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HomeMy WebLinkAboutIssue Brief - Coal Trust Housing Loan Fund2 1 ISSUE BRIEF Coal Trust Housing Loan Program Our communities are stronger when everyone can afford safe and healthy homes. Community and business leaders around the state have recognized this. Throughout rural and urban Montana, the shortage of homes Montanans can afford is affecting our quality of life and our economy. Current economic conditions, federal housing policies, and declining resources at the federal, state, and local levels adversely affect the ability of Montanans earning low- and moderate-income wages to obtain safe, decent, and affordable homes. Because of this, stakeholders are looking to establish programs that help fund a diverse range of projects that provide affordable homes including multi-family rentals and homes for purchase in Montana. While there are current programs available to fund the development and renovation of homes in Montana, gaps remain as there is limited available capital and growing demand. NeighborWorks Montana currently provides pre-development and short-term financing for the development and preservation of homes across Montana but does not have the capital to provide longer-term financing. The passage of House Bill 16 was a significant step in the right direction. Like the Veterans Home Loan Fund created in 2011, House Bill 16 created a housing loan program for multi-family projects serving low- and moderate-income Montanans with $15 million invested by the Montana Board of Investments (BOI) from the permanent coal tax trust fund to be administered by the Montana Board of Housing (BOH). While the Veteran’s program provides loans to individual veterans to purchase homes, this program provides loans to multi-family projects providing homes for Montanans. BOI handles the fiduciary responsibility for all the cash flow in and out of the permanent coal tax trust fund and BOH administers the program portion. All funds are under the control of BOI. Program costs are paid from interest earned on the loans with the remaining interest and all principal going into the permanent coal tax trust fund. The new program leverages more public and private resources for affordable housing development by providing critical “gap” financing and could be coupled with a state workforce housing tax credit if MHC is able to get that enacted. The program doesn’t “spend” money from the coal trust; it invests those monies in Eligible Loan Activities With the passage of HB 16 in the 2019 Session, the Montana Board of Housing is able to make a loan for the following purposes: • Matching funds for public or private funds available from other sources for the development of housing for low- and moderate-income households; • Bridge financing necessary to make development of housing for low- and moderate-income households feasible; • Acquisition of existing housing stock for the purpose of preservation of or conversion to housing for low- and moderate-income households; • Preconstruction technical assistance for housing for low- and moderate- income households in rural areas and small cities and towns; • Acquisition of land for housing developments, land banking, and land trusts. 2 loans to housing projects for Montana’s workforce. In fact, as projects pay back the principal and interest, the coal trust is made whole. The $15 million authorized by the 2019 Legislature has already been spent and MHC is working with the Local Government Interim Committee to recommend legislation to the 2021 Legislature to add an additional $15 million to the program. Families and Individuals Flourish When They Can Afford Their Home Our communities are stronger when everyone can afford a safe and healthy home. Montana’s real estate market can be one of opportunity for everybody. Our communities can be welcoming places where Veterans returning from service can have homes and raise their families. They can be supportive places where our elderly can continue to live healthily. And they can be safe places where kids eat dinner, learn, spend time with family and play with neighbors. When people can afford their home, the economic and social return provides a benefit for us all. People living within their budget can pay for nutritious food and medical care. They can become more involved in local groups, associations, and neighborhoods. All this builds health and wealth for the person, family, and community. The Economy Grows When the Workforce Can Afford Their Homes The benefits of diverse range of home types Montanans can afford extend to the broader community: • Development of workforce housing supports existing jobs, creates both immediate and long-term employment opportunities, and increases spending in a local economy. • Creating more workforce housing allows employers to attract and retain employees, growing their business, and enhancing regional economic competitiveness. • Development and rehabilitation of affordable homes provides immediate fiscal benefits for state and local government, including building fees, impact fees, inspection fees, special assessments, corporate income taxes on builders’ profits, and income taxes on construction workers and other professionals involved in the development. The Montana Department of Commerce’s Census and Economic Information Center estimates New Construction supports 13 jobs earning $600,000 in labor income per $1 million invested in construction. Market-Rate Housing Won’t Be Undermined by the Development of Affordable Homes A diverse real estate market that supports many different levels and types of homes Montanans can afford will better support the overall economic development of the state. Montana can attract industry, grow businesses, and allow other kinds of economic development if there is a robust housing portfolio. A rising tide lifts all boats. Given market circumstances, developers can’t build apartments or homes for sale today that are affordable to working families and our elderly unless they have funding tools such as the housing loan program. The cost of construction is too 3 high. For Montana to increase the supply of homes that are affordable to working families, gap financing like the Coal Trust Housing Loan Program is necessary. This Montana based solution of a housing loan program has the advantage of creating a diverse range of housing developments that reach the very poor, for example seniors living on minimal social security income, to working families earning moderate wages looking to buy their first home. Finally, a housing loan program would encourage the construction of smaller developments, which are harder to do yet very important in rural areas. How the Housing Loan Program Works The housing loan program is a Montana-based solution that creates a source of long-term funding that makes a housing development feasible so that it can provide rents affordable to Montanans. It provides “gap” financing to a development that will leverage other public and private investment which will provide most of the funding for any given development. The program loans are in secondary position to the primary lender; however, the loans will be secured with real estate by a lien on title. Additionally, BOH may require developer guarantees for loan repayment. Housing is considered affordable if the household is paying no more than 30% of its income for housing costs (including utilities). This program benefits those earning low and moderate incomes and in Montana. When we invest in homes people can afford, our community members will have healthier, more successful lives, which will help our whole community.