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City of Boise exploring revolving loan fund for affordable housing financing

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The City of Boise is researching another tool in an attempt to help staunch the ongoing housing crisis. 

On Tuesday, Boise City Council members gave a thumbs up for city staff to continue exploring starting a loan fund to help fund the construction or preservation of affordable housing in the city. If the project moves ahead, it would likely be in partnership with local banks, philanthropic donors, businesses and community development financial institutions to provide financing to developers aiming to address the need for affordable housing. 

[You Asked: How do low-income housing tax credits work?]

Mayor Lauren McLean’s Housing Advisor Nicki Olivier Hellenkamp told city council members the next step is to hire a consultant to do a study on what finance needs affordable developers in Boise have and what specific projects the city should focus on. She said the goal isn’t just to do a carbon copy of a model operating in another city, but to build one that directly addresses the Treasure Valley’s unique needs. 

“It needs to be additive rather than displacing existing players and address an actual need rather than providing a product that doesn’t make sense in our context,” Hellenkamp said. 

How would it work?

This is a different concept than the city’s already operating affordable housing land trust, where the city leases properties it owns to developers in exchange for building affordable units. 

An affordable housing loan fund would provide low-interest financing to private or nonprofit developers who need help raising funds to buy or build affordable housing products. The city or the loan itself would not own the housing this money would help create. The fund also would revolve, allowing money paid back from the developers (with interest) to create a return for investors and help fund future loans. Loans would come with the stipulation that rents remain affordable. 

Developers often talk about the difficulty of making affordable housing projects “pencil.” This means new construction projects hoping to rent at lower rates are limited in what sort of financing they can get to help make the project a reality, leaving it near impossible to get funding without a cash infusion from a federal low-income housing tax credit or another boost from a local government. Unless, there’s a lending institution willing to go the extra mile and be okay with a slightly lower return, like Boise’s affordable housing loan fund. 

The fund, which would likely be housed as its own nonprofit or within an existing community-focused investment firm, would likely combine an initial contribution from the City of Boise with private sector donations and local banks, with the banks shouldering the majority of the lending. 

“Something we’ve heard from other cities is the local government’s contribution makes it more likely that the bank would lend to the fund with better terms than they normally would,” Hellenkamp said. “It’s a way for the local jurisdiction to co-sign on the loans and make them less risky. And by the city doing that, it can leverage its funds to bring in others to have that larger collective impact.”

A focus on preservation 

Affordable housing loan programs have a variety of uses and structures, but Hellenkamp said it is likely this sort of program can be used to preserve affordable housing Boise already has. 

Often called naturally occurring affordable housing, these developments are owned by the private market and rent at affordable rates without any government help or agreements. This is often due to the buildings’ age, location, or other factors, like community-conscious landlords. When these buildings are sold or demolished, they are difficult to replace and heavily impact residents with nowhere else to go in the tight rental market. 

Hellenkamp said the affordable housing fund could help affordable housing developers quickly get the financing they need to compete with sky-high bids from investment firms offering to drop cash on Boise apartment complexes. 

“You’re talking about a situation where the fabric of the community can remain intact…,” she said. “Households aren’t having to deal with the upheaval of moving, and people are able o continue on with their lives without having them upended by an unanticipated move coming from a significant rent increase.”

One of Boise’s lofty affordable housing goals is to preserve 1,000 units of existing affordable housing in the next five years. 

Council pleased with the possibility 

City Council President Pro Tem Holli Woodings, who is a landlord herself, said this program can help many landlords who have worked to keep their properties affordable, but aren’t sure where to turn when they’re ready to retire and sell off their units. 

“The other thing with those small landlords who have been holding rents at historic levels is they don’t feel like they have an exit from those properties because if they sell them to a private equity fund, they’re going to flip the properties, raise the rents and that historic commitment they’ve made to their tenants is now broken,” she said. “I think this also creates opportunity for folks who have some of these properties to have an alternative exit to their tenants getting kicked out.”

City Council President Elaine Clegg was supportive of the idea, but she suggested the city flesh out its due diligence process to ensure it’s not purchasing aging properties that would cost the city more in maintenance than they are worth. 

“A great example is our own apartments on Capitol Boulevard,” she said, referencing the aging, but highly affordable complex. “At some point, investing more money into buildings like that doesn’t become feasible, and it would be really good as we go into this to understand what the policy is about how we will do our due diligence to find out what point the building is at and if it’s worth investing more money in.”

Margaret Carmel - BoiseDev Sr. Reporter
Margaret Carmel - BoiseDev Sr. Reporter
Margaret Carmel is a BoiseDev reporter focused on the City of Boise, housing, homelessness and growth. Contact her at [email protected] or by phone at (757)705-8066.

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