Enterprise Study Finds Many Grantees Plan to Use NSP Dollars for Rental Housing
By Caitlin Jones
6 min read
Tax Credit Advisor, August 2009: Larger government recipients plan to use much of their first-round Neighborhood Stabilization Program (NSP) grant dollars for rental housing, according to a recent report by Enterprise Community Partners, Inc., a national nonprofit.
These uses include the acquisition and rehabilitation of existing properties into apartments, for lease-purchase programs, and for projects assisted by the federal low-income housing tax credit (LIHTC).
The report presents findings from an analysis of 87 of the 306 “action plans” filed by entities – states, counties, cities – allocated grants in the initial funding round of the NSP program. These 87 grantees, the largest recipients (e.g., major cities), received 58% of the $3.92 billion in total nationwide funding.
Established by the Housing and Economic Recovery Act of 2008, NSP provides federal dollars through state and local governments to fund housing-related activities designed to reduce and reverse the decay of targeted neighborhoods plagued by high rates of foreclosed and vacant homes. Formula grants were allocated to eligible grantees, which had to submit action plans to the federal government last fall outlining how they planned to use their NSP dollars. The resulting grant agreements were signed at the end of March 2009, according to Amanda Sheldon, Enterprise research and policy analyst and one of the report’s authors. Sheldon noted grantees now are slowly getting their NSP funds “out the door” to specific projects and activities; by law they have 18 months to commit these monies.
The recent stimulus act provides another $2 billion for the NSP program, for competitive grants.
The Enterprise study has two parts. One part summarizes how the 87 grantees intend to use their funds, based on the information in their action plans. The second part highlights “promising approaches” – specific activities or programs by individual grantees – that have the potential to become “best practices.” These promising approaches are in seven areas: property acquisition and discount strategies; disposition strategies; geographic targeting; green building and rehabilitation strategies; income targeting and long-term affordability; leveraging of NSP funds with other resources; and partnerships and management.
Use for Rental Housing
Most NSP funds are likely to be used for activities related to single-family housing, such as funding the purchase and renovation of foreclosed and vacant houses for resale to low-income and first-time buyers. However, each grantee must spend at least 25% of its NSP funds for eligible purposes that benefit households at or below 50% of the area median income (AMI) – a common tenant income threshold in many governmental rental housing programs. NSP permits the rental of acquired and renovated foreclosed and vacant houses, and the rental of housing units created from the acquisition and redevelopment of foreclosed, vacant, and abandoned multifamily residential and commercial buildings.
The report notes the 87 grantees have allocated about 27.7% of their total NSP funds for rental housing. The study, though, doesn’t break this down between multifamily rental buildings (5-plus units) and one- to four-unit rental properties. Sheldon indicated that in some cities there has been much talk about current problems with foreclosed one- to four-unit rental properties.
In addition, the grantees have allocated 58.1% of their funds for homeownership, 10.2% for property demolition/ holding, 2.2% for public facilities, and 1.8% for lease-purchase of properties.
The 87 grantees plan to spend the majority of their aggregate funds (56.2%) for the purchase and rehabilitation of properties, followed by: financing mechanisms, 21%; redevelopment, 12.6%; demolition, 6%; and land banks, 4.2%. Regarding purchase/rehab and redevelopment, the report doesn’t provide a breakdown between single-family and multifamily properties, or between owner-occupied and rental housing.
Sheldon said Enterprise decided to undertake the study after observing the negative impacts from home foreclosures in certain neighborhoods where Enterprise has been active. “We’ve spent decades building and stabilizing neighborhoods,” she said, “and we were noticing that these [home] foreclosures were really bringing down otherwise healthy neighborhoods, and threatening the economy as a whole.”
Some of the “promising approaches” related to rental housing profiled in the report include:
New York City, N.Y.: The city will target 25% of NSP funds for acquisition and rehabilitation of foreclosed multifamily rental buildings in poor condition housing tenants up to 50% of AMI. This strategy protects tenants of privately owned buildings that are functionally abandoned by their owners, where the conditions threaten the tenants’ life, health, and safety. In this program, a court appoints administrators to operate these abandoned buildings.
Cleveland, Ohio: The city will use NSP funds as gap financing for development of rental or lease-purchase housing serving households at or below 50% of AMI. A focus on scattered-site housing will help avoid concentrating very low-income families in neighborhoods. Projects must: (1) Be for the rehabilitation of vacant structures or the redevelopment of vacant land; (2) Be for single-family lease-purchase units or for multifamily rental housing (including permanent supportive housing for persons with disabilities); and (3) have an LIHTC allocation and/or an project-based rental subsidy commitment.
St. Louis County, Mo.: The county will partner with the St. Louis County Housing Authority and for-profit and nonprofit developers to rehabilitate and rent foreclosed homes to income-eligible partners or families. The county will provide loans to developers to acquire and rehabilitate properties in targeted areas that they re-sell or rent.
Detroit, Mich. is considering using NSP dollars to close financing gaps in LIHTC projects stalled by the decline in the tax credit market. The city will look for ready-to-go projects.
Sacramento City and County, Calif.: Sacramento is offering two programs that provide gap financing. The first provides an incentive fee to developers and contractors after a vacant property is rehabilitated. The second aims to partner with for-profit developers to acquire a large number of properties within one block, rehab them, and operate them as affordable rental properties. Selected developers will receive subsidized financing.
Miami-Dade County, Fla.: To deal with foreclosed and abandoned multifamily rental housing, the county will purchase properties and add them to its existing affordable rental housing inventory. The county will subcontract the management and maintenance of these properties to firms. The county may also select for-profit and nonprofit developers or partner with entitlement cities to acquire, rehabilitate, and manage properties.
(Report: http://www.enterprise community.org/resources/publications _catalog/pdfs/nsp_2009.pdf)
