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HOUSING AFFORDABILITY STRATEGY UPDATE 2.25.2025Proposed Affordable Housing Performance Grant Focused Action Plan Initiative: 2.9 Complete the 2023 Virginia Beach Housing Study and provide City Council strategic priorities and implementation recommendations Housing & Neighborhood Preservation |Feb. 25, 2025 Why Are We Here? •Why Housing & Neighborhood Preservation is proposing the AHP Grant •Housing Study Findings and Recommendations •What is the AHP Grant? •Purpose •Benefits •Eligible/Ineligible Projects •Grant Amounts and Payment parameters •Example •Model of only other AHP Grant in Virginia •Staff Recommendation •City Council Feedback and Guidance 2 How Did We Get Here? •January 2024: Housing Study report (market analysis and proposed strategies) completed and presented to Council •May 2024: Council approves resolution directing City Manager to pursue three strategies. 1.Advance discussions with Virginia Beach Development Authority (VBDA) to fund new, large-scale mixed-use development projects – Today’s briefing 2.Design a housing education campaign to incorporate into successful community engagement -- In progress 3.Research opportunities to simplify and streamline the permitting & review process -- In progress with Planning 3 Defining “Affordable Housing” •Can be all types of housing. •It is not defined by the type of housing, quality, size, or location. •Housing is considered affordable if households do not pay more than 30% of their income on total housing costs. •Paying more than 30% = Housing Cost-Burdened •Paying more than 50% = Severely Housing Cost-Burdened 4 2024 Housing Study Findings Virginia Beach faces significant affordability challenges: •Rental and homeownership markets •One in three households (about 59,000 households) are housing cost- burdened •Critical concern: Lack of rental units affordable to very-low-income households, many of whom are employed in the city’s top 10 most common occupations. •Often bear the burden of high housing costs to remain in the city. 5 Current Tools for Expanding Affordable Housing •Federal Low Income Housing Tax Credits •Competitive (9%) •Non-Competitive (4%) •Tax -Exempt Bond Financing •Virginia Housing Long-Term Taxable Bond Financing and Resources Enabling Affordable Community Housing (REACH) program •Federal HOME funds (City of Virginia Beach allocation) •Contribution or Sale of City-Owned Land •Virginia Beach Workforce Housing Bonus Density 6 Affordable Housing in VB Currently about 4,755 affordable multi-family rental units: •About 3,183 are rented to households with incomes at or below 60% Area Median Income (AMI). •Units are rented at or below market rents and do not have any project-based rental subsidy. •Remaining 1,572 units are assisted with project-based rental subsidy (the assistance is tied to the unit). 7 New Opportunity: Affordable Housing Performance (AHP) Grant •Authorized by the Virginia General Assembly with an amendment to the Industrial Development and Revenue Bond Act •Passed during 2022 session under HB 1194 •Effective July 1, 2022 •Allows Development Authorities, in conjunction with their local City Council, the power to make grants associated with the construction of affordable housing 8 What is an Affordable Housing Performance (AHP) Grant? •Grant funds provided to a developer based on a Percentage of the Incremental Real Estate Tax Revenue generated by the development •Incremental Real Estate Tax Revenue = •The amount of real estate taxes levied by the City on the land and the completed affordable housing development MINUS •The amount of real estate taxes levied on the site prior to developing the affordable housing project •Incremental real estate tax revenue granted to developer if: •Development meets eligibility criteria •Developer complies with terms of the grant agreement 9 Purpose of Proposed VB AHP Grant •To address shortage of affordable housing and further economic development •To incentivize the construction of new affordable rental housing units in Virginia Beach •Units that are rented and affordable to households at or below 80% of Area Median Income (AMI) ($80,550 annual income for a household of 4) •Program includes an incentive to provide units that are rented and affordable to households with incomes at or below 50% of AMI ($50,350 annual income for a household of 4) 10 Benefits of the AHP Grant •AHP Grant funds provided to a developer would be based on a Percentage of the Incremental Real Estate Tax Revenue generated by their development. •Therefore, the AHP Grant does not rely on an appropriation of existing general fund revenues. •Makes affordable housing projects feasible that would not happen without this incentive •Allows for an increase in debt proceeds for an affordable housing development •Eliminates barriers that hinder 4% LIHTC (non-competitive) feasibility 11 Proposed AHP Grant: Eligible Projects 12 •Projects must be new construction. •Projects must be developed by a for-profit entity. •Only new multi-family affordable rental housing units that have not started construction as of a to-be-determined date. •Applicants must have a demonstrable gap in project financing, as evidenced by their development and operating pro forma. •Projects may be fully affordable or mixed-income. •May also be mixed-use (i.e. with commercial and residential components). •Projects that involve the demolition of existing rental housing units only when they build a minimum 20% additional affordable housing units. Proposed AHP Grant: Ineligible Projects 13 •Involve only the purchase and/or rehabilitation of existing housing units. •Have already started construction as of a to-be-determined date. •Do not have a demonstrable gap in project financing as evidenced by their development and operating pro forma. •Developments that are produced by a non-profit entity that is already exempt from paying real estate taxes. Proposed Grant Award Duration and Timing •15-year grant period that may be extended another 15 years (total of 30 years) if recipient complies with capital re-investment terms before the 15th year. •Commences July 1 of the first real estate tax year following completion of construction. •Ends on the last day of the 15th or 30th real estate tax year following the grant commencement date. 14 Proposed Grant Amount & Payment •Capped at amount of incremental new real estate taxes to be levied and collected for improvements on the Project Site. •Adjusted to reflect the percentage of residential square footage to the total gross square footage of the structure(s). •Adjusted to reflect the percentage of the number of affordable rental housing units to the number of total residential rental units. •Grant payable upon proof of full and timely payment of the property’s real estate taxes and compliance with all requirements of the grant agreement, subject to a corresponding appropriation by the City Council. 15 Proposed Grant Award Terms and Conditions •Adhere to project construction timeline based on the effective date of the grant agreement •Strive for goal of 50% small, woman, and minority (SWaM) business participation during construction, and submit appropriate reports to City’s SWaM office. •Provide detailed updates/verifications to the City of construction progress and continued control, maintenance, and operation of the project throughout the 15-30-year grant period. •Restrict occupancy and rents throughout the 15-30-year grant period as outlined in the grant agreement and provide compliance monitoring reports to the City as evidence. •Notify VBDA and the City of any material changes in the project’s financing structure after an award it made. •For projects with 30-year performance period, make agree-upon re-investment in capital improvements prior to the 15th year of service.16 Potential Incentive Grant Example: 100% of Incremental Taxes, 400 units Base Taxes Land Value: $4,000,000 Existing Improvements: $0 Base Tax on Land (.97/$100): $38,800 Incentive Grant = 100% of Incremental Taxes Value of New Improvements: $84,200,000 Land Value, Year 1 $4,120,000 Total Value of Land and Improvements: $88,320,000 Total Taxes on Land & Improvements (.97/$100): $856,704 Base Tax on Land (.97/$100): ($38,800) Incremental Tax = Total Taxes – Base Tax: $817,904 Incentive Grant over 15 years (3% annual increase): $15,351,764 17 Potential Incentive Grant Example: Owner’s Reduction in Rental Income •100% Market Rate Units: 400 units at Market Rents of $2,000/month Annual Year 1 rent collection = $9,600,000 Sum of all rents over 15 years (3% annual increase) = $193,506,061 •100% Affordable Units : 400 units at Affordable Rents of $1,500/month Annual Year 1 rent collection = $7,200,000 Sum of all rents over 15 years (3% annual increase) = $145,129,545 •Owner’s Reduced Potential Rent over 15 years: ($48,376,515) 18 Potential Incentive Grant Example: Owner’s Net Reduction of Rental Income Over 15 Years •Total Reduction of Rental Income: ($48,376,515) •Incentive Grant: $15,351,764 •Net Reduction in Rental Income: ($33,024,751) 19 Model AHP Grant: City of Richmond, Virginia •First and currently the only program in Virginia •Began in 2023 •Richmond Grant uses 100% as maximum percentage of incremental real estate tax revenue •Charges a Grant Administration fee = 1% of annual grant value •To date: •26 projects approved •3,440 affordable rental housing units under construction or in the pipeline 20 Staff Recommendation •Recommend 100% incremental new real estate taxes as maximum •Application must be submitted for each project •Must meet all program criteria for staff to recommend approval •City Council and VBDA approve each project individually •Maintain separate required Public Process for permitting of developments 21 City Council Guidance Should staff proceed with pursuing an AHP Grant for Virginia Beach? •If Yes: •Staff provides program documents to Council for review •Request ordinance in April 2025 to create AHP Grant program •Provide Annual Report of all AHP Grant Activity •Evaluate program in 2-3 years based on completed projects •If No: What alternatives does Council recommend? Other questions? 22