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2023-013 Community Development Rental Repair Program February 17, 2023 Report No. 2023-013 INFORMAL STAFF REPORT TO MAYOR AND CITY COUNCIL SUBJECT: Community Development Rental Repair Program BACKGROUND: On February 15, 2022, City Council adopted the Denton Affordable Housing Strategic Toolkit (Toolkit), which included five recommended strategies with the activities targeted to deliver affordable housing units by leveraging a variety of resources available from private and non-profit developers,the City, and other housing stakeholders. The Toolkit strategies involve increasing the number of affordable rental housing units. Activity 4 in Year 1 includes the creation of a rental maintenance grant including a program for landlords who lease to low-moderate income households. During the June 25,2022, City Council budget retreat, Community Services staff presented budget items for the 2022/23 Fiscal Year. Included in the presentation was a new Rental Repair Program for landlords who lease to low-income households. During the budget discussions, Council Members provided recommendations regarding program parameters. DISCUSSION: This report provides additional information ahead of the City Council meeting on February 21, 2023, when Council will consider approval of the program guidelines (ID 22-1791). The objective of the City of Denton Rental Repair Program will be to increase affordable housing within the city limits of Denton. The program will assist with essential repairs, structural accessibility modifications, and/or repairs to major systems of recently acquired rental property. Income for tenants must be below 80% of the Area Median Income Limits (AMI). Financial assistance is available up to $24,500 per unit as a 5-year forgivable loan. The number of units will be limited to 1-4 single-family or multi-family units. In exchange for the repair assistance, the rental property owner agrees to rent the property to income-eligible tenants during the term of the loan, known as the Affordability Period. This is a pilot program and changes may be considered in the future,based on the findings. Developing the Program Guidelines Staff surveyed ten cities (attached) with rental repair programs to help determine program guidelines. Program guidelines reviewed were service area, property requirements, income maximums (owner and tenant), rent, maximum programs funds, owner-required funds, types of units, and type of loan and lien period. SERVICE AREA: • Five of the ten cities surveyed provide the program city-wide. Four targeted specific areas within the city limits. February 17,2023 Report No. 2023-013 • The City of Denton program will provide grant funding to repair rental properties located within the city limits of Denton. PROPERTY REQUIREMENTS: • All cities surveyed assist applicants with existing rental properties;three of the ten also assist applicants with new properties. • The City of Denton program will target new properties to increase the number of units by providing grant funding to repair rental property that has not previously been rented by the applicant. INCOME MAXIMUMS (OWNER AND TENANT): • All ten cities surveyed had a maximum income limit for the tenants but not for the owner. • The City of Denton program will require the applicant to rent to tenants at or below 80%AMI as defined by HUD. RENT: • All ten cities surveyed required Fair Market Rent rates. • The City of Denton program will require rent limits using the HUD Fair Market Rent rate updated annually. MAXIMUM PROGRAMS FUNDS: • The ten cities surveyed provide a range of funding from $5,000 to reconstruction. • The City of Denton program will provide $24,500 consistent with other City repair programs. OWNER-REQUIRED FUNDS: • Four of the ten cities surveyed require the owner to provide funds from 5% to 50% of the total repair cost. • The City of Denton program will require the owner to provide funds over $24,500 consistent with other City programs. NUMBER AND TYPES OF UNITS: • Four of the ten cities surveyed assist from one to four units but did not list the type of units. • The City of Denton program will limit the number of units from one unit to four units. This includes single-family, duplex, triplex, and four Alex units. This excludes properties with more than four units including multifamily housing. TYPE OF LOAN: • Six of the ten cities surveyed provide forgivable loans, and two cities require payable loans. • The City of Denton program will provide a forgivable loan allowed by HUD that is forgiven at the end of the five year affordability period. February 17, 2023 Report No. 2023-013 LIEN PERIOD: • Four of the ten cities surveyed require five-year liens, three require ten-year liens, and three required terms from five to twenty-year liens depending on the amount of assistance. • The City of Denton program will require a five-year lien during the period of affordability. Program Funding Community Development staff submitted a funding application to the Community Services Advisory Committee (CSAC) to establish the Rental Repair Program for $100,000. On April 8, 2022, the Community Services Advisory Committee (CSAC) recommended to City Council an allocation of$100,000 in CDBG funds for the Rental Repair Program. The recommendation was included in the 2022 Action Plan that City Council approved on July 19, 2022. Additional funding for the Rental Repair Program for $100,000 was also included in the FY 2022/23 Annual Program of Services (Budget) and the Capital Improvement Program of the City of Denton, Texas approved by the City Council on September 27, 2022. CONCLUSION: The program supports initiatives adopted by the Denton City Council as part of the 2020-2022 Consolidated Plan for Housing and Community Development and the Denton Affordable Housing Strategic Toolkit. In the Plans, the City of Denton recognizes that affordable housing is essential to the quality of life and building diverse and stable communities. STAFF CONTACT: Luisa Garcia, Community Services REOUESTOR: Staff Initiated PARTICIPATING DEPARTMENTS: Community Services STAFF TIME TO COMPLETE REPORT: 4 hours February 17, 2023 Report No. 2023-013 Income Property Maximums R Maximum Program Owner #of Type of Lien City Program Area Requirements Rent Funds Per Unit Required Units Loan Period Funds (yrs) Owner Tenant Rental Repair Not previously No Funds overForgivable Denton,TX program City Limits rented Limit 80% FMR $24,500 per unit $24,500 1-4 Loan at end 5 of loan Dallas,TX Landlord Program City Limits New&Existing 80% FMR $271,000/per unit N/A 1-4 3%Payable 5-20 Loan 25% Michigan Eco match/non Dev Corp CDBG Rental Rehab Targeted area Existing 80% FMR $100,000/per unit CDBG from N/A N/A 5 Owner Florence Rental Housing Forgivable City Limits Existing 80% FMR $15,000/per unit N/A N/A 10 Township,NJ Rehab Program Loan Janesville,WI Rental Rehab City Limits Existing o 50-60% FMR Low interest Program y g = $14,999/per unit N/A N/A Loan 10 15 3 City of Fremont Rental Rehab Forgivable Newaygo Program Targeted area New&Existing 80% FMR $35,000/per unit N/A N/A loan 5 County,MI Rental Rehab o 5%minimum Forgivable Phoenix,AZ Program Targeted areas Existing 80/ FMR $40,000/per unit from owner 1 24 Loan 10 25%match from owner Rental Rehab owner pays for Forgivable Battle Creek,MI Priority areas New&Existing 80% FMR $60,000/per unit lead-based N/A 5 Program loan paint& asbestos February 17, 2023 Report No. 2023-013 Income Property Maximums R Maximum Program Owner #of Type of Lien City Program Area Requirements Rent Funds Per Unit Required Units Loan Period Funds (yrs) Owner Tenant Match dollar Targeted per dollar Milwaukee,WI Rental Rehabilitation Investment Existing 800/ /p from owner Forgivable FMR $14,999 er unit 1-4 5 Loan Program Neighborhood App Fees$50 loan &Closing Fees$246 Rental Rehab Loan Owner funds Loan/due Saint Paul,MN Program City Limits Existing 60% FMR $40,000 if needed 1 7 Quarterly 10 Grant:$5,000 Grant 10-20 Single Family/$75,000 2-unit bldg./$60,000 City limits/adjacent 3-unit bldg./$45,000 Napa,CA Rental Rehab unincorporated Existing 80% FMR 4-unit bldg./$30,000 N/A Forgivable Program Napa County 5-unit N/A 10-20 pockets bldg./Decrease Loan $30,000/unit by 2% for each additional unit per building.