MARK LEFF
Many concerns addressed
A leading housing advocacy group is seeking to revive a loan program that has provided funding for dozens of affordable housing projects proposed under the state’s so-called anti-snob zoning law.
The move comes days after the Federal Home Loan Bank of Boston announced it would stop making loans for housing proposed under Chapter 40B, the state’s anti-snob zoning law, because a state agency is demanding greater oversight over projects that are funded through the bank’s New England Fund.
By some estimates, the New England Fund has provided financing for up to 60 percent of the affordable housing developments proposed under Chapter 40B in the last two years.
Some worry that suspension of the NEF could greatly hinder affordable housing production efforts in Massachusetts.
The shutdown of NEF is particularly troublesome given the latest developments surrounding the controversial Chapter 40B law. Legislators had reached a compromise over changes to the law in a bill that was passed, but later vetoed by Gov. Jane Swift, who thought the changes would harm affordable housing production efforts. Last week, Swift issued emergency regulatory changes aimed at addressing some community concerns over the law, which, in part, allows developers of affordable housing to bypass local authorities in communities where affordable units comprise less than 10 percent of the total housing stock.
In the meantime, the Citizens’ Housing and Planning Association is offering its own proposal in an effort to get the New England Fund operating again. Banks that tap into the NEF to finance affordable housing must issue what are known as site approval letters. In the past, critics have argued that banks were issuing the approval letters without properly researching the housing proposals and did not have structured guidelines for the projects. As a result, towns were faced with proposals for housing developments that would strain their services, and had no guarantees of long-term affordability of the housing being built. Under a regulation proposed by the state Department of Housing and Community Development, banks would still be able to issue site approval letters, but FHLB-Boston would have more responsibility regarding approvals coming from its member banks.
“We believe member banks are doing a good job at this,” said CHAPA Executive Director Aaron Gornstein, referring to banks issuing site approval letters. “But we also believe that it is appropriate for a public agency to play a role in reviewing the site approval letters that the member banks of the Federal Home Loan Bank are issuing,” he said.
CHAPA, which has been supportive of the NEF, is proposing that some kind of public intermediary – instead of FHLB-Boston – step in to essentially sign off on the site approval letters issued by member banks.
In a letter dated Aug. 9, the president and CEO of FHLB-Boston notified its member banks of the suspension of the NEF. The letter stated that DHCD is requiring FHLB-Boston “to provide a written determination of project eligibility [site approval]” for housing proposed under Chapter 40B, something that the bank is reluctant to do and feels is beyond its scope. Under Chapter 40B, developers of affordable housing can practically bypass local zoning rules in communities where less than 10 percent of the housing is deemed affordable.
FHLB-Boston had previously notified DHCD that it would “be forced to suspend the New England Fund” if DHCD pursued the regulation, according to William Hamilton, senior vice president of public affairs for FHLB-Boston.
“The proposed regulation would put us in the role of acting as a regulator or our member institution and that is inappropriate,” said Hamilton.
Whether FHLB-Boston resumes operation of the NEF depends on the result of the final DHCD regulations, according to Hamilton.
For their part, DHCD leaders insist there is a need for more built-in accountability and greater oversight of housing projects that are approved. Currently, “there isn’t a good formal structure under the NEF fund for monitoring the project once a site approval letter has been issued,” said DHCD Director Jane Wallis Gumble.
Gumble said that she is “wishful” that there will be some way that the fund can continue to be used. DHCD is holding a public hearing on the issue Aug. 27 at 10 a.m. at the McCormack Building in Boston.
The NEF was recognized as a valid funding source for Chapter 40B projects in a 1999 decision by the Housing Appeals Committee. Before then, the primary funding source for affordable housing in the state was either MassHousing or the U.S. Department of Housing and Urban Development. Under the NEF, banks can issue lower-interest-rate construction loans to developers of affordable housing. Many of the developers using NEF have sought comprehensive permits under the state Chapter 40B law.
Some argued the NEF program never had the parameters or guidelines to deal with the details of housing proposals, leaving the communities, with their minimal resources, to deal with the specifics themselves. In some cases, communities sought guidance from DHCD, while others sorted through the complicated issues raised by housing proposals on their own. Often, town leaders ended up rejecting a project and spending thousands to defend themselves in later appeals by the developer. According to DHCD, some 75 percent of the cases before the Housing Appeals Committee involve NEF-funded housing proposals.
‘Significant Flaw’
To address some of those concerns, DHCD issued regulations last year requiring the banks to be more vigilant and follow certain procedures when issuing site approval letters. For example, before issuing approval, the lender must have the site of the proposed housing development inspected and must review design details. Given last year’s regulations, one lender expressed confusion over the latest DHCD regulation.
“I just don’t understand what the value is of even having them [FHLB-Boston] approve a site approval letter that was given by member banks,” said Mark Leff, senior vice president of construction lending at Salem Five Cents Savings Bank.
Leff said many concerns were addressed by last year’s DHCD regulations regarding site approval letters. But others argue that DHCD didn’t go far enough with last year’s regulations in demanding more accountability from NEF lenders.
“While requiring more detailed site approval letters is a step in the right direction and requires FHLB lenders under the New England Fund to pay more attention to the suitability of the parcel of land in question, this requirement alone is insufficient,” said Boston lawyer Susan Murphy, a member of Hingham’s Planning Board.
“The most significant flaw of the New England Fund is that it does not have in place any minimum guidelines … for the projects it funds,” said Murphy, who added that MassHousing and other lenders have more structured guidelines. “The lack of minimum guidelines makes it very difficult for communities to ensure long-term affordability of New England Fund projects.”
In Murphy’s hometown of Hingham, town leaders were confronted with a NEF-financed affordable housing proposal that has stirred up serious issues. In that case, the Zoning Board issued a permit to a Maryland development company last year to build a Chapter 40B project featuring 2,200 rental units for seniors despite the fact that DHCD had earlier questioned whether it would count the units as affordable. DHCD leaders had concerns about whether the units met affordability guidelines under Chapter 40B after hearing that developers of the senior living community want to require minimum entrance deposits of between $142,000 and $300,000. The units are intended for lower-income elderly people earning less than 80 percent of the area median income.
Planning Board members, furious at the thought of having 2,200 units built in their community under Chapter 40B yet having none of the units count as affordable, are challenging the issuance of the permit.
“We question … whether the project will comply with the requirements of Chapter 40B, including those minimum requirements,” said Murphy.
Part of the problem, according to Murphy, is that there is nothing in the Chapter 40B law that protects towns like Hingham by requiring that DHCD recognize units in a housing development as affordable before a town finally issues a valid building permit for the project.
Chapter 40B, which has been credited with creating thousands of housing units in the Bay State since its passage more than three decades ago, was the subject of dozens of bills filed in recent years. Local leaders have long complained that developers are abusing the law by proposing housing that is out of scale with their communities and overburdens their town services.
In July, lawmakers passed a bill that included a measure that would have allowed communities to reject a housing development proposal if they had demonstrated that they had increased their affordable housing stock by half a percent in the year the project is proposed. Swift vetoed the bill, surprising housing advocates and other supporters of the compromise, and angering suburban legislators who felt that bill didn’t go far enough to begin with.
Some fear that the veto sets the stage for an even bigger battle during the next legislative session.
“It’s reached a boiling point,” said Gornstein, referring to the push to change Chapter 40B. “We fully expect that there will a major attempt to gut 40B. There will be more drive behind it – more communities that will be supporting the gutting of the law.”
Last Tuesday, Swift issued emergency regulatory changes to the law that left out the half-percent measure, but incorporated other parts of the bill that had been passed by the Legislature.
