During its September meeting, the board of the Minnesota Housing Finance Agency (MHFA) covered a range of topics including cultural competency and cost containment measures within the organization. The board granted concept approval of awards to two nonprofit housing financing programs, and $1.6 million in Housing Counseling (HECAT) Funds, which support homeowner/homebuyer education.
MHFA also approved the 2017 Affordable Housing Plan, which outlines priorities for MHFA efforts. The agency expects to lend more than $1 billion in support of these efforts over the course of the program year, which began October 1.
Housing and Community Dialogue
Commissioner Mary Tingerthal opened the meeting with a review of the recent multi-agency Housing and Community Dialogue in Grand Marais. Housing and Community Dialogues convene local community stakeholders with the goal of sharing information and building momentum around specific community housing challenges. Tingerthal mentioned that 60 people turned out for the event, which was significant for the small community of Grand Marais. The primary concern was the need for workforce housing, particularly in support of the tourism industry. Tingerthal heard that many homes were being rented to families vacationing in the area and not available to the local population.
Cultural Competency Committee
The board heard an update on the activities of MHFA’s new Cultural Competency Committee, which seeks to foster cultural awareness in staff throughout the organization. A staff survey administered by the Committee found that although a strong foundation for cultural competency exists within the organization, there was a low level of agreement with the statement that MHFA’s management and leadership are committed to diversity. Staff also expressed a need for cultural competency trainings. Committee members said that, moving forward, they would encourage these trainings in addition to information sessions with community partners serving diverse markets. Board member Terri Thao asked how MHFA’s efforts relating to cultural competency compared to other state agencies. Committee members were unsure. Tingerthal said that in her experience with the governor’s initiative to assess employment practices across state agencies, including supporting diversity, MHFA was a little further along than others.
Housing Counseling Funds (HECAT)
The board approved $1.6 million in Housing Counseling Funds (HECAT dollars) to 40 agencies. MHFA distributes HECAT dollars to nonprofits in support of homebuyer/homeowner education efforts. Twelve of the agencies awarded serve primarily Hispanic ethnicity markets or households of color. A combined funding award bundled MHFA’s $942,000 with resources from the Home Ownership Center, Greater Minnesota Housing Fund (GMHF), and Family Housing Fund. Last year, 2,100 households benefited from the program’s prepurchase, home equity, and foreclosure prevention counseling. According to staff, 67 percent of those served through the foreclosure counseling program successfully avoided foreclosure. Board member Craig Klausing asked for a comparison figure (the percentage of individuals that would have kept their homes had they not received counseling). Staff did not have that number; however board member Joe Johnson, a banker from Duluth that provides home loans, said that the percentage avoiding foreclosure sounded very good to him.
Nonprofit Housing Financing Programs
The board heard and provided concept approval for MHFA’s participation in two nonprofit housing financing programs. The first, proposed by Twin Cities Habitat for Humanity, would commit MHFA to providing $8 to $10 million in financing over four years. To help Habitat secure private investment, MHFA would agree to receive payments after Habitat has paid private investors. According to Tingerthal, MHFA’s funding to Habitat would not increase as a result of MHFA’s participation in this program because, for a number of years, MHFA has committed this amount of financing to Habitat chapters in Minnesota. To prevent the reduction of the capacity of Twin Cities Habitat’s lending programs as it receives new resources, all repayments of mortgage loans made through earlier investments would be restricted to reuse by Greater Minnesota chapters.
The board also granted concept approval to provide one or two $5 million awards to support the NOAH Fund of GMHF. According to staff, the second $5 million award would be contingent upon investors’ commitment to one of the mid-level risk pools for which bank investments are currently being solicited. Like the Habitat program, MHFA’s investment would be repaid after GMHF has paid private investors.
Board member Stephanie Klinzing said that these were complicated deals, but they fit well with MHFA’s mission. Board member Thao asked what the MHFA hoped to learn from these pilot investment programs. Agency Chief Financial Officer Kevin Carpenter said that he welcomed opportunities to look at other similar concepts where MHFA could advance its mission by leveraging private resources, resources that would not otherwise be available for the uses proposed by Habitat and GMHF.
2017 Affordable Housing Plan
The board officially approved the 2017 Affordable Housing Plan (AHP). MHFA expects to lend or grant more than $1 billion over the course of the program year, which begins October 1. According to John Patterson, Director of Planning Research and Evaluation, among other things, a discussion of senior housing was added to the plan in response to public comments on the draft. (See below for MHFA board discussion on the public comments made at a committee meeting on the AHP held September 9).
Cost Containment Measures
John Patterson concluded the meeting with a report on MHFA’s cost containment measures. Patterson provided graphs that showed that, since 2004, per unit costs of housing tax credit projects remained relatively flat. One issue that surfaced in regard to cost containment was tax credit scoring. Developers were penalized because rising construction labor costs elevated their overall costs above what was outlined in their applications. MHFA speculated that developers might pad their costs to protect themselves from future construction price increases. To offset this risk, in the 2018 Qualified Allocation Plan, MHFA will increase the point benefit for projects with lower costs. MHFA will also keep the point benefit higher than the potential penalty levied should a developer’s project costs exceed the amount proposed at the time of application.
Board member Rebecca Otto said that, as MHFA seeks to encourage lower development costs, it should be mindful of unintended consequences. MHFA should want workers to be paid well and consider the importance of green development standards. Patterson said that to avoid these unintended consequences, MHFA should address inefficiencies in project soft costs. For example, MHFA will encourage housing funders to use common legal documents. MHFA will also focus on reducing the time from project award to closing. According to Patterson, 100 percent of projects currently close within 20 months—up from 50 percent of projects. To better understand how to achieve savings on hard costs, MHFA surveyed architects, contractors and developers, and changed several design standards in response to the information collected. For example, MHFA clarified that a separate dining room is not required in apartments.
Notes from September 9 Program Committee to Review Comments on MHFA’s 2017 Draft Affordable Housing Plan
John Patterson reviewed the 11 sets of comments submitted to MHFA in response to the draft AHP. Patterson stated that the comments were thoughtful and, on the whole, very supportive of the draft AHP. Therefore, only minor clarifications to the AHP were proposed.
Although several commenters made the suggestion, Patterson said that MHFA would not add “creating more affordable housing” to its list of priorities. He reasoned that this was core to the mission of MHFA and did not need to be called out. The staff report showed a progressive increase in the percentage of financed rental units classified as new construction (2015: 22 percent; 2016: 34 percent; 2017 projected: 45 percent), and stated that the tilt to new construction would likely continue as long as vacancy rates remain low.
Patterson added that, in allocating now scarce tax exempt bond authority, MHFA would consider the use of four percent housing tax credits. The staff report stated, “We acknowledge the benefit that bonding authority for rental housing brings by making it eligible for 4 percent housing tax credits. This benefit will be incorporated into the decisions we will make.”
Regarding comments calling for initiatives to address senior housing need, Patterson said that MHFA is currently focused on helping people age in place, but over time, it will be increasingly important to emphasize senior rentals. Patterson added that MHFA received good proposals for the senior pilot program under consideration in this year’s AHP.
In response to a comment calling for the use of federal HOME funds for rental assistance, Patterson said that there were significant administrative barriers, primarily related to compliance burden, to this program use; and for this reason, rent assistance was not the best use of these federal funds.
Regarding the need for increased resources for the Family Homeless Prevention and Assistance Program (FHPAP), Patterson said that MHFA was focused on getting mainstream social service and health programs to help address the needs being met through FHPAP.
Board member Stephanie Klinzing endorsed MHFA’s look at senior housing. She reported that when she staffed the Board on Aging booth at the state fair this year, half of the people she heard from brought up the need for housing assistance. In response to comments calling for accessory dwelling units for seniors, Patterson said that was an important response; Patterson added that in a few years there would be 85,000 extremely low income seniors and that Minnesota cannot support housing for everyone. Tingerthal added that accessory units can be permanent or temporary and would be particularly valuable in rural communities were senior housing was not available.
Board member Terri Thao proposed that MHFA engage in affordable housing issue awareness campaigns. Commissioner Tingerthal responded that MHFA had gone in the direction of targeted marketing with its programs, particularly to households of color and Hispanic ethnicity. Tingerthal added that she and Communications Director Megan Ryan would update the board on MHFA’s communications strategies at a future board meeting.