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In the last four years, the City of Evanston has approved HOME grants totaling approximately $2.7 million to subsidize nine housing projects containing a total of 33 condominium units, townhouses or homes. The average grant per housing unit is about $80,000.
In the case of grants of $40,000 or more made through the federal HOME program, HUD regulations require a city to recapture the grant or to impose a resale restriction on the subsidized property for a minimum of 15 years, referred to as the “affordability” or “control” period. The 15-year period is a minimum; cities are allowed to impose a longer affordability period.
During the affordability period, if the original homeowners decide to sell the subsidized home, they must sell it to a qualified household at a price that remains affordable to a reasonable range of low-income buyers. The home thus remains affordable during that period, and the public continues to benefit from the grant. After the affordability period expires, however, the subsidized home may be sold in the open market at a market price. A HUD representative told the RoundTable that after the affordability period expires, the City may allow the owner to keep the proceeds of the sale, including the equity attributable to the HOME grant. Alternatively, the City may require the owner of the subsidized home to repay the HOME grant to the City.
The City of Evanston has generally set the affordability period under its HOME grant program at the minimum or close to the minimum period required under federal regulations. The affordability period set for 32 of the 33 units subsidized over the last four years has been 15 to 20 years. After the affordability period expires on these 32 units, the units will no longer be in the pool of the City’s affordable housing units; and under the City’s policy, the City will not recapture any portion of the HOME grants made for those units. The average grant per unit is about $80,000. The City is in essence making a gift averaging $80,000 to the owners of these units.
We think the City should change its policy with respect to HOME grants which exceed $40,000. First, the City should extend the affordability period to the maximum – rather than the minimum – period permitted by the law. This would enable the City to preserve a larger pool of affordable housing units in the City. Second, the City should recapture the HOME grant if the subsidized home is resold at market prices after the affordability period expires. This would enable the City to put those dollars to use to develop additional affordable housing units in the future.
John Emmeus Davis, research fellow with the National Housing Institute and author of the report Shared Equity Ownership, told the RoundTable, “Cities cannot afford – and cannot justify – allowing precious resources and scarce subsidies to be lost after 15 years.” We agree. We see no reason why a sizeable public grant to create affordable housing should turn into a gift to a private individual, rather than continue to benefit the public’s interest in affordable housing.