Pulling together the financing for affordable rental housing in general is a deeply complex endeavor. It is not uncommon for a high-quality, mission-focused affordable rental housing development to layer 10-15 sources of funding. The redevelopment of Friendship Court will be no different. In fact, it will be more complex than most, given the broad set of resident-driven goals for redevelopment, including creating housing with multiple tiers of affordability and the phasing of development that prevents displacement of existing resident families.
With few exceptions, all rental housing developments have some debt once completed. The rental revenue from a property covers those debt payments – as well as all other necessary operating costs such as staff, utility bills, building repair reserves, etc. By definition, affordable housing communities have reduced rental revenue. However, operating costs don’t generally shrink, so the primary method for reducing operating costs to align with the available rental revenue is to decrease the debt burden. The only way to decrease debt is to introduce front-end subsidies into the development financing.
The backbone subsidy for affordable rental community development nation-wide is Low-Income Housing Tax Credits (LIHTC). Effectively, LIHTC financing can account for as much as 40-50% of development costs. However, LIHTC is a limited federal program, administered by individual states, and is highly competitive.
The redevelopment of Friendship Court absolutely depends on successfully winning LIHTC financing – and all the work of the Friendship Court Advisory Committee over the last year has been focused on achieving resident aspirations and winning LIHTC funding. However, LIHTC alone is insufficient to “make the numbers work” given the depth of affordability we aim to achieve – we will need those other layered sources, too.
For two reasons, the second most crucial subsidy is local. First, local financial support provides a meaningful layer of funding. Second, and perhaps as importantly, we are much more competitive in the LIHTC financing competition with substantial, committed financial support from the municipality. Fortunately, we live in a city with a strong financial commitment to affordable housing as shown by the Charlottesville Affordable Housing Fund (CAHF). The CAHF was wisely established more than ten years ago to support affordable housing in our community.
To successfully redevelop Friendship Court, we must close the remaining development financing gap depending largely on support from local, regional, and national foundations as well as private philanthropy.
Successfully financing a high-quality, deeply affordable rental housing community is challenging and resource-intensive. The decisively positive results, however, particularly for the families whose lives will be impacted over the ensuing decades, are unequivocal and critically necessary to address the dire need for housing affordable for low-income families in Charlottesville.