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Use It Or Lose It: Ensuring The Creation Of Affordable Housing Through Volume Cap

27 Sep
2024

Originally published on Forbes Business Councils by Seth Gellis, President of CPP.

With the continued urgent need for more affordable housing across the country, industry experts and academics are looking for solutions, whether they involve preserving existing communities nationwide or creating additional units where they are needed most.

According to a recent study by the National Low Income Housing Coalition, there is a shortage of 7.3 million available affordable rental homes for the lowest-income renters in the U.S. While it’s a complex issue, one overlooked path to financing is the option to increase the use of private activity bonds (PABs), which pair with 4% low-income housing tax credits (LIHTCs).

Private Activity Bonds And Volume Cap

Volume cap, a “use it or lose it” resource provided by the federal government to the states based on a per capita formula, allows tax-exempt financing to be issued for affordable housing at a lower interest rate. The lower interest rates offset the lower net operating income that debt is sized from as a tool to help keep project sources and uses in balance. This ensures a greater level of capitalization, reducing the need for other sources and increasing the funding available for construction activity.

This important resource is allocated and awarded by state finance agencies, some of which unfortunately do not use all the resources made available to them. This means that if a state agency has unused volume cap and a deal is unable to make it through the funding cycle for that state in a timely manner, the resource and accompanying economic and social benefits are lost for good.

So, what can affordable housing professionals and organizations do to ensure the volume cap does not go to waste or to use it in the most efficient manner possible?

One solution is to work with local bond issuers and agencies that support them.

Benefits Of Working With A Local Issuer

Local bond issuers play a major role in identifying the projects most impactful for their community and often can reduce the overburdened load that housing agency staff must deal with.

1. Efficiency And Speed Of Execution

At my company, we find that an average deal may take nine months to close, plus an additional year to complete the development or preservation of the property (with a few more months of time tagged on for an IRS Form 8609 to be issued). We consider that a quick turnaround. But when entities do not use a local issuer for the deal, the acquisition or renovation timeline can extend for an additional one and a half to two years—sometimes making the deal untenable.

2. Accelerated Capital Investment Into Communities—When and Where They Need It

Across the U.S., many affordable properties are in immediate need of preservation; and many of these deals use LIHTC as a part of their financing. Completing these deals as quickly as possible is integral to reducing the loss of affordable units and preserving options for communities.

According to a 2024 report from Harvard’s Joint Center for Housing Studies (JCHS), there was a loss of 2.1 million units with rents below the maximum amount affordable for the lowest income group since 2012. While creating new affordable housing units is a part of the solution, new construction alone won't be able to keep up with the need, especially if communities are losing more units than are being created.

I've found that when local leaders, community advocates, developers, lenders and agencies can work together, it creates efficiencies and the strongest outcomes in affordable housing development and preservation. Communities should have a say in their local housing choices. Local leaders and community advocates have the best understanding of residents’ needs and where and how to invest, and good developers will listen.

3. Autonomy And Control

Working with local issuers increases the ability for local jurisdictions to control the terms and circumstances that preservation or new development must follow in addition to minimum state provided standards. When deals and terms are localized, it creates the largest impact for the community. Specific benefits may include:

• The community is empowered to decide the priorities they wish to address. Developers should foster dialogue with local housing advocates and community leaders to discuss and outline their wish list. Unsurprisingly, the goals are often the same.

• Related improvement projects (e.g., street, sewer, LEED), social service requirements, crime prevention programs, prevailing wage, are benefits that are, by and large, staying within their community (should they choose). This autonomy also relieves pressure on developers by having an equal partner in the myriad decisions.

• Locals control within the development what is done, where it’s done and who does it within the community. For example, they may have checklists or requirements (e.g., Section 3 that requires a local workforce) that directly benefit the local community and economy.

Best Practices For Working With Local Issuers

Affordable housing developers looking to finance their deals may have the opportunity to work with a local issuer to get the deal done. I recommend you keep these best practices in mind:

1. Prioritizing Organization

Just like when working with any financial partner, organization is paramount. As a developer, that means having the deal structure solidified, financial documents in place and a single point of contact for the local issuer identified. The more streamlined you can make the process, the better.

2. Taking Time To Understand The Local Community

Developers likely understand that one of the key benefits of working with a local issuer is the ability to help impact the local community in specific ways. But, for that impact to be felt in the biggest way, developers must take the time to truly understand the local community and its needs.

3. Having Early Conversations

Developers need to reach out early in the process to understand if the issuer has sufficient volume cap, and what their processes may be. Creating a relationship early makes the processing, organization and understanding of their needs much easier.

Ultimately, the ability to work with local agencies carries many benefits and can make developers and investors nimbler in their work solving the nation’s affordable housing crisis.

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“At CPP, we are dedicated to preserving and enhancing affordable housing communities that provide stability for families and individuals,” said Alexis Castillo, Assistant Development Manager at CPP. “The renovations at St. Anthony Plaza will not only improve the quality of life for residents through modern, energy-efficient upgrades but also ensure long-term affordability for generations to come. We are proud to partner with local organizations to bring these critical improvements to Albuquerque’s Near North Valley community.”

CPP is partnering with LifeSTEPS to provide on-site adult education, health and wellness, and skill-building classes and services to residents.  

Renovations are expected to be complete by Spring 2026. The property’s affordability was set to expire in October 2025, but with CPP’s involvement, the Section-8 Housing Assistance Payment (HAP) contract will be renewed for 20 years. Additionally, the property will encumber a new Land Use Restrictive Agreement (LURA) to ensure affordability for 30 years. All units will be income restricted to family households at or below 60% of Area Median Income (AMI).

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CPP is partnering with LifeSTEPS to provide on-site adult education, health and wellness, and skill-building classes and services to residents.  

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“Currently, over half of the renters in Albuquerque are cost burdened, meaning they are spending more than 30% of their income on housing,” said Belinda Lee, Vice President of Development at CPP. “The acquisition and redevelopment of St. Anthony Plaza will help preserve and improve much-needed affordable housing for the city, ensuring that low-income families have a safe, stable place to call home.”  

St. Anthony Plaza is set to undergo a transformative renovation, bringing modern, energy-efficient upgrades that will enhance both sustainability and resident comfort. These improvements will include state-of-the-art Energy Star-rated appliances, new windows designed for efficiency, and LED lighting throughout the community. Water conservation will be a key focus, with low-flow and flush-rated plumbing fixtures and a full domestic water repipe. Residents will also benefit from a brand-new heating and cooling system, along with crucial electrical upgrades. Inside each unit, healthier living spaces will be created with low-VOC flooring, paint, and adhesives, as well as formaldehyde-free cabinets and countertops. In addition, accessibility improvements will ensure smooth, compliant pathways to residences, amenities, and parking, with enhanced common areas and restrooms designed to better serve all residents.

Beyond the interiors, the exterior of St. Anthony Plaza will receive a much-needed facelift, including stucco repairs, fresh paint, and new roofing to improve both aesthetics and durability. The community’s outdoor spaces will also see major enhancements, including resurfaced and restriped parking across 10 acres, improved drainage and erosion control, and ACM remediation. Safety and security remain a top priority, with plans for additional lighting, a new 6-foot perimeter fence, and controlled access to create a more secure and welcoming environment. These upgrades reflect a steadfast commitment to providing a modern, accessible, and vibrant community where residents can feel safe and comfortable.

“At CPP, we are dedicated to preserving and enhancing affordable housing communities that provide stability for families and individuals,” said Alexis Castillo, Assistant Development Manager at CPP. “The renovations at St. Anthony Plaza will not only improve the quality of life for residents through modern, energy-efficient upgrades but also ensure long-term affordability for generations to come. We are proud to partner with local organizations to bring these critical improvements to Albuquerque’s Near North Valley community.”

CPP is partnering with LifeSTEPS to provide on-site adult education, health and wellness, and skill-building classes and services to residents.  

Renovations are expected to be complete by Spring 2026. The property’s affordability was set to expire in October 2025, but with CPP’s involvement, the Section-8 Housing Assistance Payment (HAP) contract will be renewed for 20 years. Additionally, the property will encumber a new Land Use Restrictive Agreement (LURA) to ensure affordability for 30 years. All units will be income restricted to family households at or below 60% of Area Median Income (AMI).

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Read More
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Ramona Park is located at 13870 Ramona Boulevard in Baldwin Park, approximately 15 miles east of Downtown Los Angeles. Designed with families in mind, the property is comprised of eight, two-story, garden-style buildings which house 49 one-, two-, and three-bedroom units. Community amenities include a community room, playground, and laundry room, as well as on-site management. CPP plans to invest $75,000 per unit in renovations.

"The renovations at Ramona Park reflect our ongoing commitment to preserving and enhancing affordable housing in Metro Los Angeles, where the need has never been greater. With more than 500,000 low-income households in the region struggling to find affordable rental options, it is critical that we invest in maintaining and modernizing these communities,” said Belinda Lee, Vice President of Development at CPP. “This acquisition, preservation and rehabilitation of the property will not only improve the quality of life for our residents but also ensure long-term sustainability, accessibility, and security for families who call Ramona Park home."

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“Preserving and improving affordable housing is essential to supporting the well-being of our communities. The renovations at Ramona Park will provide residents with safer, more modern homes while also enhancing accessibility and adding valuable amenities,” said Philip Choi, Development Manager at CPP.

CPP is partnering with LifeSTEPS to provide on-site, instructor-led adult education, health and wellness, and skill-building classes and services to residents.  

Renovations are expected to be complete by the end of 2025. The property’s affordability was set to expire in October 2025, but with CPP’s involvement, the Section-8 Housing Assistance Payment (HAP) contract will be renewed for 20 years. All units will be income restricted to family households earning 30%, 40%, 50% and 60% percent of the Area Median Income (AMI).

Additional partners on the project include the California Tax Credit Allocation Committee (CTCAC), who issued and allocated 9% LIHTC. WNC & Associates serves as the equity partner. US Bank is providing construction financing and Capital One serves as the permanent lender, using a Freddie Mac product.  

Read More

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