REACH (Regional Employer Assisted Collaboration for Housing) Illinois

At the start of the millennium, housing experts in Illinois received a wake-up call. Between 1990 and 2000, there had been a 49 percent increase in homeowners who paid more than 30 percent of their income on housing. In the Chicago region, population had increased by 11 percent and jobs by 16 percent, yet the stock of rental housing had not kept up. During that time, multifamily housing production grew by only 3 percent in the region, compared to 22 percent nationwide. Furthermore, the places that did provide affordable housing were on the opposite side of the region from the places with good jobs and other key amenities.

 

Compared to other metropolitan regions, researchers found that the Chicago area was under-producing housing. Traditional models of supply and demand were not at play. Non-economic barriers were shaping the housing market place. These barriers included the lack of state leadership on housing, poor public perception of affordable housing, and the number of municipalities shouldering the burden of advancing good housing policy (there are more than 270 mayors in the Chicago region alone!).

Facing rising housing costs and decreasing housing production, the state, nonprofit organizations, and employers collaborated to establish one of the most successful EAH programs in the country. REACH (Regional Employer-Assisted Collaboration for Housing) began with a pilot program, created by a suburban employer (System Sensor, a smoke detector manufacturer), a technical assistance provider (Metropolitan Planning Council), and a local nonprofit housing development corporation (Joseph Corporation). These groups worked together to provide homeownership counseling and $5,000 in down-payment assistance to allow 16 employees to buy homes within 15 miles of their work site in the program's first year. Another 60 employees enrolled in counseling. The pilot demonstrated that helping employees live near work brought major savings for employers in terms of employee turnover, recruitment, and training: The company saved approximately $100,000 the first year of the program. As of June 2007, 122 people had enrolled in the program and 67 had purchased homes.

A Pathway to Broader Housing Policy Reform   In Illinois, employer-assisted housing has catalyzed a broader dialogue about the links between housing and economic development, which has led to public policy change. The state adopted a comprehensive housing plan in 2005, and a number of innovative policies have come out of the plan, almost all with employer support.   -Robin Snyderman, Metropolitan Planning Council

Seeking to build upon the success of the pilot initiative, the Illinois Housing Development Authority created two financial incentives—a state tax credit for EAH and a matching funds program—to encourage employers across the state to contribute to workforce housing through EAH benefits.

The tax credit was first established in the legislature in 2002, via the new Illinois Affordable Housing Tax Credit, which authorized $13 million in affordable housing credits per year for five years. Of the yearly allocation, $2 million was set aside for employer-assisted housing and $1 million was set aside for technical assistance and general operating support, which can go toward homebuyer counseling. The benefit for an employer is equal to a $.50 state income tax credit for every $1 in cash, land, or property that a company invests in EAH programs that benefit employees who earn no more than 120 percent of area median income. If the employer is a nonprofit, that credit is transferable. This legislation was due to sunset after five years, but was renewed in 2006 so as not to interrupt to pipeline of employers and developers planning ahead.

The state matching-funds program also supports EAH by providing a dollar-for-dollar match to employees whose companies contribute to down-payment assistance. Employees who earn less than 50 percent of the area median income may receive up to $5,000 in down-payment assistance and those making between 50 and 80 percent of AMI may receive up to $3,000. Most employers have chosen to offer the assistance as a forgivable loan to employees who commit to staying with the company for at least five years. REACH nonprofit partners provide credit counseling, homebuyer education, and assistance throughout the process.

The matching funds are specifically targeted to employers in Illinois that are partnering with MPC or Housing Action Illinois and a REACH nonprofit partner—community-based, nonprofit housing counseling agencies able to offer specialized homebuyer education as an outsourced service to employers. In addition to leveraging private-sector support for down-payment assistance and homeownership counseling, these funds help employees live closer to work, decreasing their commute times and improving their quality of life.

At first, the matching funds went to EAH programs in northeastern Illinois, where the network of nonprofits that MPC works with was located. In 2004, IHDA expanded the program to include 15 nonprofit partners outside of the Chicago area, bringing the network members to 28. Housing Action Illinois supports REACH partners outside of Metropolitan Chicago.

The REACH Illinois program has grown significantly since its inception. As of 2007, over 60 employers of all sizes and types are participating. Nearly 1,300 employees have purchased a home with their employer’s assistance as a result; employer contributions have come to more than $1.7 million. While many of programs are working to assist employees purchase in expensive, high job-growth markets, many employers are also supporting redevelopment, such as the mixed-income communities being developed through the Chicago Housing Authority’s Plan for Transformation.

The program is also making efforts to reach low-income employees. What started out as simple down-payment assistance has now evolved, with some employers providing rent subsidies and Individual Development Accounts, and others investing more significantly in housing preservation and other strategies. Renters receive housing counseling from nonprofit partners, and their employers put in a monthly rental subsidy. Employees may save toward ownership, setting aside money for two years, at which time the employer provides a matching amount to be used toward a down payment.

The MPC views the REACH program as one means to a greater end: the reframing of the housing discussion as connected to broader economic development. Perhaps the most impressive outcome of the REACH Illinois model is the increased awareness that affordable housing and workforce stability are closely linked, and the resulting local and state policy change. Municipal leaders have begun forming their own housing agendas. In the suburbs, clusters of municipal leaders are even coordinating outreach to employers, creating meaningful partnerships to support local policy change and needed developments.

Since that wake-up call at the start of the new millennium, Illinois created its first ever housing policy in 2003, transformed that policy into a meaningful comprehensive housing plan in 2005, and mandated that such comprehensive housing planning continue. Numerous pieces of meaningful legislation have come out of this planning process, almost all of them with some employer support, including a state rent-subsidy program for very low-income households and, more recently, a school funding bonus in municipalities allowing affordable housing that advances the state’s “live near work” and preservation goals.

In addition, the MPC and other groups drafted a federal Housing America’s Workforce Act, drawing on local lessons learned from EAH. Recognizing that local and state policymakers can only achieve limited success without more federal support, MPC and others hope that this new legislation can reframe the housing discussion at the federal level akin to the way EAH has performed in Illinois, resulting in greater policy change and investment nationwide. This legislation has been introduced in the last two sessions of Congress, but has not yet made it out of committee.

Challenges and Keys to Success

Although REACH Illinois continues to enjoy increasing success, it also has constraints. Although efforts have been made to provide rental assistance, the emphasis remains on the down-payment assistance, meaning the programs on average tend to serve mostly moderate-income rather than low-income households. The median household income served in 2006 was $52,000.

One of REACH’s keys to achieving its notable results is using various strategies to keep employers interested, from tax incentives to demonstrating to employers that they stand to benefit from reduced turnover and training costs. In marketing the program, advocates had to learn how to appeal to different sectors. The program also relies on the involvement of community-based nonprofits, which provide local knowledge and expertise and manage the details of credit counseling and income eligibility that employers would rather avoid.

To accommodate smaller employers not in a position to contract with a REACH partner for only one or two employees a year, Illinois also has piloted four small-business consortia to create greater efficiencies for companies with fewer personnel.

While EAH programs themselves can't solve Chicago's jobs-housing balance, Robin Snyderman of MPC says that the real take-away from the REACH experience for housing advocates might be the strategic value of introducing and leveraging employers’ self-interest in the housing issue, so as to move policy change forward on a broader level.

Seattle Hometown Home Loan

Seattle experienced skyrocketing housing prices throughout the 1990s: Average home prices more than doubled from below $150,000 in 1990 to $310,000 in 2000, and area rents rose sharply as well. Homeownership rates also declined over the decade, and, as in other urban areas, were much lower in the city than in the surrounding suburbs. Lower-income residents who worked in the city were increasingly unable to live within city limits, particularly core service workers such as police officers, firefighters, and emergency services personnel.

A Winning Strategy   Negotiating savings directly with a particular bank kept the costs of the program and need for subsidies low.

The city was concerned about the inability of public employees to afford housing within the city because it could mean a lack of available extra emergency workers in the event of an earthquake or other major emergency. The environmental impacts of increasingly long commutes to and from surrounding residential communities was also generating concern. In 1994, the city council passed an ordinance creating the Hometown Home Loan mortgage discount program for public employees. The goal of the program was to increase public employee homeownership rates in order to enhance city community policing and neighborhood planning initiatives,

Deciding early on that it would seek to provide a housing benefit to employees with little cost to taxpayers and little direct city subsidy, the city entered into negotiations with HomeStreet Bank, a major lender headquartered in Seattle, to provide mortgage discounts to program participants in exchange for marketing access and expectations of increased lending. The city successfully leveraged discounts in part by convincing the bank that HomeStreet's existing mortgage holdings in the area would be augmented by increased homeownership in the city, and in part because the city already had substantial holdings with the bank, giving it additional clout.

The Hometown program offers borrowers a 50 percent reduction in loan origination fees, lower appraisal fees, free credit reports, a lower escrow fee, and, most significantly, no overage. Cost savings to borrowers depend on the purchase price of the home, but generally average between $1,700 and $2,500. Leigh Bezezekoff of HomeStreet says this savings can make a big difference for many of their first-time buyers, either those who have trouble coming up with that much money at once or those who need to move quickly to avoid being shut out by an escalating market.

The program is administered in Seattle by the city Office of Housing. City costs are limited to administration and marketing, and HomeStreet's employment of a full-time outreach coordinator keeps even those administrative costs minimal.

The Hometown program is also available to members of certain unions regardless of their employer. For a number of years, the AFL-CIO Housing Investment Trust offered AFL-CIO members an additional 1/4 percent mortgage-insurance reduction for the life of a loan and a mortgage buy-down in the form of a 1/2 percent interest-rate reduction for the first five years of the mortgage. However, the program expired once the funding commitment of $2 million was reached. Since then, HomeStreet has extended the Hometown program to members of the AFL-CIO, the Change to Win unions, and a few other unions throughout Washington, Oregon, and Hawaii (the areas where HomeStreet does business).

HomeStreet provides homebuyer education classes, lending counseling, credit counseling, and other assistance to prospective buyers and partners through their relationships with local nonprofit agencies.

Although the Hometown Home Loan Program was initially designed for city employees, high levels of interest in the program motivated the city to expand the program to include private partners. Over 40 employers in Washington, Oregon, and Hawaii have signed on to the program, including the city of Portland, Oregon. In May 2007, Portland renewed its commitment to the program, promised additional marketing efforts, reinstating on-site educational sessions, and actively encouraging private employers to get involved.

Approximately 700,000 employees and union members are eligible for the program, which has closed more than 3,800 home purchase loans and almost 2,750 refinancing loans. The University of Washington, Seattle’s largest employer, has closed more than 2,200 mortgages; the City of Seattle, 622; and Multnomah County, Oregon, 307.

Challenges and Keys to Success

Understanding the lending process, achieving lender participation, and successfully marketing the program to employers and employees were some of the challenges experienced by the program. In Seattle, where the average home price as of August 2007 was $439,000, and where there are few homes available for less than $150,000, the program's ability to benefit low-income groups is questionable, particularly if housing costs continue to rise. To respond to this gap, HomeStreet, Fannie Mae, and the City of Seattle have worked to develop methods to leverage down-payment assistance and innovative loan programs to assist lower-income buyers.

 

The Office of Housing cites clearly defined program goals, sufficient program monitoring, and program flexibility as key to keeping the program responsive to ongoing needs. Another obvious key was successfully negotiating discounts with HomeStreet; the elimination of overage and the staffing of the Hometown program with salaried lending officers, in particular, were important to realizing savings for borrowers. The leverage of the city as a major customer with the lender was an additional asset in negotiating the discounts.

Rochester First Homes, Rochester, Minnesota

In the late 1990s, Rochester, Minnesota, was experiencing housing shortages so severe that even mid-level employees of local businesses were often unable to afford housing. Teachers, daycare providers, service employees, and other lower-income workers were even more dramatically affected. An estimated minimum of 3,000 affordable units was needed in the area to alleviate the shortage.

In 1999, the Rochester Area Foundation and the Greater Minnesota Housing Fund (a development finance agency that covers Minnesota outside of the metropolitan Twin Cities area) approached the Mayo Clinic (the area's largest employer) to discuss how the rapid growth of the clinic and other area businesses was one major cause of the crunch.

To address the crisis, the Rochester Area Foundation committed $1 million and the clinic committed $4 million. Then the clinic offered three different challenge grants of $1 million each, in a one-to-one match, to encourage other employers in the community to step forward. Approximately 100 employers responded, and with support from the Minnesota Housing Finance Agency, Rochester First Homes was created. The foundation has raised more than $14 million in pledges, which has helped leverage another $115 million.

Originally, First Homes contributed to mortgage down-payment assistance for area workers and construction financing for affordable-housing developments. Units built through the program include affordable rental townhouses and for-sale homes. Townhouse rents are below market-rate; home purchase prices vary, but are limited to about $159,000. Assistance is restricted to recipients earning less than 80 percent of statewide median income. The down-payment assistance consisted of soft second mortgage "gap" loans of up to $15,000.

Today, the crisis in housing supply in the Rochester area is not as severe, and Rochester First Homes has shifted its focus from subdivision development and down-payment assistance to community land trust work and neighborhood reinvestment and preservation. For properties developed through the community land trust model, the homes are sold, but the land is owned by the trust and deeded to the homebuyer for renewable 99-year leases. First Homes provides homebuyers under the land trust program with $40,000 to purchase the land, which it holds in trust, and $10,000 gap loans. Community Housing Partnership, a local nonprofit housing agency, provides financial counseling for homebuyers.

First Homes is relatively unusual in that assistance funded by employer contributions is not limited to employees of participating companies, and units constructed by the project are available to any area low-income buyers. This was a result, says Allen, of the Mayo Clinic recognizing that the large hotel and service industries of the area “make Mayo work.” With an economy so strongly dependent on one major employer and the businesses that feed it, Mayo saw that it was in its interest to take responsibility for not only its own employees, but the impact that it had on the area.

Since its inception, First Homes has funded the purchase of 170 homes through the community land trust and 350 homes under the down-payment assistance program. It has also subsidized the development of 376 rental units. In 2007, First Homes surpassed its goal of 500 for-sale homes and 375 rentals and is expanding its work to include other community revitalization initiatives, including neighborhood planning.

Challenges and Keys to Success

It took a couple tries to create a program that was flexible and met the community's expectations, says Allen. "When you have that much money and a clear mandate it would seem easy, but it takes a lot work," he says.

A major key to getting through that challenge was having an organization "committed to that final outcome and committed to be there until that outcome," says Allen. The Rochester Area Foundation, under whose umbrella First Homes operates, served that function. "I don't know we would have the success we've had if . . . the foundation had spun it off to an outside organization," says Allen.

Other keys to success include the combination of multiple financing sources, and keeping the program design simple so that all participants—lenders, realtors, developers, administrators, and beneficiaries—can understand it and none are unduly burdened. Strong and supportive statewide agencies were indispensable in getting the project off the ground. Allen adds that having big vision and a big plan was actually important to First Homes' success, because a big plan can attract big money and therefore have a significant effect.

 

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