Rental ProgramsSmall Rental
The Small Rental Property Program provides loans incentives or direct loans to property owners who operate affordable rental property.
In the program’s original design, small landlords were required to rebuild or restore their one-to-four unit rentals, then obtain forgivable loans in exchange for renting out the affordable units. However, many landlords were unable to pay the out-of-pocket repair costs, or to obtain construction loans. This stalled the program’s goal of quickly bringing online more post-storm affordable rental housing.
Keeping this in mind, the LRA/Office of Community Development implemented enhancements to the program, allowing the state to provide qualifying small landlords with up-front loans tied to repairs that will be forgivable over time, if the owners follow certain rules. Applicants may either remain in the current loan incentive program or choose the direct loan program.
In combination with the Piggyback program, the Small Rental Property program will help fill niches in the housing market and provide neighborhoods with new or renovated, best-practice, mixed-income units.
As of March 2009, the Small Rental program had placed 1,073 units in commerce in Louisiana, of which 756 are considered affordable; the Piggyback program had placed 854 units online, of which 502 are affordable. Units are considered affordable if a household pays no more than 30 percent of its annual income for housing. Both programs require a significant number of units be affordable to families making below 80 percent of the area median income (AMI) and as low as 30 percent of the AMI. The eventual goal of both programs is nearly 8,500 affordable rental units.
Piggyback Rental Housing
Forty-seven percent of the rental housing in the state, or more than 82,000 rental units, were damaged or destroyed during the storms of 2005. It is vital to Louisiana’s recovery that we rebuild affordable housing for our citizens. Mixed-income properties have proven to be a nationwide best practice, supplying high-quality residential developments in attractive neighborhoods that eliminate the pockets of poverty and social ills so often associated with traditional low-income housing projects.
By contributing capital in the form of CDBG funding, the state ensures affordable rental housing in more than 50 percent of the mixed-income units, some of which are market-rate units and some are which are “affordable.” A portion of the affordable rentals are reserved as Permanent Supportive Housing units, which are tied to supportive services for low-income individuals with disabilities.
The state’s Piggyback Program has awarded a grand total of $581 million in CDBG funds for affordable rental housing, creating a total of 8,184 rental units that will become available by December 2010. The grand total includes 3,294 market-rate rentals and 4,891 affordable units; 721of the affordable units are reserved for PSH vouchers.
How the finance packaging works
To help finance the projects, CDBG funds are “piggybacked” onto Gulf Opportunity Zone Low Income Housing Tax Credits and serve to bridge any funding gaps between the tax credits and private financing. All of the projects must be completed by December 2010, when the Go Zone program sunsets. In order to qualify for funding, developers submit an application to the Louisiana Housing Finance Agency for low-income housing tax credits and to LRA/OCD for Piggyback gap financing. After the competitive application process, developers sell the credits to an investor, generating an immediate equity stream. This equity, when combined with the CDBG gap financing and private debt, creates sufficient capital to build and operate the rental housing developments. In return, the investor owns a piece of the project and can claim the tax credits on federal tax returns for 10 years.
The affordability formula explained
The low-income housing affordability formula is established by HUD each spring and is based on the Area Median Income (AMI) of a parish. The AMI is the region’s mid-range income (not the average income). For example: In the Metropolitan Service Area (MSA) in New Orleans (Orleans, St. Tammany, Plaquemines, Jefferson and St. Bernard parishes), the mid-range income for a family of four in 2008 was $52,000. To qualify for 50 percent AMI, the New Orleans family must earn $26,000. Workforce housing is considered to be for households with incomes at or below 60 percent of the AMI; low-income housing is considered to be for households with incomes at or below 20, 30 or 40 percent of the area’s median income. HUD cautions that no more than 30 percent of a family’s income should be spent on rent and utilities.