Updating Market Analysis

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Updating Market Analysis Affordable Housing
2
Introductions
3
Who Are We?

• Presented by Training Development Associates
• Randall Mullen
• Pat Crawford
• Sponsored by U.S. Department of HUD

4
Objectives

• Discuss updating market analysis in present
  economic downturn
• Examine changes in market demand that require
  changes in program design
• Learn to develop affordable housing that better
  responds to present market conditions

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Logistics

• Agenda
• Handouts
• The BIN

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Background Information
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Consolidated Plan Guidelines
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The 3 Critical Steps
Consult With Stakeholders
Assess Needs and Assets
Develop Comprehensive Strategy
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Changes in Your Community?

• New leadership
• Soft housing market
• Economic downturn
• Delivery system capacity

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Needs Assessment-- Market Analysis
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Housing Needs Assessment

• Project Five Years of Housing Needs
• Elements of Housing Needs Assessment
• Housing Needs
• Housing Market Analysis

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Census Data Contacts

• Census Data Updates
• State of the Cities Data Systems (CHAS)
• DataPlace, initiative of Fannie Mae
• HUD User Data Sets from PDR

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Market Data Sources

• Local building permits activity
• Sales data
• Property tax records
• Urban Land Institute market analyses
• Local surveys

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Update to Market Analysis
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Affordable Housing Markets
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Need, Demand, and Market

• Needs
• Are all around us, all of the time
• Present statements of condition
• Demands
• Exist in context of political environment
• Demands are politically motivated needs
• Markets
• Are defined by two base criteria
• Ability to pay
• Willingness to pay

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Housing Market

• Housing market contains at least two distinct
  elements
• Ability to pay
• Willingness to pay
• Affordable housing has third element
• Sustainability

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Ability to Pay

• For market to exist, there must be ability to pay
• There may be a need for a single family home for
  every family in America
• But not every family has ability to pay for a
  single family home
• Thus, the market for single family housing is
  limited by familys ability to pay

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Willingness to Pay

• For market to exist, there must exist both
  willing seller and willing buyer
• If there is no buyer, no market
• If there is no seller, no market
• Nature of product often governs willingness of
  buyer to engage in sale, and allows seller to
  price products accordingly
• Take mousetraps, for example

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Mousetraps

• Concept of willingness to pay is exemplified in
  mousetraps
• Mousetraps come in three basic configurations
• Slammers
• Stick-ems
• Politically correct

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Slammers

• Slammers come four to package
• Cost is 1.27 per package or about 32 each

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Stick-ems

• Stick-ems come four to package
• Cost is 1.97 per package or about 49 each

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Politically Correct

• The politically correct mouse trap comes one to
  package
• Cost is 1.49 per trap

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Cat

• Cats come one to package and cost nothing to
  acquire
• Cost is about 250 each per year in maintenance
  and upkeep
• So the cat may represent a better mouse trap

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Visualization

• Close eyes and visualize affordable housing unit
• Describe features
• Identify what this describes

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Willingness to Pay

• Product and location are critical
• Build housing that looks good
• Build housing that lasts
• Affordability is in financing

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Sustainability

• Unique feature of affordable housing market
• No question we can put family into house
• BUT can household sustain itself?
• In affordable housing, sustainability of
  household beyond initial purchase is key element
  of market

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Evaluating Homebuyers or Renters
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Key to Affordable Housing Deal Structure
Cash
Credit
Price
Ability To Pay
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Ability to Pay - Key Components

• Price
• Unit price/rent
• Payment affordability
• Mortgage payment
• Rent
• Cash and credit
• Cash on hand
• Credit worthiness and record

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Price Sensitivity - Elements of Cost

• Land
• Scarcity
• Density
• Zoning
• Development costs
• Hard costs
• Bid process
• Soft costs
• Construction financing
• Permits and fees

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Payment Affordability - Mortgage Rates and Terms

• Rate
• Low rate
• Blended rate
• Split rate
• Term
• Ratios
• Housing expense
• Debt to income

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Cash and Credit - Homebuyers Contribution

• Cash
• Down payment
• Closing costs
• Payment reserve
• Credit
• Worthiness
• History
• Net worth

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The Narrowing Target
Windowof Affordability
Price
CashandCredit
Affordability
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Market Windows - Purpose

• Provides visual representation of affordable
  market in your community
• Helps determine what type (number of bedrooms) of
  housing should be built
• Alerts you to possible difficulties in your market

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Market Windows - Assumptions

• Guidelines based on HUD occupancy guidelines
  for rental property
• One, two and three person families are market for
  two bedroom homes
• Three, four, five and six person families are the
  market for three bedroom homes
• Four, five, six person families are market for
  four bedroom homes

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Activity

• Find your community in the 2009 HUD HOME Income
  limits at the back of the tab.
• Very Low Income 50 of median
• Low Income 80 of median
• Color or outline space between very low income
  and low income for each family size
• Result is range of incomes to be served by family
  size

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Complete Windows
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So What ?

• Whenever range between bottom and top of market
  window is less than 10,000, there will be
  difficulty finding buyers
• The larger the window, the more opportunity
  exists to sell
• Build to largest window
• House price should reflect what is affordable to
  largest segment of market

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Program Choices
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Strategy Building Blocks
Community Needs Assets What are our priorities?
Needs
Available capacity Who are our partners?
Capacity
Available resources What can we use?
Resources
Assessment
Intended results What needs to be done?
Goals
Measurable accomplishments What will be
accomplished?
Objectives
Strategy
Specific tasks allocations How it will be
accomplished?
Annual Plan
Initiatives
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Types of Strategies

• New construction
• Infill
• Scattered site
• Subdivisions
• Acquisition/rehabilitation sale or rent

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New Construction Infill

• Acquire existing lots in single neighborhood
• Vacant and abandoned property
• Unsold subdivision lots
• REO
• Environmental issues
• Prior use
• Infrastructure issues
• Inadequate sewer/water
• Neighborhood integrity and suitability

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Scattered Site Infill

• Existing lots in numerous locations
• Vacant and abandoned property
• Unsold subdivision lots
• REO
• Environmental issues
• Prior use
• Infrastructure issues
• Inadequate sewer/water
• Neighborhood integrity and suitability

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Subdivisions

• Land
• Threshold 4 units
• 25 of land to infrastructure
• Engineering
• Environmental
• Infrastructure
• Site only
• To site
• Community

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Other Options
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Lease Purchase

• Allowable
• Not recommended
• House must be owned by a qualified buyer by the
  end of year 5
• Otherwise converts to rental
• If new construction, conversion means 20-year
  compliance period

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Lease Purchase (continued)

• Identify buyer
• Enter into a lease purchase agreement
• Acquire and rehabilitate
• Family occupies
• Counseling
• Budgeting
• Equity payments
• Maintenance considerations
• Sale closes

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Cooperatives

• Joint ownership of the property
• Through shares or a leasehold interest
• Payment based on proportional share of
  management, maintenance, replacements, debt
  service, etc
• Where allowed by state law
• Why?
• Training ground for eventual home buyers
• Requires high investment in people

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Added Possibilities

• Sweat equity
• Habitat model
• Lower in income stream
• Impact of 0 interest loans
• Self-Help Housing
• Rural Development program
• Employer-assisted housing
• Up and coming area

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Wrap-up
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Evaluation

• Complete return evaluation form
• Share any suggestions with trainers HUD

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For Future Reference

• Training Development Associates, Inc.
• 131 Atkinson Street, Suite B
• Laurinburg, NC 28352
• 910/277-1275 (O)
• 910/277-2816 (F)
• www.tdainc.org