Good afternoon and welcome to the September 14th meeting of the Government Operations Committee.

We will begin with the Pledge of Allegiance.

Before we begin with our presentation, we have two sets of minutes to approve.

August third and August 10th.

Is there a motion to approve both August third and August 10th minutes?

Motion to approve both August 3rd and August 10th minutes.

Second.

All in favor?

It's three zero.

Thank you very much.

Okay, so let me, I'm gonna set the stage a minute, Ryan, if you don't mind.

But I think at its at its sort of heart, it is a very sort of simple concept that I think could yield um long-term benefits.

And the reason that I think it's so important that we bring it forward is because we really haven't, other than the MPDU in Lua fund, which again, I think we all agree, I think our goal would be that houses are built instead of paying the illum.

Like I think that's a reasonable, but we don't have an ongoing mechanism uh to fund housing.

And I think one of the biggest challenges we've had is that we haven't been able to build the missing middle out.

We haven't been able to build the super lower income.

Um, and I know we're working on that, but so we really do have to have a solution that generates uh a pot of money.

So to talk about a pot of money.

It's Ryan Trout.

Good afternoon, Ryan Trout.

Councilwoman Nash mentioned here in a volunteer capacity.

I'm a Frederick resident and have kind of circulated around the affordable housing issues for the better part of a decade and a half at this point.

I want to thank you all, Chairwoman Nash, members of the committee for having me here to talk to you guys about this concept.

And I think just to set the stage, I regularly kind of follow housing news around the country, always looking for what are things that we can bring back to our community that can really help us do exactly what you mentioned.

How do we produce the amount of not only affordable housing but housing in general that our community needs, right?

And so uh recently our needs assessment belief showed that county needs about 32,000 units by 2035, and the city's share is quite significant, particularly on the affordable uh side.

So how do we how do we look at producing that?

And one of the challenges that we have, uh we're going to get back to the ask in a little bit.

Um of the challenges that we have is on the fine financing side, uh, not just on the affordable housing, but even on the market rate housing.

Uh and when we think about MPDU programs, the reality is when we're asking developers to provide MPDUs, that cost of those units goes somewhere, right?

Whether it's the pill fee or if it's uh reducing the sales price or the rental price for those units, there is a net loss that then gets captured somewhere else.

And and in some of the literature they will refer to that as an inclusionary tax.

Right?

How do you create inclusionary units?

You have to shift some of those costs to others, uh, which means your market rate housing gets more expensive.

But another complicating factor is that just in the traditional capital stack or in the resources available for developers to borrow from in order to build housing, whether it's affordable or market rate, they have to go get investors.

They have to get lenders.

Uh and some of those sources can be quite expensive.

Um if any of you participated in last year's housing summit, uh some local developers were talking about the price uh of some of that investor dollars, and they can see it going up 16, 18, 20, 22 percent returns on uh on equity investor uh portion of their capital stack.

And that translates to a project that then has to cash flow enough to pay them back the returns that they're looking for, which means the price of housing, the price of rent goes up.

In 2020, uh HOC in Montgomery County came up with a new way.

Uh they bonded $50 million, and they took that $50 million and they replaced that private equity in the capital stack with their what I refer to as like public equity or what the kind of communities referring to as public equity.

So they replaced that with local dollars that had been bonded at a much lower rate, uh and they do this on the construction loan.

And so what's really nice about doing something like that in a construction loan is that the construction period is usually only three to five years, uh, particularly if you're also working on your entitlement side, but we'll get to that later on in the conversation.

Um if you're able to then do that, that money that you've lent out to the developer, well, one, you've now lowered their costs, which that can translate into lower rents that they can charge.

Uh and then when they stabilize the project and refinance with with a permanent loan, your money comes back.

So it can come back much faster than the traditional way that we support affordable housing uh in the city, which is mainly through gap financing and mainly through low-income housing tax credit projects.

Right.

And both our pilots and our gap financing are us putting money in either uh kind of free money, it's like a grant, or it's a loan, but with an incredibly long time horizon.

And so that money doesn't really recirculate and help you then produce more units.

You just need to keep finding ways to have more money in order to do more gap financing, right?

And we're relying on some outside systems like the low-income housing tax credit process.

So since Montgomery County piloted this in 2020, other jurisdictions took notice.

Um Massachusetts uh Mass Housing, their statewide agency has created a similar program to support this part of the capital stack across Massachusetts, Atlanta has developed one of these programs, and then somebody who helped start the Atlanta program went to Chattanooga.

And the reason I bring Chattanooga up is they're one of the smaller jurisdictions that have piloted or have started doing one of these programs.

So Invest Chattanooga, they didn't do it through a bond, though.

So that is the one caveat of their program is they had some they had ARPA money left over, so they seeded it essentially with cash.

And they did about 20 million dollars, and then they're looking to double their fund over the next few years.

But what these folks do is they will then replace that private equity in the capital stack with this public equity, which is usually 15 to 30 percent, 20 to 30 percent of the capital stack.

And instead of looking for that 15 or 20 or 22 percent return, they're usually looking for five, six, seven percent return.