Finance and housing.

Much of the health of housing and housing finance markets is a result of past federal interventions and large-scale programs that have served a wide range of income groups from low-income to middle-income families. The federal government has served as a source of subsidy for both residents and housing providers. In 2001, the congressionally chartered Millennial Housing Commission took a comprehensive look at the nation's housing programs and policy. The Commission's focus is to address the problems with these programs that have developed over the 60 years of their existence. As the prosperity of the past decade has created housing vulnerability' for municipal workers, such as teachers mid police officers, as well as workers whose wages are tied to old economy jobs, many in the housing industry seek solutions to these and other issues facing the nation. Once again, NAA/NMHC members will be asked to participate in the local, regional and national dialogues to discuss the expansion of resources to meet the remaining "worst-case" housing needs.

NAA/NMHC have actively engaged in this national debate. NAA/NMHC have and will continue to work to improve the efficacy of financing programs that facilitate quality rental housing. From issues affecting targeted groups such as low income families to the growing demand for rental housing for millions of moderate-income families, not eligible for government subsidy, but who must pay an even greater share of their income for housing, NAA/NMHC will work to find solutions. Sustained program funding for rental housing from the U.S. Department of Housing and Urban Development (HUD) and the Federal Housing Administration (FHA) is a key issue, as is project based new project financing and the combined utilization of various forms of subsidies. Another proposal that has the support of several members of Congress in both the Senate and House is the establishment of a housing trust fund to recycle revenues from the FHA insurance fund and Ginnie Mae securities offerings.

Creating a dedicated trust fund for the retention of affordable rental housing is a concept supported by NAA/NMHC. However, NAA/NMHC are concerned with the use of rely funding generated by FHA insurance proceeds, as any surplus should be used to fund program improvements, reduce premiums to FHA multifamily borrowers and maintain adequate risk-based capital reserves. On the demand side, NAA/NMHC members am all aware that the housing choice voucher program (Section 8) is the only program expanding to meet new "affordable housing needs. There are many opportunities to refine this program to make it more transparent to the market, lower the costs of participation, and thereby, drive further voluntary participation by professional owners and managers.

Barriers to Multifamily Development

NAA/NMHC Position Apartment rental housing is a key element to the nation's housing and must be part of a balanced approach to serving the housing needs of all Americans. As homeownership rates have continued to grow and more families are provided access to homeownership, the country continues to have a shortage of housing NAA/NMHC promote a broad awareness of the benefits of apartment living to meeting local housing needs, strengthening local communities, contributing in a positive way to local economic development, and improving the economic growth and stability of local markets.

Background During the past decade, there has been an expanding effort to promote homeownership and to expand homeownership for low and moderate-income families. At the same time, barriers to the development of rental housing continue--from increasing the cost of development of rental housing through new and more costly fees, to land use and zoning that prohibits multifamily housing, to greater support by citizens to prohibit apartment housing.

America's approach to providing housing should be more balanced with a better understanding of the benefits that apartments and apartment communities provide. Apartments are a part of the solution to a wide range of issues, including, but not limited to, a wider range of housing choice, enhancing employment opportunities that support local economic development, solving congestion by increasing public transportation use, and increasing the local tax base at a rate often more favorable than single-family housing.

Recent Activity For several years, NAA/NMHC have been pursuing a multi-faceted initiative seeking a more level playing field between rental housing and homeownership. Outreach combines public and media relations with strategic government relations activities and is bolstered by a growing body of evidence that demographics are driving fundamental changes in America's housing needs and preferences. The campaign has produced numerous successes. Most noteworthy, after a successful meeting with former HUD Secretary Mel Martinez, the secretary began including references to the importance of rental housing in his public remarks and the department is also taking concrete steps to remove barriers to multifamily housing. NAA/NMHC are helping HUD in conducting a three part study that will: (1) assess how much land is legally available for development, including zoning and accessible planning; (2) identify cumbersome local regulations and NIMBY barriers; and (3) identify, best practices for overcoming barriers.

Action Requested Notwithstanding some public affairs victories for rental living, the topic of homeownership remains almost irresistible to some politicians who strongly believe in directing more spending and tax breaks to further increase the homeownership rate. NAA/NMHC strongly support legislation to fund research, identify model programs, analyze the economic and social benefits of a balanced approach to housing, and provide incentives for those who rent to build equity.

Section 8 Housing Choice Vouchers

NAA/NMHC Position Maximizing owner participation in the housing choice voucher program means making the program and process as transparent to local and regional unassisted markets as possible. The eligible rent as established by the fair market rent, the provisions contained in the three-party, lease, and unit-based inspections are some of the largest impediments to wider participation. NAA/NMHC will work this year to develop a broader consensus to maximize participation and reduce owner-borne costs. The goal of increasing housing opportunity is best met working with all interested parties to shape a program that provides badly needed housing as quickly and easily as possible, while responsibly spending scarce federal resources.

Additionally, the program's creators recognized that participants would bear additional administrative and regulatory costs, above and beyond those necessary to serve as conventional market housing providers. Thus, they implicitly preserved the right to participate or to opt not to. They failed to make this distinction explicit in the federal law, however.

Several states and localities have attempted to address their affordable housing shortages by making a housing provider's participation in the Section 8 program mandatory. In addition to compelling a contractual relationship with the federal government, some jurisdictions have even made families and persons receiving housing assistance payments a protected class under state civil rights laws. This makes it a civil or criminal violation to opt not to participate in the Section 8 program and contract with the federal government.

Because of the additional regulatory burdens that the program carries, as well as NAA/NMHC ardent opposition to what appears to be an unconstitutional interference by the states with the right to contract, NAA/NMHC advocate a federal preemption of state and local laws that compel a housing provider's participation in the Section 8 program.

The best approach to solve much of the utilization issues and to prevent needless governmental intervention is to seek reform to the Section 8 housing choice voucher program that will make the program more attractive to the marketplace. To do this, several key elements need to be improved and modified. Once the program is comparable to the market, the demand for voucher residents will grow and the choice for voucher residents will he greater.

Background The resident-based housing choice voucher program provides portable housing assistance for low-income families nationwide. This program is a critical component in the national housing strategy. Participation in the program is not compulsory on the federal level. The program's creators recognized that participants would hear additional administrative and regulatory costs, above and beyond those necessary to serve at conventional market housing providers. By improving the economics of the program--streamlining the requirements and procedures and improving the rental subsidy--the participation by the multifamily industry would greatly increase.

Recent Activity Reform to the Section 8 housing choice voucher program was a key element in the NAA/NMHC recommendations to the Millennial Housing Commission. Some assert that the Section 8 appropriations structure should be reworked and reduced. Historically, many criticized the Section 8 appropriations structure because too much funding remained unused each year To be sure, appropriations were once based upon the erroneous assumption that every authorized voucher would be used for an entire fiscal year and funds were routinely recaptured and rescinded. Those returned funds reduced manual appropriations to the amounts actually used. Effective in 2003, Congress enacted changes to minimize recaptures. Moreover, national utilization rates have risen to nearly 96 percent. That success should be recognized and the process supported. NAA/NMHC support increased utilization rates, and believe that the existing successful appropriations structure is working. As such, NAA/NMHC believe that there is a window of opportunity for reform to the program to incorporate the needs of the marketplace.

At the same time, many states have continued to put pressure oil apartment owners in attempts to force their participation. The market does not object to the form of subsidy; it is rather the costs and administrative burdens that come with participating in the program.

In addition, NAA/NMHC have had considerable concerns regarding the complexity of the proposed state-level funding structure described in the administration's FY 2004 budget proposal, which included a two-year plan to turn the Section 8 voucher program into a state-run block grant program. While the FY 2004 omnibus spending bill has passed in Congress, NAA/NMHC remain concerned about future funding for and the design of the program.

Action Requested NAA/NMHC strongly advocate reform of the current Section 8 housing choice voucher program to make the program more transparent, eliminate and reduce burdensome regulatory requirements, and provide a more meaningful subsidy payment. In addition, federal preemption of state and local laws that mandate participation in the current burdensome program is also a key element.

FHA Mortgage Insurance Improvements

NAA/NMHC Position NAA/NMHC call on Congress to make a programmatic comparison of the FHA multi-family insurance program to make it more competitive with the private market so as to expand production of rental housing, especially affordable rental housing. The HUD/FHA multifamily insurance program is critical to fired the production of affordable rental housing, Improvements to the program processing through the Multifamily Accelerated Processing (MAP) program, while beneficial, has not made the program competitive to attract broader participation by the multifamily industry

Background The improvements brought about by the MAP program have greatly improved the FHA multifamily insurance loan program. However, the program should be attracting a greater number of industry participants and should be more, uniform in its administration and more competitive with the private market.

Some NAA/NMHC members report that the amount of capital at risk to secure an FHA loan can be as much as two to three times higher than for conventional financing. It is a complex, time-consuming process, hi order to have a HUD loan approved, a developer needs to provide a complete development plan and specifications with certified costs of development (i.e., contractor bids awarded or approved). The cost associated with control of the property" (title, taxes, insurance), maintaining contractor bids over an extended and sometimes uncertain period, changes in underwriting throughout the loan approval process, and the effect of fluctuating interest rates creates a significant burden to a developer prior to final HUD approval. The risk undertaken many times far outweighs the rewards.

Recent Activity Several changes in the multifamily insured loan program have been addressed by Congress, including the increase in per-unit loan limits in 2002, indexing these limits to the consumer price index (CPI) in 2002 and increasing the loan limits in high cost areas in 2003, have created a much more market responsive source of construction and permanent mortgage financing. In addition, after an increase in the insurance premium, for the past two years the premium has been rolled back to the 2001 level of 50 basis points. This followed the roll out of the MAP program in 2000. The program has been well received by the industry, but the implementation is not uniform among the HUD offices. The MAP program utilization has primarily been among multifamily owners who historically have used FHA financing.

Action Requested NAA/NMHC actively seek congressional support for a programmatic comparison of FHA multifamily loan program insurance requirements and processing to other capital sources.

LIHTC Utility Adjustments

NAA/NMHC Position NAA/NMHC strongly advocate a change to Section 42 of the Internal Revenue Service (IRS) code allowing more accurate utility adjustments to permitted rent levels for properties where the residents pay their own utilities. NAA/NMHC have created an industry coalition to seek changes and have received positive feedback from the IRS.

Background In 2003, at the urging of NAA/NMHC members, a rental housing trade group task force was created to explore the problems faced by developers and owners of Low Income Housing Tax Credit (LIHTC) properties. It is clear that the source of data used to adjust rent levels to accommodate renter's utility expenses were adversely affecting rental income to the property owners. Further, the manner in which the adjustments were being implemented during the initial lease-up period were affecting the ability of properties to achieve pro forma rents and placing additional financial stress on properties and their investors. Currently, the data used to derive the utility adjustments is based on older housing stock under control of local public housing authorities, often built long before file creation of the LIHTC program. Recent efforts by HUD, state housing authorities, developers and owners to develop more accurate utility charges based on consumption mad utility rates at the local and property, level have become more readily available but are not permitted by the IRS regulations governing the program. NAA/NMHC are advocating changes to these regulations to permit greater flexibility by the tax-credit allocation agencies in their approval and oversight of projects and their compliance with program regulations.

Recent Activity In December 2003 comments were submitted to the IRS. Subsequently, the IRS has indicated it will take up this matter in 2004. NAA/NMHC drafted the comment letter and were able to obtain support from several other trade groups representing property owners, developers, local housing authorities and allocation agencies. Other meetings an expected in the near future to resolve this issue.

Action Requested NAA/NMHC ask owners and managers to provide information about utility costs at their properties in support of the proposition and to advocate these changes to the tax credit allocation agency in their state and to the IRS.