Vermont, like many areas of the nation, faces a severe shortage of affordable rental housing. A study by the state in 1986 indicated a need for 20,000 units of affordable rental housing. The shortage is expected to grow in the 1990s as lapsing federal use restrictions permit private owners of subsidized rental projects to convert to expensive rental units or condominium ownership. The 1986 Tax Reform Act only compounded this situation by drastically reducing incentives for new private sponsorship of affordable rental housing.
Housing Vermont (HV) is a statewide, nonprofit corporation created by the Vermont Housing Finance Agency (VHFA) in May 1988 to preserve and develop permanently affordable rental housing. HV was designed to spark innovative partnerships of public purpose and private capital in an effort to fill the gap left by the loss of federal subsidies and incentives for private development of affordable housing. Fiduciary responsibilities prohibit VHFA from being a developer; therefore, seed capital was provided by VHFA to establish HV.
An important adjunct to HV is the Vermont Equity Fund, an investment vehicle designed to give corporate investors—primarily banks—an opportunity for relatively low risk investments in housing. As a general partner in the Vermont Equity Fund, HV encourages private corporations to invest in affordable housing in exchange for Low Income Housing Tax Credits. By syndicating the tax credits to corporate investors, HV has been able to enhance their value by approximately twice the value of a traditional syndication. This results in more investment available to developments, thus assuring greater affordability. The equity gund is the first investment vehicle of its kind supported by a state housing finance agency and geared to ensure permanently affordable housing.
In a traditional real estate syndication, investors are entitled to receive the appreciated value of property at the time of sale. In order to ensure permanent affordability, investors in the fund forgo these residual benefits. Instead, local nonprofits may exercise favorable purchase options after 15 years. Vermont Equity Fund transactions exchange investments from HV's private investors for 99 percent of the tax benefits generated by each project, benefits which have no value for a nonprofit. Since tax benefits, not cash, are the primary benefits to investors, rents need to be raised only to cover operating costs.
Through the projected completion of 700 units of perpetually affordable housing within its first two years, HV has fostered an effective partnership between public purpose and private investment. To date, HV has raised a total of $11.4 million in equity; per capita, this is an unprecedented private sector investment in affordable housing nationwide. Approximately $4.9 million of equity has been committed to the creation of 328 units of housing in three developments of mixed income, senior and family housing. Additionally, $3.5 million has been committed to three existing developments during 1989 to acquire and rehabilitate 372 units at risk of being converted to market rents. The combined development costs of these six projects represent over $43.5 million. In 1990, HV has another 294 units projected through new construction or acquisition and rehabilitation with an equity investment of $3.4 million.