Cincinnati officials have zeroed in on six neighborhoods where millions in federal tax credits for affordable housing grants could land. Next, they'll need to pick one to get the final award.
The grants, part of a program by the Ohio Housing Finance Agency, could provide $3 million in financing for more affordable housing in Cincinnati as the city struggles with a big deficit in housing options for low-income residents. That money, in the form of tax credits, could bring 10 times as much in private investment. But there are some tradeoffs the city will have to accept if it wants those benefits.
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.
Lately, Cincinnati hasn’t been as competitive as Cleveland and Columbus when it comes to applying for and winning those credits. But the 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.
Cincinnati opted into the program in September. The city's Department of Community and Economic Development has picked six neighborhoods it feels are eligible for the new program — Avondale, CUF, Evanston, Over-the-Rhine, Roselawn and Walnut Hills. DCED scored each neighborhood based on a number of criteria, including population, median household income, ratio of renters to homeowners, rent increases since 2013, eviction rate, demographic makeup and a number of other factors. OTR, which saw its rents increase more than nine percent between 2013 and 2016, ranked highest on the list, followed by Walnut Hills, CUF, Avondale and Roselawn.
But that's not the end of the process. Over the next month, DCED will work with a team of consultants to undertake community engagement efforts and seek proposals from developers for specific projects in each of the six neighborhoods. After that, Cincinnati City Council must approve DCED's choice, which will then be presented to OHFA.
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 under the new program. 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.
“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. Those deficits have hit many Cincinnati neighborhoods, including those selected by DCED.
The program could represent a big opportunity for Cincinnati, which is struggling under the burden of a large affordable housing deficit, though some elected officials have raised questions about whether the program will focus efforts in a single neighborhood while leaving others out to dry.
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. “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.”
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.”
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.
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 admitted in September, 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.
