no means a perfect measure of income: The method of determining AMI can be com- plicated because data are hard to collect accurately in small geo- graphic areas. HUD AMIs also reflect owners, as well as renters – and in communities where owner income growth has far outpaced renter income growth, use of the AMI can inflate affordability thresholds for renters. As such, needs assessments also examine needs by actual income categories, separated by renters and owners. n Application of needs assess- ments. Housing needs assessments have application among many departments: from housing, to plan- ning, to economic development. For example, a community that is rapidly aging and being consid- ered as the site of a new hospital may use the information in a needs assessment to create opportuni- ties for affordable housing for health care workers and for older adults looking to downsize, as well as provide grants for accessibility improvements to help residents age in place. A community with a large share of families and young residents may choose to broaden its range of products to ensure that workers in education and child care can afford to live there, and to allow families to move through life cycles. In regions working to attract eco- nomic development, housing needs assessment may be utilized to dem- onstrate the capacity to accommo- date employment growth – and to determine how cities and counties that benefit from economic boosts should adjust their policies to con- tribute needed housing. Finally, a needs assessment can be used as a tool to guide plan- ning commissions and community leaders in making informed and equitable decisions about the type of development they attract and how that housing will open or close markets for certain residents. It is in the best interests of residents to have the public sector work to address disproportionate housing needs and improve housing stabil- ity – not only because it saves tax- payers money, but also because it is a compassionate way of policymak- ing to develop healthy and diverse communities that meet the housing needs of all. s heidi@rootpolicy.com Helping communities decide affordability demand Heidi Aggeler Managing director, Root Policy Research A s if the dangers of frontier life when building railroads weren’t difficult enough, bonds issued for the con- struction of rail lines in the mid- to late 1800s were frequently subject to legal challenge. By 1875, most of the populous counties in Colorado were heavily in debt, having borrowed funds to acquire securities issued by railroads. Towns all over the West made promises to the railroads in hopes of luring them to their com- munities so they could boom rather than bust. Unfortunately, widespread defaults occurred, and many of these promises – and the so-called “rail- road-aid bonds” that supported them ¬– were judicially determined to be invalid. Courts struck bonds down for a variety of reasons, including lack of public purpose, violation of constitu- tional debt limitations or the absence of electoral approval. As a result of the chaos in the market, investors were unwilling to risk funding public bodies, espe- cially small communities. To gain some sense of stabilization, market participants began seeking opinions on bond validity from lawyers with specialized knowledge in municipal finance. This led to the advent of “bond counsel.” While affordable housing finance is full of its own intri- cacies, including the ever-increasing scarcity of private activity bonds, volume cap and the complexities of the 50% test for low-income hous- ing tax credits, the underpinnings of bond counsel and the anatomy of the bond opinion remain the same. The National Association of Bond Lawyers Model Bond Opinion Report details the industry standard for opin- ion practice, which requires delivery of an “unqualified” opinion, or one that is constrained only by customary assumptions, limitations and quali- fications, and not “explained” in any other way. The opinion standard is a high bar: Bond counsel must be “firm- ly convinced” that the highest court in the relevant jurisdiction, prop- erly briefed and acting reasonably, would concur with such opinion. For example, bond counsel dealing with an issue of state law in Colorado may opine that a bond is validly issued only if the Colorado Supreme Court would agree. There are three primary opinions rendered by bond counsel in con- nection with multifamily housing revenue bonds. The first is that the bonds are valid and binding special, limited obligations of the governmen- tal issuer, payable solely from pledged revenues. In order to give this opin- ion, a number of things must be true. The issuer must be a validly existing political subdivision or body and pub- lic instrumentality of the state (such as the Colorado Housing and Finance Authority, local housing authority or municipality) with the power and authority to issue debt, and the issu- ance and sale must be authorized by all requisite action of its governing body. The bonds can’t exceed appli- cable debt limitations, all approvals required for the issuance and sale of the bonds must be obtained, and the bonds must be executed and deliv- ered in proper form. There generally can’t be litigation or pending litiga- tion that would affect the validity of the bonds or any powers of the issuer to provide security for payment of the bonds. Bond counsel bases its legal opinion on certifications of fact from the issuer and other deal parties. The second opinion provides that the primary financing document (i.e., bond resolution, indenture or financ- ing agreement) is enforceable against the issuer. In other words, the bond- holder can enforce the agreements in order to get paid from the revenues pledged by the LIHTC partnership, such as rents and equity installments. The third opinion – most relevant to the 50% test – is that interest on the bonds is excluded from gross income under federal income tax laws. This opinion excludes any period of time where bonds are held by a “sub- stantial user” of the facilities. Bond counsel must analyze a host of tax issues, including public notice, hear- ing and approval requirements (often referred to as the Tax Equity and Fis- cal Responsibility Act process), bond allocations to good capital costs suf- ficient to satisfy the “95/5 test,” PAB sourcing, reimbursements, limitations on financing land and costs of issu- ance, and program investment issues. Additionally, Section 142(d) of the tax code requires a minimum number of units in the project to be set aside for low-income residents for the duration of the qualified project period; the most common test is the “40-60” test, where at least 40% of the units are set aside for residents earning 60% or less of the area median income. Multifamily financings generally follow similar schedules. First, the borrower requests the issuer’s assis- Bonds: Opportunities to promote private investment Cory Kalanick Member, Sherman and Howard AFFORDABLE HOUSING: NEEDS ASSESSMENT AFFORDABLE HOUSING: BONDS Please see Kalanick, Page 33