Talking Heads, Margaret Salazar: Director, Oregon Housing and Community Services

10 min read

New Subsidies for Affordable Housing Developers

Exciting things are happening in Oregon. The Beaver State may well now be the model for a progressive push for affordable housing. While developers throughout the country struggle to finance new deals, Oregon’s lawmakers have taken unprecedented steps to subsidize affordable housing development. In 2017, the Oregon legislature:

  • Doubled funding levels for the Local Innovation and Fast Track (LIFT) Housing Program, adopted in 2015 to provide funding for new construction projects, from $40 million to $80 million;
  • Raised Oregon Affordable Housing Tax Credit (OAHTC) allocation levels from $17 million to $25 million;
  • Passed a land acquisition bill that authorized Oregon Housing and Community Services (OHCS) to make low-interest loans to nonprofits and housing authorities to acquire land for development purposes; and
  • Approved preservation legislation that allows OHCS and other nonprofits to acquire properties for purposes of maintaining their affordability status.

During the 2018 legislative session, lawmakers took further action by increasing the state’s document recording tax from $20 to $60 and using the $65 million in projected biennial revenue to provide flexible gap financing for developers on an ongoing basis through a General Housing Assistance Program.

Overseeing these programs and other affordable housing efforts is Oregon’s top housing official, Margaret Salazar, who was appointed to the position in September 2016 by Governor Kate Brown. Prior to her appointment, Salazar was director of the Portland Field Office at the U.S. Department of Housing and Urban Development and associate deputy assistant secretary for Multifamily Housing at HUD Headquarters in Washington, DC where she helped design and implement the Rental Assistance Demonstration (RAD) program.

Tax Credit Advisor sat down with Salazar to get more detailed information about these new funding programs and the impact they are having on affordable housing development in the Pacific Northwest.

Tax Credit Advisor: Why did the Oregon legislature take these dramatic steps to increase funding for affordable housing construction and preservation?

Margaret Salazar: Advocates made affordable housing a central issue in the state legislature. The stars further aligned when Governor Brown came into office and we had a progressive legislative environment. Legislators also noticed that their constituents were willing to invest in affordable housing. Going into the 2017 legislative session, the City of Portland had passed a $250 million affordable housing bond measure, while other localities took action on issues, like inclusionary zoning and construction excise taxes. So, residents stepped up with their votes and their pocket books to invest in this issue, which led the legislature to take a leadership role.

TCA: Given that legislatures can be generous one year and stingy the next, are you optimistic that funding levels for LIFT and other programs can be sustained?

Salazar: I am optimistic that we will continue to see investments under Governor Brown, who has been a big champion of our work. But we also need to deliver results. When funds get distributed, we must ensure that they are utilized properly and that there is a measurable impact in affordable housing activity. People recognize that the Federal Low Income Housing Tax Credit can’t fill every need across the state and that in addition to the four percent or nine percent credit, we need other tools to fill in where they can’t stretch or we don’t have the resources. As long as we can show that we are dramatically over-subscribed in tax credit authority, and that we are seeing record levels of construction activity, that will help us build the case for ongoing investments.

TCA: What impact have these funding programs had thus far? What has the feedback been like from affordable housing professionals?

Salazar: On June 4, we announced a new round of LIFT awards for nine properties totaling almost $54 million. This commitment follows the 2015 legislature’s investment of $40 million to the LIFT program. We were excited to get a huge response to this NOFA (Notice of Funding Availability). In this round, we wanted to give developers a  new opportunity to bundle properties—because we know how difficult it can be to finance affordable housing in rural parts of Oregon—and leverage a rural deal with an urban deal and make the economics work. While only one sponsor did this, it is an interesting model that we hope to perpetuate. In its original form, LIFT had a very low per-unit cap of $40,000. This time around, we recognized the reality that even if you’re leveraging four percent credits, you may need to spend more per unit. We loosened those restrictions and saw a lot more people respond to the NOFA. Our first grand opening of a development funded by LIFT is scheduled for this August. It’s a 180-unit property in Salem, which is a huge project for that part of the state.

TCA: You noted that it has been historically challenging to develop affordable housing in rural parts of the state. Why is that and will these new funding programs help reverse that trend?

Salazar: The economies of scale can be tricky. It’s rare that you see a significant-sized development in a rural community. The per-unit costs are high and it’s hard to make the financing work for smaller properties. In some cases, local governments may not have done the ground work to address land-use issues and other sorts of work to get their environment ready for development. We have some work to do around making local policies attractive to developers. We also know that there is a need for us to play a matchmaker role between developers and communities that really want to get some housing in the ground. Residents who wouldn’t have welcomed development a decade ago are starting to see the benefits of bringing in residential construction. We build the bridges between those communities and the high-capacity developers, who are looking for sites but don’t know where to find them. LIFT has a carve-out in the statute for rural communities or communities of color. To make that work, we are rolling out technical assistance and outreach to these rural communities, and offering higher per-unit funding for projects, because they may need a little more juice to get them fully-funded.

TCA: What kind of developers do you tend to work with? Does that include out-of-state companies?

Salazar: Historically, there has been a preference toward local and in-state developers, but that might not be the most sustainable strategy, or the fastest way to get developments off the ground. We are starting to talk about how we can help build partnerships between in-state and out-of-state organizations; for-profits and nonprofits; and help folks find their niche, whether it’s preservation or new construction; or focusing on the Portland metro area or rural sections of the state. We can help.

TCA: In addition to LIFT, what multifamily programs administered by your office are most popular with affordable housing developers and why?

Salazar: As the state housing finance agency, we administer the four percent and nine percent housing tax credit programs, HOME, LIFT, and the General Housing Assistance Program (GHAP), which provides gap funding that’s subsidized through the document recording fee. LIFT is gaining steam, but people are still trying to figure it out. The most popular program is GHAP, which allows us to get very creative. Historically, we announced funding availability through tax credit NOFAs, but this year we put out $20 million of GHAP funds with a four percent offering. We said ‘no matter whether it’s used for preservation or new construction, if folks want to use a four percent tax credit execution, we’ll put some gap funds on the table and you can apply for them upfront.’ Now with the expansion of GHAP, we’ll be doing some outreach this summer to hear from stakeholders about the best way to target resources. In addition to GHAP, the other exciting work is that we have really ramped up our four percent activity. We pushed it and I am thrilled that through process improvements and marketing, we delivered on a ton of activity. We only closed four four percent deals in 2016 but 12 deals in 2017. I am proud of the team for getting that going. The four percent credit has become a popular choice, especially in the Portland metro area, where we have more than 1,000 units under construction.

TCA: In addition to four percent credits, can developers pair GHAP with LIFT?

Salazar: No, LIFT was designed to be separate and distinct from GHAP. Lawmakers wanted to do some specific things with LIFT and show that we can deliver a large number of units, which is why we have that per-unit cap for the amount of funding a project can get. There is one track that you can take, which is pair LIFT with four percent credits, which a majority of projects are doing.  A second track is to use gap funds from the document recording fee to pair with nine percent or four percent credits. Or, you can do stand-alone things just with those gap funds.

TCA: Over the past few years, there has been a movement within state and city governments to expand access to affordable housing for middle-income families, so-called “workforce housing.”  What is your office doing in this area?

Salazar: This is an exciting topic. Just recently, Governor Brown announced five workforce housing pilot initiatives throughout the state. It is an effort that we have been engaged in with the governor’s office and partner agencies, such as Business Oregon (the state economic development agency), the Department of Transportation, the Department of State Lands and others, to think comprehensively around this issue. The state agencies got together and held a series of roundtables with employers, developers and local government people, to identify barriers. What we heard from employers was that they are willing and eager to come to the table with some sort of investment in employer-assisted housing. They just don’t know how to engage. Working with the governor’s office, we solicited proposals from communities throughout the state. We prioritized joint applications where we had a developer, an employer and a local government trying to solve for these missing middle, market-rate developments serving families who make between 60 to 120 percent of area median income. We have these five pilots that will help us better understand the dynamics, so that we can work with the governor’s office to put together a package of proposals for the 2019 legislative session. If we can get the private sector to produce affordable housing for these income levels, they don’t need to rely on LIHTCs. Maybe there is  some minor way the state can nudge these projects along, with gap funds or loan guarantees, to get them over the finish line.

TCA: In addition to all of these new funding sources,  are you seeing other noteworthy affordable housing trends in Oregon?

Salazar: In addition to the state resources that I just discussed, and will continue to advocate for, the locals are really stepping up. Metro Regional Government, the regional government for the Oregon portion of the Portland metropolitan area, is gearing up to put a $650 million affordable housing bond measure on the November ballot. That’s on top of the $250 million bond measure passed by the City of Portland. That’s exciting, but if it passes, there will be a huge need to adequately deploy resources across the tri-county region. The other emerging theme, and everybody is buzzing about this, is the opportunity to think about the acquisition of naturally occurring affordable housing. It is top of mind for people in the Portland metro area, for local governments, for foundations and for our agency, as a way to bring new affordable housing into the inventory and potentially bring more units online quicker than building new. We have a new construction strategy through LIFT, but this would be an acquisition strategy to help get more units online as affordable housing by targeting areas that are vulnerable to gentrification and displacement by helping stabilize rents.

Story Contact:
Margaret Salazar

Darryl Hicks is vice president, communications for the National Reverse Mortgage Lenders Association and a 24-year veteran of associations managed by Dworbell, Inc., the management company of NH&RA.