AHP Continues to Provide Crucial Gap Funding for Affordable Housing

Published by Peter Lawrence on Tuesday, October 22, 2019 - 12:00am

In 2018, the Federal Home Loan Banks (FHLBanks) awarded approximately $458 million in Affordable Housing Program (AHP) funds, approximately a 15 percent increase from 2017, according to the Federal Housing Finance Agency’s (FHFA) recently released 2018 Low-Income Housing and Community Development Activities of the Federal Home Loan Banks.

The report describes FHLBanks’ support of low-income housing and community development activities through three main programs: the Community Investment Program (CIP), the Community Investment Cash Advance Program (CICA), and the AHP. These programs provide loans and grants to their members, which are subsequently used to benefit very low- and low- or moderate-income households and communities. The CIP program funded approximately $3.1 billion for economic development and housing projects, which is 33 percent less than in 2017. The CICA program funded approximately $3.1 billion for economic development in 2018 as well, which is 18 percent less than in 2017. AHP focuses solely on housing, and for this reason is of particular interest to the affordable housing community.

AHP Funds and Its History

Under the Federal Home Loan Bank Act, each of the 11 FHLBanks must contribute 10 percent of its earnings to its AHP.

The $458 million in AHP funding in 2018 benefited more than 49,000 low-or moderate-income households, 25,900 of which are very low-income households. Approximately $345.8 million was funded through the competitive application programs and $112 million was funded through set-aside programs.

Since the beginning of the competitive application program in 1990, approximately $5 billion in AHP funding has been awarded to more than 17,800 investments. These investments have supported the development of more than 709,000 affordable rental homes. Seventy-four percent of these homes were in urban or suburban areas and 26 percent were in rural areas. Twenty-two percent of AHP funded homes were owner-occupied units, and the remaining 78 percent were rental homes.

Comparison of Funds between Different FHLBanks

Of the 11 FHLBanks, the San Francisco FHLBank awarded the most amount of AHP funds in 2018, close to $67 million. The Indianapolis FHLBank awarded the lowest amount of AHP funds with $12.6 million in grants. This is a large variance, not only in dollars but also in the number of rental homes that will be created or rehabilitated. The San Francisco FHLBank will create or rehabilitate almost six times as many homes as the Indianapolis FHLBank. The median amount of funds loaned out from all 11 FHLBanks was $28.3 million.

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The relationship between funds awarded and applications accepted appears to depend on how high-cost the housing market is. Despite awarding the lowest amount of funding, the Indianapolis FHLBank competitive application acceptance rate was one of the highest, at over 60 percent. The lower competitive application acceptance rates for FHLBanks in higher cost areas such as San Francisco may be due to higher affordable housing demand. Although FHLBank San Francisco awarded the most money, it was the fourth most completive application process out of the 11 banks, and did not meet the system average application acceptance rate of 50 percent.

This discrepancy in funding may also be due to the discrepancy in profits for each bank. The FHLBank of San Francisco is much more profitable; its net income for the third quarter of 2018 was $109 million. The FHLBank of Indianapolis had a net income of $39 million for the same time period.

Competitive Application Program and Households Served

AHP consists of two subprograms: the competitive application program and the home ownership set-asides. The competitive application program is the larger of the two, both in funds and number of developments, although in recent years the proportion of the competitive application program has been decreasing. The AHP’s competitive programs applicants are typically members on behalf of nonprofit organizations or housing finance agencies. In 2018, 50 percent of applications submitted to the AHP’s competitive application program received awards, which is up 8 percent from last year’s acceptance rate. The FHLBanks awarded funds to 604 competitive application program projects, ranging in amounts from approximately $58,000 to $3.2 million per rental project, and $24,000 to $750,000 per owner-occupied project. In 2018, rental units made up almost 89 percent of total competitive application program units. This is a slight decrease from the previous year.

In 2018, 447 developments were awarded in urban or suburban areas, which make up 79 percent of total awards. The remaining 21 percent were awarded to rural developments. Although a greater number of developments are located in urban or suburban areas, the rural developments receive a higher average AHP subsidy per unit.

Out of all the competitive application program funds, 22 percent were given to rentals for extremely low-income households, which are households with incomes of 30 percent or less of AMI. Very-low income households, which are those with an income between 30.1-50 percent AMI, received 51 percent of funds. Of the very-low-income homes supported by AHP funds, 87 percent are in urban or suburban developments and 13 percent are in developments in rural areas.

 Slightly more than two-thirds (67 percent) of AHP-funded developments served homeless persons or persons with special needs, which is a slight decrease from 68 percent in 2017. See the chart below for a further breakdown of awards.

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Development Costs and Other Federal Funding

The AHP exists to help fill the funding gap that exists for affordable housing construction.  The average development cost per unit in the competitive application program projects varies due to regional factors including local housing costs and availability of other funding sources beyond AHP funds. For example, in Pittsburgh the average AHP subsidy makes up 13.7 percent of the average development costs, but in San Francisco the average AHP subsidy makes up 2.9 percent of the average development costs. 

AHP activities can be coordinated with other federal or federally subsidized affordable housing activities to the maximum extent possible. In 2018, approximately 60 percent of AHP projects obtained funding from at least one other federal housing program. This is a 3 percent decrease from 2017. The low-income housing tax credit (LIHTC) is the most common other federal subsidy used in conjunction with AHP funding, and has been for the last five years. The average percentage of total AHP-assisted developments that have included LIHTC funding over the past five years is 49 percent. See the breakdown below for projects approved with other federal funding. The numbers displayed add up to more than 100 percent because some developments receive federal funding from more than one source.

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Much like the LIHTC, the AHP is an important tool that can be utilized in financing the construction and rehabilitation of affordable rental housing. Its ability to be combined with other federal funding makes it especially attractive and helps developers in high-cost and difficult to develop areas fill the necessary funding gap. With high land prices and the rising cost of labor, the funding the AHP provides a crucial source of gap financing for affordable rental housing.