Liberty Village in Lincoln, Neb., is unique in a host of ways. It's affordable. It's multi-cultural. It's energy efficient. It's green. It's in a redevelopment area. Fernando Pages, owner of Lincoln-based Brighton Construction, used every one of those features to reduce or eliminate costs for land and infrastructure on the neighborhood of 16 single-family detached homes and four townhouses. He combined these nine strategies to buy the land and develop the award-winning workforce housing community:
- 1. A Fannie Mae loan at 4 percent interest backed by a certificate of deposit instead of land was used to acquire the land.
- 2. Tax increment financing (TIF), a bond program that municipalities use to finance improvements in blighted areas, was used for infrastructure and assembly of adjacent land. TIF bonds capture the increased property tax value of the property after the improvements.
- 3. Community Development Block Grant funds paid for relocation of existing tenants and demolition of rental property on the site.
- 4. City of Lincoln general funds paid for gap financing of infrastructure.
- 5. A HUD grant funded PATH research and demonstration, which provided engineering and technical assistance and some product donations. Construction innovation led to a visit by the HUD Secretary, "a big political score in a little town," Pages says.
- 6. State economic development funds paid for wrought iron fencing along a busy street.
- 7. The American Concrete Association funded engineering, oversight, and some materials on the first-ever pervious paved (ecological) roadway through the subdivision.
- 8. US Bank provided a construction loan at 6 percent because the project helped the bank meet its Community Reinvestment Act lending requirements.
- 9. City of Lincoln waived impact fees, and sewer and water tap fees.
"It's a daisy chain kind of thing," Pages says. "You can't [put it together with just] one or two sources if you really want the funds. In the end, I had $11,000 [per lot] in land costs--that was land, development, everything--in an area where the average lot costs are $40,000 to $50,000."
But that's not all. Five other programs helped homeowners at different income levels with down payments and to buy down the interest rates on their mortgages and to run the HOA.
Pages says his average profit margin on an affordable housing neighborhood is 20 percent. To get governments, nonprofit agencies, and foundations to help with financing, he says a builder has to be "a little bit of a preacher or social worker. If you love money but you hate poor people, you won't make it in [the affordable housing] world. You're working with people for whom the mission is everything. I know what it was like to get my first house. I've lived through my clients' struggles. It gives me pleasure to be involved in something more meaningful than just making a living."
Preserving Long-Term Affordability
Long-term land leases subtract the dirt from the mortgage.
Mel Ottley, president of Albuquerque, N.M.–based builder Mock Associates, puts it simply: There is money to be made building affordable housing with a community land trust.
"You can make money doing it. The difference in cost is in the land. That's where the key is," he says. "For a residential lot here, we're paying $60,000 to $120,000. When you can cut that cost, the sticks and bricks are all the same."
That is music to the ears of Connie Chavez, executive director of the Sawmill Community Land Trust, which hired Mock Associates to build the second phase of its master planned community, Arbolera de Vida, Spanish for orchard of life. To her, it means that her low- to moderate-income buyers can expect the same quality in their homes as the market-rate houses that Ottley normally builds for $350,000 and up.
The winner of numerous urban planning awards, Arbolera de Vida sits on a 27-acre tract that had been home to a lumberyard. It is a mixed-income, mixed-use development that includes for-sale market-rate and affordable homes, affordable rental live/work lofts, a community garden and orchard, a child and senior daycare center, offices, and light manufacturing. The nonprofit land trust has developed the property through the aggressive pursuit of public and private grants and loans to pay for everything from infrastructure to energy-efficient windows in the houses.
"As a nonprofit, we have avenues where we can get free money, free land, free help from EPA to clean up hazardous sites," she says. "That's the benefit of partnering with a nonprofit."
Ottley says he has no concerns at all about building houses on lots he doesn't own.
"We're doing this just like a commercial contract," he says. "I get X amount to do the homes. We know they're already sold. They have people ready to buy going through their qualifying program. I have no cost of marketing, I don't pay Realtors, and they deal with title work."
He also reduces costs by building a group of houses at the same time. He says he needs 20 to 22 starts to create a sufficient economy of scale to get good pricing on materials and labor. "When you have 20 in front of you, framers will stay and frame, and sheet rockers will stay and sheetrock," he says.
While building with the land trust has been sufficiently profitable for Ottley to make affordable housing a regular part of his business model, he says he's also pleased that he's making a difference in the lives of the buyers.
"We've created something that people wouldn't have been able to have otherwise," he says. "That's important." - Pat Curry