Affordable Housing Trust Fund Board - Sep 20, 2022

Tonight was the Affordable Housing Trust Fund's (AHTF's) second stakeholder meeting. The meeting was conducted via remote participation, and materials were available from https://www.arlingtonma.gov/Home/Components/Calendar/Event/30509/18.

(Kelly Lynema, Acting Planning Director) Ms. Lynema acknowledges the work the trustees have done, and the expertise they've brought to the effort. After attendee introductions Ms. Lynema gives an overview of the process by which the draft Action Plan was developed. In addition to these stakeholder meetings, the trustees are planning to have the plan vetted by some affordable housing professionals, to provide some assurances that it's practical in a business/financial sense.

(Jaclyn Pacejo, AHTF Board) Ms. Pacejo says the board wants to have alignment from stakeholder groups before bringing the action plan to the Select Board for adoption. The plan consists of three high level strategies:

• preserve and modernize existing affordable housing,
• create more affordable housing, and
• build the financial strength of the trust.

This is a five-year action plan. The board sees these goals as creating a foundation for future work.

The action plan has eight guiding principals, the last three of which are new:

1. preserve and modernize affordable housing, and create more of it.
2. prioritize those with greatest need and advance solutions for a range of housing goals
3. leverage resources for maximum impact
4. plan for diversity and inclusion in our community
5. advance sustainability and climate resilience while increasing affordability.
6. limit involuntary displacement and welcome new residents
7. collaborate and innovate with other town bodies and organizations that are housing stakeholders
8. Use and grow the affordable housing knowledge and capacity in our community.

The actions taken to achieve these goals may evolve over time, but the guiding principals are intended to be long-term.

What do we mean when we say "affordable housing"? HUD definitions (which change with the economy) are part of it. The trustees thought about ways to prioritize lower income brackets while still maintaining some level of flexibility. They'd like to prioritize households making 60% of the area median income (AMI) or less. They chose 60% (rather than 50%) because 60% AMI projects are eligible for affordable housing tax credits, which are a major source of project funding.

Flexibility matters, especially with the desire to serve a range of housing needs. Arlington's moderate income residents have high housing cost burdens. Residents wanted a range of housing solutions (per survey responses).

Mixed income projects help to avoid involuntary displacement. Consider an apartment building that's converted from market rate to affordable housing. If all of the apartments become income restricted, then any tenant that makes too much money will be forced to relocate. A mixed income project provides more opportunity for those tenants to stay.

Income diversity is another factor. The market favors high-income residents, and subsidized housing favors lower income. Diversity means doing something for people in the middle income brackets.

The plan advocates for leveraging other resources. Arlington's local resources are limited, so we have to be flexible with funding sources and AMI targeting. 80% AMI housing that gets built is better than 50% AMI housing that doesn't.

Home ownership is out of reach for many residents, even those with moderate incomes. The trustees would like the plan to include opportunities for home-ownership in the 60--100% AMI range.

Housing vouchers are another consideration. Most extremely-low (30% AMI) and very-low (50% AMI) voucher holders can't find apartments in Arlington with a low enough rent. Only 39% of housing vouchers issued in Arlington are actually used here. Having more 70--100% AMI apartments could provide that availability.

(Karen Kelleher, AHTF board) Ms. Kelleher presents the strategies and actions associated with them.

Strategy 1: Preserve and modernize the 1211 deed restricted affordable housing units in town. The trust doesn't own any of these deed-restricted units, so they'll need to collaborate with the property owners. The goal is to create a plan to utilize resources that can help with preservation.

Actions in support of strategy 1:

1. Complete an affordable housing inventory, so we understand what we have.
2. Complete a capital needs assessment, to understand what the capital needs of the different properties are. This is a first step in insuring those needs are addressed.
3. Create an affordable housing preservation plan. We're not sure what this would look like exactly, but it would include things like timelines for expiration and maintenance, and financial plans. We'll need to gather more information first. This could include modernizing and adding units (e.g., the Housing Corporation of Arlington adding ADUs to some of their two-family properties). The preservation plan will require regular review.

Strategy 2: Create additional affordable housing. By definition, affordable housing requires subsidies in order to be financially feasible. Based on projects done in town, the board estimates that it takes approximately $400--500k of subsidy per unit, to cover capital costs (additional subsidies are required to cover operating costs). Ongoing operating subsidy is especially important for extremely low income housing.

During the first 8 months of 2022, DHCD awarded $435M for 52 affordable housing transactions in 31 Massachusetts communities. Arlington didn't ask for any of that money. We need to have deals lined up and ready, in order to apply for those resources.

HCA's Downing Square initiative was financed with 4% town subsidies ($1M), 13% loans, and 83% state and federal subsidies. This project produced 48 units of affordable housing, which is much more than the $1M town subsidy could have done on its own.

Aside from grants, there are two other sources of subsidy.

• Inclusionary Zoning. Arlington has a 15% inclusionary requirement for projects with six or more residential units.
• Comprehensive permits, aka 40B. 40B can be a tool that's used proactively. For example, one of HCA's properties was created via 40B. More recently, a 40B project at 1165R Mass Ave permitted around 30 affordable units.

Ms. Kelleher shows a slide with a quote from a developer the trust talked too. The quote reads: "It's easy - projects where town players can help to fast track land acquisition, financing, community support, permitting, and transparency have our interest". The process is largely about siting, funding, permits, and alignment. Developers also like to see local subsidies early, to show commitment when seeking additional funding, and to help with pre-development costs.

Actions to support strategy 2 include:

1. Identify public and private sites for new construction, acquisition, and conversion
2. Develop a predictable permitting process (which trust has no power to do on its own).
3. Pilot local funding strategies
4. Issue RFQs (request for quotes) from developers interested in creating the affordable housing that we want.
5. Encourage mixed income home-ownership. This is a particularly challenging subsidy problem.

Downing square has 16 extremely low income units; six of these were made possible by project-based Section 8 vouchers from the Somerville Homeless Coalition.

Most of Arlington's affordable housing targets ELI households. Examples are the Arlington Housing Authority and Millbrook Square. Millbrook Square was created with project-based section 8; that funding source was eliminated in the 1980s and is not an option for new projects. There's also no federal funding to create new public housing. Attaching Section 8 vouchers to a project is one way to create new extremely low and very low income housing.

The trustees want to set a five year goal of creating (or permitting) 100 additional affordable homes. Ms. Kelleher says they wanted to set a higher goal, but stuck with 100 because they felt it was realistic and achievable. The draft plan provides an example of how we might meet this goal:

• 35 deeply affordable units from the Housing Corporation of Arlington
• 35 units from another deeply affordable development, where a developer works in conjunction with the Arlington Housing Authority or the Housing Corporation of Arlington.
• 15 units through other subsidies. Things like affordable ADUs, and acquisition and conversion of small buildings.
• 15 units through development of mixed use projects, perhaps providing subsidies to a developer.

100 units in 5 years would be about three times Arlington's rate of AH production over the last 35 years. Note that our Housing production plan has a target of producing 99 new housing units/year.

Strategy 3. Build the financial strength of the trust. In order to build financial strength, the trust will need a sustainable source of annual funding that exceeds what the town can provide.

Actions in support of strategy 3 include:

1. Support passage of real estate transfer fee. Our home rule petition is unlikely to pass during current legislative session, but we expect it to be reintroduced during the next. If it doesn't pass the legislature (or if it's rejected by voters), we'll need to think of other sustainable funding sources.
2. Secure revenue streams from short-term rental fees and cannabis sales taxes.
3. Explore options to increase inclusionary zoning payments to the trust (e.g., payments in lieu of fractional units)
4. Align annual processes for town housing investments with the trust action plan
5. Develop and launch a private giving strategy to fund the trust, through donations of property or money.

(Phil Tedesco, AHTF board) Mr. Tedesco leads the Q&A/discussion part of the meeting.

(Steve Revilak, ARB) Mr. Revilak felt the plan was both comprehensive and realistic. He appreciated the inclusion of a concrete goal -- adding 100 affordable homes in five years. Mr. Revilak doesn't think that goal is too ambitious. He notes that Cambridge's Affordable Housing Overlay was used to permit 300+ subsidized units during the first year it was in effect.

Mr. Revilak has a question about Inclusionary Zoning subsidies. He asks how much is generally paid by developers, vs cost-shifting to market rate tenants.

(Karen Kelleher) Ms. Kelleher says that home-ownership units are sold at lower price. In rental projects, the affordable and market rate units usually end up sharing the same capital and operating budgets. So, the market rate tenants give an internal subsidy to the low-income ones.

(Eugene Benson, ARB) Mr. Benson thought the plan was terrific, and that it laid out principles and strategies in clear way. He appreciated the mention of building sustainability and suggests saying a little more about housing and the environment.

Mr. Benson suggests saying something about balancing housing and commercial development. For example, if our housing production plans are successful, we may be less likely to have industrial district properties used for residential development.

He liked part of the plan that talked about the current numbers of affordable housing, but would be interested in seeing a breakdown of the number of units for family, elderly, and disabled tenants. He'd like to understand what the balance is.

Mr. Benson thought the discussion of 40B was interesting, but didn't see a mention of the 1.5% land area threshold. He thinks there's a case at not stopping at 1.5% land area. It would be helpful if town had a staff person dedicated to the things we're talking about here (similar to role of economic development coordinator) -- a staff person the trust could work with.

(Phil Tedesco) Mr. Tedesco asks for elaboration about tension between residential and commercial development.

(Eugene Benson) Mr. Benson thinks there is more of a desire to have commercial development in the industrial zones. If action plan is successful, affordable housing could be built outside of those districts. He'd be concerned if too much of the business districts were turned into housing.

(Erica Schwarz, Housing Corporation of Arlington) Ms. Schwarz likes idea of having targets for income levels, but not being too rigid. She voices a strong yes to aligning processes, and thinks the trust should get the bulk of CPA affordable housing funds, because the CPA's 1x/year schedule can be challenging. The trust can be more nimble and flexible.

Ms. Schwarz liked the idea of issuing an RFQ to feel out development partners. Maybe have some conversation before projects, to think about urban planning things like where to target more mixed use.

Pg 19 of the draft plan has a section on advancing sustainability. That may be missing mention of reducing reliance on fossil fuels. Regarding fundraising, Ms. Schwarz has some concern about HCA's operating dollars turning into capital dollars, but it would be great if we can expand the pie. She thinks the goal of 100 units in five years is conservative, but understands the desire to be realistic. She hopes we can exceed that.

(Karen Kelleher) Ms. Kelleher says the trust wants to be very mindful of not eating into HCA's resources. There's only so much the AHTF can do. Having this dovetail with a vision for the future of Arlington would be the best outcome.

(Jack Nagle, Arlington Housing Authority) Mr. Nagle says the plan brings him back to around one year ago, when the AHA decided to move forward with a study for Menotomy Manor window replacement. The study allowed AHA to get additional funding, and expand the window replacement project to deep energy retrofits. Getting support and funding to do that could provide additional opportunities. He'd appreciate opportunities to work with other consultants, and is interested in taking a future four-unit project and expanding it to maybe sixteen. Mr. Nagle says it's worth having conversations with HUD about expanding number of vouchers.

(Eric Helmuth, Select Board) Mr. Helmuth says the plan represents an incredible amount of work; it's been a joy to see this come together and be responsive to the community. He agrees that we need more pie (i.e., more funding for affordable housing). The AHTF has almost no money right now, and a real estate transfer fee won't generate much in any given year. It's important to think of these as laser focused strategic investments for specific outcomes, since we can do very little with only our money. Mr. Helmuth wants to think about bigger money coming from other sources. The plan is a vision document and a work plan -- not just a narrow set of things for the AHTF to do. It gets into the real world business of how this development is done.

(Karen Kelleher) Ms. Kelleher ask folks to think about how to continue this collaboration going forward.

Meeting adjourned.