Should Should TC TCAC re redesign the the ti tiebr ebreak aker? er? Presen esented by by King Kingdom dom Dev Developmen pment, t, In Inc. c. a Calif liforn ornia nonpr nonprofi fit publ public bene benefi fit co corporat ation Live Polling Instructions: 1. Using your smartphone, browse to: PollEv.com/WilliamLeach350 2. Enter your name and click [Continue] or click [Skip] to remain anonymous 3. You are all set if the website asks: “Is the sky blue?”
San San Di Diego ego Housi Housing Co Commi mmission on • The San Diego Housing Commission (SDHC) has earned a national reputation as a model public housing agency. • Established in 1979, SDHC provides a variety of award ‐ winning affordable housing programs and services that: ‒ stimulate the local economy; ‒ revitalize neighborhoods; and ‒ impact the lives of low ‐ income and homeless San Diegans. • SDHC has three primary programs: 1. Provide rental assistance 2. Create and preserve affordable housing Alpha Square 550 14 th Street 3. Address homelessness Downtown San Diego
San Di San Diego ego Housi Housing Co Commi mmission on • California is Facing a Housing Crisis • San Diego faces similar and unique challenges within our region • Volatility of Local & Federal Funding Sources • Federal HOME funding has been reduced by more than 50 percent since FY 2010 • Dissolution of Redevelopment Agencies in 2012 • Local housing fee collections tend to coincide with economic cycles A production rate of 17,000 ‐ 24,000 units annually is needed to adequately meet the identified demand for housing in the City by 2028. The top annual production rate in last 5 years was 6,400.
San San Di Diego ego Housi Housing Co Commi mmission on • Ongoing Effects of State & Local Housing Crisis • Supply of housing is not keeping pace with demand resulting in rising rents and home values • Nearly 50 percent of San Diego households are unable to find rental housing they can afford • Negative Impact on Gross Domestic Product • High housing cost reduces disposable income that would otherwise be spent in the local economy which supports GDP • Talent available to employers is constrained, which impacts an employer’s ability attract and retain qualified workforce • Impacts to Quality of Life & Environment • Ensuing sprawl and traffic congestion result in longer commute times and increases to greenhouse gas emissions
San San Di Diego ego Housi Housing Co Commi mmission on • Advocacy • More effective affordable housing policies and resources • Incentivize Production • Maximize resources through operational efficiencies and innovation • Increase the number of affordable housing opportunities that serve low ‐ income individuals and families • Incentivize Cost Efficiency Measures • Reduce development cost through responsible policy measures • Maximize the Use of Public Funds
Wh Why is is Ki King ngdom dom Dev Developm pmen ent Concerned? Concerned? 1. Nonprofit organization focused on making a difference 2. Experienced with the 9% program 3. Serves on advisory committees 4. Shares insights with the industry
Should Should TC TCAC re redesign the the ti tiebr ebreak aker? er? Only If: 1. There is an unmet need for affordable housing; 2. The tiebreaker doesn’t effectively leverage our resources; 3. A more effective tiebreaker could be designed; and 4. The benefit to the public outweighs the redesign cost.
1. 1. Ther There is is an an unm unmet et need need fo for af affordabl able housing. housing.
2. 2. The The ti tiebr ebreak aker er doesn’ doesn’t le leverage our our re resources Topics: A. Role of the tiebreaker B. Recent outcomes C. Tiebreaker correlations D. Resulting behaviors
2. 2.A. A. The The ti tiebr ebreak aker er’s ro role i. Set ‐ asides and geographic regions ensure we distribute funding evenly across the state and to certain project types ii. Points ensure every project provides sufficient public benefit iii. Minimum construction standards ensure projects are of sufficient quality iv. Housing type goals ensure we don’t over ‐ invest in certain housing types v. The tiebreaker decides between: i. equally meritorious projects, ii. that meet all quality standards, iii. that equally fulfill a housing need, iv. within each set ‐ aside and region.
2.A. 2. A. The The ti tiebr ebreak aker er’s ro role i. When the current tiebreaker was proposed its stated goal was to reduce the amount of credits awarded to projects by inducing local investments ii. Simply stated, the tiebreaker’s purpose is to leverage the credit Developers Need for affordable housing The Tiebreaker Conventional & Public Financing
2.B. 2.B. Re Recent out outcom omes es Credits Awarded over Time 1.2 1.1 1.06 Credits (in Billions) 1.03 1.02 1.02 1.0 0.95 0.93 0.89 0.9 0.83 0.82 0.81 0.78 0.8 0.7 0.6 0.5 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
2.B. 2.B. Re Recent out outcom omes es Credits Awarded over Time 1.2 1.1 1.06 Credits (in Billions) 1.03 1.02 1.02 1.0 0.95 0.93 0.89 0.9 0.83 0.82 0.81 Adjusted for: 0.78 0.8 • cost inflation 0.7 • credit pricing 0.6 • Interest rates 0.5 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
2.B. 2.B. Re Recent out outcom omes es Credits Awarded over Time 1.2 1.1 1.06 Credits (in Billions) 1.03 1.02 1.02 1.0 0.95 1.02 1.00 0.93 0.97 0.89 0.9 0.94 0.92 0.83 0.82 0.81 0.88 0.78 0.8 0.79 2017’s 940 million 0.78 0.77 0.75 0.7 is 20% more than 0.68 0.6 2007’s 780 million 0.5 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
2.B. 2.B. Re Recent out outcom omes es Units Produced over Time 7,000 6,500 6,045 5,802 6,000 5,500 5,080 5,037 4,846 4,842 5,000 Units 4,513 4,230 4,170 4,500 4,126 3,776 4,000 3,500 3,000 2,500 2,000 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
2.B. 2.B. Re Recent out outcom omes es
Governm Gov rnment Funds Funds per per Uni Unit 422k 2.B. Re 2.B. Recent out outcom omes es 372k Credits per Unit over Time 331k 330k 300,000 279k 250,000 Credits / Unit 227k 200,000 212k 210k 197k 197k 190k 186k 145k 143k 150,000 161k 154k 153k 121k 118k 100,000 Public Funds per Unit 50,000 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
2.B. 2.B. Re Recent out outcom omes es
2. 2.C. C. Ti Tiebr ebreak aker er co correlat ations (Most recent 238 New Con. awardees) • No correlation to credits/unit 44%Avg. 270k Avg.
2. 2.C. C. Ti Tiebr ebreak aker er co correlat ations (Most recent 238 New Con. awardees) • Moderate correlation to high cost 400k Avg.
2. 2.C. C. Ti Tiebr ebreak aker er co correlat ations (Most recent 238 New Con. awardees) • Strong correlation to public funds 130k Avg.
2. 2.C. C. Ti Tiebr ebreak aker er co correlat ations Credits/unit
2. 2.C. C. Ti Tiebr ebreak aker er co correlat ations Cost/unit
2. 2.C. C. Ti Tiebr ebreak aker er co correlat ations Public Funds/unit
2.D 2.D. Re Resulting beha behavior viors 30 units = 50 TB 50 units = 39 TB 70 units = 35 TB $5m PF = 166k/unit = 50 TB 30 units $5m PF = 100k/unit = 39 TB 50 units $5m PF = 71k/unit = 35 TB 70 units
2.D. Re 2.D Resulting beha behavior viors $5m PF = 35 TB 70 units $5m PF = 39 TB 50 units $5m PF = 50 TB 30 units
2. 2. Qualit alitativ ive sc scor orec ecar ard Measure Current TB Production C Fairness D Adjustable F Policeable D Game ‐ able D Understandable F Defensible D Behaviors C Simple D Familiar A
2. 2. The The ti tiebr ebreak aker er isn isn’t wo working pr properly operly Rising credits/unit Correlation with high cost Downward pressure on units $5m PF = 50 TB 30 units
3. 3. A mo more eff effective ti tiebr ebreak aker er co could be be desi designed gned Topics: A. The design process B. A better way to measure leverage C. Resulting behaviors D. Avoiding bad outcomes E. Overall benefits
Thank Thanks to to those those who’ who’ve ve pr provided ided feedback eedback so so fa far.
3. 3.A. A. Ti Tiebr ebreak aker er desi design gn pr process ocess Process: i. Decide the tiebreaker’s purpose ii. Use the most direct measurement iii. List the undesirable outcomes iv. Decide which outcomes must be avoided v. Include adjustments to avoid such outcomes
3.B. 3.B. A bet better er way way to to me measure le leverage How to measure leverage directly: • Return on investment • Units divided by Credits
3.B. 3.B. A bet better er way way to to me measure le leverage = Score
3. 3.C. C. Re Resulting beha behavior viors Motivates • Increasing units • Decreasing credits Base case • Reducing costs • Increasing sources • Debt • Equity • Public funds
3.C. 3. C. Re Resulting beha behavior viors Raise more capital Base case Add units and costs More PF Save costs
3. 3.C. C. Re Resulting beha behavior viors Raise more capital Increase density Get parking reduction Better stack units Negotiate pricing Get public funding Build at scale Trim excess costs Get fees waived Operate efficiently
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