By BEVERLY ANN FLEMING

Private sector assisted housing programs

The Illinois Housing Development Authority fosters private sector construction and rehabilitation of housing for low- and moderate-income families, the elderly and the handicapped. How shall limited funds be allocated among these groups?

THE overriding housing theme of the 70's has been the belief that government involvement should be kept to the minimum. The private sector can usually produce more housing in less time at a cheaper cost; and once built, housing can be managed more effectively by private sector managers than public sector bureaucrats. Public resources for assisted housing are scarce, although the use of these limited resources to generate private sector participation in low- and moderate-income housing has magnified their effect. Government fosters private sector involvement through the U.S. Department of Housing and Urban Development (HUD) or the Farmers Home Administration (FmHA) and in Illinois, by offering below market rate financing through the Illinois Housing Development Authority (IHDA).

IHDA was created by the General Assembly in 1967 to stimulate the construction of new and rehabilitated housing for low- and moderate-income families, the elderly and the handicapped. Its major function is to offer mortgage and construction loans at below current market rates to nonprofit and limited-profit developers of private rental housing. Developers (who are permitted a 6 percent return on their equity) can then pass on their savings from these cheaper loans to future tenants in the form of reduced rents.

IHDA also has two other programs. Under one it makes short-term loans to nonprofit, community-based organizations to cover various preconstruction costs of new or rehabilitated housing. Under the other, IHDA offers low-cost loans to financial institutions which must match the IHDA funds in order to make the mortgage loans to eligible applicants.

IHDA only finances housing; it does not build or operate housing. IHDA-financed housing is not public housing; it is privately built, owned and managed. Since the construction of the first two IHDA-financed projects in 1971 (one in Savoy and the other in DeKalb), 110 developments (almost 20,000 units) have been partially or fully financed through IHDA with mortgages totaling about $520 million. Another 17 developments with approximately 3,000 units are on the drawing boards. IHDA's projects are predominantly new construction projects, although in recent years IHDA has undertaken financing the rehabilitation of some dozen existing apartment buildings. Approximately 24 percent of

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IHDA-financed projects are for the elderly, 48 percent are for families, and the remaining 18 percent are mixed.

Like local housing authorities, IHDA is relatively antonomous. It is governed by a seven-member board appointed by the governor. It does not rely on state tax revenues, but issues its own bonds and notes to finance loans. These bonds and notes are not part of the state's debt, and the protection of its bond rating is of extreme importance to IHDA and influences all investment decisions. All IHDA projects must be economically viable. IHDA's operating costs are paid by developer fees.

Rent reduction programs

IHDA originally reduced rents through its financing mechanism and HUD's Rental and Cooperative Housing Assistance for Lower-Income Families (Section 236), but this program was suspended during President Nixon's housing subsidy moratorium in 1973. In its early history, IHDA was lauded for its mixed-income projects where some apartments were subsidized and others were rented at market rates. Now, all units in IHDA-financed projects are supposedly subsidized through its allocation of HUD Section 8 subsidies.

The Lower Income Rental Assistance Program (commonly known as Section 8) is a leased-housing subsidy program under which eligible low-income tenants find their own housing in the private market. HUD pays the difference between what a low-income household can afford and the fair market rent (determined by HUD) for a unit of appropriate size which meets HUD's quality standards. Under the New Construction or Substantially Rehabilitated Section 8 Program, HUD contracts with a developer to subsidize units in approved projects.

IHDA has no relationship with local housing authorities and (except in rare cases) local governments. IHDA has been criticized for its lack of cooperation with local people and its insensitivity to local needs. But by state law, IHDA cannot lend to local housing authorities. In one case three years ago, Highland Park circumvented the statute by setting up a nonprofit housing corporation in order to borrow money from IHDA to build elderly housing. Peter Lennon, chief officer of the Office of Housing and Community Development of the Illinois Department of Commerce and Community Affairs (DCCA), says that DCCA will discuss with IHDA the possibility of changing state law to permit local housing authorities to borrow from IHDA.

Uneven distribution

IHDA's projects are statewide, although downstate housing interests often accuse IHDA of a Chicago bias, and Chicago community groups say not enough projects are built in inner-city neighborhoods. There is some justification for these accusations. IHDA's brochure, Housing for the people of Illinois — A Pictorial Perspective, clearly states that: "According to IHDA studies, well more than one-third of the need for rental housing remains in this population center [Chicago]." Yet only 27 percent of the units built with IHDA financing are in Chicago. The brochure continues: "About one-fourth of the need for rental housing in Illinois lies here [suburban Chicago metropolitan area — DuPage, Kane, Lake, McHenry, Will and suburban Cook counties]." But this area gets 40 percent of the rental housing units built with IHDA financing. The brochure concludes: "Here [Downstate — the remaining 96 counties], too, lies some 40 percent of the rental housing need." But downstate only has 33 percent of IHDA-financed housing units. East St. Louis has some of the state's most severe housing problems, but IHDA has financed no housing there. They say that no economically feasible projects have been proposed for East St. Louis.

One reason for the uneven distribution of IHDA projects between Chicago and its suburbs, according to Don Rose, IHDA public relations consultant, is that IHDA's initial policies in the early 70's were directed towards providing low-income housing in the suburbs so that low-income households living in the inner-city could have the opportunity to move out to the suburbs as the middle- and upper-income groups had already done (there is no proof that this ever happened). During the middle 70's, Rose said, IHDA's direction changed to follow national trends to provide elderly housing, and today IHDA is following a national trend to concentrate on rehabilitation and urban revitalization. Rose also said the suburbs received a large share of IHDA projects in the last decade because they are rapidly growing and land is available for development.

One reason for the relatively low number of IHDA-financed units in Chicago is the 1969 court decision which virtually shut down all Chicago assisted housing construction. Only 114 units of public housing have been built in the last 10 years in Chicago. The case was Gautreaux v. Chicago Housing Authority, and the court ruled that the Chicago Housing Authority had intentionally chosen sites for family public housing with the purpose of maintaining residential separation of the races in Chicago. Under the Gautreaux judgment, the city was told to build three units of public housing in nonpoverty areas for every one built in a poverty area.

Three different factors are probably the cause for downstate's low share of IHDA projects. First, IHDA tends to build large projects (100+ units) in order to protect its bond rating since larger projects are more economically feasible. Unfortunately, these projects work best in urban centers. Second,

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IHDA does not solicit proposals; developers come to IHDA. And since IHDA's only office is in Chicago, IHDA is naturally in closer contact with Chicago developers than down-state developers. Third, IHDA cannot use its allocation of Section 8 units in rural areas.

Where IHDA projects get built may be the result of forces beyond IHDA's control: HUD policy, the availability of vacant land, the Gautreaux decision, the financial realities of the economies of scale. Also, the need for assisted housing in rural areas (a need not served by IHDA) is served by FmHA programs. IHDA, however, does have a statewide mandate, yet its resources are neither distributed statewide nor in accordance with the greatest need.

Resources v. needs

IHDA's projects are statewide, although downstate housing interests often accuse IHDA of a Chicago bias

It is estimated that Illinois needs around 800,000 units of assisted housing — or five times what the state now has. Determining an exact number is academic because the state will probably never have enough money to satisfy the need. What is not academic is determining the allocation of the limited available resources: Where should assisted housing be built, what kind and for whom? The answers often depend on who is asking the question. Who has the greatest need: the divorced mother with five children living in a two-bedroom apartment; the 80-year-old widow living alone on a farm who wants to move into town; or the young man confined to a wheelchair yet capable of living independently if only a barrier-free apartment was available? Obviously, the housing problems of these people are different and must be solved in different ways.

A coordinated state-assisted housing policy has not been a priority of Illinois government. For the most part, local housing authorities which build and operate publicly owned housing act independently, although they must comply with federal regulations that are tied to the use of federal funds. IHDA is free to establish policy priorities for its subsidized financing program as it sees fit. Private developers of low- and moderate-income housing can use IHDA money or apply directly to HUD or FmHA under their assisted rental housing programs. Of course, local governments review all new housing construction proposals through the building permit process for compliance with zoning regulations and local housing assistance plans. In order to receive HUD funding, local governments often must prepare a housing assistance plan which identifies the need for assisted housing in the community. On a state level, however, coordination among the numerous groups involved in housing activities is difficult to achieve.

A step in that direction is the recent cooperation eight federal, state and local agencies including IHDA, HUD, FmHA and the Department of Commerce and Community Affairs. They are working together on the Illinois Areawide Project, an effort to coordinate rural housing and community development programs in designated areas of the state. But without a strong lobby or organized constituency, assisted housing may never have a coordinated statewide plan. The poor and those who directly benefit from living in assisted rental housing are not a strong lobbying force, such as the homebuilders and real estate industry are for single-family home construction. Perhaps with the present shutdown of mortgage money and home construction, the homebuilding industry will provide a constituency for all assisted housing programs.

[This is the sixth in a series of articles on Illinois housing issues. The series is supported by a grant from the Ford Foundation. The seventh article will discuss rural housing issues. — Editor]

Beverly Ann Fleming holds a master's degree in urban planning from the University of Illinois at Urbana-Champaign. She is a research associate at the Center for Policy Studies and Program Evaluation, Sangamon State University.

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