New 'piggyback' funding program targets rebuilding of mixed income rentals in flooded parishes

Originally published by The Advocate.

With the capital area's rental housing market still tighter than normal due to the 2016 floods, officials are launching a new program to encourage developers to build affordable apartments in the hardest hit parishes, including East Baton Rouge.

The Piggyback 2018 program is the third major initiative since the flood disaster to use federal funding to subsidize construction of rental units. Approximately 28,000 rental units were damaged during the floods, according to the state's Office of Community Development.

The program — announced Friday by the Louisiana Housing Corporation — works by giving additional loans to those receiving low-income housing tax credits, the primary subsidy with which low-income apartments are built.

The new federal money "piggybacks" on the tax credit program, allowing developers to build mixed income complexes with some apartments that can be rented out at market rates.

To obtain funding, projects have to contain more than half apartments for people making 80 percent or less of the area median income and remain at reduced prices for 35 years. Five percent of all units must be for permanent supportive housing, used by people with very low incomes or chronic health conditions.

The program is attractive to developers because the loans that are offered are long — 35 years — and the interest rates are lower than conventional banks can offer.

The piggyback program is funded by the U.S. Department of Housing and Urban Development's Community Development Block Grant Disaster Relief Program. Applications will be accepted through March 16.

"We understand, after disasters such as the 2016 flood, everyone is impacted," LHC Executive Director Keith Cunningham said in an interview. "With the use of CDBG funds, we’re able to meet both the low to moderate mission as well as create some market rate components."

The program is expected to result in 500 new affordable housing units, according to a draft document on what state officials project for the program.

Priority will be given based on a number of factors, including whether the project is in one of the most flood damaged parishes and if rents in that parish are high relative to incomes. East Baton Rouge fits in both categories, while Ascension and Livingston fit into the first but not the second.

Cunningham said he expects to receive applications for complexes that would serve both families and elderly people.

Office of Community Development Director Pat Forbes said in a statement that the piggyback program will help resolve the shortage of affordable housing for working households.

“Over 28,000 rental units in Louisiana were damaged in The Great Floods of 2016, worsening what was already a terrible shortage of affordable rental housing from before the floods,” Forbes said in a statement. “Our low-to-moderate income residents and our state need these new, affordable rental units to help drive the long-term recovery from these storms.”

According to documents provided by LHC, 1,804 units in the housing corporation's tax credit-financed portfolio were damaged by the August 2016 floods. Of those, 974 have been repaired.

The new funding opportunity is modeled on a program implemented after Hurricanes Katrina and Rita that expended $600 million to create over 7,000 rental units, including 4,420 with affordable rental rates, according to a 2015 LSU analysis of the earlier program. The housing corporation continues to recycle money from that program, building more housing as loans are repaid.

"We saw ourselves where we could learn from past examples, we could learn from the techniques and the programs that were developed after the last storms we’ve had in the state of Louisiana, dating back to Katrina," Cunningham said.

Stephen Barnes, director of LSU’s economics and policy group, who analyzed the use of CDBG funding after Katrina and Rita for the state and city of New Orleans, said his analysis showed the piggyback program was effective in bringing people back to the most damaged regions.

He said homeowners who flood typically are offered more appropriate incentives to get their lives back on track when compared to those living in rental properties. In addition, rentals are often owned by out-of-state developers able to move their money elsewhere, he said.

“When you think about this whole region being so widely impacted (by the 2016 floods), that even has the potential for really reshaping that community,” he said, noting that owner-occupied homes could come back while rentals disappear.

“That mix of housing is important to really getting the area back on its feet. Having those rental properties is going to be an important part of making sure you have nearby housing for the workforce of that community,” he said.

Though on a smaller scale, Barnes said, the new piggyback program could have similar effects to the post-Katrina one.

"My guess is those dollars will help restore housing that would bring population back into these impacted communities and give them the base of population and housing stock to start moving forward," Barnes said.

He noted that implementation is key, and how the program is administered could affect the outcomes.

Of the money appropriated for the piggyback program, $17.7 million is a re-allocation from the $38.25 million Multifamily Restoration Loan program announced in May.