Monday, April 2, 2018

New OHCS Proposed Annual 5% Rent Increase Limit Raises a Large Number of Questions/Issues.

For the first time OHCS is proposing a rent increase limit of 5% annually for tenants in projects that OHCS finances, including LIHTC projects. Owners can appeal for increases beyond that level, according to the proposal scheduled to be considered by the Oregon Housing Stability Council at their Friday April 6th meeting. The 3 page proposal from the meeting packet is HERE and embedded below. 

The proposal raises a large number of impact, transparency, and process questions and issues, including these:
  1. When will the new rule go into effect? Since the effective date for the HUD FY 2018 income limits was April 1, 2018 can we assume the proposed rule does not impact rents that do not exceed the allowable maximums that result from those new income limits?  IF the rent increase restrictions apply to projects 45 days after April 1st-or May 15th/16th, does that provide owners enough time to understand and generate a complete package of information necessary to request a rent increase? 
  2. IF an owner wants to adopt up to a 5% increase, AND if that rent is within the maximum rent permitted by the relevant current fiscal year HUD income limits, does a rent increase of 5% or less require any submission/notice to OHCS?  
  3. If allowable rents are restricted at a specific project, will income restrictions match the restricted rents for new tenants (as well as existing tenants)?  If not then new tenants at maximum incomes could pay less than 30% of income at admission. 
  4. Will the rule require administrative rule making and an opportunity for public comment?
  5. What are the planned public disclosure provisions for requests, processing times, and approvals?  Should performance measures be adopted to track this activity?
  6. Which specific OHCS programs are subject to this rule?
  7. How many total projects and units are subject to the rule? (OHCS table HERE shows 28 pages of just LIHTC projects, at conservative count of 40 per page, that would be in excess of 1,000 projects?). 
  8. Does OHCS have the staff capacity and the skills to handle rent increase requests every year from all of the projects subject to this rule? Will an increase in admin fee be required to pay for the extra costs of rent reviews? 
  9. Do owners have the staff capacity and the skills to generate budget based rent requests annually?
  10. Will a new 5% annual rent increase limit decrease the value of tax credits to investors and thus increase the need for additional public gap financing?
  11. What are the standards/metrics that will be used to make rent increase determinations? For example, what updated market data will be use to determine comparable rents?, what is a reasonable reserve for replacement level, and how will capital needs be determined? What specific exhibits will be required to submit a rent increase request? 
  12. Are their new or existing mechanisms to insure that increased project income from increases in median income levels stay with the project to benefit the tenants?
  13. How will the public, and existing or prospective tenants know the maximum rent they can be charged at an individual project? What rent limit will be used for prospective tenants or existing tenants who want to move into a larger bedroom sized unit/ the same bedroom size but in a different floor or building?
  14. 100% LIHTC projects-Over income tenants and rent equity issues: I assume that the vast majority of LIHTC projects have 100% LIHTC assisted units. After the first year annual recertification with third party documents my understanding is that there is no effective restriction on the income of these tenants (even if they self certify and disclose higher incomes). 
  • Does imposing a 5% annual cap increase the likelihood that over income tenants will continue to occupy (for years) units intended for lower income families? [Staying in a unit with a annual rent increase limit would be more seemingly more attractive than competing NON LIHTC units without annual rent increase restrictions]. 
  • IF the income of these post year 1 tenants increases more than 5% [or the approved rent increase %], the share of their income for rent will decline, and perhaps below 30% . In contrast, a low income voucher holder paying 30% of their income for rent could end up paying a greater percentage of income for rent. 
  • For 100% LIHTC projects how will OHCS measure rent burdens as part of the evaluation process for rent increase requests? 
  • With new income averaging rules will there be any effective limit on future incomes for long term LIHTC residents in 100% LIHTC projects?  

Originally created and posted on the Oregon Housing Blog 

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