Portland Housing Bureau has Lent $350 Million at an Average Interest Rate of Less than 1%

The weighted average interest rate of the PHB loan portfolio is 0.93 percent, far below the average inflation rate.

Salem-News.com

(PORTLAND, OR OCN) - Developers have received almost $350 million in assistance over the years in the form of low-interest or free loans from the Portland Housing Bureau for affordable housing units.

Almost the entire Portland Housing Bureau (PHB) was lent below inflation rates. Similar deals won’t be found at traditional lenders such as banks or credit unions, and for good reason. Lending below the inflation rate is essentially paying someone to borrow taxpayer money.

But the PHB does not seek the same outcomes as banks and credit unions which operate for profit. PHB’s mission is “to focus community resources on the unmet housing needs of the people of Portland.”

It looks to accomplish its mission by focusing on ending homelessness, increasing rental options and promoting stable ownership. A variety of programs in this city agency seek to do just that, including programs that make loans to developers and organizations who in return create affordable housing.

The PHB calls this “gap financing,” a sort of lender of last resort to fill any of the missing pieces for projects and businesses. Ultimately, it boils down to providing access to credit, but the terms of the credit are favorable to the borrower under the general justification that PHB is promoting success for the project and its mission.

“We are trying to balance affordability with long-term project feasibility. That amounts to providing capital at a lower rate than a typical bank,” says Daniel Ledezma, director of communications for the PHB.

The weighted average interest rate of the PHB loan portfolio is 0.93 percent, far below the average inflation rate.

Over half of all the money lent by the Portland Housing Bureau (PHB) to developers and organizations was at a zero percent interest rate – in other words, free loans.

The PHB loan portfolio is more than double the size of the Portland Development Commission’s $125 million loan portfolio and earns less than half of the interest rate of 2.66 percent.

The loans went to business and organizations for multifamily housing projects that included affordable housing units. In total, the PHB claims 10,716 affordable housing units have been created by the developers using PHB loans.

That breaks down to $32,457 lent per affordable housing unit. Each affordable housing unit must be maintained as such for 60 years.

Affordable housing statistics tracked by the PHB are broken down into categories of renter income as a percentage of median family income. Median family income (MFI) as defined by the U.S. Department of Housing and Urban Development (HUD) is $72,000 for a four-person household in the Portland metro area.

Of the 10,716 affordable housing units created from the PHB programs, 4,620 are considered affordable for a household with income between 51 to 60 percent of MFI. For a four-person household, that comes out to $36,501 to $43,800. A single renter’s income would fall between $25,201 and $30,240, based on a median income of $50,400.

“Affordable,” as defined by the PHB, is 30 percent of the renters’ income. For households with four occupants at 51 to 60 percent of MFI, the rent would be in the range of $900 to $1,080, and for single occupant households, $630 to $756.

In terms of number of loans, affordable housing lending is only about 20 percent of the approximately 1,800 total loans in PHB’s lending portfolio.

The 369 loans analyzed for this article did not include loans to individuals for things such as house and building improvements, down payments or other types of loans not associated with affordable housing creation.

Almost $200 million of the current loan balances were funded through tax increment financing. Tax increment financing sells bonds based on future projected increases in property taxes from improvements to properties associated with the projects.

The rest of the loan balances have been funded through various other sources such as HUD loans, federal grants and community development block grants.

Source: Oregon Capitol News