The difference between what lower-income and upper-income families and individuals spend on housing makes the concept of a wealth gap anything but abstract. With a population of renters that has grown significantly since the Great Recession, the growing disparity in the wealth of richer and poorer American households is being driven to a great degree by ever higher housing costs.
In 1960, less than a quarter of all renting households in the United States spent 30 percent or more of their monthly income on rent. Today, upper-income renters spend only about 15 percent of their income on rent, while lower-income households are devoting nearly half their income to housing, reports The Pew Charitable Trust.
And the lower down the income ladder you go, the worse it gets. As the National Housing Conference’s Housing Landscape 2016 reports, one out of five low- to moderate-income households is spending over half their income on housing, while nearly four out of five extremely low-income households are severely burdened by rising housing costs. According to the National Low Income Housing Coalition’s Affordable Housing Gap Analysis, the absolute shortage of affordable housing units for the poorest is unprecedented throughout the country, and especially in our district: Nevada had the least adequate supply, with only 17 affordable and available units for every 100 extremely low-income households, with Arizona and California not far behind.
On a daily basis, severely cost-burdened families and individuals are forced to make any number of hard choices just to keep a roof over their heads. Gas for the car, or groceries? Healthy food, or cheap fast food? Utility bills, or medicine? A second job, or more time with family? And when any bit of bad luck might just be enough to tip a family over into homelessness – to join the more than half a million people in this country, 125,000 of them children, with no place at all to call home – how can these cost-burdened families even dream of saving for college costs or retirement, or to buy a first home?
Homeownership remains one of the greatest wealth-building opportunities for working families. But that aspiration remains out of reach for a large and growing share of the American population: those making too little money and spending too much of it on rent to save for a downpayment in an environment of ever-increasing home prices and restrictive loan underwriting requirements.
Providing opportunity is essential to American ideals, and a stable, affordable home creates a foundation for success. While the nation’s housing finance system remains in limbo, with any meaningful reform or new policies at least a presidential election away, the Affordable Housing Advisory Council recognizes the importance of continuing to bring the resources of the Bank and its members together with the expertise of local affordable housing developers and community nonprofits to find innovative ways of helping people make a better life for themselves and their families.
The Bank’s Affordable Housing Program continues to operate in a good news/bad news environment. Economic growth is a good thing, but the flip side of a growing economy in some parts of our district is that so many long-time residents are being priced out of their local housing markets. The way in which gentrification causes displacement of lower-income families, threatening the diversity of urban areas, poses difficult policy questions, which were the subject of an illuminating panel discussion at a joint meeting of the Bank’s Affordable Housing Advisory Council and Board of Directors in 2015.
There is also good news in the way the affordable housing development community has stabilized after many years of turmoil following the financial crisis. But while tax credit prices have been high, which helps affordable housing developers, construction costs, particularly in California’s booming Bay Area, have risen sharply. Labor has become scarce, with rural areas suffering the most from fierce competition for resources. Increasing costs for rural construction are bound to make providing affordable housing even more difficult.
Through the AHP, the Bank supports affordable housing projects that target specific community and resident needs while offering individuals and families opportunity as well as shelter. The Bank’s competitive application process is a rigorous one, ensuring that projects likely to do the best job of meeting those needs succeed. In 2015, the Bank awarded $44.7 million in grants through 22 Bank members to 64 projects that will construct or rehabilitate 4,187 badly needed units of housing affordable to lower-income individuals and families in Arizona, California, Florida, Georgia, Hawaii, Illinois, Maryland, Montana, Nevada, Oregon, Texas, and Washington.
2015 Competitive Affordable Housing Program Results
|(Dollars in millions, except subsidy per unit)||Rental||Ownership||Total||1990-2015|
|Number of Applications||144||10||154||5,583|
|Number of Applications||60||4||64||2,148|
|Number of Units||4,113||74||4,187||114,545|
|Average Subsidy per Unit||$10,513||$19,459||$10,671||$7,089|
Competitive AHP grants awarded in 2015, ranging from $105,000 to $1,500,000 each, will support a wide range of targeted projects, including:
- Senior and special needs rental housing
- Sustainable developments that will be LEED Certified or GreenPoint Rated
- Rural developments for families and farmworker housing
- Transit-oriented, mixed-use developments for low-income families
- Targeted projects with integrated health services
- Transitional or permanent supportive housing for veterans, the chronically homeless, the developmentally disabled, and others
Homeownership continues to be a big part of achieving the American dream. Owning a home plays a crucial role in narrowing the wealth gap for low- and moderate-income families, which in turn helps build strong, stable communities. For many lower-income families, it adds stability to their lives and can be an important tool for wealth building. Even after the housing bust, over time the net worth of homeowners has significantly outpaced that of renters.
In 2015, the Bank set aside $9 million from its annual AHP contribution for its Workforce Initiative Subsidy for Homeownership (WISH) and Individual Development and Empowerment Account (IDEA) first-time homebuyer programs. Twenty-eight Bank members reserved $7.1 million in WISH funds and $1.9 million in IDEA funds to help low- to moderate-income families and individuals buy a home in Arizona, California, Nevada, and other states where members do business. Six Bank members participated for the first time.
Both programs offer eligible homebuyers 3-to-1 matching grants of up to $15,000 for the purchase of a home. WISH, targeted to families and individuals who are ready to make the transition from renting to owning, taps the desires of a hopeful workforce. IDEA, directed at homebuyers who have been saving for the purchase of their first home through an Individual Development Account or participating in their local housing authority’s Family Self-Sufficiency homeownership program or a lease-to-own program administered by a nonprofit or government entity, has been very successful at helping low-income people develop financial skills and build assets, and then achieve the self-sufficiency and pride that comes with homeownership.
Both first-time homebuyer programs require participants to complete a homebuyer counseling program administered by an experienced organization. This critical educational component is an important feature of the Bank’s programs and, combined with favorable terms and rates on the mortgages the homebuyers receive, a significant driver of the exceedingly low rate of foreclosure among WISH and IDEA program participants.
Since 2000, the Bank has funded over $73 million in WISH and IDEA matching grants, helping more than 5,500 households achieve the dream of owning their own home.
The Bank works with the Advisory Council throughout the year to make needed changes to the AHP Implementation Plan in response to altered circumstances and shifting priorities. In 2015, the Bank made the following key changes:
- New Maximum Subsidy Amounts
With the expectation of a record amount of funding being available in 2016, the Bank increased the maximum subsidy a member may apply for in a single AHP funding competition from $10 million to $15 million, and increased the maximum per-project subsidy request from $1.5 million to $2 million. The increase in the maximum per project subsidy request will benefit larger projects, which are a stated priority of the California Tax Credit Allocation Committee.
- Community Stability Scoring – Sustainable Developments
The Bank revised its criteria for awarding points under the GreenPoint rating program in the “Sustainable Developments” section of Community Stability scoring to align them with Build It Green’s new rating system and with evolving industry standards.
- Changes to Maximum Amount of Funding for IDEA and WISH
With the number of participating members in Arizona and Nevada reduced by charter consolidations, the Bank wanted to ensure that all eligible homebuyers will still be able to access these programs through a participating Bank member. Therefore, members may now apply for a combined maximum reservation of funds of up to $4 million from the IDEA and WISH programs, an increase from the prior maximum of $1 million per program.
The Finance Agency is expected to issue a proposed AHP rule with request for comments later this year. With the goal of achieving a revised regulation that makes the program more nimble and responsive to emerging needs and regional realities, the Bank’s Advisory Council and Community Investment management have been actively engaged since 2014 in the System-wide effort to bring about meaningful improvements to the regulation.
The December 2015 joint meeting of the Advisory Council and the Board of Directors included a panel discussion on AHP modernization, during which the Advisory Council and the Board of Directors were able to engage with Federal Housing Finance Agency staff on the most challenging policy issues. This productive discussion was followed by a tour of local affordable housing projects led by project sponsors, who were able to share their first-hand experiences developing and operating supportive housing projects using AHP subsidy.
The Bank’s Community Investment Cash Advance (CICA) programs offer Bank members a lower-cost source of funds they can lend for affordable housing, neighborhood revitalization, and economic development activities that benefit low- to moderate-income communities.
In 2015, members took advantage of these lower cost funds to support local economies, create new affordable housing, and facilitate homeownership for lower-income households, using:
- $1.4 billion in Advances for Community Enterprise (ACE) to support community lending and economic development activities, including small business loans. This funding is expected to create or retain over 16,400 jobs.
- $363 million in Community Investment Program (CIP) advances to support single-family home loans to families and individuals with incomes at or below 115% of area median income.
- $384 million in lower-cost CIP Standby Letters of Credit to support development of affordable housing projects.
In addition, one member used an ACE letter of credit in the amount of $14 million to help transform a closed automotive plant in Atlanta, Georgia, into Third Rail Studios, a state-of-the-art film and television production studio for the city’s expanding film industry. The developer expects production at the facility to generate 1,000 jobs annually.
The Bank’s Board of Directors determines funding for the AHEAD Program annually. The Advisory Council is very pleased to note that for 2016, the amount of funding for the program will be increased to $1.5 million, in recognition of the growing value of the program to Bank members and their community partners.
Originally established as a source of early stage funding for initiatives that benefit low- and moderate-income communities, the program has evolved to focus on supporting economic development and job training or job creation initiatives that have the potential to help narrow the wealth gap. With grant amounts ranging from $20,000 to $50,000, AHEAD funds can be used to finance a variety of costs that are often difficult for a nonprofit to finance.
In 2015, the number of Bank members submitting successful applications grew to 25, a new record for the program. The Bank reviewed 174 applications requesting $7.6 million before selecting 35 AHEAD grant winners, including projects that:
- Provide job training and placement programs targeted to ex-offenders, at-risk youth, women, and returning veterans
- Offer microlending, small business incubation services, or light manufacturing facilities to low-income entrepreneurs
- Build capacity for nonprofits to better serve their communities
- Enable women with small children to pursue educational or vocational opportunities by funding scholarships for childcare services
- Facilitate production and distribution of healthy food
- Prevent homelessness by providing legal services and financial assistance to families at risk of eviction
The AHEAD Program also aims to help Bank members forge productive relationships with nonprofits that have special expertise in community development. With the 2015 AHEAD grants, for example:
- Sunwest Bank is supporting the expansion of SEDI’s Dollars for Dreams Microloan Program, which serves women-owned businesses and Native American entrepreneurs in Northern Arizona
- East West Bank is supporting the El Monte Promise Foundation’s Scholars Savings Program for lower-income students in the El Monte region likely to be the first in their families to go to college. The program offers a matched college savings program and, in parallel, financial literacy courses for public school students in first through eighth grade.
- Beneficial State Bank is supporting the Hamilton Family Center’s effort to scale up the eviction prevention component of the organization’s Project Everychild, which helps families in San Francisco avoid eviction and potential homelessness by providing legal services, landlord mediation, case management, and back rent payments.
- Northern California Community Loan Fund (NCCLF) is supporting the launch of Planting Justice’s Urban Farm and Incubation Center, which will grow organic food, create green jobs, incubate green businesses, and promote social and economic justice for disadvantaged communities in the San Francisco Bay Area.
- Charles Schwab Bank is supporting the Nevada Community Foundation’s Military Veterans Legal Assistance Project, which aims to help active duty military personnel, reservists, and National Guard troops resolve civilian legal matters.
To help members and their partners understand and use each of the Bank’s community programs, in 2015 Community Investment staff conducted:
- Four webinars and one in-person workshop on the competitive AHP application and disbursement processes
- Eight AHP compliance webinars and one in-person workshop
- Seven WISH and IDEA in-person workshops - one in Arizona, one in Nevada, and two in California - plus three webinars
- Two AHEAD webinars on the application and disbursement processes and one webinar on compliance
The Bank is committed to developing and nurturing productive relationships with policymakers and public officials, government agencies, affordable housing advocates, and a variety of community and economic development organizations. These activities further the Bank’s mission and are critical to meeting its Community Lending Plan goals.
In 2015, the Bank sponsored, co-sponsored, or participated in nearly a hundred public and industry events and affordable housing and community development conferences, forums, roundtables, and meetings, including:
- Nevada Link Up, Las Vegas, Nevada
Collaborating with the Federal Reserve Bank of San Francisco and California Community Economic Development Association (CCEDA), the Bank hosted a networking and resource sharing conference in Southern Nevada that focused on building affordable housing, starting and growing small businesses, and the intersection between banking and community development. Panelists included representatives from the SBA, the USDA, the Nevada State Housing Division, affordable housing developers, community development financial institutions, and member financial institutions. The event also presented an opportunity to encourage more Nevada members and community organizations to apply for AHEAD grants.
- Community Action Partnership (CAP) Community and Economic Development Bus Tour 2015, San Francisco, California
The Bank partnered again with CCEDA to plan and host a community and economic development bus tour of San Francisco that was part of the 2015 CAP Annual Convention. The bus tour visited two affordable housing projects in Chinatown, both developed by Chinatown CDC with AHP funds. The bus tour also visited the Mission District, where the Mission Economic Development Agency presented an overview of its Mission Promise Neighborhood, a federally funded 5-year initiative offering families coordinated educational, health, social, and community support, from cradle to college to career.
- Reentry Solutions for Success Conference, Sacramento, California
Hosted by the Federal Reserve Bank of San Francisco, the Reentry Solutions for Success conference was the first cross-sector, multi-industry gathering in California to discuss solutions and strategies for reintegrating formerly incarcerated individuals into society. Discussion topics included supportive housing, mental health and wellness, education, entrepreneurship, legal issues, and employment.
- Opportunity Finance Network (OFN) Conference, Detroit, Michigan
OFN is a national network of community development financial institutions (CDFIs) that are investing in opportunities that benefit low-income, low-wealth, and other disadvantaged communities across the United States. At OFN’s annual conference, representatives from the Federal Home Loan Banks presented CDFI membership information at a panel called "Federal Home Loan Bank 101: How CDFIs Can Leverage FHLBank Products and Services."
- Investing in What Works: National Trends and Regional Innovations, San Francisco, California
The Bank participated in another event sponsored by the Federal Reserve Bank of San Francisco focused on innovative ways of addressing the widening wealth gap in California and the United States. Among the topics discussed was the potential for tools like Social Impact Bonds, which are collaborations between the public and private sectors, to be part of the solution.
- Affordable Housing Advisory Councils’ Leadership Conference, Washington, D.C.
This year’s Leadership Conference, hosted by the Finance Agency and attended by Advisory Council chairs and vice chairs and representatives of each Federal Home Loan Bank, provided an opportunity for a useful and productive exchange of ideas on the AHP modernization effort and other issues of common interest.
On behalf of the Advisory Council, I would like to thank the Bank’s management and staff, the Bank’s members, and their community partners. We are grateful to the Bank’s Board of Directors for their consistently active and especially productive engagement with us over the past year.
In closing out 2015, the Advisory Council bid farewell to three valued members. We thank Joe Keeper, Director of Housing, Native American Connections, Inc.; Michael Mullin, President, Nevada Housing and Neighborhood Development Corporation; and Martin Quintana, formerly Chief Financial Officer, Chicanos Por La Causa. Each provided invaluable counsel during their tenures, and their presence will be missed at our Advisory Council table.
We warmly welcome to the table three new members: David Adame, President and Chief Executive Officer, Chicanos Por La Causa, Phoenix, Arizona; Diana Yazzie Devine, President, Native American Connections, Phoenix, Arizona; and Elizabeth Moore, Managing Director, Elizabeth Moore and Associates, Reno, Nevada. The breadth and depth of our new members’ collective experience will ensure that the Bank’s affordable housing and economic development programs continue to deliver well-targeted resources and create opportunity for low-income communities.
Finally, I am pleased to report that in 2016, the Bank will provide over $76 million in funding for the competitive AHP and $12 million for the WISH and IDEA programs, funds that can be used to help families and individuals build a better future.
Affordable Housing Advisory Council