Workforce Housing Trust Fund
Inspired by the need for increased housing supply and the opportunities represented by the Gateway Cities, Ted Carman worked with Eleanor White from Housing Partners, Inc., to conceive and develop a new State program that would financially support the creation of “Workforce Housing” units in Massachusetts Gateway Cities. The Workforce Housing Trust Fund provides gap financing for housing projects in communities that want more housing but cannot support new construction or renovation projects because of high construction costs and low market rents. With Ms. White, Carman was deeply involved in the shaping of Massachusetts legislation that was passed on August 10, 2016 setting up a Workforce Housing Trust Fund and authorizing $25.0 million for pilot projects. To date, the administration has not written regulations for nor undertaken the authorized pilot projects. Nevertheless, if fully implemented, the program could provide for the construction of thousands of housing units and the revitalization of many of the Gateway Cities in Massachusetts.
"Workforce Housing Trust Fund Launched"
Real Estate Bar Association Newsletter - December 19, 2016
By Ted Carman and Eleanor White
Offering hope to the economically struggling Gateway Cities, a provision of the Economic Development Bond Bill passed by the House and Senate on July 31st 2016 and signed by the Governor on August 10th 2016, authorizes a Workforce Housing Trust Fund (“WHTF”) as a $25.0 million pilot project.
The goal of the new program is to make it economically feasible to build or renovate new market rate housing in the Gateway Cities. Unlike in many suburban and more affluent communities, the mayors and city councils from the Gateway Cities welcome new housing that does not carry income restrictions on residents. NIMBYism (Not In My Backyard) is not a problem in the Gateway Cities for market rate housing.
There are 26 Gateway Cities, which are characterized by having higher than average unemployment rates and lower than average educational attainment than the Commonwealth as a whole. The Gateway Cities include, among others, New Bedford, Attleboro, Brockton, Worcester, Lowell, Haverhill, Springfield and Pittsfield – as well as, closer to Boston – Quincy, Everett, Malden and Lynn.
Most of these communities are characterized by market rents for housing that are not high enough to make the financing of new housing feasible – whether new construction or renovation. In fact, in most of these communities, new market rate housing is not feasible even with the equity that can be provided through the Federal and State Historic Tax Credits, equity that does not need to be repaid to investors.
At the same time, as demonstrated by numerous studies, the Commonwealth is suffering from a shortage of housing, a shortage that is projected to get worse over the next few years, with dire consequences for the Massachusetts economy.
The Commonwealth is experiencing demographic trends –the retirement of thousands of baby boomers and out-migration of younger workers– that are expected to cause the labor work force in the State to actually shrink by 2020, causing a projected shortage of workers and a reduction in the rate of economic growth from 3% to 1.5% between the years 2015 and 2018. It is hard for the economy to grow if there is not an increasing supply of workers to take new jobs that would otherwise be created, and it is hard to grow the workforce if prospective workers have no place to live. This is going to present major problems to the Administration and the Legislature as the growth rate of revenues declines along with the economic growth rate. The workforce can’t grow without additional housing units that are at prices the workforce can afford. More housing production is therefore an imperative to address this inherent, structural, problem with the economy.
Many of the Gateway Cities have commercial and industrial core areas suffering from neglect, a lack of investment, and with many buildings empty or significantly underutilized. New housing, built in significant volume, will not only be welcomed here, but can also have a transformative impact on the communities – leading to spill-over investment, and the attraction of new businesses and entrepreneurs.
Further, the built environments of these communities are exceptional, containing many beautiful historic buildings, both commercial and industrial. Sixteen of the 26 Gateway Communities are connected to downtown Boston by the T or commuter rail. Market rate housing would rent at workforce housing rent levels – exactly as needed by the Commonwealth—and in those cities with transit to Boston, would help to relieve the pressure on the housing market in Boston itself.
The Economic Development bill makes changes to the existing Housing Development Incentive Program (HDIP) by increasing the HDIP tax credit from 10% up to 25% and making new construction eligible for the program. Further, historic buildings are eligible for a 20% Federal Historic Tax Credit at no cost to the Commonwealth.
In addition, the new Workforce Housing Trust Fund (“WHTF”) provides funding “support” (not a tax credit) for HDIP eligible projects up to an amount equal to 200% of the maximum Tax Credit amount (i.e. up to 50% of the HDIP eligible cost base). These changes should make it newly feasible for developers to renovate historic buildings and build new market rate housing in HDIP Districts in Gateway Cities.
In return for WHTF funding – and this is a new, creative provision for Massachusetts’ housing programs – project developers will agree to share with the Commonwealth 25% of the annual cash flow (after expenses) and 25% of the profits on sale or refinancing of the project until such time as the full amount of support is repaid.
The legislative approval process contemplated that the funding would be provided through the sale of taxable bonds guaranteed by the Commonwealth. This would provide a source of funding that would not impact the annual operating budget of the State.
Pursuant to regulations to be prepared by the Secretary of the Executive Office of Housing and Economic Development, the Legislature anticipated that the bond proceeds would be placed in the Workforce Housing Trust Fund. One funding mechanism would have the Trust Fund provide funds to a quasi-public entity such as MassHousing or MassDevelopment, which would then in turn make long term (30 to 40 years), interest free, subordinated and non-recourse loans to specific eligible projects in HDIP Districts.
In addition to the profit sharing, the Cost-Benefit analysis assumes that for every 100 units of new housing that is built, between 30 and 50 permanent new jobs will be created. These are jobs that, without the increase in housing supply, would simply not have been created or filled. And the new taxes – income taxes and sales taxes – paid by these new employees will result in incremental, increased revenues for the State, available to help pay the debt service on the taxable bonds.
Analysis prepared for and during the legislative deliberations indicates that for every $1.00 invested by the State, it will receive, over time, $2.00 in benefits. The Profit Sharing alone is projected to return the full cost of the initial support. As a result, the WHTF program is expected to be self-funding, with the benefits received from higher taxes from newly-filled jobs being sufficient to pay the debt service on the bonds.
To the extent the program is self-funded, it can be expanded in the future to levels that will provide a significant impact on housing availability in the Commonwealth – potentially thousands of units per year. And revitalize our Gateway Cities.
The Workforce Housing Trust Fund has the potential to help alleviate the Commonwealth’s shortage of workforce housing, revitalize the participating communities and contribute to the economic growth of Massachusetts.