Over-the-Rhine could get millions in federal funding that the city says would incentivize even more private investment in affordable housing under a program by the Ohio Housing Finance Agency.
OHFA administers federal Low Income Housing Tax Credits here in the state. Usually, it doles out about $26.5 million a year in those credits, which are approved by the Internal Revenue Service to be awarded for affordable housing creation.
But a new OHFA program called the FHAct50 Building Opportunity Fund could help the city attract as much as $30 million in affordable housing investment over a three-year period by letting Cincinnati, Cleveland and Columbus pick developers who receive extra credits above and beyond OHFA’s usual awards.
OHFA asked cities to pick one neighborhood in which to dedicate the three-year, $3 million funding award. After opting into the program last September and soliciting plans for those awards, the city's Department of Community and Economic Development has recommended OTR receive them.
Five projects submitted by Model Group, the Cincinnati City Center Development Corporation (3CDC), Over-the-Rhine Community Housing, Tender Mercies, Talbert House and Cincinnati Metropolitan Housing Authority centered around OTR.
“OTR identified more viable projects as demonstrated by site control, which provides a great assurance of ability to utilize the credits,” Cincinnati City Manager Patrick Duhaney wrote in a memo about DCED’s choice. “Also, OTR demonstrated a greater capacity to produce more family units, which OHFA is targeting."
Developers with plans for projects in Avondale and Walnut Hills also submitted proposals to DCED.
The program could represent a big opportunity for Cincinnati, which is struggling under the burden of a large affordable housing deficit.
“I think everyone is unfortunately pretty familiar with the fact that there is a housing crisis here in the state of Ohio,” Carlie Boos of the Ohio Housing Finance Agency told Cincinnati City Council last September.
In a departure from OHFA’s normal competitive process, in which the agency weighs applications from across the state using a large number of criteria, the city — along with Cleveland and Columbus — will get almost total say over which developers receive the credits.
That’s as long as they present a transparent plan for picking the developers and as long as the picks are overseen by a board or commission that includes low-income residents.
The downside: the cities will have to forfeit an advantage they have in OHFA’s regular scoring process for the rest of the credits it doles out for those three years.
Each city can also only use the credits awarded through the FHAct50 program in a single neighborhood in order to maximize the impact of the program. And, because OHFA has set its sights on creating mixed-income communities, each city must demonstrate that for every unit of affordable housing created with the special credits, a unit of market-rate housing has been newly constructed in the same neighborhood.
“We want to see every affordable housing unit paired with a market-rate unit to have a true mixed-income development,” Boos said.
Last year, some Cincinnati city council members expressed concerns that could exacerbate inequalities in terms of development between various Cincinnati neighborhoods. The neighborhoods the city doesn’t pick are likely those that aren’t seeing any market-rate development. Not only that, but developers looking to build in neighborhoods not selected by the city will have a harder time in OHFA’s regular competitive tax credit process without the city’s ability to give its approval in order to win extra points on the state’s scoring mechanism.
“I think this is an amazing opportunity,” Councilwoman Tamaya Dennard said last year. “But I can’t ignore that it’s a situation where privilege will beget privilege, because you’re going to pick communities where development is already happening. How will these communities be chosen, and how can we be part of the process? Usually, by the time we get these projects, the cake is already baked.”
Dennard said she wants council to be a party in how the community receiving the tax credits is chosen by city administration. Currently, that doesn't seem to be the case — DCED designates the neighborhood of choice to OHFA.
Community & Economic Development Senior Development Analyst Roy Hackworth said the tradeoffs are notable. But he thinks the opportunity will be worth it, and pledged that the selection process would be transparent.
Despite the downsides, the program has garnered support from a coalition dedicated to affordable housing in Cincinnati. Affordable Housing Advocates, a coalition of social service groups that supports the creation of more affordable housing, supports the plan, AHA Board President Noam Gross-Prinz says.
The credits at the core of the new program have become the major source of funding for affordable housing creation as the U.S. Department of Housing and Urban Development has backed away from project-based housing in favor of subsidies paid to private landlords.
Since it was created in 1986, the LIHTC program has become the nation’s predominant method for building affordable rental housing, with 90 percent of all affordable housing built in the U.S. today using the credits. That’s about 2.5 million units nationwide, 100,000 units in Ohio and 7,000 units in Cincinnati built via financing from the program.
LIHTC works like this: a developer who is awarded the credits through OHFA’s statewide competitive process then uses them to attract investors, who pay slightly less than face value for the credits in order to access the tax benefits they confer. The developer takes the cash from the credits to develop housing and agrees to keep it affordable — either at 60 or 30 percent of area median income — for up to 30 years.
In Hamilton County, 60 percent of area median income equates to about $47,000 a year for a family of four. Housing affordable to that family would cost up to $1,057 for a three-bedroom apartment. At the 30 percent level, a family of four makes $23,000 a year and needs an apartment costing about $610 a month.
The credits generally cover about 70 percent of the costs of housing construction. The city can sometimes help developers cover part of that gap with funds it doles out through the Notice of Funding Application process twice yearly.
Last year, only one application from a Cincinnati developer — Model Group — won tax credits worth about $1 million. Those credits will go toward about 60 units of affordable housing for seniors. By contrast, OHFA awarded $4.5 million in credits for 333 housing units to Cleveland and more than $6 million for 513 housing units to Columbus.
“Cincinnati has been lagging behind Cleveland and Columbus,” Hackworth admits, noting the HFAct50 program could help adjust that. “We’re pretty well below our contemporary cities.”
That’s at least partially because Cincinnati developers filed fewer applications for fewer credits than developers in those cities, according to OHFA data. In 2018, four applications worth about $4 million came from developers in Cincinnati, while five applications worth $16 million came from developers in Cleveland and nine applications worth $9 million came from Columbus. That’s a continuation of a trend: over the past three years, developers in Cincinnati have applied for about $12.5 million in credits, while developers in Columbus have applied for $22 million and those in Cleveland have applied for more than $31 million.
