Experts Discuss Short-Term, Long-Term Housing Disaster Recovery Considerations
In the wake of Hurricanes Harvey, Maria and Irma, the affordable housing community quickly rallied to make sure that individuals and families affected by the disasters have a safe and affordable place to live, both for the immediate time and in the long term.
An expert panel of attorneys, compliance experts and housing industry leaders discussed the topic of disaster recovery at the Novogradac 2017 Credit and Bond Financing for Affordable Housing Conference in New Orleans in October. The Novogradac Journal of Tax Credits followed up with the panelists to discuss in more detail everything from initial responses and compliance best practices to longer-term rebuilding efforts and the outlook for additional funding.
One common observation among the panelists: the affordable housing industry was able to respond much more swiftly to housing needs in areas hit by the recent disasters compared to previous disasters. “We mobilize so quickly now,” said David Gasson, vice president of Boston Capital and executive director of the Housing Advisory Group. “I remember after the initial storms, specifically Rita and Katrina, everybody was like, ‘what do we do now?’ What’s amazing about this time is that we were ready. As soon as the storms were over, we were on the phone with folks in Florida and Texas and doing the best we could to assess the needs.”
Similarly, affordable housing providers with boots on the ground at the disaster sites responded quickly to address immediate housing needs. “Housing authorities and developers of low-income and affordable housing are doing a better job of being able to galvanize their staff and people to be able to immediately respond to the needs of their tenants and clients,” said Toni Jackson, a Houston-based partner of Jones Walker.
One of the inherent challenges to disaster recovery for state housing agencies is that there are always several variables at play, such as the type of disaster, the extent of damage it causes and the particular needs of a community. Panel moderator Mark Shelburne, a Novogradac & Company LLP policy consultant, said that it can be difficult for state agencies to prepare for a disaster or to predetermine the kind of assistance they will be able to offer. “At the state level, they don’t know what kind of federal resource will be made available,” said Shelburne. “There is not necessarily anything to do in advance with any specificity. The main step that states should take to be ready for disaster is to be flexible and move fast.”
Panelists discussed the challenge of maintaining compliance at affordable housing properties that are damaged in a disaster or that will be used to house displaced households temporarily. Fortunately, Revenue Procedures 2014-49 and 2014-50 provide temporary disaster relief from compliance requirements that apply to low-income housing tax credit (LIHTC) and tax-exempt bond financed rental housing properties.
The revenue procedures provide clarity that was lacking in the aftermath of previous disasters, said Stephanie Naquin, a multifamily compliance manager in Novogradac & Company LLP’s Austin, Texas, office. “I was onsite at a property when Hurricane Katrina hit,” said Naquin, who was formerly a property manager and later the director of multifamily compliance with the Texas Department of Housing and Community Affairs. “I would have loved to have had this revenue procedure in place [in the aftermath of Hurricane] Katrina.”
Among other allowances, Revenue Procedures 2014-49 and 2014-50 provide emergency housing relief to households displaced by a disaster. To that end, Naquin recommends property owners housing displaced individuals and families begin screening those households as soon as possible to get a better idea of their program eligibility. “Nothing in the revenue procedure(s) precludes you from certifying the household under all provisions of Section 42 when they move in. When doing so, you mitigate potential compliance issues. If you’re housing a displaced household that at the end of the temporary housing period is ineligible, you’re going to have a compliance issue,” said Naquin.
Affordable housing owners with properties damaged by a disaster should report the damage to the appropriate state housing finance agency as soon as possible. Naquin said that transparency and clear communication are generally best practices in compliance, but are especially crucial during and after disasters.
“Some people are scared to report [damage] because they think they would get an 8823 [report of noncompliance], but states are not issuing 8823s for this type of casualty loss,” said Naquin. “It affects the state’s compliance monitoring of the property. If you’re scheduled for a review in November and you have a lot of damage you never reported, you’re likely going to have an unfavorable review.”
Another focus of the panel was discussion of long-term rebuilding efforts. One of the crucial questions after a natural disaster is whether a damaged housing property should be repaired or demolished and rebuilt. Experts say that just because a property survives a disaster with no apparent structural or foundational damage, it shouldn’t be assumed that mere cosmetic repairs are the best course of action. Kelly Longwell, a director in the New Orleans office of law firm Coats Rose, said some housing properties that were dilapidated even before Hurricane Katrina hit were repaired afterward, when a complete rebuild may have been more economical in the long run and would have provided a better home for tenants.
“In an effort to get units up quickly, there were a lot of rehabs worked on here that maybe should have been demolished and rebuilt–just a handful, not the norm,” said Longwell. “They need to consider whether they need to do rehab or new construction and what’s going to be faster, cheaper and give the best product.”
Another important consideration in housing recovery after a disaster is determining the sequence of bringing back residents. Longwell said it’s a delicate balance between housing vulnerable populations and rebuilding the foundations of a community to make sure it’s prepared for long-term sustainability. “The first thing you need to bring back needs to be workforce housing,” said Longwell. “You can’t bring back special needs populations until you have the workforce to support those tenants.” Longwell said that she knows of neighborhoods where affordable housing developments damaged by Hurricane Katrina have been rebuilt, but where schools, hospitals and grocery stores have not yet been replaced. She said that giving the workforce a place to live helps rebuild community infrastructures.
When developers decide to rebuild, they can expect a significant increase in cost. Longwell said she’s heard of developers with deals in the pipeline or ones that closed immediately before the recent hurricanes who now expect a 10 percent increase in construction costs due to exacerbated labor shortages. “There’s going to be a ripple effect on construction costs in gulf states, maybe even reaching north, because labor is going to go where the dollars are,” said Longwell, who explained that construction laborers are flocking to work in disaster zones in Florida and Texas.
Conference panelists noted that–as demonstrated in the response to Hurricanes Katrina, Rita and Wilma in 2005–expanding the federal LIHTC, new markets tax credit and historic tax credit in disaster-stricken areas is an effective way to rebuild an entire region. Congress passed the Gulf Opportunity Zone Act of 2005 (GO Zone Act) to incentivize private investments in the gulf region after the 2005 hurricanes. The GO Zone Act is a model that many affordable housing and community development advocates hope will be replicated to aid in present disaster recovery efforts, albeit with funds deployed at a more efficient pace.
“After Katrina, we were all excited talking about the GO Zone credits, but GO Zone wasn’t passed until Dec. 21,” said Jackson. “From late August until Dec. 21, and much later than that–it was months later before we got money on the ground and started structuring deals to get developments back up and running.”
Longwell agreed. “Everybody thought that with Katrina, [rebuilding] would take two years,” said Longwell. “It took about five years to get all those dollars out the door and about five or six years until all the tax credit units were on the ground and ready to rent.”
Considering the amount of time that it took to fully use disaster tax credits post-Katrina, some housing and community development proponents have discussed the idea of legislation that would automatically trigger the increased resources for federally declared disaster areas.
However, additional disaster recovery funding will likely take a back seat until Congress accomplishes its tax reform goals. Even then, enacting a permanent disaster recovery bill would be difficult.
“Congress is not in an appropriations mode right now,” said Gasson. “They’re reticent to put anything into place that would automatically allocate resources because they like the oversight they have.”
Gasson said an alternative proposal to pursing a special allocation of disaster tax credits is to enact the Affordable Housing Credit Improvement Act of 2017 as a way to address housing needs not only in disaster areas, but across the country. The bill was reintroduced by Sens. Orrin Hatch, R-Utah, and Maria Cantwell, D-Wash., to expand and improve the LIHTC program. Gasson said consideration or a preference could be given to dedicating the first five years of additional allocation under the bill to rebuilding in disaster areas.
Although affordable housing providers have responded quickly to temporary housing needs in the aftermath of the recent disasters, there is much more work left to be done. A priority is to make sure that momentum is sustained for rebuilding neighborhoods and communities in the coming months and years. “Getting back on your feet after a disaster takes longer than you think,” said Jackson. “[People] just see the immediate disaster and the immediate response of getting people to safety and to temporary housing, but the big question is what do we do next? That’s where the real work begins for those of us in the affordable housing industry and the cities and communities that need to rebuild after a natural disaster.”
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