Here's How Cincinnati Could Get Millions for Affordable Housing — and the Tradeoffs it Will Face

The state agency that awards tax credits for affordable housing has a new idea that could net Cincinnati millions — but only for housing in neighborhoods that are already seeing development

Sep 4, 2018 at 4:02 pm

Developers unveil affordable housing in Pendleton created with LIHTC credits - Photo: Nick Swartsell
Photo: Nick Swartsell
Developers unveil affordable housing in Pendleton created with LIHTC credits

Cincinnati could get millions of dollars in financing for more affordable housing as it struggles with a big deficit in housing options for low-income residents. But there are some tradeoffs it will have to accept if it wants those benefits.

The Ohio Housing Finance Agency 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.

Lately, Cincinnati hasn’t been as competitive as Cleveland and Columbus when it comes to applying for and winning those credits.

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.

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 on Sept. 4.

Boos says OHFA estimates that Cincinnati is missing as many as 30,000 units of housing affordable to low-income residents. Other estimates place that gap as high as 40,000 units of housing across Hamilton County.

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 says.

Some Cincinnati city councilmembers 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. “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.

Community & Economic Development Senior Development Analyst Roy Hackworth says the tradeoffs are notable. But he thinks the opportunity will be worth it, and pledged that the selection process would be transparent.

“That’s going to be the challenge,” he said of the limitation keeping the credits in a single neighborhood where development is happening. “Because you have certain neighborhoods where you haven’t had any market-rate development within the recent period or will have any.”

Hackworth says he’s hoping that OHFA will consider allowing substantial rehabilitation work to count as market-rate construction. That’s not the letter of OHFA’s rules right now, but that could change, Boos says.

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.

This 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.

The city must send a letter to OHFA by Sept. 28 opting into the program. After that, the timeline is a bit more tentative. Hackworth says the city would like to identify the neighborhood that would receive the credits by November and create a selection process for projects by January next year. Then, it would utilize a process similar to its NOFA procedures to pick winning project applications and submit them to OHFA by August 2019.