Rhode Island’s affordable housing crunch

PROVIDENCE - Cuts in the state's affordable housing programs will impact Rhode Island for years to come, housing advocates say.

Advocates decried cuts made in the $7.7 billion state budget signed by Gov. Lincoln D. Chafee last month as coming at a time when Rhode Island already faces a dearth of affordable housing. But the impact will not be felt immediately.

Construction on affordable homes continued throughout the recession, thanks in part to the Building Homes Rhode Island housing bond, which provided $50 million to build 1,225 affordable housing units from 2006 to 2010.

But because many of these projects are still under construction, voters and legislators might think public money is still being invested in affordable homes, said Michelle Brophy, director of the Corporation for Supportive Housing’s New England program.

“In the next six months you’ll see a lot of ribbon cuttings, and I think it’s giving people a false sense of security,” she said. “We’ve reached a cliff, and we’re about to jump off it as far as creating new units in the pipelines.”

A number of projects in the works will not be completed without more capital, said Rhode Island Housing Executive Director Richard Godfrey, and the consequences of those project cancellations may not be felt until years from now.

Without a permanent funding stream for affordable housing, the state’s already pressing need will grow, he said.

A steady decline

The state is still absorbing the impact of declining support for the Neighborhood Opportunities Program, which pays the difference between affordable rent and what it actually costs to operate a housing unit.

Housing is generally considered affordable if monthly mortgage or rental costs total less than 30 percent of household income.

In 2008, 46.5 percent of renters and 42.2 percent of homeowners in Rhode Island paid 30 percent or more of their income on housing, according to Housing Works RI.

The Neighborhood Opportunities Program started in 2001 with $5 million from the state annually. It then received $7.5 million in 2006 and 2007 and $2.5 million from 2008 to 2010. Last year, the program received $1.5 million.

Until 2008, the program subsidized construction costs as well as operating costs for affordable housing. Now it pays only operating costs.

While the state is not funding the program at all this year, the budget signed last month instructs Rhode Island Housing, which receives federal funds and generates other sources of revenue from loans, to put at least $1.5 million toward the program.

Rhode Island Housing receives no state money, but it was created by the General Assembly and is bound by the state’s budgeting demands.

Rhode Island Housing anticipates a total budget of around $30 million for 2012, roughly the same as this year’s. The Neighborhood Opportunities Program “will just be one more expense which we have to absorb,” Godfrey said.

The only state funding for affordable housing in the current budget is $500,000 for the Thresholds program, which specifically devotes money toward housing and services for people with mental illnesses.

To address its affordable housing deficit, Rhode Island needs to budget between $15 million to $17 million per year for “at least” seven or eight years, said Housing Works RI Executive Director Nellie Gorbea.

Brophy’s projected “ask” from the state budget was more modest — $10 million per year — but included a permanent funding stream for affordable housing. The real estate transfer tax, for example, could bring $2 million in revenue per year for affordable housing, she said.

Federal delays and cuts

Just as the state budget debates got under way this spring, the federal government was battling out its own budget cuts for the fiscal year ending Sept. 30.

Because a federal 2011 budget was never passed, some U.S. Department of Housing and Urban Development money was not released to states until May and June. The late infusion of money did not mitigate Rhode Island’s affordable housing needs, because the federal money was anticipated and still fell below 2010 levels.

Key federal affordable housing programs saw significant funding cuts when the 2011 continuing appropriations bill passed April 14.

The HOME Investment Partnerships Program, which gives block grants for affordable housing, was cut by 12 percent and Rhode Island received $645,347 less than it did in 2010, according to Rhode Island Housing. The state agency is expecting another cut of $800,000 in HOME money next year.

Two federal programs offering competitive grants to finance housing for elderly or disabled people were cut by around 50 percent each.

Three federal stimulus programs that provided incentives and grants for states to develop affordable housing will receive no funding for the fiscal year beginning Oct. 1, Godfrey said.

Rhode Island Housing has also learned it will no longer administer federal Section 8 Housing Choice Vouchers. Last year, the agency received $5.3 million from the U.S. Department of Housing and Urban Development to give out around $145 million in Section 8 subsidies for the state.

Statewide need

Under the 2004 Low and Moderate Income Housing Act, 10 percent of each municipality’s housing must be affordable. But there is no penalty for cities that fail to meet the state law, Gorbea said.

Six of the 39 communities in the state had reached the 10-percent goal by 2010, according to the Housing Works RI 2010 Factbook. Another one or two communities may meet the target this year, Gorbea said.

As for the rest of the housing in the state, foreclosed homes are crowding the homebuyers’ market. Housing prices fell by 8.2 percent in the state from May 2010 to May 2011, according to California-based research firm CoreLogic. But if short sales — when the purchase price is less than the amount owed on the property — and sales of real-estate owned properties are excluded, home prices actually rose 2.5 percent in Rhode Island during that time period.

Rent prices have also not decreased in the state since the recession began, Gorbea said.

The state already had 13,000 fewer affordable housing units than it needed in 2007, before the foreclosure crisis struck, Godfrey said.

The Neighborhood Opportunities Program helped spur the construction of 1,200 housing units, on top of the 1,255 homes financed by the Building Homes Rhode Island bond, Brophy said. But total new housing unit creation still fell far below need.

And “two to three years from now, we’ll have absolutely nothing becoming available when the time is so critical,” Brophy said.

Meanwhile, shelters struggle to support the state’s homeless population, which reached 4,398 in 2010.

Looking ahead

Advocates say they will continue to educate the public and elected officials about the long-term benefits of affordable housing in hopes that spending will be restored in future years.

While there are no plans to propose another affordable housing bond in 2012, Brophy said she is optimistic such a measure — which passed with 66 percent approval in 2006 — would be approved by voters.

Still, if state funding for affordable housing construction is not resurrected until 2013, the state will have several more years of backlog to grapple with.

“There are many developments in the pipeline that are ready to go, that won’t go, because of this lack of state funding,” Godfrey said.

The last bond financed 53 percent of the total value of permitted residential construction in the state between 2006 and 2010, according to Housing Works.

Advocates also hope to see state support for the Neighborhood Opportunities Program and the Historic Preservation Tax Credit reinstated in the 2013 budget.

Hundreds of supporters of the Neighborhood Opportunities Program showed up to the Statehouse to protest the cuts on June 23, and affordable housing groups plan to build support in the coming year.

The Historic Preservation Tax Credit, which encourages the revitalization and renovation of historic properties, could be an “important tool” for the state, Gorbea said.

Brophy said by not funding affordable housing programs, lawmakers are not in line with their constituencies, who “want to see their fellow residents housed,” Brophy said.

The affordable housing bond, which invested $50 million in affordable housing, generated about $800 million in statewide economic activity, according to Housing Works RI.