Part I
:: Trickle Down…
Issue 1
Volume 2
Shelter from the Bubble:
Low-income and affordable housing in Providence
by Ray Huling and Amy Stitely
A resident will invest
in her neighborhood (she won’t go far to buy necessities), but she’ll
leave if she can’t keep safe. On the other hand, investment reduces
crime, especially homeowner investment. Property taxes draw the attention
of the city and the ward bosses. They pay for better schools and basic services.
All of which draw a resident’s roots deeper into the soil of a neighborhood.
CDCs complement these incentives by, on the one hand, paying property taxes
themselves, and, on the other, by providing after-school programs, police
outreach, clean-up programs, and seminars for homeowners and contractors.
However, stimulating real estate investment in places where for-profits fear
or disdain to tread takes a serious outlay of capital, and no community initiative
can provide that nine million or so. RI LISC works to fill much of that gap
by providing funds that can then draw other capital. They do this through
loans, grants, ‘recoverable grants’, and equity investment (which
can include brokering of tax credits). In 2005, they distributed almost ten
and a half million dollars, and, since 1991, they’ve leveraged $480
million. RI LISC provides other essential services as well, but we’ll
get to them later.
Much of this funding comes, ultimately, from the federal government, though through convoluted channels. The IRS provides low-income housing and New Market tax credits to agencies such as Rhode Island Housing and LISC, respectively, which allocate them on a competitive basis to agencies such as SWAP, which then retains a syndicator to purchase the credits in exchange for equity investment in their developments. In other words, the money from the sales pays for projects. The Department of Housing and Urban Development regulates this process by investigating and reporting violations and provides its own funding programs as well.
Federal money has restrictions (aside from IRS and HUD oversight and the complexity of obtaining the funds in the first place.). In a HOME program funded by HUD, a buyer may have an income no higher than 80% of local median and may be obligated to sell only to buyers of equivalent adjusted income for 30 years (similar restrictions apply to Providence’s Revolving Fund). Rental projects come with even tighter restrictions: 60% of median income. Another level of complication occurs in the computation of these median incomes: HUD’s and Providence’s medians differ, sometimes considerably. Perhaps worst of all, the federal government allocates on basis of population, rather than need.
Managing an array of finances sets a limit in and of itself. The average affordable or low-income housing project has seven sources of funding. Few lawyers in Rhode Island have the background to structure the complex transactions these projects demand. An individual cannot accomplish this scale of work; it takes a group, an organization. RI LISC helps to establish such organizations, through both seed capital and training. Training includes board governance, organizational management, networking, deal-structuring, and property management—skills and methodologies hard to master, but essential to confronting the housing shortage on its own terms.
Increasing the number of trained persons allows a complementary team to produce results that would have been impossible to achieve individually. This parallels the circle of cause and effect described above, even down to the importance of educating individual homeowners. The investment of a single resident benefits an entire neighborhood, and so does his education in financial literacy. This is true, not only because it ensures the stability of a single home, but because a neighborhood as a whole begins to become aware of what is possible through their own initiative and cooperation with each other.
