Agenda - 06-26-1996 - IX-B - Laserfiche WebLink

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7 Y �� 5 RAMIFICATION OF SCHOOL IMPACT FEE ON AFFORDABLE HOUSING As we explained to the Carrboro Board of Aldermen, if the proposed Carolina Spring development were a "market rent" apartment community, then off-site costs such as the school impact fee could be "passed on" to residents in the form of rent increases over the life of the property, or possibly recovered earlier if the property could be sold at a profit. Affordable apartments are different, however, in that rent levels are restricted for a minimum of 30 years, and the current marketplace offers little possibility of selling a rent- restricted propery at all, let alone at a profit. Rents in affordable housing are permitted to increase only with increases in area median income, and are limited by market rents for apartments as well. The owner of affordable rental housing takes on more risk than the owner of market rent apartments, in that, if market rents decline, the below market rent structure of affordable housing is less advantageous, and affordable apartments may have to compete to a greater degree with the conventional apartment market. On the other hand, when market rents increase, the owner of affordable rental housing still cannot increase rents unless permitted by increases in area median income. With the total potential "off-site" costs of Orange County, Carrboro, and OWASA, affordable housing is not feasible. Just to cover the cost burden of the $186,000 school impact fee would require Carolina Spring to generate about $18,600 more net operating income each year (assuming a 10% capitalization rate) than it currently does, in order to increase the development loan amount by about $186,000. Please keep in mind, the total amount of equity in the project is fixed by the investment market pricing of tax credits, and has little to do with the real estate; therefore, added cost burdens must be dealt with by justifying more debt:on the project. In order to increase the net operating income of a project to support additional debt, either operating expenses must be decreased or rental income must be increased. There are no operating expense line items in our operating budget that are discretionary and eligible for cutting , other than resident support services for seniors (medical services, exercise programs, financial lectures, etc.) which neither we nor NCHFA would wish to decrease. As to increasing rental income, we are not allowed to increase our present proforma rents above the maximum allowable rents for households at or below 60% of area median income. The only way we could increase rental income, therefore, would be by eliminating EXTRA rent reductions presently included voluntarily in our proforma to allow some of our apartments to be affordable to senior households not just at or below 60% of area median income, but at or below 45% of AMI. in other words, the only practical alternative we would have to finance the Carolina Spring development budget, INCLUDING Orange County school impact fees of $186,000, would require eliminating the EXTRA low rents presently proposed for some of the apartments ($352 per month for a one bedroom and $418 for a two bedroom) and having only the 60% AMI rent structure (8480 per month for a one bedroom and $572 for a two bedroom). The difference in rent structure would remain in effect MONTH AFTER MONTH FOR 30 YEARS (or more), 'which is a huge impact on the low-income seniors residing in the apartments.