March 16, 2021

To: Mayor and Members of City Council

From: Paula Boggs Muething, City Manager

Subject: Affordable Housing: Recommendations

REFERENCE DOCUMENT #202100478

Economic Growth and Zoning Committee at its meeting on February 3, 2021 referred
the following item for review and report:

WE MOVE that the City Administration produce a report

on affordable housing within the City of Cincinnati that includes, but is not
limited to: Identification of building inventory currently in the Port Authority's
Land Bank which may be suited for affordable housing. Methods for
inclusion/equity in the transfer of property from the Land Bank to any
individual or developer. Accounting of all current funds in
the Affordable Housing Trust and identification of potential sources of
additional funds.

Summary and Context

This report provides an overview of the role of the City in the production of affordable
housing, information on the City’s current activities, and recommendations on how
the City can facilitate preserving and increasing the supply of affordable housing.

The term “affordable housing” encompasses a broad array of housing products—from

lower cost housing primarily created by market forces to publicly funded or even
publicly owned housing units. This term encompasses both single-family housing or
multi-family housing and either rental or owner-occupied. The degree of affordability
of a particular housing option is relative to an individual’s or household’s income—
the general standard of affordability is that no more than thirty percent of a
household’s gross income should be committed to housing expenses.1

1For renters, expenses include both rent and utilities. For homeowners, expenses include mortgage
payments, property taxes, utilities, homeowner’s insurance, and maintenance expenses.
The price of housing in a particular market is driven by the basic economic forces of
supply and demand.2 Real estate prices are particularly affected by the cost of
producing additional supply since housing development is resource-intensive, high-
risk, and requires extensive, time consuming planning. There is a long history of
local, state, and federal government intervention in the private housing market to
achieve public policy goals, such as affordability; these steps have had mixed success.

Current market conditions in the City of Cincinnati regarding affordability are ever
evolving and have been studied in-depth by multiple external groups. This report is
not intended as a statement on current market conditions or a description of all City
activities or policies that assist lower income households with housing, such as
eviction prevention or job training programs. The purpose of this report is to
contextualize current City activities in the housing market to facilitate production of
new affordable housing and to recommend strategies for preserving and increasing
housing affordability throughout the City.

City’s Role in New Affordable Housing Production and Current Programs

The City is not a developer and does not directly develop housing; therefore, all
housing production in the City and all City efforts in this area are dependent upon a
willing developer to invest resources in creating new units or rehabilitating existing
housing units. These developers are primarily for-profit private parties,
supplemented in our region by the activities of several non-profit developers and
quasi-governmental entities, such as the Port of Greater Cincinnati Development
Authority and the Cincinnati Metropolitan Housing Authority.

The City generally plays two roles in direct housing production: (1) regulatory and
(2) providing incentives.

The City’s regulatory function includes its role in administering and enforcing the
State of Ohio building code and, as a home-rule municipality, in passing and
enforcing a zoning code.

The current City programs that incentivize housing production focus on: (1)
decreasing the costs of creating or operating housing, primarily through property tax
exemptions, or (2) providing direct funding to subsidize the cost of producing new
housing.

Current Programs

The City Administration has previously reported and presented on current City
programs that facilitate new affordable housing production. Accordingly, this
section is a high-level overview of existing programs.

2
Glaeser, Edward and Gyourko, Joseph. 2018. “The Economic Implications of Housing Supply” Journal of Economic
Perspectives 32(1): 3-30.
The City’s activities to encourage and support affordable homeownership are
detailed in a recent report dated 12/16/2020 (Item #202002025), filed in response to
a motion from Councilmember Kearney. These activities include offering tax
incentives or direct funding, with funding programs focused primarily on subsidizing
repairs for homeowners, down-payment assistance for first-time homebuyers with
an income at or below 80% of the area median income, or subsidizing projects
developing single-family homes.

The City’s primary program to fund affordable multi-family housing production is

through NOFA – Notice of Funding Availability. Through this competitive program
the City deploys available local and federal funding to developers in the form of loans
or grants. This includes the deployment of available HOME and CDBG funding and
any City capital funds appropriated for these purposes. In 2019 and 2020, this
program facilitated the creation of over 700 units of affordable housing. The
effectiveness of the NOFA program in creating new housing units is largely tied to
the ability of developers to integrate and leverage the City’s funding with other
subsidy programs (such as the federal Low-Income Housing Tax Credits, state or
federal New Markets Tax Credits, or state or federal historic tax credits). NOFA is
cyclical and typically deploys funding through two application cycles each calendar
year.

Recommendations

Over the past seven months, the City Manager’s office has reviewed financing
options, engaged City partners, and benchmarked programs in other cities. As a
result, we have developed the following recommendations for preserving and
increasing housing affordability within the City.

Recommendation: Create a Structure to Encourage Informed Public

Discourse on Affordable Housing Development and the Strategic
Deployment and Oversight of Available Public Funding

At present, there are many perspectives in the public discourse about the best way
to address the issue of affordable housing within the City. In order to promote a more
formalized and informed public discussion of this issue and to generate a
comprehensive strategy with public and private support, the City Administration
recommends appointing a Housing Advisory Board pursuant to Cincinnati Municipal
Code Chapter 209 and Ohio Revised Code Chapter 176. Under state and local law,
this board is intended, among other purposes, to review and advise upon
comprehensive plans for the preservation and development of affordable housing in
the City. At present, the City of Cincinnati relies on the Community Development
Advisory Board, known as CDAB, to serve as the City’s housing advisory board for
use as both the housing advisory board required for federal sources and as required
under Ohio Revised Chapter 176.

The City Administration recommends separating the state law-based housing

advisory board into a distinct board that would be solely focused on developing, in
cooperation with the City Administration, comprehensive priorities for the
development and maintenance of affordable housing within the boundaries of the
City and deployment of funding described herein. This separate board will have
expertise in issues affecting housing development and affordability and can consider
the broad range of resources and solutions available to address these issues as it
develops priorities to meet the challenge. Once finalized, these priorities will be
submitted to Council for approval and will inform the implementation of the
programs described below.

The Housing Advisory Board is appointed by the Mayor with consent from Council,
and, as set forth in state law and in the municipal code, would include representation
from the following groups:

 Institutions that lend money for housing;

 Nonprofit builders and developers of housing;
 For-profit builders and developers of housing;
 For-profit builders and developers of rental housing;
 Real estate brokers licensed under Ohio Revised Code Chapter 4735;
 Other persons with professional knowledge regarding local housing needs
and fair housing issues;
 Residents of Cincinnati that could receive housing assistance from the
City;
 The Cincinnati Metropolitan Housing Authority;
 City Councilmembers;
 Additional groups or individuals that are necessary to provide balanced
advice on housing plans and programs.

Recommendation: Formalize Finance and Development Partnerships into

Structured Programming

Urban redevelopment projects face many challenges. Large urban development sites
are often difficult to assemble and costly to acquire; intensive site work, demolition,
or environmental remediation may be required; developers must navigate complex
regulatory frameworks and approval processes; and some projects will face
community opposition. These factors result in higher development costs. To be
financially feasible, a project’s revenue must support the higher costs of
development. Accordingly, in the City of Cincinnati, many market-rate development
projects are not financially feasible without some level of subsidy.

Lowering rents or sale prices in order to increase housing affordability reduces the
amount of revenue that a project produces. This introduces a further challenge to
developing an affordable housing product. To make affordable housing projects
financially feasible, this reduced revenue must be accounted for with additional
equity or debt financing to subsidize the development costs. Given these conditions,
addressing today's affordable housing needs requires government intervention and
subsidy.
The two industry professional groups most critical for improving housing production
are financers and developers. Many effective partner organizations already exist in
our region in these areas—including but not limited to the Cincinnati Development
Fund, LISC, and the Port of Greater Cincinnati Development Authority. The City
Administration recommends formalizing partnerships with existing organizations
and creating programming to achieve two goals: (1) to increase available financing
tools to encourage the production of new housing units and the preservation of
existing affordable housing units and (2) to increase capacity within the development
industry for production of housing units.

From the financing perspective, the City Administration recommends establishing a

partnership with a local CDFI3 for deployment of the funding described below. The
program structure would focus on providing low-cost financing and direct subsidy to
facilitate the development of affordable housing.

1) Section 108 Loan Pool – The City would pursue a Section 108 Loan from the
United States Department of Housing and Urban Redevelopment under the
Community Development Block Grant program in a minimum amount of
$20 million to fund a loan pool for financing the acquisition and
rehabilitation costs of residential properties where the developer/borrower
will make between 51% and 100% of the units available to low to moderate
income individuals. The loan pool would be structured to provide loans with
favorable interest rates to encourage the private market, non-profit or for-
profit organizations, to utilize this financing to acquire, rehabilitate, and
preserve already existing housing units. As a requirement of the loan, a
restrictive covenant would be placed on the property securing the long-term
maintenance of the units as affordable.

2) Affordable Housing Trust Fund – The City would pursue consolidation of all
local funding currently earmarked for affordable housing into a fund that
will be utilized to provide loans—including, when feasible and appropriate,
forgivable loans—to provide for flexible local financing and subsidy for
affordable housing projects. To increase overall impact, program parameters
would ensure that the fund could leverage other sources of funding for
affordable housing projects, including private funding, federal and state tax
credit programs, etc. Any principal repaid on the primary loans will be
recycled for new projects. The forgivable loans would be similar to grants,
but would provide enhanced accountability and would only be forgiven once
certain affordability benchmarks are satisfied. City funding sources would
include all funds that have been committed to the Affordable Housing Trust
Fund and any additional sources appropriated by Council for this purpose.
As described below, this local public investment would be utilized to raise
as much private funding as possible to supplement and leverage public
resources.

3
Community Development Finance Institution.
As described above, all housing development that occurs in the City is dependent
upon a willing and effective developer. To make a material impact on housing
affordability, our City needs increased capacity in both for-profit and non-profit
housing developers. To begin this process, the City Administration recommends
establishing a program with the Port of Greater Cincinnati Development Authority,
including its affiliated organizations the Landbank and the Homestead Urban
Redevelopment Corporation. This program would focus on the goal of building
development capacity in community development corporations and similar
community-based development organizations.

These community-based development entities play a critical role in both completing

development projects in their neighborhood but also facilitating larger development
projects being undertaken by other developers, providing a bridge between for-profit
developers and residents. These organizations also function to balance community
concerns and feedback with project viability, creating successful projects with
community support. All City neighborhoods deserve the benefits provided by a
community-based development organization, so this program will work to provide
those benefits where organizations do not currently exist. In areas where we already
have excellent community-based development organizations, this program will seek
to increase capacity.

The City Administration recommends development of additional programming in

this area to address targeted housing development capacity needs, based on feedback
and input from the Housing Advisory Board.

Throughout these proposed programs, there will be an emphasis on participation by

minority-owned and women-owned business enterprises to increase capacity and
access to opportunity for these organizations.

Recommendation: Leverage City Investment to Fundraise from Private

Parties

While government subsidy is critical to addressing affordable housing needs,

government alone cannot solve this societal issue. To increase overall funding, the
City Administration recommends a strategy of consolidating all available City
funding in order to leverage the public investment to attract private funding. The
consolidated fund would be deployed, as described above, through the Affordable
Housing Trust Fund programmatic structure for provision of loans to provide flexible
local financing and subsidy for affordable housing projects.

To accomplish this purpose, the City Administration recommends formalizing a

fundraising campaign with financing partner(s), members of the Housing Advisory
Board, and other key public and private organizations.

Recommendation: Legislatively Streamline Housing Production

Regulatory costs increase the overall cost of housing development and can often serve
as a barrier to market entry for small or less-experienced developers—in both
instances constraining the production of additional housing supply. Over the years,
regulations have been enacted on a one-off basis and often without providing the
legislative body with a clear picture of the impacts on overall development costs.
Given the increasing need for all housing products, the City Administration
recommends a concentrated effort to reduce portions of the regulatory framework
that can serve as an impediment to housing production. This process would include
amendments to the zoning code to streamline approvals, re-alignment of staff
involved in regulation of housing production, and removal of other barriers to
housing development. This focused realignment of the City’s regulatory functions
would reduce costs and the timelines associated with producing additional housing
supply.

The City Administration does not recommend as a strategy for production of

affordable housing the maintenance of existing or creation of new regulatory barriers
to housing production—such as inclusionary zoning regulations. Research shows
that, even in the strongest of markets, inclusionary zoning is ineffective at producing
material amounts of affordable housing. Some evidence suggests that it may
contribute to higher overall housing prices and reduced construction of new units.4
Cincinnati is not a leading housing market and city officials must be cognizant of
regulations that will suppress market participation. Reducing regulatory barriers
to development while providing additional resources to proactively assist the
development of affordable housing, as described above, balances the local market
realities with housing needs to materially increase affordable housing units.

The City Administration will present legislation and internal updates to implement
this recommendation, including but not limited to legislation focused on lifting
parking requirements and density restrictions in targeted areas; amending the
administrative code to realign development focused city staff and improve
operations; allowing more as-of-right housing development options, including
accessory dwelling units; clarifying variance standards; pre-approvals of certain
affordable housing incentives, such as CRA incentives for projects that meet certain
affordable housing benchmarks; and adjustments to clarify and streamline other
development regulations, including hillside overlays and setback regulations.

Conclusion

The production of housing is a complex and expensive undertaking; however,

increased production of all housing, affordable projects to market-rate, is critical to
addressing the need for increased housing affordability. To facilitate increased
supply, the City Administration is recommending a multi-pronged approach that
focuses on building a cohesive strategy to be executed through partnerships and
structured programs. Public investment will be utilized to attract private investment
in order to expand impact and the City will take steps to streamline the regulatory
framework that constricts supply. Deploying these recommendations will leverage

4
Freeman, Lance and Schuetz, Jenny. 2017. “Producing Affordable Housing in Rising Markets: What Works?”
Cityscape: A Journal of Policy Development and Research 19(1): 225-227.
limited public resources and encourage private investment, meaningfully advancing
the goal of materially increasing housing affordability throughout Cincinnati.