New Developments: Responding to NCHSA best practices, as requested
By Thom Amdur
4 min read
Last month, NH&RA’s Developers Council submitted comments to the National Council of State Housing Agencies (NCSHA) in response to its new proposed recommended practices in housing credit allocation and underwriting. It is to the credit of NCSHA and its members that as the LIHTC program and marketplace has evolved, it has dedicated significant time and effort to developing revised guidelines for its members to coincide with the times.
The LIHTC marketplace has changed significantly since the last time NCSHA updated its recommended practices in January of 2011. At that time the nation was beginning to come out of the post-2008 economic crisis and the government had implemented and allocated significant new housing resources that came out of the American Reinvestment and Recovery Act (ARRA).
The proposed revisions are timely: since the last update, tax credit equity prices recovered from their recession lows and eventually climbed to new highs, several tax credit equity portfolios changed hands on the secondary market, the United States Supreme Court issued its Inclusive Communities Decision on fair housing and disparate impact, and an array of policy trends swept the country emphasizing, at times, contrasting priorities, such as green building and cost containment.
By and large, NH&RA’s Developers Council is supportive of NCSHA’s new proposals, which try to balance responsible stewardship of scarce resources with social priorities. Several changes should reduce some of the tool’s NIMBY opposition use to delay or tank proposed LIHTC properties, including a new practice that sets guidelines around defining community revitalization plans, as well as guidelines relating to the local approval and support of developments. There are also several common sense recommendations relating to the administration and support of rural development, Native American housing development and supportive housing developments.
Several amendments also take steps to create greater accountability and transparency in the allocation and development process. NH&RA concurs with NCSHA that market analyses performed for allocation purposes should be conducted by independent and objective analysts. We recommend NCSHA go a step further and adopt best practices that speak to the minimum standards that should be included in a market study, as well as the professional qualifications and ethical standards of analysts. Many state housing finance agencies, as well as the Affordable Housing Investors Council (AHIC), have already adopted National Council of Housing Market Analysts’ (NCHMA) Best Practices and we believe this should be the standard for the industry.
Several recommendations also relate directly and indirectly to cost-containment, though these are more of a mixed-bag. As an organization committed to energy efficiency and sustainability, NH&RA has invested heavily in green building education and advocacy, but in an era of constrained resources, we think NCSHA’s amendment relating to balancing sustainable development initiatives with development costs containment goals is prudent and should emphasize first and foremost investments that create cost-savings over the life of the property.
We do not support the new proposed practice relating to developer fees. The current best practice, which limits developers to a fee of no more than 15 percent of total development costs (with some limited exceptions) is wholly appropriate compensation that has been widely accepted by the IRS, Congress, tax counsel, debt and equity providers and the development community for more than 30 years. While individual states may choose to proscribe fees further, we believe that amendment as proposed is unnecessary, overly proscriptive and would likely drive high-quality developers from the program. The long-term success of this public-private partnership has depended on attracting the highest quality participants to the industry. Affordable housing developers must get a market return on their investments that compensates for long pre-development timelines and overhead, as well as financial and operating risks associated with developments that have restricted rents and tenant bases.
If this column had more space available, there are many other changes worthy of discussion such as consultant fees, CNAs, operating and replacement reserves, foreclosure prevention and more, but I’ll have to save those for a future discussion. I want to commend NCSHA’s efforts, which have been thoughtful and thorough. Though we may not agree on every item in this first draft, the task force led by Jake Sipe (executive director of IHCDA) and Kim Herman (executive director of WSHFC) has made a great and necessary effort and should be further commended for their commitment to receive feedback from the industry. The changes, when ultimately adopted in their final form, will greatly influence allocation policy for years to come and it is critical that regulators, developers, investors and lenders continue with this productive dialogue to ensure we get it right.
