So, I thought I would write about some high points, sufficient to acquaint you with the "tax credit" financing vehicle. You should know this to opine about Rowlett's entry into the business.
Let's start with why we should even be involved with HFC's. Rowlett, as well as most other smaller towns, do not have HFC's. However, some forward thinking communities have. Since it's inception in the early 80's, 70 towns and counties have created an HFC. HFC's are tax exempt and can issue bonds. These bonds go a long way toward financing certain types of housing. Once the HFC is set up by the municipality, and the board of directors are appointed, any risk is absorbed by the HFC. The city is then risk free. The taxpayers are off the hook. I would recommend that the City Council select members to the HFC other than themselves.
The HFC is primarily charged with the responsibility of financing residential development. This would come in the form of apartments and single family homes. There are two general groups that are served by the financing package. One is Senior housing and the other is workforce housing. Both can be further subdivided into apartments and single family homes.
Now, why HFC's? Because of a number of positive and good economic reasons, the cost of housing is escalating much faster than some of our citizens can adjust. Some incomes are not keeping pace. Someone on Social Security can not rent new market rate apartments. A retired couple, making $2,000 a month each, would have to pay approximately $1400 a month for a market rate 2 br, 2 bath apartment. After withholding for Medicare, gap insurance, utilities, auto maintenance, and food, there is little remaining to live.
Another example: The Median family income in Rowlett is $83,200. Folks, that's pretty high. The people in Rowlett are doing good. I have read recently that the average home in Rowlett costs $160,000. I don't believe that number. All the recent sales comps I know are well north of $200,000..... most probably in the $225K-$250K range, and many more much higher. In order to pull the average down to $160,000, there has to be a whole bunch of $100,000 houses out there. I haven't seen any in 20 years.
For purposes of discussion, let's say our average income family wants to buy our average priced $200K home. Under a conventional loan, they would need 20% down, and say $2,000 in closing costs. That's $42K. Let's say our young couple consists of a Rowlett policeman or fireman, and a wife that works for the City of Rowlett. He makes $50K and she makes $33.2K. Together they make the Median Income of Rowlett. They are Rowlett's future. They are good citizens. We need them here. They have been renting a small house for $1400/month, making a car payment, paying off a student loan, child care, and the usual food, utilities, insurance, etc. What do you think their chances are of saving $42K? So, they would have to go FHA or VA, if one is a veteran. That would cut their cash needs down to about $8,000. That's still a lot of money to a young couple with two small children.
Now, introduce HFC to the town.
You must understand that HFC "tax credit" deals are not a subsidy, as you usually understand it. An HFC "tax credit" project has nothing to do with the tenant. It is a financing vehicle for real estate development. Apartments and houses each have their own rules, however they both kinda work like this:
I'll use apartments as an example. Lets say a 200 unit apartment project costs $20 million. Normally, a lender lends the the money to build the project and the developer spends the next 20 years making payments........just like you do on your house. However, under a "tax credit" format, the Federal Government and the Texas government enters the equation to aid senior citizens and workforce employees and provide good housing at a cost they can afford. Remember the numbers above? These two groups are SOL in Rowlett right now. To shorten a story and cut out a lot of detail, the Feds and the State arrange for the lender on the project to receive tax credits. Depending on the deal, these tax credits can be anywhere from $800K to $1.5 million a year for 10 years. The lender gets the tax credits to protect income and they earn CRA credits. (Community Reinvestment Act Credits). These two benefits entice the lender to make the loan, if the project is otherwise a well conceived real estate deal. No money is paid to anyone, including the tenants. These tax credits simply reduce the amount remaining on the debt structure, therefore the monthly payments are substantially reduced. Also therefore, the rents are substantially reduced. How much are the rents reduced? Well, it's enough to make a big difference. It all depends on the average incomes of the citizens. To qualify to get into the project, you must make at least so much money, but not too much. There is a strata that you must fit into. Remember, this program was created to aid senior citizens and workforce employees.......not the guy that makes $120K a year.
Let's look at the seniors group again. The average senior citizen couple aren't as "well off" as you might think. Some have done quite well and this program isn't for them. However, if they have done reasonably well, they have a house paid for and maybe $30K-$50K in the bank. They have been taught to get their house paid for and all will be well. The problem is that they can become a "captive" of their house. Remember our math on senior citizens above? Taxes, utilities, insurance, maintenance, and food makes a big bite out of their Social Security income. Of course, they're trying to preserve their "nest egg." Now, they're trapped. The dreamed for travel, nights out, and gifts for the grandkids are beginning to dim. Then, along comes HFC. They can sell their $200K house, put the money in the bank with their $40K, move into the new apartments paying $750 a month. They can have a social life with the other tenants in the community rooms. They can live comfortably on Social Security income and have $240K in the bank. The grankids get a horse. A similar story can be crafted for the young couple interested in apartments or a house.
Now, I want to take a little time to write about apartments. I realize I'm swimming upstream in a swift current, but you need to know the truth, not the unfounded myths and "piling on" stories.
I have been in the real estate development business for 50 years. Most of that time I was in the financing part of the business. Are there bad apartment projects? Absolutely. Are all apartments bad neighbors and "slums in the making?" Absolutely not.
I have been on apartment sites that my only recommendation was to get a D-8 dozer and take it down. I have also been in apartments that I still would not be able to afford. I probably don't need the "man's man" greeting me at the door and brushing down my jacket before I left for the day.
Apartments are a physical thing. They don't think, or walk, or talk. In fact, they don't do anything except wait for human beings to do things to them. Bad apartments are a result of bad management. Nothing else. It has nothing to do with the people who might live there. It has to do with the people who are allowed to live there. This is the world of apartment management. A good apartment management company will have a good apartment complex. They will be good neighbors.
I don't want to seem to be telling our excellent Police Chief how to run his store. He's quite capable without me. However, I would like to tell you what I would do if I was police chief. I would wait until the complex was built and they were in the process of moving in their first tenants. I would then show up with a pleasant smile and ask to see the manager. When the manager comes forward, I would say that, "I will give you three police calls a month. If you ever have four, you are really not going to like me, anymore. If you ever have four, I will have code inspectors crawling all over your place. I will have enough violations to take your entire monthly rental income for the next month." Then, I would smile and say, "Have a good day." as I was leaving. I betcha from that day forward, there will be a good apartment project in Rowlett.