2022 AHAC Annual Report

In Arizona, there is a growing homeless population that increasingly includes seniors living solely on just social security income, with insufficient resources to give them a home of any kind. In Maricopa County, the most recent homeless count tallied nearly 10,000 people, a 37% increase from the previous year, with half of those people living unsheltered. A high percentage of this population are Black, Indigenous, and People of Color (BIPOC). Extreme rent increases are leading to evictions and leaving more people living in cars and parking lots.

As the desperate need for affordable housing in Arizona grows, the cost of building new housing soars. The disparity of income-to-expense is widening to the point that developers can no longer build homes that are within $100,000 of being affordable to a typical family of four earning 80% of area median income (AMI) or less. In addition, some supply chain issues have yet to abate. One example: certain electrical equipment is taking 18 months from order to shipment arrival, which means that buildings are completed but cannot be powered up until that essential equipment arrives.

The current estimate of overall need for affordable housing in Arizona is for an additional 180,000 – 200,000 units. The need for very affordable units for those earning 50% of AMI and less is estimated to be 136,000 units. New production around the state can be measured in the thousands and the net production is even less. Arizona produces about 16 new Low Income Housing Tax Credit (LIHTC) projects per year, but as older affordable projects enter year 15, they are at-risk of being converted to market rate apartments. As of this writing, in April 2023, there are 10 LIHTC apartment complexes in or about to enter into year 15 that are requesting release from the program. Although all the details are not available, those 10 properties collectively supply at least 400 housing units, and their loss will have a dramatic effect on the overall supply of affordable housing.

The supply problem is further exacerbated by the fact that the developers who built most of the state’s U.S. Department of Agriculture (USDA) Rural Development housing stock are now retiring.

These developers can command millions of dollars more in sale price if their properties are sold as market rate units, and they are testing the system to see what USDA Rural Development will allow and what the for-profit market will offer them. In some communities, these at-risk units are the most affordable units, if not the only units available serving residents at 50% of AMI and less. There is no new money from USDA Rural Development approved by Congress being offered to replace these lost units. Arizona has 102 rural development complexes and over 15% have been offered on the market for sale.

Another separate but equally critical issue is that nonprofit agencies are suffering from a long-running healthcare and caregiver staffing crisis. New buildings cannot open while operators wait for months while Human Resource departments scramble to hire and train enough qualified applicants for healthcare and caregiver jobs. Of those who are hired, an unusual number quit after just a few weeks in search of better pay and less demanding work. The ongoing scenario is that for every 120 applications, 10 are hired and only three or four stay beyond the 90-day probation period. One 45-year-old agency has just announced that they will be closing the longest continuously operating adult daycare healthcare center in America this year because of the unrelenting toll staffing shortages take on the remaining staff.

Just as Arizona needs to be expanding its inventory of elder and disabled services, developers are pulling back from existing and future plans in a wait-and-see approach in hopes conditions improve, and who can blame them?

Arizona’s current state government has vowed to tackle the housing crisis with an ambitious plan of encouraging local zoning changes, providing legal aid to families facing eviction, and investing in the Housing Trust Fund, which funds affordable housing development and assistance programs, among other strategies. Housing experts and advocates across the state are eager to see these plans move forward.

California needs at least 2.5 million new housing units, including 1 million for low-income residents, over the next eight years. It is still the most expensive state in the country for renters at all income levels. According to the Low Income Housing Coalition, across California there is a shortage of rental homes affordable and available to extremely low-income households, with incomes that are at or below the poverty guideline or 30% of AMI. Many of these households are severely cost burdened, spending more than half of their income on housing. In Los Angeles County, overcrowding, measured as more than one person per room, peaked in 2020 at four times the national rate. And when the inflated cost of both owner-occupied and rental housing is figured into the equation, California has the highest poverty rate in the country, at 13.2%, according to U.S. Census Bureau data. The state accounted for 30% of the country’s unhoused population in 2022, despite making up less than 12% of the total population, according to federal data. It was also home to 50% of the country’s unsheltered people, or those living in places such as streets, cars, or parks.

Affordable housing advocates in the state are encouraged by some recent legislative and policy wins, including: passage of state legislation to assist in streamlining production (CA AB 2011); passage of a local measure to increase funding for production (City of LA Measure ULA); innovative new programs that, while not perfect, are making a dent in supply (e.g. State Accelerator Program); heightened attention from elected officials at all levels of government on the urgent need to address the housing crisis in substantive ways, e.g. the City of Los Angeles has invoked emergency orders to help move things along, leveraging executive authority to make meaningful change.

CA Senate Bill 35, passed into law in 2017, allowed qualifying development projects with certain minimum affordable housing guarantees to move more quickly through the local government review process and restricted the ability of local governments to reject these proposals. It pushed through development of thousands of units but is scheduled to sunset in 2025. Recently introduced SB 423 would permanently extend and expand the provisions of SB 35 permanent.

Worryingly, however, the state’s budget has quickly gone from surplus to deficit. Meanwhile, as is true across the district, California developers with projects in predevelopment and/or under construction are experiencing a multitude of pressures that are making production challenging. These pressures include ever rising construction costs for both labor and materials, spiking interest rates affecting construction and permanent loans, and a severe oversubscription to local funds, all resulting in project delays.

Looking ahead, the industry is concerned about capital funders’ focus on providing permanent supportive housing in the absence of the essential rental subsidy and services dollars available to ensure the feasibility and success of these projects. Affordable housing practitioners are also concerned about the backed-up pipeline of thousands of units that are unable to break ground because of resource constraints, the aging portfolios of existing affordable housing units, and the related lack of tools available to reposition those properties to extend their useful life and ensure their preservation as affordable homes for those who need them.

In San Francisco, and also regionally, there is a great deal of conversation regarding Project Labor Agreements and cities are dealing with discord over building techniques, such as modular construction versus the demands of building and construction trade unions, which could have a dramatic impact on affordable housing projects going forward.

Nevada’s housing shortage continues to be one of the most severe in the country, and the state continues to be last when it comes to availability of housing for those earning 30% or less of AMI. Nevada also tops the list for highest percentage of extremely low-income households earning 0% to 30% of AMI who are severely cost burdened, meaning the household spends more than 50% of its income on housing costs, including utilities, while 20% of Nevada renter households are classified as extremely low-income.

Nevada made an historic investment to support development of affordable housing by allocating $500 million in American Rescue Plan Act (ARPA) funds for a variety of affordable housing initiatives. This created a one-time only opportunity to preserve aging public and affordable housing developments and brought support for new multifamily projects and single-family homes. Also on the supply side, Clark County committed significant funding from its general fund to develop new affordable housing. Most stalled affordable housing developments have received federal or local funding to cover gaps created by increased construction cost. And several permanent supportive housing developments received funding in 2022.

In a challenging economic environment, sustaining the momentum built in 2022 and working to move projects forward to meet ARPA deadlines will be critical to success. Additional regional initiatives may be needed to maximize limited resources for gap funding, donated land, and more.

Several new bills that may affect the affordable housing industry were introduced in the State of Nevada’s 82nd Legislative Session in February 2023, and advocates are eager for more to be done at the state level to advance solutions to the dire need for affordable housing options in Nevada.

Based on research conducted by the Bank for its 2022 Targeted Community Lending Plan (TCLP), and in response to the challenges that grant applicants submitting Nevada-based projects have faced in the AHP General Fund competition, the Bank created the AHP Targeted Fund for Nevada (Nevada Targeted Fund) to address the exceptional housing needs in the state. The Bank launched the Nevada Targeted Fund in March 2023.

Given the unique housing challenges in Nevada, the Advisory Council also applauds the Bank’s commitment to supporting the work of the Nevada Housing Coalition (NHC), first with an AHEAD start-up grant in 2019, another grant in 2020 to further build up NHC’s capacity, and then, in 2022, with a $500,000 investment that NHC is using to build up development resources in the state, grow its affordable housing ecosystem, and better position Nevada to secure and deploy affordable housing dollars from a variety of existing and new sources. Capacity building efforts include delivering critical training to practitioners on the nuances of securing and applying for affordable housing dollars, increasing the state’s affordable housing project pipeline, and ultimately ensuring more housing options for all Nevadans.

NHC’s capacity building initiative is an important complement to the Nevada Targeted Fund. The effort helps to expand outreach and training beyond traditional affordable housing developers in Nevada to include emerging developers, nonprofits, and tribal communities. In addition, the Coalition’s education and outreach work is aimed at identifying new Bank members in Nevada that can sponsor affordable housing project applications. The Bank believes that these combined efforts will enhance the ability of more experienced developers and begin to feed a robust pipeline of affordable housing projects that are ready to participate in the AHP.

The Affordable Housing Program plays a critical role in supplying resources that strengthen communities and change lives for the better. Thanks to the combined efforts of the Bank’s member financial institutions and their affordable housing partners, AHP grants awarded over the past three decades have helped increase the supply of affordable housing in urban, suburban, and rural areas served by the Bank’s membership.

Across the Bank’s district, development and labor costs that have been rising in recent years, further exacerbated by the lingering aftereffects of the pandemic. Construction delays continued to be common, driven by staffing and materials shortages, site maintenance issues, global supply chain disruptions, and lengthy timelines for utility installations and permit approvals. Inflation and rising interest rates have added new layers of complexity to the financing picture.

AHP Implementation Plan Changes:

Taking into consideration the needs and opportunities the TCLP has identified in the Bank’s district, and with valuable input from the Advisory Council, the Bank made changes to the AHP Implementation Plan for the 2022 application cycle, the most significant of which were.

• Maximum Subsidy: In anticipation of a reduction in available funds and hence in the number of awarded projects, the maximum AHP subsidy request per project was decreased from $1.25 million to $1 million. This change was intended to broaden the program's reach to a diverse array of project types and locations.
• Homeless/Special Needs Category: Historically, the vast majority of AHP funds have been awarded to projects reserving units for homeless households, with 83% of projects awarded in 2021 and 86% of projects awarded in 2020 receiving points in this category. In 2021, about 73% of recommended projects had Special Needs units with a substantial number of applications for projects serving homeless households coming from California.
• The Bank, to create a more balanced scoring criteria for the ability of the AHP to equitably meet other housing needs and fund projects located in Arizona and Nevada, made a change to scoring that removed the ability for projects to score points in both the Housing for Homeless Households and Housing for Special Needs Populations scoring categories, because a majority of projects receiving points for homeless households also received special needs points for the same household, effectively giving these projects an additional scoring advantage over projects that do not serve homeless households.
• This adjustment means an acceptable number of homeless and special needs projects might be awarded while better serving the overall housing needs in the district.
• Native Housing Scoring Category: As a new district priority, the Bank created a new Native Housing category for the AHP applications.
• Financial Benchmarks: Considering the current economic environment, the Bank:
  • Revised the Construction Cost per Square Foot benchmark, to allow the Bank to use its own portfolio and other construction cost data, in addition to RS Means estimates, in determining reasonable costs.
  • Increased the Developer Fee benchmark to 15% of total residential development costs and removed developer fee and capitalized reserves from the calculation of total residential development costs.
  • Adjusted the Operating Cost Per Unit Per Year benchmark limit for projects in the San Francisco Bay Area and Los Angeles Metro Area to between $5,000 and $10,000 per unit per year.
  • Removed the Partnership Management Fee benchmark.

More details about the most recent Implementation Plan revisions are available at fhlbsf.com.

WISH grants do more than just help someone secure a roof over their head. Homeownership is the primary way families can build wealth in America. The downpayment assistance our WISH first-time homebuyer program helps aspiring homeowners overcome the biggest barriers to achieving sustainable homeownership – downpayment and closing costs – to help families build intergenerational wealth.

In 2022, the Bank allocated $11.1 million to fund WISH and matching grants for low- and moderate-income individuals and families aspiring to homeownership. With this funding, 43 unique members, including 15 members taking part for the first time, helped homebuyers in Arizona, California, Nevada, and other states where Bank members do business, to invest in the future of their families and communities. During the year, the maximum WISH program grant amount was up to $22,000.

The WISH program offers eligible low- to moderate-income households 4-to-1 matching grants. WISH program grants can be applied to downpayment and closing costs for the home purchase. WISH grants are targeted to working families and individuals who are ready to make the transition from renting to owning, and the grants can be paired with local, state, and federal mortgage loan programs, such as Fannie Mae HomeReady and Federal Housing Administration-insured mortgages. 

Since 2000, when the first homebuyer received a matching grant through the Bank’s homeownership programs, over $141 million in WISH matching grants have been funded, helping over 9,500 families and individuals, like Doris Ealy of Long Beach, California, realize the dream of owning an affordable home of their own. 

In October 2021, the Bank announced a $1.5 million collaboration with the Urban Institute to advance racial equity, and the partnership launched the Racial Equity Accelerator for Homeownership. 

The Racial Equity Accelerator collaboration with Urban Institute will spur mortgage finance research and development in areas that can facilitate and sustain more equitable homeownership, including alternatives to credit scoring models and use of new technologies to overcome historical biases. It will also address the burden of student loan debt, which has a disproportionate effect on the Black community, and product structures that can better support homeowners who experience temporary financial hardship. In the process, the initiative will recognize some of the most promising innovators in each of these areas.

In 2022, the Accelerator published two papers:

Using Rental Payment History in Mortgage Underwriting Is a Promising Strategy to Close the Black-White Homeownership Gap examines the current mortgage lending landscape and analyzes how Black households could benefit from the adoption of alternative data, specifically rental payment history, without increasing the amount of risk lenders take on. Communities of color face structural and systemic barriers that exclude many from homeownership in America, and a better understanding of these barriers is essential to determine how they can be removed. This research from Urban Institute represents a roadmap for addressing the knowledge gap while pushing the mortgage finance industry to enact tangible solutions that ensure equity in homebuying.

A second study, New Policy Interventions Can Put Homeownership Within Reach for Black Households with Student Loan Debt, examines how student loan debt affects homeownership among young Black adults and explores ways to diminish the interference of such debt on homeownership. Increased awareness of how student loans could affect access to homeownership is paramount, and creating a pathway to a mortgage, especially for Black student loan borrowers, is likely to require new kinds of interventions. This report notes that these could include simplification of federal student loan repayment programs; better counseling for students before, during, and after college; special purpose credit programs that target specific disadvantaged groups; and programs that aim to remedy the underlying multigenerational racial wealth gap.

The Advisory Council values the Bank’s investment in this research, which is critical to leveling the playing field for all aspiring homeowners, and looks forward to publication of two more Racial Equity Accelerator papers in 2023, one addressing bias in automated mortgage finance tools and the other looking at solutions to the short-term payment issues that put too many lower- to moderate-income homeowners at risk of losing a home they have worked so hard to buy.  

The Bank’s Community Investment Cash Advance (CICA) programs offer Bank members a lower-cost source of funds that members can lend for affordable housing, neighborhood revitalization, and economic development activities that benefit low- to moderate-income communities. 

In 2022, members took advantage of these lower cost funds to respond to the fallout from the pandemic, boost local economies, create new affordable housing, and facilitate homeownership for lower-income households, using:

• $1.02 billion in Community Investment Program (CIP) advances. Eight different members used 15 CIP advances to fund mortgages for households earning up to 115% of the median income for the area in which they live, to finance first-time homebuyer programs, to create and maintain affordable housing, or to support other eligible lending activities related to housing for low- and moderate-income families. These advances helped fund or support nearly 3,800 of owners-occupied and rental housing units.

The Bank issued an Advance for Community Enterprise Letter of Credit on behalf of one member to credit-enhance refinancing for a mixed-use project in California with over 188 housing units.

In addition, the Bank issued 15 CIP Standby Letters of Credit on behalf of four members to credit-enhance refinancing for the construction or acquisition of 13 multifamily rental projects, including a mixed-use project, in Arizona, California, Colorado, Texas, and Washington, for a total of over 2,700 housing units. 

The Bank’s board of directors allocated $1.5 million for the 2022 AHEAD Program. Post-pandemic economic conditions have had disproportionate negative consequences for lower-income communities. Addressing the complex challenges many are facing requires creative solutions and strong relationships between the Bank’s members and the local nonprofits that know their communities best. One of the ways the Bank fosters these productive relationships is by inviting its members to partner with local nonprofits, government agencies, and tribal organizations to apply for grants to fund innovative initiatives that bring greater opportunity to underserved and low-income communities in Arizona, California, and Nevada. 

In 2022, $1.5 million in grants were awarded to 55 projects to boost economic development activity and create greater opportunity in underserved and low-income communities by: 

• Creating or preserving jobs
• Delivering job training or education programs
• Supporting small business, microlending, and microenterprise incubation for low-income entrepreneurs
• Addressing the special economic development needs of at-risk youth, veterans, persons with disabilities, and the formerly incarcerated among others

From creating jobs to workforce training, from supporting small businesses to providing lifelines for underserved populations, 2022 grantees exemplify the intent of the AHEAD Program by developing innovative, targeted initiatives that use proven development models or pilot new interventions to create economic opportunity and change lives. 

The Bank reviewed 180 applications submitted in 2022 before selecting 55 AHEAD grant winners. Forty-six participating Bank members, including five that sponsored winning applications for the first time, delivered grants, ranging from $25,000 to $27,500, to 55 nonprofits in Arizona, California, and Nevada. Among the 2022 AHEAD grant winners are:

• Community Resource for Children (sponsored by Bank of Marin) connects Napa County families to childcare and supports childcare professionals during and beyond the licensing and small business start-up process. The grant will enable the nonprofit to offer professional development opportunities to empower care providers, primarily bilingual women who run a business out of their home, to reach their full educational potential while increasing their knowledge of early learning and child development.
• TMC Community Capital (sponsored by First Republic Bank) is a nonprofit online microlender focused on empowering underserved entrepreneurs in California that will pilot a new risk evaluation model for more inclusive underwriting to increase access to capital for underserved small businesses. The AHEAD grant will help the nonprofit expand staff to be able to implement the pilot program.
• Nevada Business Opportunity Fund (sponsored by First Foundation Bank) provides entrepreneurial training, technical assistance, and access to lending for new and expanding businesses throughout the state of Nevada. The grant will support a revolving loan fund to supply access to affordable microloans and small business capital for primarily low-income and minority communities in Clark County.
• Family Housing Resources, Inc. (sponsored by Vantage West Credit Union) focuses on helping people reach financial freedom through housing support, education, and partnership. The grant will support the FHR Financial Pathways Fundaciones Financieras program in the delivery of financial foundation courses and financial mentorship to 100 low-income individuals, primarily Spanish-speaking women.
• Rise Up Industries (sponsored by Western Alliance Bank) focuses on minimizing gang involvement by offering integrated gang prevention, gang intervention, and post-detention reentry services in San Diego County. The grant will support classroom instruction and on-the-job training for a career as a machinery operator.
• Crossroads Mission (sponsored by A.E.A. Federal Credit Union) is a faith-based homeless shelter and drug and addiction recovery facility that has been serving the Yuma community since 1959. The grant will be used to buy 10 new computers to help 500 adult students apply for jobs and have access to computer literacy courses and individualized tutoring.

Since 2004, the Bank has awarded over $20 million in AHEAD Program grants to support over 700 nonprofit projects and programs in Arizona, California, and Nevada.
 

On behalf of the Advisory Council, I would like to thank the Bank’s board of directors, Bank management, Community Investment department team members, and the Bank’s member financial institutions and their community partners for their dedication to the challenging work of changing lives for the better and enriching our communities.

I’m pleased to accept the chair's gavel from former chair Carol Ornelas,  CEO of Visionary Home Builders. On behalf of the Advisory Council, we thank Carol for her leadership and many years of service to the Advisory Council. Holly Benson, president and CEO of Abode Communities, succeeds me as vice chair and we look forward to the opportunity to lead the Advisory Council into 2023.

Following an extensive search process to identify nominees for four open seats on the Advisory Council, we are delighted to welcome to the table Cesar Covarrubias, executive director at The Kennedy Commission; Patricia Garcia Duarte, executive vice president at Chicanos Por La Causa; Elizabeth Elliott, executive director at Northern Circle Indian Housing Authority; and Maurilio León, CEO at Tenderloin Neighborhood Development Corporation.

While we will miss her many contributions to our work, extraordinary knowledge, and extensive experience and expertise in the affordable housing and community investment sector we are delighted to extend our heartfelt congratulations to Marietta Núñez, former community investment officer, who retired at the end of 2022. We look forward to working even more closely with Eric Cicourel who is succeeding Marietta in the role of community investment officer. He has served in a number of leadership roles with the Bank’s Community Investment Department since 1999 and brings a wealth of experience and expertise to his new role.

I am pleased to report that in 2023 the Bank is making available $28.5 million in new funding for the annual AHP General Fund competition, with $4.5 million allocated to the AHP Nevada Targeted Fund and $12.5 million allocated to the Bank’s WISH first-time homebuyer program. The Bank intends to launch a new pilot program in 2023 to further expand access to homeownership. These are critical resources that will be more valuable than ever as we continue our mutual efforts to meet both emerging and existing challenges and ensure that all our neighbors have a place to call home and economic opportunity.

Respectfully submitted,

David Paull
Current Chair
Affordable Housing Advisory Council