This affordable housing project in South Austin is drawing lots of criticism. Rightly so.
It's a complicated deal and the Austin Housing Finance Corporation has not disclosed all the relevant details, which makes a thorough analysis impossible. But the gist of the deal is this: AHFC will buy a tract of land on Little Texas Lane in South Austin for $2 million. It will then loan a developer another $1 million to develop the Village on Little Texas, a 240-unit apartment complex. (Ironically, this project will be built next to the "apartment-complex city" I recently called a wasted opportunity.)
The project will provide 50 units affordable to tenants making less than either 50% or 30% of the median family income. Rents for the affordable units will range from $339 to $613 for one-bedroom units, and $396 to $726 for two-bedroom units. Rents for the remaining units will range from $730 to $1,025. (AHFC memo (pdf).)
AHFC is paying too much for these affordable units. Because AHFC will own the property, the city, county and AISD will forego property taxes, which (according to the Statesman) will range from $300,000 to $400,000 per year. But the affordability discount appears to be roughly $400/month per month, or $5,000/year. The total value of the subsidy for 50 units, then, is $250,000 per year, much less than the foregone taxes.
AHFC has is also taking a roughly one-third ownership in the project. I haven't seen pro formas for the project, but I doubt that it will generate enough profit to provide AHFC a decent return on its $2 million investment (or $3 million, if that $1 million loans is forgiven).
It looks like a bad deal.
There are two other problems. First, AHFC should be maximizing the number of affordable units. It is a bad idea for it to tie up millions of dollars of capital in one project. Even if that investment generates a decent return, that's $3 million that could be used today for affordable housing elsewhere.
Second, the tax break is troubling. It is an off-the-books subsidy, which tends to obscure the true cost.
But, worse, this kind of tax break is really a shell game the city uses to screw AISD and the county out of their share of property taxes. Here's how it works: AHFC gets the property tax free. The taxes the property would have generated are instead added to the project's net return. AHFC gets one-third of these profits. So AHFC effectively has one-third of the property taxes returned to it. But the city is entitled to only 20% of the taxes generated by a piece of property; AISD, the County, ACC, etc. get the rest. Thus, by purchasing the property, AHFC essentially raises the city's share of the property tax from 20% to 33%. The rest of the county and AISD's share goes to the developer.
Perhaps a hypothetical will make it clearer. AHFC buys a piece of property and develops the project on its own so that it is entitled to 100% of the net return. Since it pays no property taxes, those taxes swell the net return dollar for dollar. AHFC (and the city) effectively use AHFC's non-profit status to convert AISD and county taxes into city taxes.
No wonder the city likes this structure.