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Home My WebLink AboutAPA1556~ 1 1 r-- I 1 r-; 1 ALASKA H"H 7304 .A4 S8 1 Copy 2 li ,, Il A STUDY OF ALASKA'S HOUSING PROGRAMS INSTITUTE OF SOCIAL AND ECONOMIC RESEARCH UNIVERSITY OF ALASKA Fairbanks • Anchorage • Juneau A STUDY OF At.ASKA'S HOUSJNG PROGRAMS Prepared for LEGISLATIVE BUDGET AND AUDIT COMMITTEE ALASKA STATE LEGISLATURE Prepared by INSTITUTE OF SOCIAL AND ECONOMIC RESEARCH UNIVERSITY OF ALASKA Lee Husk-ey Lee Gorsueh Phillip Rowe Karen White Theodore Lane C.K. Thomas and Assoeiates Marchl982 UNIVERSiTY OF ALASKA ANCHORAGE LIERARY UNIVERSITY OF ALASKA lnstitute of Social and Economie Research 707 "A" St., Suite 206 Anchorage, Alaska 99501 Phone l907l278-4621 March 26, 1982 Senator Arliss Sturgu.lewski Alaska State Legislature Pouch V Juneau, AK 99811 Dear Senator Sturgulewski: We are pleased to transmit with this letter a copy of our report, "A Study of Alaska's Housing Programs". This study was con- ducted under contract to the Legislative Budget and Audit. Committee. The study examines the present and future effects of the state' s current housing programs. These programs are operated by three separa te agencies of the state: the Alaska Housing Finance Corporation, the Alaska State Housing Authority, and the Department of Community and Regional Affairs. The study examines the direct and indirect effects of each program. The direct effects of the programs describe what the programs did; the number, value, and distribution of loans made are examples of direct effects. The indirect effects, or market impacts, de scribe the changes that occurred in Alaska' s housing markets as a result of the programs; the additional units con.structed and the changes in housing priees exetnplify market impacts. Our analys.is of the direct effects of the programs is complete and comprehensive. We describe the cost to the state of. each program, who was served by each program, and the outputs o.f each program. Our analysis benefited greatly from the access to program data and cooperation of the staff of each agency involved. l J - - \,.. - - ,_ i - - - - - - - UNIVERSITY OF ALASKA Senator Arliss Sturgulewski Page 2 March 26, 1982 Although we are confident of the reliability of our analysis and findings, our analysis of the market impacts was constrained by limited information on Alaska' s housing stock and housing trans- actions, and certain caveats to our report are appropria te. First, the lack of data and information 'On the various segments of the housing markets -for example, the conversion of single family rentai units to sale units -confi.ned our analysis of program impacts to impacts on the overall housing market. Second, manY of the programs' impacts may not have surfaced within the relatively short history of the programs' operations. For example, the subsidy to home ownership may have permanently adjusted financial incentives to invest in rental housing. And finally, during the peri.od of our study, July 1980 to August 1981~ Alaska experieaced a surgè in population, causing housing vacancy rates to fall and housing priees and rents to rise. thus the task of segregating the program effects from the overall demand effects was particularly challenging. Our report does not examine alternative housing policies but rather documents and analyzes the costs and outcomes of the present programs. We did not attempt to measure housing needs in Alaska nor to assess .the relative merit:s or effects of owner housing subsidies versus renter subsidies. Nonetheless, the information we provide herein should prove useful in the public debate over housing policies and priorit.ies, even though it cannot be appropriately viewed as a substitute for that debate. ~ ELG:ec Sincerely, q~~ Lee Gorsuch Direct or .... - - - .... ii - - - - -1 - TABLE OF CONTENTS INTRODUCTION AND OVERVIEW 1 PART 1. ASSESSING THE EFFECTIVENESS OF STATE HOUSING PROGRAMS . 7 Chapter One. Ala:ï~ka Housing Finance Corporation History . . . . AHFC Programs AHFC Operations AHFC Program Activity Program Results . -. Program Financing and Costs Summary . . . . . . . . . . Chapter Two. Alaska State Housing Authority Federal Housing Programs . . ASUA and Federal Progtams Regional liousing Authorities State-Funded Housing . . . . . Summary: Program Effectiveness . Chapter Three. Department of Community and Regional Affairs . . . . . The Nonconforming Housing Loan Program . Senior Citizens Housing Development Program PART 2. · ASSESSING HOUSING MARKET IMPACTS Chapter Four. Direct Housing Market Impacts J Priee Impacts . . . . . . . . . . . . . Effect of State Loan Programs on the Quality and the Mix of Housing . . . . Rentai Housing . . . . . . . . . . . . . Effect on Rural Housing Markets of State Mortgage Loan Programs Chapter Five. Indirect Impacts . iii 9 10 16 30 34 40 55 66 69 71 74 87 90 104 107 108 126 131 133 150' 160 165 166 171 j l l l l l j '~ l 1 l !. PART 3. FINANCIAL IMPACTS ..... Chapter Six. Impact on Sources of Mortgage Funds in Alaska ........ . Chapter Seven. Costs to State Government . . . . PART 4. FUTURE FISCAL IMPACTS . . . . . . . . . . Chapter Eight. The Fiscal Impact ofAlaska 1 s Kousing Programs Int.roduction Methodology PART 5. EXECUTIVE SUMMARY AND CONCLUSIONS . Chapter Nine. An Executive Sl.llDIDary . Effectiveness ofState Housing.Programs Direct Impacts on State Housing Markets Impacts on Sources of Housing Funds Indirect Impacts on State Housing Markets . . ~ .. . . . . Cos.t of State Housing Programs . . . . . . Future Fiscal Impacts of State Housing Programs APPENDIX A: ASSUMPTIONS USED IN 1981 ALASKA HOUSING PROGRAM STUDY . . . . . . . . . . . . . APPENDIX B: HUD FAIR SHARE ALLOCATION SYSTEM APPENDIX C: EARLY HOUSING PROGRAMS OF THE ALASKA STATE HOUSING AUTHORITY . . . • . . . . . . APPENDIX D: STATE HOUSlNG RELATED PROGRAMS APPENDIX E: INFORMATION NEEDS FOR HOUSING PROGRAM EVALUATION . . . . . . . . . . . . . . . . . 178 180 193 203 205 205 206 239 241 243 251 253 255 256 259 263 265 267 275 281 REFERENCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 287 iv - - - r- - - - LIST OF TABLES 1. Loan Characteristics 2. AHFC Interest Rates and Source of Funds~ October 31, 1981 .......•. 3. Income Limits for Homeownership Program . 4. Example of Homeowri.ership Assistance Program Subsidy Calculation 5. AHFC Mort gage CGmmitments and Purchases by Calendar Year . . . . 6. AHFC Applications by Program 7. AHFC Deniais, July 1, 1980, to June 30, 1981 8. Interest Rates . . . . . . . . . . 9. Distribution of Household Incomes for Borrowers Using AHFC Programs . . . . . . 10. Distribution of Household In come in Anchorage 11. Geographie Distribution of AHFC Loans . 12. Geographie Distribution of Rural Loans 13. Characteristics of Properties Financed Through AHFC Programs . . . . . . . . . . . . . 14. Sources and Uses of AHFC Capital Funds, Fiscal Years 1978-1981 . . . . . . . . . . 15. State of Alaska Contributions to AHFC, 1972-1982 16. Use of State Appropriation by Bond Issue, Special Mortgage Purchase Program 17. AHFC Operating Revenues and Expenses, Fiscal Years 1978-1981 . . . . . 18. Federal Housing Programs in Alaska . . . . . . . . . . 19. Anchorage Income Limits, Public Housing, and Section 8 New Construction and Existing Housing . . . . . v 18 20 25 27 . . . . 36 . . 37 39 42 45 46 49 52 . . . . 53 56 60 . . . 62 65 72 . 73 20. Conventional Public Housing . 21. Fair Market Rents for Section 8 New Construction 22. Section 8 New Construction 23. Private Section 8 New. Construction Housing in Alaska 24. Fair Market Rents for Section 8 Existing Housing 25. Section 8 Existing Housing 26. Mutual Help Housing Production 27. Geographie Distribution of Subsidized Hou.seholds 28. 29. 30. 31. 32. 33. 34. 35. 36. 37. 38. 39. 40. 41. Very Low Incarne Households in ASHA Housing Elderly Households in ASHA Housing Alaska Native Households in ASHA Housing Black Households in ASHA Hou.sing State Funding for ASHA Projects . . Incarne and Cast of Operation for 1980-1981, Public Housing -797 Units . . . . . . Incarne and Cast of Operation for 1980-1981, Section 8 New ConstructionProjects-285 Units Incarne ànd Cost of Operation for 1980·1981, Section 8 Existing Program .. 935 Certificates for Anchorage Allocation Area Only . . . . . . HUD Commitments for Mutual Help Housing, 1976-1981 Nonconforming Housing Mortgage Purchase Loan Terms as of Februàry 1, 1982 ... Loan Applications Received in 1981 for the Nonconforming Hou.sing Loan Prograrn Distribution of Household Income for Nonconforming Housing Loans Nonconforming Housing Loans Made in Urban Areas as of December 14, 1981 Geographie Distribution of Rural, Nonconforming Hoilsing Loans as of December 14, 1981 Vi 76 82 83 83 85 86 89 93 94 95 96 97 99 100 101 103 103 114 116 118 120 122 - - - - - ...... - 42. First-Time Homebuyer.s by Type of Housing Purehases 43. House Priees in Anchorage 44. 45. Change in Distribution of Priees of Single- Family Homes in Anchorage . . . Distribution by Priee of New and Existing Homes Finaneed by AHFC During Period July 1980 -October 1981 . . • • . . . . . 46. Maximum Affordable House at Varying Interest Rates 47. Rural Housing Markets • • . 48. Volume of Alaskan Residential Mortgages Held in the Port- folios of Primary and Secondary Lenders·, 1976-1981 . 49. 50. 51. Sources of Funds for Homeownership in State of Alaska, 1976-1981 .•.• Number of Residential Mortgages Purchased by Secondary Lenders . . . . . . . . . State of Alaska Funds and Bond Sales for Owner- Occupied Residential Mortgages, 1976-1982 52. Alaska Sta_te Government Appropriations in Support of Mortgage Loan Programs, July 1980-0ctober 1981 53. State Assisted Mortgage Program Cost Under Different Interest Rates . 54. Cost of Mortgage Purchase Programs to State of Alaska, July 1980 -October 1981 55. Present Value of Interest Subsidy to Homebuyer 56. Projections o:f Alaska 1 s Population and Number of Households, 1980-1990 .•..... 57. 58. 59. Projected Numbers of Alaska Household Heads by Age, 1980-1990 . . • • . . . . . . Estimated Rates of Annual Out-Migration for Alaska and the United States by Age of Household Head Estimates of the Total Number of Households Migrating to Alaska by Age of the House- hold Head, 1981·1990 ........ . Vii 144 155 157 161 163 168 181 183 188 190 193 195 198 200 209 213 214 216 60. 61. An Estimate of the Incidence of Homeownership in Alaska by Length of Residency ..... Projected Increases in the Number of Homeowners and First-Time Homeowners, 1981-1990 .... 62. An Estimate of the Potential Number of Homebuyers Who Are New t.o the Alaska Market, 1981-1990 63. Homeownership Equations 64. The Distribution of First-T:ime Homeowner's Income by Type of Program . • . . . • 65. The Distribution of Housing Priees in Alaska by Type of Housing, 1981 . . . . . . 66. 67. 68. 69. 70. 71. 72. Three Alternative Scenarios of Changes in Mortgage Rates,·Personal Incomes, and Home Sales Priees . . . . . . . . . . Projections of Incomes Required to Ptirchase Minimum PricedHomes ........ . .. .. . . . . . Comparative Projections of Total Housing Sales in Alaska, Under Alternative Economie Development Cases and Alternative Changes in the Bond Market Interest Rates, 1981·1990 Sales Multiplier (Sales/New Entrants) •. Fiscal Impacts of State Housing Programs The Income Distribution of First•Time Homebuyers and the Minimum Incomes Required to Buy a Home in 1986. . . . . . . . . . . . Percent of Potential First-Time Homebuyers Excluded Because Incomes Fall Below Thres.hold Requirements viii 217 219 220 222 223 225 226 227 229 230 233 236 236 - 1. 2. '- 3. -4. 5. 6. 7. - 8. 9. - - - LIST OF FIGURES Study Design Determining the Amount of Subsidy Under Section 8 Programs . . . . . Housing Supply and Demand . . Sales Units . Rental Units A Method of Projecting Mortgage Demand A Comparison of the Rate of Change in Population, Number of Households, and Average Household Size, 1970-80 and 1980-90 ....•..•. A Comparison of Annual Urban Housing Sales in Alaska Under Alternative Development Cases and Interest Rates, 1981-1990 • . . . . . . The Role of AHFC in Alaska' s Housing Market . . ix 2 80 138 138 138 207 211 231 244 x ll!ill!ll!----------lillllllll!lll---------------------------~·""' - - - - - - r - INTRODUCTION AND OVERVIEW The State of Alaska' s Legislative Budget and Audit Committee requested the Institute of Social and Economie Research (ISER) to perform a study of the State of Alaska's housing investment and lend- ing activities. The purpose of the study was to (a) assess housing programs with respect to their economie, social, fiscal; and financial impacts and (b) evaluate housing program agencie.s by such criteria as their consistency with legislative intent, cost effectiveness, pro- cedural consistency, and effects on the quality of the housing stock. To accomplish this purpose, ISER developed a study design involv-. ing five separate, but interrelated, research efforts. The approaches and methods of these various study parts are illustrated in Figur.e 1, Study Design. Part 1 of the study, Existing Program Analysis, involves the top two boxes in Figure 1. The goals and purposes of Alaska' s housing programs were determined by a review of state and appropriate federal legislation, program guidelines, and state agency documents. These were supplemented by interviews with directors and staffs of state program agencies, the Federal Department of Housing and Urban Devel- opment, and the state' s regional housing agencies. At the same time, state housing program operations were documented from computer tapes and printouts obtained from state agencies. This inforJilation was supplemented by samples from the file records of the Department of Community and Regional Affairs' (DCRA) Nonconforming Loan Program, the Alaska Housing Finance Corporation, and the Anchorage Multiple Listing Service for information not contained in any of the computerized data bases. Each program' s operations were compared to its goals and objectives to obtain findings on the effectiveness of state housing programs. The findings and analyses from this part of the study were organized into separate chapters, each dea ling wi th the group of housing programs the . agency administers. Chapter One covers the 1 l i t_J A:pproach and Methods Determine Goals & Purposes of State Housing Programs Document State Hoùsing Program Operations Determine Current . Housing Market Conditions Estimate Baseline ( non-State 1 ntervention} Conditions Determine Curr~nt Sources of Funds in State Housing Markets Estimate Baseline {non-State Intervention) Sources of Funds .•. Forecast Numbers and Value of AH FC Mortgages Analyze Alternative Future· scenarios Figure 1. STUDY DESIGN '2 Analysis and Findings · Effectiveness of State. Housing Programs - - - - - - - - - - Alaska Housing Finance Corporation (AHFC); Chapter Two, the Alaska State Housing Agency (ASHA); and Chapter Three, the Department of Community and Regional Affairs (DCRA). Part 2 of the study, Housing Market Impacts, addresses the impact of state interventions in Alaska' s housing market. It is illustrated by the third and fourth boxes from the top of Figu~e 1. Current housing market conditions were determined from economie and population trends, new construction cost trends, and trends in the priee, quality, and mix of the housing stock. The demand and supply condi- tions indicated by these trends were compared with those actually observed in Alaska housing markèts during 1980 and 1981, and the differences were attributed to the state housing program interventions identified in Part 1. The direct housing market impacts were then used to assess such indirect impacts as program-induced purchases of construction labor and materials, real estate commissions earned, and fees paid to financial institutions. Direct Housing Market Impacts are discussed (and findings presented) in Chapter Four; Indirect Impacts, in Chapter Five. Part 3 of the study, Financial Impacts, is concerned with the financial impacts of Alaska' s housing programs. This involves both changes in the sources of funds flowing into Alaska's housing markets and an estimate of the budgetary costs of housing programs to the state. These are-illustrated in the fifth and sixth boxes from the top in Figure 1. The budgetary costs were estimated from the value of state appropriations and ioans to housing programs and the costs of meeting federal matching requirements for housing programs. In addi- tion, a special analysis was conducted of the costs to the state of operating the below-market interest loan program. The assessment of changes in the sources of funds to Alaska housing markets involved analyzing portfolio trends among both primary and secondary lenders. This analysis included a discussion of both in-state and out-of-state secondary lender activity in Alaska. These analyses and findings are 3 presented in Chapters Six and Seven, which di$cuss source of funds impacts and cast impacts, respectively. Part 4 of the study uses the research finding of the other parts to forecast the future fis<:al impacts of housing programs on state budgets. This is illustrated by the bot tom two boxes in Figure 1. Using the population, income, and interest trends from Part 2, Chapter Four, projections of housing sales in Alaska through 1990 are developed. This is done for both a high development and a low devel- opment scenario. Using the find.ings from Part 3, Financial Analysis, the state government's share of Alaska's primary and secondary mort- gage markets are estimated, and future fiscal impacts are assessed. These analyses and findings are contained in Ch.:tpter Eight. Finally, Part 5 completes the report with an Executive Summary of our findings and conclusions. Housing studies are both difficult and complex. Complexity cames from the fact that virtually all of our economie, demograpilic, social, and community institutions either impact or are impacted by ilousing. A comprehensive approacil to housing wou,ld involve a study of almost every aspect of how Alaskans live, work, and interact in their com- munities. Within this "global" view, this study's purpose was (a) an assessment of impacts produced by state housing programs on ilousing markets, financial markets, and future state government fiscal requirements and (b) an evaluation of the effectiveness of state housing programs. Even wi th this narrower focu.s, analytical com- plexity abounds. The definition of program costs for an interest subsidy program which sells bonds at varying market rates is not a simple task. Neither is the identification of the relationship between land values, com;truction costs, and chang.ing house priees. The methods and approaches used to address complex issues such as these are presented and discussed in the subsequent chapters of this report. 4 - - - - - - - A major difficulty in performing this study was the lack of reliable housing market or financial market data. The state does not have a housing information data base, and important information was only partially available from a variety of private and public sources. In addressing this problem, we received the full cooperation of ASHA, AHFA, DCRA, and all other involved state agencies. We .;also benefited from the cooperation of the two major secondary mortgage institutions in the country: the Federal National Mortgage Association (FNMAE) and the Federal Home Loan Mortgage CorpoJ;:ation (FHLMC). Access to unpub- lished data and other information was provided by Alaska Valuation Service, Multiple Listing Service, Inc., and United Builders Supply. Finally, Al Robinson (Housing and Urban Development), Rod Gamel (Gamel Homes, Inc. ) , Bob Bannon (PMI) , Lucille Stietz (National Bank of Alaska), and Jim Rhodes (Alaska Permanent Fund) deserve special men- tion for their generous assistance. A full list of organizations and individuals contacted as part of this study is contained in the refer- ences to this report. To ali of them, we express our appreciation. 5 6 - - - ..... - - - - - Determine Goals & Purposes of State Housing Programs Document State Housing Program Operations -. "" PART1 ASSESSJNG THE EFFECTIVENESS OF STATE HOUSING PROGRAMS The purpose of Part 1 is to assess the effectiveness of Alaska's housing programs in meeting their economie~ social, and finan- cial goals and objectives. Goals and objectives were derived from appropriate federal and state legislation, guidelines, and other official documents, supplemented by interviews with state agency directors and their staffs, Program operations data came from computer tables and printouts provided by the program agencies and severa! special surveys of noncomputer records. The assessment .attempted to provide an objective comparison between goals and objectives on one hand and operating per- formance· on the other. N orm.ative judgments were avoided to the maximum extent possible. The analysis and findings are oyganized by agency into the following chapters: Chapter 1: Alaska Housing Finance Corporation Chapter 2: Alaska State Housing Authority Chapter 3: Department of Community and Regional Affaira 7 8 - - - - - - - CHAPTER ONE ALASKA HOUSING FINANCE CORPORATION Since the passage of Sena te Bill 1 in June 1980, the Alaska Housing Finance Corporation (AHFC) has emerged as the.primary source of mortgage funds for owner-occupied housing in Alaska. This dominant role is the result of historically high mortgage interest rates from the traditional sources of mortgage funds and the implementation of a housing program which provides below-market interest rates. Between July 1980 and November 1981, AHFC received 17,656 applications re- que.sting approval of approximately $1.45 billion in mortgage funds. In response to these applications, AHFC approved the property and credit for $1.21 billion in loans. AHFC proj ects that volume for fiscal year 1982 will be close to and could exceed $1.0 billion (Goldbar, January 8, 1982). AHFC currently administers four major programs. Thèse include the Special Mortgage Loan Purchase, the Mobile Home Purchase, the Rural Housing Mort gage, and the Rural Nonowner-occupied programs. These current programs are designed to make housing in Alaska more affordable by providing mortgage funds at below-market interest rates. For the largest program, the Special Mortgage Loan Purchase Program, AHFC uses state appropriations to supplement funds raised in the bond market. The State of Alaska appropriates all the funds used in the mobile.home and rural programs. AHFC is a seèondary purchaser of mortgages, not a direct lender. A secondary purchas.er buys the mortgage loan after it bas been origi- nated and closed by the direct lender, usually a fina_ncial institution or mortgage company. This distinction i$ often not clear to the public since AHFC plays an active role in application approval before it co0111its to purchase each loan. 9 In this chapter, we examine the cu:rrent status of AHFC; its prog:rams and operations. This discussion includes a b:rief p:rog:ram history to place ou:r discussion of cur:rent p:rograms in perspective; a description of AHFC's cu:r:rent programs and operations, including the te:rms of AHFC loans, the eligibili ty requi:rements for borrowers, and the role o.f financial institutions in AHFC's operations; an analysis of program outputs and the characte:ristics of bo:rrowers using AHFC financing; and an analysis of AHFC's source of funds and cost of programs. His tory AHFC was establi.shed by the Alaska Legislature in 1971 as a public corporation and government inst:rumentality of the State of Alaska. The corporation wa.s created to assist in alleviating a short- age of affo:rdàble .housing for low-income residents. The Alaska Legis- lature dete:rmined that p:rivate enterprise and federal government programs had proved inadequate in providing affordable housing to low•income :residents (Chapter 107 SLA 1971). The enabling legislation allowed AHFC to make or participate in the making of construction loans, to make or pa:rticipate in the making of mortgage loans, to purchase mortgage loans on the secondary market, to make partial :renta! or mortgage interest payments, to provide te.c.hnical and advisory services, and to p:romote research and devel- opment in scientific methods of constructing low-cost reside.ntial housing (Chapter 107, SLA 1971). The responsibility for selecting the actual scope of activities was left to the Corporation. Two factors influenced the initial design of programs. First, AHFC was established to complement, not compete with, the private sector. In formulating its original programs, AHFC officiais limited activity to secondary mortgage market purchases. Construction and direct mort gage lending were viewed as being in direct competition 10 - - - - - with the private sector. Similarly, AHFC did not consider providing renta! subsidies since the Alaska State Housing Authority (ASHA) provided renta! subsidy programs (Ke!lnedy, October 30, 1981). The second factor which affected the scope of operations is financing. There were two major sources of funds available to AHFC: the bond markets and state appropriations. The enabling legislation authorized AHFC to issue bonds as a means of financing programs. The use of bond funds, however, places restrictions on the types of pro- grams which can be offered since repayment of bonds is required. Wb.ile the enabling legislation made provision for the State of Alaska t s participation in AHFC through the purchase of corporate bonds, it did not provide specifie funds to finance programs. The original program established by AHFC was the secondary pur- chase. of federally insured mortgage loans for qualified low-income buyers. AHFC financed this program through the sale of tax-exempt bonds. The interest rate on these mortgages was set at AHFC t s bor- rowing cast (including an administrative charge). The AHFC interest rates were below market interest rates, however, because of the advan- tageous interest rate obtained through tax-exempt financing. AHFC issued its first $13.5 million of bonds in October 1972. Pros;ram Changes, 1972-1979 Since 1971, there have been several changes in AHFC programs and administrative structure. A review of program changes shows, however, that AHFC has not changed the type of activities in which it partici- pates, but rather has expanded the segment of the mar.ket it serves. First, in 1972, prior to the first bond sale, legislation authorized AHFC to expand its programs to include moderate-income persans as well as persans living in remote, underdeveloped, or blighted areas (Chap- ter 81 SLA 1972). The determination of what constituted low and moderate income and remote, underdeveloped, or blighted areas was left to AHFC. 11 In 1975, the p:t;"ogram was expanded to include a higher percentage of conventional loans. In the early years (1972-1975), most of the loans AHFC purchased were federally insured loans: loans with FHA insurance or Veterans Administration guarantee. The reason for pur- chase of insured loans. was to provide security to AHFC' s bond inves- tors. The expansion into the conventional loan market allowed AHFC to provide mortgage funds to borrowers .who did not participat.e in FHA or VA programs--the majority of buyers. In order to !essen the risk to investors and aid in the marketability of the bonds used to fund the program, an insurance fund was established (Chapter 151, SLA 1975). The insurance fund was financed by contributions from AHFC and the State of Alaska. The insurance fund further expanded the segment of the market served by AHFC. As of November 30, 1975, AHFC held $100.3 million in mortgages under the original Mortgage Program (AHFC, 1976 Annual Report). Under the Insured Mortgage Program, the $22,9 million invested in the insurance fund as of June 30, 1981, acted as security for $957 million in mortgage loans made between 1975 and 1981 (AHFC). Of this total, approximately $550 million loans were made for the low and moderate income program. The remainder was used to fund the Special Mortgage Loan Purchase Program, which was started in 1980. During 1978 and 1979, AHFC developed a rural housing program. Although AHFC's insured mortgage program authorized loan purchases in rural areas with no upper income limitations on borrowers, the legis- lature requested special consideration of rural housing problems (AHFC, February 1980). Initially, AHFC structured the financing of the program in a manner similar to its insured mortgage program. A rural insurance fund was established as weil as hazard and title insurance funds when private insurance was not available (Chapter 167, SLA 1978; Chapter 72, SLA 1979). Rural housing bonds, totaling $10 million, were sold to the Alaska Department of Revenue. Cur- rently, the rural housing program is funded by state appropriations. 12 In 1979 <~.nd 1980, AHFC developed a mobile home program at the request of the state legislature. Mobile homes were viewed as a less expensive housing alternative, sorely needed in a time of population growth and general housing priee inflation. Financing options for mobile homes~ however, were limited. Financial institutions generally classified mobile homes as persona!, not real, property .1 The terms on mobile_ home loans, where available, closely resembled consumer lo<~.n.s; they were much shorter than real estate loans. This provided problems for the low-and moderate-income buyers, a pot.entially large segment of the market. This program is funded through state appropriations. Program Changes, .1980-1981 In 1980, the Alaska Legislature made major changes in both AHFC's administrative structure and programs. The major administrative changes included placement of the AHFC bud~et under the Executive Budget Act, placement of a ceiling on AHFC bonding authority, and a reshuffling of the AHFC board of directors to include a majority of state departmental commissioners. The budgetary provisions brought AHFC under direct state financial controls. linder the Executive Budget Act, AHFC' s budget must be approved by the le gis la ture and governor. The state can affect AHFC' s level of operations more directly by specifying the maximum levels of AHFC activity. On the program side, the major change was the creation of several related programs collectively known as the Special Mortgage Loan Purchase Program (SMLPP). Under these programs, the state became an active partner with AHFC in providing funds for mortgage loans by providing a subsidy which enables AHFC to purchase mortgage loans at a rate less than AHFC' s borrowing costs. Furthermore, the SMLPP dif- f.ered from the previous Insured Mortgage Program in that it was open to all owner-occupying purchasers, regardless of income, and it estab- lished maximum allowable loan limits above the existing limits. 13 The purpose of the Special Mortgage Loan Purchase Program was to provide mortgage financing at· interest rates deemed affordable to persons of most income limits~ This rationale is an extension of the rationales expressed in prior program expansions; that priva te sector and the federal government had failed to provide for the housing needs of a segment of the housing market. The failure of private markets and federal government programs, coupled with the importance of housing to state economie development;, bas been the justification for AHFC programs. After es tablish.ment of the SMLPP, AHFC' s volume of mort gage pur- chases increased dr.amatically. In November 1979, AHFC purchased $23.5 million in mortgage loans through. its insured mortgage prGgram. In November 1980, AHFC volume more than doubled to $61.9 million in loans; in November 1981, AHFC purchases reàched $96.4 million, a one-month record. Since creation of the SMLPP in June 1980 ~ two factors have affected AHFC' s operations and led to th.e most recent legislative changes in 1981. First, the federal government limited AHFC' s ability to issue tax-exempt bonds to finance single-family residences through passage of . the Mortgage Subsidy Bond Tax Act of . 1980, .. the uUllman Bill. 11 This change in federal law forced AHFC to issue taxable bonds for the majority of new bond funds. This raised AHFC' s borrowing costs. The difference between taxable and tax-exempt interest rates for bonds sold by AHFC in November 1981 was 5.625 percent.1 Second, interest rates on national bond markets soared to record levels during 1981. AHFC' s borrowing cost for taxable bonds during 1981 reached 19.4 percent (State Assi.sted Mortgage Bonds, Series D and E). 1This figure is based on the difference in interest rates for the twenty-year term bonds of State Assisted Mortgage Bond Series E and the tax-exempt twenty-year term bonds of home mortgage bonds, 1981 First Series. 14 - - - - - - As a result of these two factors, the state appropriation required to provide the b~low-market interest rates dramatically increased. To limit the state appropriation required, legislation in 19.81 authorized a mechanism to tie mortgage interest rates on the suh.sidized portion of mortgage loans to AHFC' s cost of funds (Chap• ter 115, SLA 1981). The mechanism, referred to a§ the "Rogers Ratchet, ,. is designed ta bring the mortgage loan rate ta three per- centage points less than AHFC's borrowing casts. Since its passage, the interest rate on the first $90,000 of loan balance has increased from 10 percent to 12.375 percent. Summary In reviewing the AHFC program his tory, we find four themes consistent throughout AHFC t s his tory. First, AHFC opera tes as a secondary purchaser of mortgage laans. It has concentrated on the purchase of loans made for owner occupied housing. Second, AHFC pr.ogram expansions have responded to perceived problems or failures in the housing market. Market failure is defined to include the issue of home ownership affordability. The availa- bility of reasonably priced housing is considered essential to the stable economie growth of Alélska. Third, the major tool used by AHFC is the below-market interest rate mortgage. Pri.or to 1981, these mortgages were financed with tax•exempt bonds. Since 1980,. the State of Alaska has supplemented bond funds with state appropriations to provide below-market rate mortgages. Fourth, AHFC bas used the national bond markets, where possible, to import the capital fùnds required by AHFC. This method of finan- cing reduces the level of state appropriation required to operate a program at a specified level. 15 AHFC Programs Since the 1980 legislativ.e changes, AHE'C has administered four programs: the Special Mort gage Pur chase Pro gram,. the Mobile Home Loan Purchase Program, the Rural Housing Purchase Program, and the Rural Nonowner•occupied Program. The tenn nspecial Mortgage, Loan Purchase Program" as used in this chapter is actually a broad term used to describe four related programs: the State Assisted Mortgage Program (SAM), the Homeownership Assistance Program (HOF), the Pledged Acc()unt Mortgage Program (PAM), and the Mortgage Bond Subsidy Tax Act Loan: Program. 2 , 3 Since these program titles are cited extensively within the chapter, a brief description of each program is provided: o The State-Assisted Mortgage (SAM) pr.ogram uses bond proceeds and state appropriations to purchase owner-occupied residen- tial mortgage loans on the secondary market at below-market interest rates. o The Home Ownership Assistance (HOF) program provides monthly subsidy payments to qualified low-and moderate-income borrowers who purchase properties under the SAM program. o The Pledged Account Mortgage (PAM) program provides SAM borrowers with a mechanism to structure a graduated payment mortgage. ,. o The Mortgage Bond Subsidy Tax Act Loan Program uses bond proceeds from tax exempt bond sales to purchase mortgage loans which qualify under the Mortgage Bond Subsidy Tax Act of 1980. o The Mobile Home Loan Pnrchase (MHLPP) Program uses state funds appropriated to the Homeownership Fund for the pur- chase of mobile home loans. 2 The 1980 legislation authorized a Rehabilitation and Home Im- provement Program. This authority was eliminated in 1981. 3 The abbreviations used in this report are those used by AHFC. The abbreviation for the Home Ownership Assistance Program••HOF-- stands for the Home Ownership Fund, which was established to finance the Home Ownership Assistance Program. 16 - - - - - - - - o The Rural Housing Purchase (RHPP) Program uses state fund.s appropriated to the Homeownership Fund for the purchase of mortgage loans for owner occupied residences in rural Alaska. o The Rural Nonowner-Occupied Mortgage Purchase program purchas~s mortgage loans for multifamily structures in rural Ala,ska with state " appropriated funds appropriated to the Homeownership Fund. Loan Terms The major advantage of AHFC financing to the borrower is pres- ently the lower-than-market interest rate. In this section, a dis- cussion of interest rates as well as the general terms of AHFC loans is presented. Table 1 presents a summary of loan terms for AHFC' s current programs. Interest Rates. Borrowers are attracted to AHFC loan programs due to their below-market interest rates. When the State Assisted Mortgage (SAM) program was first created in 1980, the interest rates of 9 percent for veterans and 10 percent for other borrowers on the first $90,000 of the mortgage loans were specified in the legislation. The interest rate on the balance of the loan was to be set according to AHFC's cost of funds. In 1981, these statutory interest rates wel;"e reevaluated in light of the federal government' s limiting of AHFC' s authority to issue tax-exempt bonds and increasing national in te rest rates. The fixed mortgage interest rates were replaced with a formula which allowed interest rates on the first $90,000 of loan balance to rise by the same number of percentage points as AHFC' s borrowing cost. Ulti- mately, the goal of this formula, referred to as the Roger' s Ratchet, is to establish mortgage interest rates on the first $90,000 of a mox:tgage loan at a point three percentage points below AHFC's bor- rowing cost. Once this goal is achieved, mortgage rates will move in tandem with ABFC' s borrowing costs. The Roger' s Ratchet was imple- mented at a time when bond interest rates were skyrocketiug. Between 17 Maximum Loan Amount Single Family Duplex 1 Maximum Term ..... (in years) 00 Minimum Down Payment Single F<!mily Duplex tlul tifamtly Interest Rate (as of October 31, 1981) First 90,000 Balance Special Conditions TABLE 1. LOAN CHARACTElUSTICS OCTOBER 1981 Special Mortgage Loan Purchase Program State Assisted Mortaase Conventional Vetera_!!! 1 147,750 · no.ooo 189,000 1 110,000 30 30 5% VA Guarantee 5% + Down Pmt. NA tlust: be 25% or More of Value 12.375b 12.375b 19.411 19.411 llomeownership Pledged t\ssista'nce Account 76,000 147,750 NA 189,000. 30 30 Net Loan-t~,. Value Ratio Jlot to Exceed 95% Note Rate 12.375b Same as SAM 19.411 c Hortgage Bond Subsidy 84,474a 96,646 30 5% 5% NA 10.00 13.19 d Rural Mobile Home Rural llllusing Nonowner- Loan ,Pun:hase Mortg'!ge Purchase Occupied 12,500 147,750 90,000 NA 189,000 130,000 20 30 30 5% 5% 5% up to 65,000 10% 10% up to 90,000 NA 20% 12;375 8. 75 9.50 -----~ SOURCE: AIŒC Seller/Services Guid!, June 1981 3 For existing structure; 101,370 for new structure clnco111e and asset limits :11.375 for State Certified Veteran • Borrower cannot bave owned or had a financial interest in prope.rty for prio.: three yea rs. - - June and November 1981, AHFC's borrowing costs increased from 17.05 percent to 19.41 percent. The effect on AHFC' s mortgage interest •rates waE! to increase the rate on the first $90,000 from 10 percent to 12.375 percent. There were many complaints about these interest rate increa.ses. . 4 As is always the case when interest rates increase dramatically, some borrowers with loan applications pending or builders with units under construction were negatively affected. Monthly payments on a $90,000 lo.an increase from $790 at 10 percent interest to $952 at 12.375 per- cent, a 21 percent increase. The uproar over the interest rate increases raises a very basic question · regarding the State Assisted Mortgage Program. To what extent is the State of Alaska going to insulate the Alaska housing markets from market conditions? The State of Alaska has two options: (1) to provide a constant s1.1bsidy and allow the mortgage interest rate to fluctuate or (2) to provide a constant interest rate and allow the subsidy to fluctuate. The latter option was rejected by the State .of Alaska when the Roger' s Ratchet was approved. The effect of a con- stant rate policy would put gre~t demand on the state's budgetary resources during periods of high interest rates and distort the market through artificial rates. While tying the AHFC mortgage rate to market rates was inevitable, the timing of implementation during a period of rapid interest rate increases raised the mortgage interest rate to borrowers faster and higher than had been anticipated. The interest rate for the Homeownership Assistance and Pledged Account Programs are the same as the SAM rate. Interest rates for the Mobile Home Loan Purchase Program and Community and Regional Affairs' Nonconforming Loan Program are tied to the interest rates in the SAM program. The interest rates for the rural programs were established by AHFC: 8.75 percent for the Rural Housing Mortgage Purchase Program and 9.5 percent for the Rural Nonowner-occupied Program. Table 2 summarizes the current interest rates by AHFC program. 19 TABLE 2. AHFC INTEREST RATES AND SOURCE OF FUNDS, OCTOBER 31, 1981 Pro gram State-Assisted Mortgage Program Mobile Home Rural Owner-Occupied Interest Rate 12.375/1st $90,000 19. 411/Balance 12.375 8.75 Rural Non-Owner-Occupied 9.50 Formula based on AHFC borrowing cost Formula based on AHFC borrowing cost AHFC AHFC Sources ·of Funds Bond Proceeds State Approp. State Approp. State Approp. State Approp. Maximum Loan Amounts. In compliance with statute,. AHFC estab- lished maximum loan limits based upon the limits established by the Federal National Mortgage Association (FNMA). As of October 1981, the maximum loan limit for conventional loans iii both the. SAM and Rural Housing Purchase programs is $147,750 for single-family residences and $189,000 for duplexes. Veteran Administration guaranteed loans are limited to $110,000. Mobile home loans are limited to a maximum of $72,500. Rural non-owner-occupied loans cannat exceed $90,000 for single-family residences and $130,000 for duplexes; for triplexes through eight-plexes, AHFC has established a formula for determining maximum loan amount based on the number of bedr<>oms in each unit. The maximum loan amount for the program is $500,000. Participants in the Homeownership Assistance Program are limited to loans of $76,000. While AHFC won't lend more than $147,750 on a single-family residence, it will purchase first mortgage loans which are subject to second mortgages. This allows borrowers to seek supplemental fi- nancing. AHFC requires that the sum of the first and all second mortgage balances not exceed 80 percent of the property value. Addi- tionally, the second mortgage usually must be structured as a leve! payment fully amortizing loan (AHFC Seller/Servicer Guide, page 11). AHFC data indicate that ninety percent of all properties purchased 20 ..... - - r .... - under the special mortgage purchase program as of October 31, 1981, had sales priees les.s than $140,000. Insurance. AHFC requires that mortgages with loan to value ratios exceeding. 80 percent have mortgage insurance. The mortgage insurance "indemnifies mortgage lending institutions f.or the direct and consequential losses that these institutions incur because of nonpayment of first•mortgage loans" (Rapkin, page 730). This require- ment can be satisfied through use of FHA insurance, Veterans Adminis• tration guarantees, or through private mortgage insurance. If private mortgage insurance is used, AHFC requires insurance coverage of 20 percent on loans with a loan-to .. value ratio between 80 percent and 90 percent, and 25 percent for loans with a loan-to-value ratio greater than 90 percent. Private mortgage insurance may be cancelled when the unpaid principal balance is reduced to 80 percent or less of the original value (appraised or sale, whichever is less) . This requirement is consistent with industry practice. Length of Loan. AHFC loans gen.erally have a maximum term of 30 years and a minimum allowable life of 20 years. The exception is the mobile home program which has a maximum term of 20 years or the remaining economie life of the property, whichever is less. Down Payment. Down payment requirements vary by program. For conventional loans, a 5 percent minimum down payment is required with a 10 percent down for rural duplex buyers. A VA guaranteed loan. does not require a dawn payment if the VA guarantee is 25 percent or more of the property value. For the pledged account program, the peak loan-to-value ratio may never exceed 95 percent. Eligibility With the exception of the Non•owner Occupied Program, the AHFC programs are available to persans who can afford to purchase owner- occupied housing. There are no maximum income limits for borrowers 21 except in The Homeownership Assistance Program. The Special Mortgage Loan Purchase Program (SMLPP) and its component programs•-Homeowner· ship Assistance and Pledged Account--are available statewide as is the mobile home program. The two rural programs are limited to commu- nities "which do IlOt have a.ccess to Anchorage or Fairbanks by road or rail and that have a population of 4,500 or less" (Alaska Statute 18.55). A borr.ower is allowed t.o have only one AHFC loan oùtstanding at a time. This prevents the use of AHFC . funds strictly for investment purposes. Furthermore, the potential borrower, in all but the rural non-owner-occupied program, must demonstrate that the property to be financed is intended for use .as the primary residence (AIIJC Seller/ Servicer Guide, page 11). Credit Underwriting AHFC opera tes as a business. As a business , AHFC must use underwriting standards sufficiently strict to meet its financial obligations. The underwriting standards are intended to ensure that borrowers have the financial ability to meet the proposed obligation and that the property is of sufficient q1.1ality to adequately secure the loan. Borrowers. AHFC income guidelines are that a borrower' s monthly mortgage payment (including secondary mortgage insurance, property taxes, secondary financing, and Owners Association Charges, if applic- able) should n:ot exceed 28 percent of allowable gross income. Addi- tionally, the borrower' s total monthly obligation (defined to mean total monthly first mortgage payment plus any monthly installment obligations which extend beyond nine months) should not exceed 36 per- cent of allowable gross income. The AHFC Seller/Servicers Guide states that allowable gross income includes current base incarne plus any secondary sources such as 22 ..... ..... ..... ..... ...... 1- - i \- - \,_ ..... ,_ - - ... overtime, commiss.ions, bonuses, income from part-time jobs, invest- ments, trust funds, child support, etc. Verification of all income sources is required. When calculating gross income, AHFC underwriters take into account the stability of th.e income source. Therefore, some income sources listed above may not be used if they do not show sta- bility over.time. In cases where there are two or more ap.plicants who 4 plan to take joint title, the effective incomes of the applicants are summed. AHFC states that its underwriting standards are flexible for persans who have higher debt-to-income ratios than allowed by the standards but who have demonstrated a past ability to make the higher level of payments. A review of loans purchased by AHFC through the State Assisted Mortgage Program as of October 31, 1981, shows that 3.7 percent of loans have principal and interest payments which exceed the 28 percent of gross income standard (AHFC data base). Since the standard requires inclusion of taxes and insurance, a higher portion of borrowers exceeded the standard. The data show that 10 percent of the loans had principal and interest payments between 25 and 28 per- cent of gross income. In addition to the income requirements, borrowers must show they have sufficient funds to meet down payment, closing costs, and prepay- ment requirèments for taxes and insurance . Pro:eertz:. AHFC requires that a structure purchased with AHFC financing meet the minimwn construction standard acceptable in the community in which the structure is located. Deviations from the minimwn constructio.n stàndards may be acceptable if an engineer will certify that the deviation will not impair the health or safety of occupants and that they will not reduce the useful life of the resi· denee below the term of the proposed mortgage loan. The property must be connected to public utilities if the utilities are available in the community in which the p~operty is located. Use of the community standard rule is of major importance in rural communities where many 23 properties could not meet absolute construction standards established for urban areas. Before units in condominium or planned unit developments can be purchased, AHFC must approve the development. In the approval proc- ess, AHFC examines the characteristics and quality of the structure and the financial ability of the condominium association to meet its responsibilities. Special Program Eli&ibility In addition to the general program requirements, the Home Owner- ship Assistance (HOF}, Pledged Account Mortgage (PAM), and the Mort- gage Bond Subsidy Tax Act loan programs have additional program and/or eligibility requirements.4 Home Ownership Assistance. The Home Ownership Assistance Program (HOF) provides monthly subsidies to aid qualified low-and moderate- income SAM borrowers meet their monthly housing payments. In addition to guidelines required by the SAM program, the HOF program has income, asset, and property value limits. The limits defining low and moderate income in the HOF program are more restric- tive than the income limits which existed in the Insured Mortgage Program, the program for low-and moderate-ill.come buyers which pre- ceded the Special Mortgage Loan Purchase program. According to AHFC, the HOF income limits were extrapolated from income data obtained from the U.S. Department of Housing and Urban Development. Table I.3 lists the current statewide HOF income limits as well as the last set of 4 AKFC is currently developing a rehabilitation second mortgage program which will allow existing homeowners to keep their current first mortgage loan and borrow the funds required for rehabilitation from AHFC in the form of a second mortgage. 24 ', - .... 1- ~ ._ ~ - - - - - income limi ts from the insured mortgage program for Anchorage and Fairbanks. TABLE 3. INCOME LIMITS FOR HOMEOWNERSHIP PROGRAM Insured Pr'2.&ram Family Size Statewide HOF Anchoraae Fairbanks 1 25,650 28,800 33~300 2 26,650 32,900 38,100 3 27,650 37,100 42,800 4 28,650 41,100 47,700 5 29,650 43,700 50,600 6 30,650 46,300 53,600 7 31,650 48,800 56,600 8 or more 32,650 In addition to the income limits, a borrower's assets at the time of application cannat exceed two times the maximum income limi ts. A borrower over 65 years of age is allowed assets up to three times maximum income. Nei ther the sales priee nor appraised value of the subject property may exceed $80,000, and the maximum loan balance is $76,000. Under current AHFC regulations, eligibility of borrowers under the HOF program is reviewed annually. Subsidy payment levels are adjusted on the basis of updated income information. Participation in the HOF program is limited to once per mortgag~. Once a b~rrower is eliminated from the program due to loss of eligibility, he may not reapply, even if subsequent income meets eligibility requirèments. The subsidy payment is determined by one of two formulas ; the formula is selected on the basis of the lesser amount: 25 i • The sum necessa:ty to reduce the borrower' s · payment of principal and interest on the loan to 20 percent of grQss monthly income, provided the subsidy does not reduce the total monthly mortgage payment to less than 25 percent of gross monthly income; or 2. The sum necessary to reduce monthly payments of prin• cipal .and interest on the loan to the l!;lmo'unt payable as if the mortgage were bearing aninterest rate of 6 per- cent per annum (Seller/Servicers Guide, p. lOO). Table 4. illustrates a subsidy calculation. This calculation is based on a $65,000 loan and the current 12.375 percent interest rate.5 The monthly principal and interest payments at the current interest rates for this loan are $687.42. Both formulas are used to determine the . ultimate subsidy available. Under formula 1, the potential subsidy depends upon the income of the applicant. The subsidies available if . formula 1 was used range from $520 for a household with $10,000 per year annual income to $270 for a ho~ehold with a $25,000 income. Under formula 2, the subsidy is fixed at $297.71. Table I .5 shows that formula 2 is selected for ali applicants except those with annual incomes of $25,000. Further analysis shows the households with $10,000 and $15,000 annual incomes would not qualify for loans due to excessive payment-to-income ratios. Table !.4 shows that even with the subsidy provided by the HOF program, very low inct;>me households cannot qualify for AHFC loans. As with any subsidy program which has maximum income limits, the BOF program excludes borrowers on the upper side of the income limits but who may have very similar characteristics to the HOF borrowers. For example, a two-person household with an income of $25,000 annually qualifies for HOF participation. Using the $65,000 loan value at current AHFC SAM interest rates, this HOF participant is required to make a monthly payment of $417.42, with AHFC subsidizing the remaining 5 The mean loan balance for HOF borrowers between the start of the program and October 31, 1981, was $63,363. 26 w N -..J 1 [ r r r--~---" r ----r r··-r~--r TABLE 4. EXAMPLE OF HOMEOWNERSHIP ASSISTANCE PROGRAM SUBSIDY CALCULATION ASSUMPTIONS: Loan Market Interest Rate Monthly Principal and Interest Payment at Market Interest Rate SUBSIDY OPTIONS: $65,000 12.375% $687.42 FORMULA 1: Principal and Interest Payment Reduced to 20% of Income Payment at 20% of Monthly Income Monthly Subsidy Required if Formula 1 Used FORMULA 2: Principal and Interest Payment Calculated at 6% Interest Rate Payment at 6% Interest Rate Monthly Subsidy Required if Formula 2 Used SUBSIDY CALCULATION: Monthly Payment at Market Rate Subsidy (Lesser of Formula 1 or Formula 2) Monthly Payment After Subsidy STATUS OF LOAN: Payment to Income Ratio Loan Status $389.71 $297.71 $10,000 $167 $520 $687.42 297.71 $389.71 46.7% Rejected Annual Income $15,000 $250 $437 $687.42 297.71 $389.71 31.1% Rejected $20,000 $333 $354 .. $687.42 297.71 $389.71 23.3% Approved r r $25,000 $417 $270 $687.42 270.00 $417.42 20.0% Approved r r $270. 00. A two-person household with an annual income of $27,000, however, does not qualify for a HOF. If they attempted to obtain the same $65,000 loart, their payments would be $687.42. This loan would not be approved, however, since the mortgage payment-to-income ratio would be 30.5 percent. Based on the 28 percent mortgage payment-to- income rule, the maximum loan this household could receive is $59,570. The two analyses regarding income presented above are based on an assumed $65,000 loan. This points to a third area of concern involv- ing the homeownership assistance program, the supply of acceptably priced housing. Through October 31, 1981, 33 percent· of properties purchased through the Special Mortgage Purchase Program had priees less than the $80,000 HOF limit; 19 percent had sales priees less than $70,000. The analysis shows that lower-priced properties are required if HOF is to aid the lower-income buyer (less than $20,000 annual income) and the buyer who doesn' t qualify. for HOF due to income only slightly over the income maximums. As inflation takes its toll on thè lower~priced units, the HOF program will be less able to serve the intended borrowers. Any expansion of the program, however, will require an increase in funding levels. Pledged Account Mortgage Program. The Pledged Account Mortgage (PAM) provides a mechanism for a graduated payment mortgage. A gradu- ated payment mortgage allows the monthly payment to increase over the li fe of the mortgage. This .allows a borrower to qualify for a more valuable property than would be possible under an even-payment mortgage and meet the increasing payments over time with expected increases in income. The AHFC graduated mortgage program utilizes the even•pay.ment mortgage as its base. Payments are reduced in early years of the mortgage by utili;üng funds deposited by the borrower at the time of purchase in a pledged account. Under this program, increases in 2.8 - - """"' - - .._ !,_ i- ._ - - ""' payments cannot exceed 7. 5 percent per year, and the full payments must be reached no later than the fifth year of the mortgage (AHFC Seller/Service Guide, pages 84-85). The Mortgage Bond Subsidy Tax Act Program. Under the Mortgage Bond Subsidy Tax Act of 1980, tax-exempt bonds may be qsed to finance residential mortgages if certai.n conditions are met. These conditions are that the borrower may not have owned or had interest in a home for three years, that the property be the principal residence of the buyer, and that the sales priee may not exceed 90 percent of the average area sales priee (AHFC, Select Corporation and Program Infor- mation, November 1981). AHFC has established maximum purchase priees of $82,4 7 4 for existing single-family structures,· $101 ,370 for new single-family, and $96,646 for existing duplexes. Summaey AHFC offers several loan programs. Each program is designed to serve different segments of the Alaska housing market. All potential home buyers in the state are eligible to apply to the Special Mortgage Purchase program. Low-and moderate-income home buyers may apply for additional subsidies through the Home Ownership Assistance program. Mobile home and rural purchasers are served through separate programs. The interest rates on AHFC loan programs vary according to the source of funds and statutory requirements. The other terms of the loans are designed to match the market s.egment served. Many of the loan terms such as requiring mortgage insurance or federal insurance, maximum value of loan, and maximum life of loan are based on industry prac- tices. Because AHFC opera tes as a business, the credit and property underwriting standards are designed to limit the risk of purchasing problem loans. 29 AHFC Operations Since AHFC operates as a secondary purchaser of mortgages, not as a direct lender, the financial institutions retain a role as the originators and servicers of loans. As of November 1981, twenty-nine financial institutions and six regional housing authorities were authorized to originate loans for AHFC programs. Seller/Servicers Loan Origination. The role of the direct lender (seller) is illustrated by reviewing the loan origination process as practiced by AHFC. AHFC does not deal directly with the potential borrower. The borrower applies for the mortgage loan from a financial institution participating in the AHFC program as a seller. The sel~er' s duties, as stated in AHFC's Seller/Servicer Guide, include: o Helping the borrower complete a loàn application. o Acquainting the borrower with terms of mortgage and rights and respOnsibilities. o Inspecting the property offered as security. o Selecting an appraiser. o Ordering and receiving the necessary borrowers' credit documentation directly from the original source. o Making an underwriter' s determination of the entire credit and property package prior to recommending the mo.J;tgage to AHFC for purchase. The AHFC secondary purchase process requires that AHFC personnel underwrite each loan. Completed applications and accompanying docu- mentation are forwarded to AHFC for prior approval of the borrower and property. Prior approval by AHFC is required before the mortgage loan can be made by the seller. 30 - ;~ - - - - i- ' ' - - - ,,_ - , .. This step in the origination process has been a point of criti- cism by some members of the financial community. Comments about the prior approval system include that it transforms the sellers into paper processors and that it causes undue delay in the loan origina- tion process. During July 1981, the average prior approval turnaround time at AHFC was approximately 15 days. In January 1B82, the turn- around time was one day (AH.FC). A suggested alternative to the total use of prior approval is delegated underwriting. In delegated underwriting, the seeondary purchaser authorizes certified underwriters who work for sellers to decide whether or not a loan is acceptable to the secondary purchaser. If the delegated underwriter approves the loan, the secondary pur- chaser is committed to purchase the loan. If subsequently the loan does not meet the secondary purchaser t s standards or the loan becomes delintiuent, the seller is required to buy the loan back from the secondary purchaser. The major benefit of delegated underwriting is that it reduces loan processing time by reducing underwriting duplication. Delegated underwriting, therefore, can reduce the underwriting costs of the secondary purchaser. The secondary purchaser then audits loans pur ... càased under delegated underwriting. The use of delegated underwriting does not preclude the use of prior approval. The Federal National Mortgage Association (FNMA), a major secondary market purchaser, utilizes both systems in its opera· tions. Not all sellers employ certified delegated underwriters, and on questionable loans, the seller may want to receive a pr,ior approval to limit the risk of making tb.e loan. AHFC cGttsidered using a delegated underwrit.ing system in 1981 in order to reduce loan processing time (Goldbar, January 8, 1982). The system was not put into place, however, due to possible eonflicts with 31 the bond resolutions under which available funds were obtained. Bond offerings made through 1981 specify that AHFC underwrite each loan. it purchases. While this precludes the use of delegated underwriting under current bond issues, AHFC has no plans to implement delegated underwriting in the future when procedures could be changed. The principal reason .is that AHFC does not want to risk a potentially adverse reaction by the bond rating agencies to such a procedure. A reduction in bond rating would increase AHFC' s cost of borrowing. When the completed loan application is forwarded to AHFC for prior approval of the borrower and property, AHFC underwriters can approve the loan as is , a pp rove the loan · wi th conditions, or deny the application. When AHFC underwriters approve a loan application, AHFC is committed to purchase the mortgage loan after it closes. Once AHFC grants prior approval, the seller proceeds · with the loan process. After the loan is closed (the sales transaction completeil and funds dispersed),. the seller packages the loan for sale to AHFC. AHFC purchases loans from sellers twice monthly, on the lOth and the 25th of each month. AHFC disperses funds at the time of closing for rural loans made through the regional housing authorities. This is necessary because the regional housing authorities are not financial institutions with the ability to make and warehouse loans. The transfer of funds is made to. a title company operating as a trustee. For their role in the loan origination process, sellers are allowed to charge the borrower an origination fee, commonly one per- cent of the loan amount. Loan Servicing. After AHFC purchases the loan, the seller re- tains the function of the loan servicer. The prima.ry responsibilities of the servicer are to: 32 - ..... '- - ~ '- '- ..... - - - - - ... ... o Collect principal and interest payments. o Forward payments, minus servicing fee, to AHFC. o Complete monthly reporting requirements as required by AHFC. o Report delinquent accounts to .AIŒC. o Initiate foreelosure proceedings as necessary. i The servicer receives a fee for servicing the loan. This fee, which varies by AHFC program, is deducted from the payments the ser• vi cers collect for ABFC. The se collection fees are one component of the interest rate AHFC charges the borrower. The servicing fees are based on the unpaid balance of the mortgage loan. The servicing fees are 3/8 of one percent for the SMPP, one percent for the mobile home program, and 1/2 of one percent for the rural owner-occupied program. Fund Allocat.ion to Sellers. AHFC operates un.der a fund reserva- tion system that allows sellers to request AHFC to set aside funds for the loans originated by tb.e seller. The reservation holds funds for a three·month period at a specifie interest rate. AHFC requires that sellers pay a half-of·one-percent fee at the time the funds are reserved, a fee ultimately charged to the borrower. Under the special mortgage purchase program, AHFC bas maintained sufficient cash flow to meet the request for funds by the sellers. In the event that sufficient funds were not available to meet all sellers' requests for funds, AHFC has establisbed a fund allocation policy. In the case of a shortagé of funds to meet reservations, funds will be allocated on the ttbasis of recent and future anticipated lending activities of the financial institution (seller/servicers) as well as upon the potential need for mortgage loans in each judieial district of the state as it determines is required based on the most current research reasonably available to it" (AHFC regulations, 15 AAC 33 118.315(6)). The Seller/Servicers Guide further states that AHFC may reduce the amount of reservation based on seller/ servicer performance (AHFC Seller/Servicer Guide, p. 12). Under the fund reservation system, sellers lose their fund reser- vation fee if the reservation period expires before '-the funds are committed. Sellers can, with AHFC approval, however, assign reserved · funds to another seller (AHFC Seller/Servicers G.uide, p. 13) . ·sUiliQJarx As a secondary purchaser of mortgages, AHFC does not deal di- rectly with the borrowers. Participating financial institutions and regional housing authorities act as the seller/servicer of AHFC loans. For most types of financial institutions, AKFC has replaced other secondary purcllasers. Savings and loan institutions are more directly affected since they have traditionally made some loans for their own portfolios. Seller/servicers' responsibilities range from taking applications from borrowers, disbursing funds, and collecting monthly payments to determining whether foreclosure proceedings are in order. For their services, seller/servicers are allowed to charge the borrower a loan origination fee of one percent and deduct a service fee, which varies by AHFC.program, from payment collections. AHFC Program Activity By all measures of program activity, AHFC has operated at record levels since July 1980. The reasons for this activity are the attrac- tive terms provided by the Special Mortgage Loan Purehase Program and the record-high mortgage interest rates available from the alternative mortgage sources. 34 :..- - - - i._ - - ._ - - - - - - The increase in activity is illustrated by examining the his- torical levels of mortgage commitments and purchases between 1974 and 1981 (Table 5). The data for both AHFC commitments (loans which have been approved but not yet purchased from seller) and purchases sky- rocketed as a result of implementation of the Special Mortgage Loan Purchase program. In calendar year 1979, the last full year before ,j the SMLPP, AHFC committed to purchase $185.5 million in loans and pur• chased $189.4 million in loans. The 1979 monthly average was approxi- mately $15.5 million of mortgage activity. In the last six months of 1980, after the SMLPP began, AHFC committed to purchase $329.9 million in loans and purchased $242.1 million. Activity in the first nine months of 1981 was $696.4 million in commitments and $582.2 million in purchases. AHFC monthly average purchases rose from $15.8 million in 1979 to $64.9 million in the first nine months of 1981, a quadrupling of the 1979 leve! . AHFC Applications and Denials During the period July 1, 1980, to June 30, 1981, AliFC received 11,348 applications for all of its programs, a montbly average of 945. Table 6 shows the number of applications by month and program for 1981. In June 1981, the receipt of applications peaked at 1,540; the se applications requested $127.8 million in mortgage funds. The volume of applications declined slightly in August, September, and October 1981 before falling sharply in November. There are two rea- son_s for this drop. First, there is usually a seasonal drop in mort- gage activity during winter. Second, the rise in AHFC interest rates reached their current peak in November. The Special Mortgage Loan Purchase program is the dominant AHFC program receiving 90 percent of applications representing 96 percent of mortgage funds requested for the period July 1, 1980, through November 30, 1981. 35 TABLE 5. AHFC MORTGAGE COMMITMENTS AND PURCHASES BY CALENDAR YEAR Commitments Purchases Year Annual Mpnthl:f Averase Annual Monthll Averase 1974 $36,118,202 $3,009,850 :·, -~ ·~ ';'1:11 -1975 35,237,435 2,936,453 35,177,076 2,931,423 1976 71' 171,942 5,930,995 53,985,643 4,498,803 1977 139,891,225 11,657,602 126,007,384 10,500,615 -1978 140,254,330 11,687,860 126,814,826 10,567,902 1979 185,484,600 15,457,050 189,356,994 15,779,749 1980a 72,685,550 12,114,258 74,427,975 12,404,663 1980b 329,943,850 54,990,642 242,105,044 40,350,840 1981c 696,393,150 77,377,016 582' 191 '710 64,687,968 - a January-June 1980 b July-December 1980 c January-September 1981 ... SOURCE: AHFC, Selected CPrporation and Program Information, November 1981 36 i - l t ( { f r ( .... r r { - f -r---r - TABLE 6. AHFC APPLICATIONS BY PROGRAM Period Special Mortgage Loan Mobile Home Rural Housing Rural Nonowner-Occupied Purchase Loan Purchase Mortgage Purchase Number Volume Number Volume Number Volume Number Volume --·· July- December 1980 4,582 381,566,625 396 9,570,650 NA NA (monthly avg.) 764 63,594,438 66 1,595,108 January 1981 610 52,024,400 61 1,375,400 9 607,850 February 1981 682 57,504,100 56 1,439,900 9 678,700 w ...., March 1981 915 78,285,200 29 730,200 18 1,360,750 April 1981 1,073 94,650,800 52 1,129,650 15 1,192,950 May 1981 1,198 111,978,200 89 2,090,300 11 846,050 2 585,000 June 1981 1,354 121,331,800 160 4,134,350 22 1,859,650 4 507,200 July 1981 1,344 119,810,150 146 3,831,150 25 1,761,200 2 872,400 August 1981 1,103 101,056,100 129 3,416,900 15 1,326,400 .. 2 108,300 September 1981 1,129 103,031,870 122 3,208,650 21 1, 738,200 1 82,500 October 1981 1,137 103,080,550 139 3,842,750 20 1,759,100 4 320,750 November 1981 807 73 '7201_050 138 ~,67?,IQO 21 !t!7=!1?QQ 3 4~},6QQ TOTAL 15,934 1,395,978,015 1,517 38,445,600 186 15,004,500 18 2,969,750 SOURCE: AHFC Selected Corporation and Program Information, November 1981. Of the 11,348 applications received between July 1, 1980, and June 30, 1981, 2,211, or 19.5 p.ercent, were denied. AHFC defines as a denial any application which is not ultimately purchased by the Cor- poration, regardless of reason. The 19.5 pe.rcent rate, therefore, is not actually deniais, but rather applications which for some reason did not complete the full cycle of processing. The se figures also do not take into account loans which are denied and then subsequently approved. Table 7 lists the reasons for deniais. Income• and wealth•related factors were responsible for approxi- mately 43 percent of AHFC denials during this period. The reasons tnclude insufficient income for mortgage payments (17 ,6 percent), insufficien:t income for total obligation (6.1 percent), insufficient income stability (6.9 percent), unacceptable credit (3.2 percent), insufficient equity (2 .1 percent)' and income too high for participa- tion in the Homeownership Assistance program. Also during this period, 10 percent of applications were denied for insufficient data. Wb.ile some denials are expected, the level of deniais for income ... related reasons and insu:fficient data--53 percent of all denials and 5.7 percent of all applications•-raises questions asto why the denial rate is as high as i t is. The re are sever al rea sons, often conflict- ing, cited for the leve! of income related denials. First, AHFC and the seller/ servi cers were dealing wi th a new and greatly expanded program. It takes time for all participants to become familiar with the program' s guidelines and operations. Second, while seller/ser- vicers are supposed to forward only those loans which they recommend for purchase, the re is no penalty for submitting loans which don' t qualify. This may lead some financial institutions to submit loans which should not be submitted. Third, some seller/servicers contacted during this study expressed disagreement with AHFC underwriting criteria; especially definition of income, and asserted that the criteria are often inconsistently applied~ Finally, underwriting decisions are often complex with judgments required on a case-by-case 38 ;1 w - 1 ..... - - 1.- ..... ..... .... - - - - ... ... TABLE 7. AHFC DENIALS, JULY 1, 1980, TO JUNE 30, 1981 (All Programs) Number Reason for Denia! Denied ,. Insufficient Income for Mortgage Payments 390 Insufficient Income for Total Obligations 134 lnsufficient Stability 153 Unacceptable Credit 70 I.ack of Required Equity 46 Unacceptable Property 159 lnsufficient Data Presented 222 Unacceptable Te:rms and Conditions 14 Return on Request of tender 206 Applicant Over Income for Homeownership Assistance 155 I.ack of Funds Reserved 2 Other 192 Change in Program 56 Cancellation of Çommitment 412 Total Denials 2,211 Total Applications 17,656 Denia! Rate 19.5% SOURCE: AHFC Data Base 39 Percent of Denials 17.63% 6.06 6.92 3.16 2.08 7.19 10.04 .63 9.31 7.01 .09 8.68 2.53 18.63 100.0% basis. It is often possible for there to be di.fferent · judgments made by the seller/servicer and AHFC. AHFC recognizes the problem with deniai rates and meets regularly with seller/servicers to work on the problems which are identified .• Another· major class of deniais involved the ca:n.cellation of commitments (18.6 percent) and the return of applications at the request of the lender (9.3 percent). Commitments may be çancelled by AHFC if the loan is not returned to AHFC for purchase within 120 days of approval for exist,ing properties and 180 day.s for new structures under construction~ owner/builders and refinance improvements (AHFC Seller/Service Guide, page 14). Sellers may request the cancellation of commitment if the sale falls through for any reason. Unacceptable properties were responsible for 7 percent of denials. The remaining 12 percent of denials were based on reasons including unacceptable terms and conditions, lack of funds reserved, changes in program, and other miscellaneous reasons. For the period July 1, 1981, through October 31, 1981, AHFC's denia! rate for the Special Mortgage Loan Purchase Program was 17.4 percent. For this same period, denials in the Mobile Home Loan Purchase ran at 14 percent and the Rural Housing Mortgage Purchase Program at 6 percent. Program Results The Special Mottgage Loan Purchase Program is responsible for the increase in AHFC activity. The statistics which follow are for the period July 1, 1980, through October 31, 1981. During that period, the program purchased 9, 792 mortgage loans with an original mortgage value of $853 .1 million. These figures include loans made under the HOF, PAM, and refinance programs. During this period, 733 borrowers qualified for participation in the homeownership assistance program. 40 - .._ .._ ~..... - - '- - i...i ,_ - i.... - .... These loans had an original loan balance of $46.4 million. In Decem- ber 1981, AHFC provided $153,636 in HOF subsidy payments to 891 recip- ients, a mean subsidy of $172. As of October 31, 1981, there were 356 PAM loans with an original mortgage balance of $36.6 million. The refinance and home improvement program funded only 23 loans, with an original mortgage balance of $1.8 million. ~ From its creation in 1980 through October 31, 1981, the mobile home program bas financed 891 mobile home purchases. These loans bad an original loan balance of $20.9 million. The rural owner-occupied program has funded 213 mortgage loan purchases in rural Alaska through October 31, 1981. These lo4ns bad an original loan balance of $14.5 million. Between July 1, 1980, and October 31, 1981, the rural nonowner-occupied program financed seven- teen loans, representing an original balance of $2.7 million. Future Levels of Activity Given these hi.gh levels of activity in the first program year, the question arises as to whether the leve! of activity experienced is a norm which can be expected to continue into the future or a special case. In this section, we identify the factors which influenced the 1980-1981 activity. First, by eliminating the income requirements for homeowners and expanding the value limits of property eligibility fo:r purchase, the Special Mortgage Purchase Program made AHFC funds an option for the majority of the residential housing market. Of the 9,792 borrowers who received SMLPP loans between July 1980 and October 31, 1981, 6,311 (64 percent) could not have qualified for AHFC funds under the old Insured Mortgage Program (the pre-June 1980 low and moderate income program). The Insured Mortgage Program placed maximum income limits on borrowers and limited the priee of eligible housing. An analysis of SMtPP buyers shows that 6,275 of the bot"rowers had incomes ex- ceeding the last set of income limits under the Insured Mortgage 41 Program. Of these buyers, 2,967 purchased bouses which exceeded the priee limits. Second, the choice of using AHFC funds instead of alternative funds such as from the financial institutions or federal credit agencies depends on the interest rate, maximum loan amount, and lean terms available from each source. A review of interest rates for the period June 1977 to June 1981 (Table 8) shows that the original base interest rate of 10 percent in the Special Mortgage Loan Purchase program was not only below the prevailing rates for other lenders at the time the program started but also the lowest rates since December 1978. Th.is lower interest rate opened up the market to borrowers who may not have been able to afford the higher market interest rates. For example, monthly principal and interest payments on a $90,000 mortgage increase from $790 at 10 percent to $925 at 12 percent. In the 10-to-16 per- cent interest rate range, a one percent increase in the mortgage interestrates raises the monthly payment from $67 ta $72 on a $90,000 loan. Additionally, buyers who could afford to purchase a bouse at market rates can afford ta purchase more expensive housing at the lower rates. 6/30/77 12/31/77 6/30/78 ' 12/31/78 6/30/79 12/31/79 6/~0/80 12/31/80 6/30/81 12/31/81 TABLE 8. INTEREST RATES FNMA - 9.106 9.213 10.125 10.920 11.438 12.985 12.807 15.430 16.337 FHLMC 9.008 9.435 9.971 10.797 11.595 12.898 12.204 14.735 16.564 16.845 AHFC 8 10.0 10.0 10.0 12.375 ainterest rate for non-veteran on first $90,000 balance. SOURCE: Real Es tate Research Report, Fall 1981. Alaska Housing Finance Corporation 42 ._ - - i- ._ - '- - - - ._ - - ,_ - Contrary to expectations, the threat of higher interest rates did not greatly dampen application activity. One explanation forwarded to explain this behavior is that borrowers expect future interest rates to increase even further. Future interest rates could increase either as a result of further increases in market interest rates or due to changes in AHFC programs. ~ Not surprisingly, AHFC has captured most of the eligible markets due to its lower interest costs. As long as AHFC interest rates are lower than the alternative sources, ARFC will maintain its dominant role as the primary source of owner-occupied residential mortgage funds. Characteristics of Borrowers In examining any public program, a common question is "Who was served by the program?'' While AHFC housing programs have effects that go beyond the borrower (see Chapter Five), the borrower is viewed as the major beneficiary. In this section, we exa'mine three character- istics of borrowers who received AHFC financing. These characteris- tics are income, previous ownership his tory, and residency. By com- paring the variations a:cross programs, we can begin to determine whether the various programs actually serve the intended groups. Income. With the exception of the rural nonowner•occupied pro- gram, AHFC loan programs are designed to serve home buyers. Since homeownership by its very nature has minimum income requirements, AHFC programs serve those persans who have sufficient income to purchase rather than rent housing. Since AHFC operates _as a business enter- prise, with underwriting standards acceptable to their investors, some borrowers face the possibility that they have insufficient income to qualify for AHFC programs. The subsidy elements of the AHFC programs do, however, allow bo:r;rowers t.o qualify for mortgage loans that they might not qualify for at market interest rate.s. The homeownership assistance program further reduces the income required for low-and moderate-income buyers in Alaska. 43 Table 9 shows the income distributions of households receiving AHFC financing under the State Assisted Mortgage, Home Ownership Assistance, Pledged Account Mortgage, Mobile Home, and Rural Owner- Occupied programs. The distribution shows that over all programs in the Special Mortgage Loan Purchase Program, 61 percent of borrowers had household incomes grea ter than $40 ,000 per year, and 39 percent had incomes greater than $50,000. Only 2 percent of SMLPP recipients had incomes less than $20,000 per year with a total of 16.1 perc~nt having incomes less than $30,000. For the rural owner-occupied pro- gram, 54 percent of borrowers had annual household incomes greater than $40,000, atl.d 19.7 percent had incomes less than $30,000. Two AHFC programs provide the majority of assistance to households in the $10,000-$20,000 income range. The HOF program provided 20 percent of its loans to this income group, and the mobile home pro gram provided 16 percent. None of the AHFC programs provide assistance to the very low income households (households with incomes less than $10,000). In arder to compare the income distributions of AHFC recipients with the income distribution for the general population, we used an income distribution of Anchorage obtained from a 1978 survey and the income distribution of Anchorage recipients of the AHFC Special Mort- gage purchase and mobile home programs (Ender, 1977). 5 The survey showed that in 1976, 28.7 percent of Anchorage households had incomes less t.han $20,000 (see Table 10). In 1976 dollars, only 8.9 percent of Special Mortgage Loan Purchase program recipients had incomes less than $20,000. While the Anchorage income distribution may not be fully representative of the state, it does provide a measure upon which to compare the income of AHFC recipients t.o the general popula- tion. Evidence from a statewide survey shows that there is a higher Ssince the survey measured household income in 1976, we adjusted the AHFC recipient incomes downward to account for growth in income. The adjustment factor of .25 was based on tb.e ebange in per capita persona! income between 1976 and 1981 as measured by the Bureau of Economie Analysis. 44 -·Ji .J d i 1 Annual Income Total < $10,000 " $10,000 -$20,000 2.0 $20,000 -$30,000 14.1 ,p. U1 $30,000 -$40,000 23.1 $40,000 -$50,000 25.2 $50,000 -$60,000 17.5 $60,000 -$70,000 9.5 > $70,000 8.6 100.0 Number of Loans 9,792 SOURCE: AHFC Data Base 1 l ( 1 ( TABLE 9. DISTRIBUTION OF HOUSEHOLD INCOMES FOR BORROWERS USING AHFC PROGRAMS (percent of borrowers) Special Mortgage Loan Purchase Program State-Assisted Home Ownership Pledged Mort gage Assistance Account " ~ " .6 19.8 .6 8.4 80.1 15.7 24.5 .1 38.5 27.3 ~ 26.1 19.2 ' 12.9 10.5 " 4.8 9.5 " 1.4 100.0 100.0 100.0 8,680 733 356 1 l 1 Rural Owner- Mobile Home Occupied " " 16.0 3.3 43.7 16.4 27.3 26.3 6.7 22.5 4.0 16.0 1.7 5.2 .6 10.3 100.0 .. 100.0 891 213 ~ 0\ '--·'-· TABLE 10. DISTRIBUTION OF HOUSEHOLD INCOME IN ANCHORAGE Distribution of Household Income (adjusted to 1976 dollars) for: Distributi<m Special Mortgage Purchase Program of Househald Hausehold Incarne Incarne, 1976 Total Recipients HOF Recipients Mobile Home Pragram < $10,000 10.0 fi' fi' .8 $10,000 -$20,000 18.7 8.9 74.3 45.8 $20,000 -$30,000 20.9 22.4 25.7 42.6 $30,000 -$40,000 20.0 30.4 fi' 7.4 $40,000 -$50,000 12.9 21.6 fi' 2.1 $50,000 -$60,000 9.0 10.2 fi' 1.3 $60,000 -$70,000 2.9 3.9 fi' fi' > $70,000 3.5 2.6 fi' _fi'_ Don't Know 2.1 Total 100.0 100.0 100.0 100.0 SOURCE : AHFC Da ta Ba se Ender, Richard L. The Opinions of the Anchorage Citizen on Lacan Public Policy Issues, Anchorage Urban Observatory, December 1977. - .._ ..... - - - .... .... proportion of households in the lower income categories statewide than in Anchorage (ISER, 1978, 1979, 1981) . Previous Ownership History. First-time home buyers purchased 38 percent of the properties financed under the Special Mortgage Loan Purchase program. This compares to a national average in 1978 of 36 percent (U. S. Department of Housing and Urban Development). The re is, however, variation among AHFC programs. First-time home buyers who participated only in the SAM program matched the national average exactly at 36 percent. The HOF and the Mobile Home programs both showed a high rate of participation by first-time home buyers--75 and 65 percent, respectively. These par- ticipation rates are lilœly tied to the priee of property allowed un.der each program. First-time home buyers are most likely to enter the housing market at the lower end of the priee range. The rural owner -occupied program als.o showed a high rate of first-time home buyers--56 percent. The PAM p:~;ogram had the lowest participation rate by first-time home buyers--21 percent. Just as the HOF is well-suited for first- time home buyers, the PAM program' s equity requirements do not suit the average first .. time home buyer. Res.idency. A sample of AHFC loan application files shows that 18 percent of recipients in the Special Purchase program and the mobile home program had been residents of the State of Alaska less than one year. Only 6 percent of rural owner-occupied loans went to residents of less than one rear. New residents are more likely to be in the housing market due to their recent maves . 47 Geographie Distribution of AHFC Loans In arder to analyze the geographie distribution of AHFC loan funds, we created ten geographie categories. There are separa te categories for Anchorage, Fairbanks, Juneau, Ketchika.n, Kodiak, and Sitka. The Anchorage, Fairbanks, and Juneau categories include sur- rounding communities which are part of their housing market areas. · Palmer, Wasilla, and Willow are combined. The final three categories are road-connected communities in southcentral and interior Ala:;;ka; communities in southeast Alaska which qualify under the AHFC rural definition; and communities in southcentral, western, interior, and arctic Alaska which qualify under the AHFC rural definition. Table 11 shows the distribution of loans according to the number of loans made for the Special Mortgage Loan Purchase Program, the Mobile Home Loan Purchase Program, and the Rural Housing Mortgage Purchase Program. As a point of refe.rence, the distribution of loans for AHFC 1 s entire portfolio and a population distribution of the state are also presented. Loan activity in the Special Mortgage Loan Purchase Program is concentrated in the larger cities. The majority of Special Mortgage Loan Purchase Program activity took place in Anchorage: 68 percent of overall SMLPP loans, 84 percent of HOF loans, and 89 percent of PAM loàns. Fairbanks t"eceived 10.9 percent of SMLPP loans but only 4.3 percent of HOF and 3. 9 percent of PAM loans. Juneau received 5. 7 percent of SMLPP activity with 1.9 percent of HOf and 3.2 percent of PAM. An additional 10 percent of Special Mortgage Loan Purchase Program loans went to the road-connected Southcentral and Interior pla'CeS including Palœer, Wasilla, and Willow. The remainder of SMLPP -, activity went to Ketchikan (2.3 percent), Kodiak (1.1 percent), Sitka ( 1. 2 percent), and rural a reas (. 7 percent). Palmer and Wasilla received most of the remaining HOF (5.3 percent) and PAM (2.5 percent) loàns. Participation in HOF and PAM was limited in Ketchikan, Ko.diak, and Sitka and almost non-existent in rural areas of the state. 48 1 .f:- \0 r ~~-r ,~--~ 1 r r r······-r r f r TABLE 11. GEOGRAPHie DISTRIBUTION OF AHFC LOANS (percent of loans) Special Mortgage Loan Purchase Program En tire HOFb Rural OWner- Place Anchorage Fairbanks Juneau Ketcbikan Kodiak Sitka Palmer/Wasilla/ Willow Road-Connected Southcentral Portfolio 59.6 11.9 6.1 2.5 1.7 1.6 5.6 . Interior 7.8 Rural Southeast 1.0 Rural 2.1 Total 100.0 No. of Loans 19,463 Total SAM a 67.9 65.7 10.9 11.8 5.7 6.1 2.3 2.5 1.1 1.2 1.2 1.3 4.3 4.3 5.9 6.3 .3 .3 ;4 .5 100.0 9,792 PAMc Mobile Home Occupied 83.9 89.0 42.6 ' 4.3 3.9 11.7 ~ 1.9 3.2 17.2 .5 .5 ' 4.3 ' .1 .. 3 3.6 18.3 .3 ~ 4.8 5.3 2.5 1.3 ~ 3.0 .8 9.4 1.4 ' .2 1.8 15.5 . 1 ji) 3.3 64.3 100.0 100.0. 100.0 100.0 .. 733 356 891 213 aState Assisted Mortgage bHomeownership Assistance c Pledge Account Mortgage SOURCES: AHFC Data Base AHFC..,Selected Corporation and Program Information, October 1981, Alaska. Department of Community and Regional Affairs, July 1, 1981, Population, Municipalities, and Census Areas. December 15, 1981. r --~~ r f Population (1981) 43.1 13.9 5.0 2.7 1.1 1.9 1.0 13.4 3.1 14.2 100.0 Severa! factors provide possible explanations to the overall level of SMLPP activity in Anchorage. First, we expect real estate markets to be more active in larger places. Anchorage provides buyers with more opportunities to buy both new and existing housing. A review of the distribution of real estate employment in the state shows that 64 percent of all persons employed in real ~state related jobs worked in Anchorage in August 1980 (Alaska Department of Labor, 1980) . Second, the Anchorage economy is expanding rapidly. The Alaska Department o.f tabor estimates that between August 1980 and August 1981, employment inAnchorage grew by 6,000 Jobs, 78 percent of the statewide increase of 7, 700 Jobs (Alaska Department of tabor, October 1981). Third, SMLPP activity measures only part, although the major portion, of AHFC activity. Rural areas, constituting approxi- mately 18 percent of the state's population, have alternate AHFC and other state programs·available~ Finally, the knowledge of and participation in AHFC programs by seller/servicers are important to the geographie distribution. First, seller/servicers and the real estate industry are the major sources of information for the borrowing public regarding AHFC programs. AHFC underwriters respond to completed applications; they do not evaluate whether the applicant should be applying for a loan in another AHFC program. Second, seller/servicers can choose the AHFC programs in which they participate. The lopsided geographie distribution of HOF and PAM loans in the Anchorage area is likely the result of these factors. Mobile home loans are distributed more proportionately across the state. The majority of loans, 79.4 percent, were made in urban areas. When compared to population, the mobile home activity was highest in Southeast Alaska. Juneau received 17 percent of mobile home loans; Sitka, 4.8 percent; and Ketchikan, 4.3 percent. Only 5 percent of mobile home loans went to rural areas. The cost involved in trans- porting mobile homes to remote sites is a likely reason. 50 ..... 1 1-. 1 ~ L "- ..... - - - - The distribution of rural owner-occupied loans was close to proportionate with the population in the eligible areas. Rural South- east Alaska received 15 percent of rural owner-occupied loans; rural Western, Interior, and Arctic Alaska received 64 percent; and Kodiak Island received 18 percent. A review of rural loans shows that most of the loans were made in the regional centers and larger villages (Table 12) . Be thel, Nome, and Kotzebue recei ved 52 percent of rural owner-occupied loans; and Petersburg and Wrangell received 11 percent. Possible explanations for the distribution are that the larger rural cities have more active real estate· markets and that persons in these places have greater access to the Regional Rousing Authorities and financial institutions which act as seller/servicers for the program. Additionally, there is greater opportunity to earn cash incomes in the regional centers. There is additional evidence that access to seller/servicers in rural areas may be a factor in program participation. A review of geographie location of SMLPP loans turned up 54 loans which were located in rural areas as defined by AHFC (AHFC data base). The apparent reason for these loans ' being part of the SMLPP and not the Rural Housing Mortgage Purchase Program is that the loan recipients used seller/servicers who did not participate as the seller/servicers fo.r the rural program. The cost to the borrower is the higher interest rate of the State Assisted Mortgage program. These 54 loans were located in Cordova (21), Petersburg (14), Wrangell (7), Dilling- ham (4), Skagway (3), Unalaska (2), Kotzebue (1), King Salmon (1), and Yakutat (1). Property Characteristics. An examination of the characteristics of properties financed by AHFC programs since July 1980 provides a broad overview of the Alaska owner-occupied housing market. The housing characteristics of the State Assisted Mortgage pro- gram are used as a base case against which other AHFC programs can be compared. Table 13 summarizes the housing characteristics discussed. 51 TABLE 12. GEOGRAPHie DISTRIBUTION OF RURAL LOANS (as of October 31, 1981) Special Mortgage Loan Purchase Pro.s.ram Southeast Petersburg (3,001) Ska.gway (819) Wrangel! (2,345) Elfin Cove Craig (560) Metlakatla Port Alexander (90) Pelican (172) Western: Arctic, Interior Regional Centers: Bethel (3,549) Cordova (2,223) Dilli~gham (1,670) King Salmon/Naknek (1182 Kotzebue (2,250) Nome (3,039) Galena (805) Kodiak Island Villages McGrath (343) Aniak (338) St. Mary's (432) Barrow (2,353) Nonregional Centers: Yakutat (430) Unalaska (1,944) Port Lions (211) Mountain Village (580) Nunapitchuk Seldovia (505) Tanana (463) SOURCE: AHFC Data Base. 14 3 7 21 4 1 1 1 2 - 54 Rural Housing Purchase Occupied Program 17 1 7 1 2 2 1 2 53 6 12 33 26 5 39 2 1 1 2 1 1 1 1 3 - 210 State of Alaska, Department of Community and Regional Affairs, July 1 z. 1981 Populations, Municipalities and Census Areas 52 l VI w 1 Characteristic No. of Loans Original Principal Balance Mean Sales Priee Mean Note Amount Mean Loan-to- Value Ratio Dwelling Type: Single Family Condominium Duplex Planned Unit Development New/Existing: New Existing 1 t r~ r r -~~ r TABLE 13. CHARACTERISTICS OF PROPERTIES FINANCED THROUGH AHFC PROGRAMS Special Mortgage Loan Purchase Program State-Assisted Home Ownership Pledged Total Mort gage Assistance Account 9,792 8,680 733 356 $853,133,200 $768,232,080 $50,001,807 $36,637,000 $98,033 $99,988 $68,215 $110,141 $87,125 $88,506 $63,363 $102,912 88.9% 94.221% 94.146% 78.64% 80.2% 55.1% 88.2%. 13.55 11.4 42.0 9,3 5.70 6.4 '* .8 2.11 2.1 2.9 1.7 25.7% 26.1% 17.2% 34.6% 74.3 73.9 82.8 65.4 SOURCE: AHFC Data Base r r r r Rural Owner- Mobile Home Occupied 891 213 $20 '917 ,060 $14,499,000 $25,765 $82,466 $23,476 $68,070 91.1% 82.5% NA 96.71% NA ~ NA 3.29 NA ~ 6.51% 41.3% 93.49 58.7 The mean sales priee for SAM·financed properties was $99,988 for the period July 1, 1980, through October 31, 1981. The mean mortgage loan amount was $88,506. The predominent housing type was single family (80.2 percent), followed by condominiums (11.4 percent), duplexes (6.4 percent), and units in planned unit developments (2.1 percent). Finally, 26 percent of all units were new. The mean sales priee for homeownership assistance program prop- erties was $68,215 with a mean loan value of $63,363 and a mean loan- to-value ratio of 94.2 p.ercent. This lower mean sales priee is expected due to both the sales priee limit of $80,000 and the income limits of the buyer. While the majority of homeownership assistance pro gram borrowers (55. 1 percent) purchases single-family residences, they purchased a greater proportion of condominiums thau SAM borrowers (42.0 versus 11.4 percent). Also, homeownership assistance program borrowers purchased more existing structures than the market on average (82.8 percent versus 73.9 percent). Both of these factors can be attributed to the priee of structures. Condominiums tend to be l~ss expensive than single-family units, and existing structures tend to be less expensive thau new structures, controlling for all other factors. AHFC data shows that over the period examined, the mean sales priee of single·family residences was $100,250, $25,560 more thau the mean sales priee of condominiums. The mean sales priees of single family residences were $114,275 for new, and $95,275 for existing, a $19,000 difference. The mean priee for new condominiums of $87,000 was $15,450 more thau for existing units. The properties purchased by participants in the Pledge Account Mortgage Program (PAM) also showed the expected characteristics--just the reverse of HOF purchasers. PAM borrowers purchased higher-priced houses (mean sales priee, $110, 141) although the loan-to-value ratio remained high at 94.1 percent. PAM borrowers purchased more single- family residences (88.2 percent) and fewer duplexes (.8 percent) thau SAM borrowers. Additionally, new structures made up 35 percent of PAM purchases. 54 : J J w !- - - - 1.- i: ...... 1 ..... 1.... - - - - - - - The characteristics of the properties purchased under the Rural Housing Mortgage Purchase Program are different from the character- istics of the SAM-financed properties. The mean sales priee for rural loans was $15,000 lower than for SAM loans, indicating that rural housing priees are generally less than urban priees. Single-family properties were the overwhelming structure type, 97 percent. New units made up 41 percent of rural owner-occupied purchases. This indicates that the rural housing markets are either expanding or there is currently a replacement of existing units in rural areas. The mean mobile home purchase priee in 1980-1981 was $25,765. Only 6.5 percent of mobile home purchases statewide were for new mobile home units. Program Financing and Costs A review of AHFC's operations shows that a primary responsibility ·of AHFC is financial management. AHFC raises and invests capital funds within the framework of its housing programs. The primary sources of capital funds are proceeds from mortgage bond sales, mortgage loan principal repayment, contributions of capital from the State of Alaska, proceeds from bonds sold to the State of Alaska, and funds generated through operations. The uses of capital funds include the acquisition of mortgages, the payment of mortgage bonds and notes, short-term investments, and changes in cash balances. Table 14 summarizes the sources and uses of AHFC capital for fis.cal years 1978 through 1981. Mortgage Bonds The single, largest source of capital for AHFC is bonds. The proceeds from these bonds, issued on national capital markets, are used to purchase mortgages. As of Decemher 31, 1981, AHFC had issued $1,753 billion in mortgage bonds. Of this total, $1.1 billion, or 55 TABLE 14. SOURCES AND USES OF AHFC CAPITAL FUNDS FISCAL YEARS 1978-1981a Sources of Capital Funds Provided by Operations Mortgage and Loan Principal Repayment Net Proceeds from Sale of Mortgage Bonds Net Proceeds from State of Alaska Notes Contribution of Capital from State of Alaska Other Total Uses of Capital Funds Increase in Investments Acquisition of Mortgages Payment of Mortgage Bonds Payment of Alaska Notes Increase in Cash Other Total (in millions of dollars) 1978 ___.......,.. !212 1980 9.808 13.538 30.343 29.094 29.698 45.623 99.913 209.657 264.669 .905 4.712 400.000 25.440 ~ .096 164.255 253.798 745.443 21.241 34.909 189.363 116.968 189.490 549.404 1.850 3.580 5.005 .115 .301 .387 -1. 730 .070 1.180 25.811 25.448 .104 164.255 253.798 745.443 1981a 23.735 61.575 373.081 7.310 150.000 .093 615.794 180.006 427.833 7.690 .329 -.160 .096 615.794 aUntil Fiscal Year 1981, AHFC's fiscal year ran from December 1 to November 30; Fiscal Year 1981 was a transition year which ran from December 1 to June 30. SOURCES: AHFC Annual Report 1978-1980 AHFC Financial Statement, 1981 56 d .J ;' ) i.iil - l- l- - - - ....; - 63.3 percent, were issued for use in the Special Mortgage Loan Pur- chase Program which began in July 1980. The structure of AHFC bond debt illustrates the growth and recent expansion of AHFC operations. Of the total bonds issued since the first issue in 1972, 98 percent of principal is still outstanding. Structure of Bonds. The bond instrument used by AHFC has changed over time. Until the Mortgage Subsidy Bond Act of 1980 (Ullman Bill) limited their use, AHFC issued tax-exempt bonds. The Ullman Bill forced AHFC into the taxable market fôr the majority of its financing. The tax-exempt bonds issued by AHFC prior to 1981 were structured as serial bonds with thirty years as the term of the longest bond. With seria! bonds, principal payme.nts are due at specified dates over the life of the bond issue. Since the mortgages financed with the proceeds from these bonds also had a .maximum thirty-year life and principal repayments are included in even payment mortgages, the cash flow from the mortgages approximated the cash flow requirements of the bond issue. The serial bonds which matured in earlier years were to be paid off with mortgage loan principal payments. Mortgage loan prepayments were used to purchase new loans and pay off outstanding bonds. A prepayment is the paying off of a mortgage loan ahead of the specified schedule as when someone sells a house . When AHFC entered the taxable bond market, it had to restructure its bond issues. First, taxable bonds are usually fixed term, not seria!; that is, all bonds in the issue have the same maturity date, with interest payments due at specified times over the life of the bond. Second, due to interest rates and market expectations at the time AHFC entered the taxable market, AHFC could not expect to sell bonds with a thirty-year maturity. 57 The current taxable structure used by AHFC is the joint issue of two bonds, each issue with a different maturity. On the last two taxable bond sales, the terms are ten and twenty years. The two bond issues are then combined into a single bond pool for purchasing mort- gages. For example, the most recent taxable bond issues were State Assisted Mortgage Bonds Series D ($90,000,000 due December 1, 1991) and Series E ($60, 000,000 due December 1, 2.001). The principal and interest payments on the mortgages pledged to that bond issue are deposited into a sinking fund as they are received. Principal and interest payments on the bonds are made from the sinking funds. Since the mortgages which secure the bonds have a longer legal li fe, AHFC has established additional security for investors. First, the original balance of the mortgage pool pledged to repayment of a bond issue is larger than the original balance of bonds. These additional mortgages are funded through state appropriations (state appropria- tions will be discussed in the next section). Second, AHFC estab- lishes a source of funds which can be tapped if insufficient funds are available from the sinking fund to meet an interest or principal payment. The most recent deviee used by AHFC is a letter of credit. This let ter of credit, arranged at the time of the bond sale, is a lending agreement between AHFC and a bank that guarantees AHFC' s ability to borrow funds if the sinking fund does not provide adequate funds to meet bond principal and interest payments. Level of Activity. In fiscal year 1980, AHFC issued $269.4 mil- lion in bonds with net proceeds of $264.7 million. 6 Most of these bonds, $230 million, were issued in July 1980 to provide initial bond funding for the Special Mortgage Loan Purchase Program. During fiscal 6 Prior to fiscal year 1981, the AHFC fiscal year was December through November; for fiscal year 1981, the fiscal year was December through June; starting in fiscal year 19&2, AHFC • s fiscal year will run July through June. 58 i """"' i- - - - .,.. .... ,.. ... year 1981, AHFC issued $384.4 million in bonds with net proceeds of $373 million. As of December 31, 1981, AHFC had issued $500 million in bonds, 84 percent of its fiscal 1982 $592 million bonding author• ity. This includes $200 million of tax-exempt bonds issued under provisions of the Mortgage Bond Subsidy Tax Act of 1980. In order to ensure sufficient funds to finance operations at the level of public demand, AHFC requested supplemental bonding authority of $210 million in Jaunacy 1982. Contributions by the Stat,e of Alaska The State of Alaska has made a variety of financial contributons to AHFC since operations began in 1972 (Table 15). These contribu- tions include direct appropriations, loans, purchase of AHFC bonds, and deposits to the state insurance fund. Total state contributions in all forms through fiscal year 1982 total $891.98 million. By far the lar.gest categocy of assistance is direct appropriations--94 per- cent of the total. Direct appropriations have increased dramatically as a result of the program changes in 1980. Of total state appropria- tions to AHFC of $836.8 million, $815 million has been appropriated since 1980 to fund current AHFC programs. The State of Alaska has loaned AHFC $27.6 million since 1972. Additionally, the State of Alaska pu:rchased $10.0 million in rural housing bonds. Finally, the state has contributed $17.6 million into the insurance funds used to secure the insured housing mortgage program and the rural insurance programs. Special Mortgage Loan Pu:rchase Program. The Special Mortgage Loan Purchase Program is the largest recipient of state appropriations at AHFC. For fiscal 1982, $222 million of the $265 million state appropriation was for the SMLPP program. In the SMLPP program, the state appropriations are used to pur- chase mortgage loans. The cash flow derived from the principal and interest payments on these state funded mortgages are p!edged to meet > 59 TABLE 15. STATE QF ALASKA CONTRIBUTIONS TO AHFC, 1972-1982 (in millions of dollars) Direct Appropriations Purchase of Year Ended Loans to Corporation Deposited to State November 30 Cash Property Corl!oration Obligations Insurance Fund (in thousands) 1972 -~ $ 2.625 $ .811 1973 --9.800 4.619 1974 ----3. 720 1975 --9.400 0\ 1976 ----.500 --$ .391 0 1977 ----12.300 --2.109 1978 --------.995 1979 ----.905 $ 5.600 3.630 1980 $114.000 286.000 4. 712 --5.505 1981a 150.000 ----4.400 4.960 1982a (budget) 265.000 $529.000 $307.825 $27.567 $10.000 $17.590 a For year ended June 30. SOURCE: AHFC. Official Statement, State-Assisted Mortgage Bonds, Series A, June 18, 1981. - """ - - - - ... ... ... - the cash flow requirements of bonds. State appropriations are . required because AHFC purchases mortgage loans with interest rates less than its own borrowing costs. The state-funded mortgages must supplement the bond-purchased niortgages to a level adequate to meet the bond debt service requirement. For example, if bond and mortgage interest rates are both 10 percent, interest payments from $100 in mortgages will be sufficient to pay interest on $100 in bonds. If, however, the bond interest rate is 15 percent, $150 in mortgages at 10 percent is required to meet the bond interest payments of $15. The amount of the state appropriation pledged to each bond pool depends on the difference between AHFC' s bond and pro gram mortgage interest rates, the term of the bonds and mortgages, and the expected level of prepayment. AHFC calculates the state appropriation required for each bond issue based on the cash flow requirements of the bond issue. AHFC makes assumptions regarding the expected prepayment level and calculates the additional amount of mortgages required to meet the cash flow requirements of the issue. AHFC' s goal is to minimize the state appropriation required for a given bonding amount and bond/ mortgage interest rate differentiai (Goldbar, January 8, 1982) . Table 16 lists the amount of state appropriations utilized by the first seven bond issues under the Special Mortgage Loan Purchase pro- gram. The state appropriation required to supplement the bond funds rose from 3. 7 percent of total funds available on Insured Mortgage Program Bonds, 1980 second series (the first issue under the SAM program) to 39.3 percent under State Assisted Mortgage Bond, Series B and C. The major reason for the increase is found in the difference between bond and mortgage interest rates. On Insured Mortgage Program Bonds, 1980 Second Series, AHFC' s borrowing cos t was 10. 25 percent versus a mortgage rate of 10 percent (9 percent for state veterans). On State Assisted Mortgage Bonds, Series B and C, AHFC' s borrowing cost of 19. 153 percent exceeds the mortgage interest rate of 12. 125 percent by 1. 03 percentage points. For the first seven bond 61 0'1· N TI\DI.I~ 16. liSE OF ST,\'fl~ 1\l'l'F.Of'RJATJON UV RONJ) Jf,filll~, Sl'I;CIAI. tlOI\TGAGE PIIRCIIASE .PROGNAtl (millions o[ dvllars) Bond Proceeds Used to Purcbase Mortgages State Appropriation Pledged to Issue Total Furads Available for tlortgages State Appropriation as A Percent of Total Funds Costs of Fundsd AIIFC Hortgage Rate; First $90,000 Balance State Appropriation as Pet·cent of Total Funds for Each Pert:entase Point lnsurf'd tlortgagc llousing Bonds (tax Exempt) 1980 Second Sedcs $203.304 7.851 211.155 3.7'X, 10.251. to.ox. 10.25 14.8 1980 Thhd Series $200.872 39.061 239.933 16.3% 12,291. lO.O'X. 12.29 7.1 of Interest Rate Differentia] State-Assisted Mortgage Bonds (Taxable) Series A Series B and C Series D ~d E $148.822 $llt6,5IO!I $145.821 8 82.641 94.775 56.000b 231.463 ·c: 201.821c; . 241.285 . 35.7l 39.3'1. 27.7'1 17.05'1. 19.15ll 19.4il'X. lO.O'X, 12.125% 12.375'1 17.05 ,19.153 19.411 '• . 5.0~ 5.59 3.39 llomc tlortgage llonds (Tax Exempt) first Sede.s Second Scdcs 97.7488 97.825 8 29.502b 2).300b 127.250c 121. 125 c 23.18'1 19.241 13.158'1 13.191. tO.O'X, JO.Ol 13.158 13.19 7.34 6.03 aNet procf'cds from bond issue. dlncludes Cost.of issuance. bAIIFC estimate at time of bond sale. eRate for nonveterlln. cEstimate of total fùnds avaihble. SOURCE: AJWC. "' .. ... ... ... issues used to finance the SMLPP program, state appropriations of $333 million was required, 24 percent of mortgage funds available. While · total state appropriations relative to bond proceeds increased due to increases in the bond/mortgage interest rate differ ... ential, the state appropriation per one percentage point of differ ... · ential bas declined since the first bond issue used to finance the Special Mortgage Loan Purchase Program. The state appropriation of 3. 7 percent of tOtal funds for Insured Mortgage Housing Bonds, 1980 second series represented a 14.8 percent share per one percentage point of bond/mortgage interest rate differentia!. Table 16 shows that this differentiai bas decreased to as low as 3. 4 percent per point of differentiai for State Assisted Mortgage Bonds, Series D and E. As of November 31, 1981, AIIFC bad completed mortgage purchases under the first three bond issues used to finance the Special Mortgage Loan Purchase Program (Insured Mortgage Housing Bonds, 1980 second and third series and State Assisted Mortgage Bonds, Series A). For these issues' the mean state appropriation per mortgage loan purchased was $3, 108 for 1980 second series, $13,960 for 1980 third series, and $31,822 for State Assisted, Series A. On a per percentage point of interest rate differentiai, the appl,"opriation declined from $12,432 per percentage point for Insured Mortgage Housing Bonds, second series, to $4,514 for State Assisted Mortgage Bonds, Series A. The actual cost of individual loans depends on .the level of interest rate differ- entiai and the length of time the mortgage loaiJ. is held. (These issues are discussed in Chapter Seven on Program Costs.) Ot,her AHFC Programs. The mobile h()me program, the rural owner- occupied, and the rural nonowner-occupied programs are funded through direct state appropriations made to the Home Ownership Fund. The state appropriations for these programs increased from $6.5 million in 63 fiscal year 1980 and $17.0 million in fiscal 1981 to a total of $43.0 million for fiscal 1982. For 1982, the appropriations were $18.0 mil• lion for the mobile home pro gram, $20.0 million for the rural owner- occupied program, and $5.0 million for the rural nonowner-occupied program. AHFC has approved $15.4 million in mobile home loans in the first five months of fiscal year 1982, an annual rate of $37 million. This demand is appro:ximately twice the 1982 appropriation. This additional demand will be financed wi th funds available from other sources. The rural programs are operating in 1982 and levels in line with the appropriations. Loan approvals in the Rural Housing Mortgage Purchase Program totaled $6.3 million in the first five months of fiscal year 1982, a $15.1 million annual rate. The Rural Nonowner-occupied Program has approved $1.5 million through November 1981, a $3.5 million annual rate. Operating E:xpenditures and Revenue The major categories of AHFC' s operating costs are interest payments on outstanding notes and bonds; mortgage service fees; legal, accounting, and trustee fees; general and administrative e:xpenses; and the provision for loan loss. Table 17 summarizes A.HFC' s opera ting costs. and revenues for fiscal years 1978 through 1981. Over the period e:xamined, AHFC' s opera ting costs increased from $26.3 million in 1978 to $57.4 million in the seven months of fis.cal year 1981. The composition of operating e:xpenses has remained constant with interest payments on outstanding notes and bonds constituting 93 percent; mortgage service fees representing 4-to-5 percent; general and admin- istrative costs declining from 2.0 to 1.4 percent; and legal, account- ing, and trustee fees remaining below 1 percent. A new category of operating cost in 1981 was the monthly payments required under the HOF pro gram. 64 lliollii ... ... ... ... TABLE 17. AHFC OPERATING REVENUES AND EXPENSES FISCAL YEARS 1978-1981a (in millions of dollars) 1978 1979 Revenues Interest Income: Mortgage Loans 23.311 33.540 Inv-estments 7.651 13.329 Loan and Other Feés .732 1.031 Total 31.695 47.900 Exp ens es Interest on Notes and Bonds 24.483 35.654 Mortgage Service Fees 1.048 1.495 General and Administrative .519 .661 Legal, Accounting, and Trustee .161 .362 Mortgage Payment Assistance Subsidies 9) 9) Provision for Loan Loss .059 .097 Total 26.270 38.269 Revenues in Excess of Expenses 5.425 9.631 1980 1981a 57.176 60.440 22.549 39.616 1.378 2.193 81.103 102.249 51.159 53.350 2.653 2.610 .888 .800 .490 .426 9) .137 ~ .065 55.190 57.391 25.913 44.858 aUntil Fiscal Year 1981, AHFC' s fiscal years ran fro.m December 1 to Novemher 30; Fiscal Year 1981 was a transition year which ran from December 1 to June 30. SOURCES: AHFC Annual Report 1978-1980 AHFC Financial Statement, 1981 65 Interest payments on outstanding bonds and notes cost AHFC $53.35 million in the seven months of fiscal 1981. Interest payments will continue to grow as AHFC issues additional bonds to finance the SMLPP. AHFC pays its bond interest payments from payments it received on the mortgage loans. In fiscal 1981, AHFC collect.ed $60.4 million in mortgage interest payments. General and administrative expenses combined with legal, account- ing, and t.rustee fees cost AHFC $1.3 million in fiscal 1981 and $1.4 million in fiscal 1980. These expenses are budgeted for year 1982. AHFC finances these expenses through income earned on corporation activities. $2.9 million in fiscal The monthly subsidy required for the HOF program is funded through the income generated from capital contributed by the State of Alaska. At the time the pro gram was authorized in 1980, the State of Alaska contributed $50.0 million in mortgages to the home o\Yilership fund. The income from these mortgages was to be used to make the monthly subsidy payments. In fiscal year 1981, AHFC disbursed $137,000 from the fund. In fiscal year 1982, the State of Alaska pledged the income from the funds appropriated for the mobile home and rural programs to pro vide HOF subs idies. In December 1981, the HOF pro gram pa id out $153,636 in subs idies to 891 recipients, a mean subs idy of $172. The actual subs idies ranged from $5.82 to $333. Sllffilllary AHFC evolved from a supplier of mortgage funds for low and moderate income households in 1979 to the primary provider of mortgage funds in 1981 as a result of the Special Mortgage Loan Purchase Pro- gram which was created in June 1980. In fiscal year 1982, AHFC esti- mates that it will provide at or near $1.0 billion for the purchase of below market interest rate loans in Alaska. 66 ""' - ... - .... - - - - ... AHFC offers severa! mortgage programs from which potential home- owners may choose. The Special Mortgage Loan Purchase Program includes the Home Ownership Assistance Program for low-and moderate- income homebuyers and the Pledged Account Mortgage Program. There are also programs for rural residents and mobile home buyers. The Special Mortgage Loan Purchase Program is financed through bond and state appropriated funds. The level of state appropriation required depends on the difference between the below-market interest rate provided and the cost of borrowing to AHFC. While the goal is ul timately to provide mort gage funds on the first $90,000 of balance at three percentage points below AHFC' s cost of funds, events of the past year have kept state appropriations at a higher leve!. These events include the limitations placed on AHFC to issue tax exempt bonds under the Mortgage Subsidy Bond Tax Act of 1980 and the his- torically high levels of interest rates. The effects of AHFC programs on state housing markets and a further discussion of program costs are provided in Parts 2 and 3 of this report~ 67 89 -~: - .... - - - .... - ... - - ... CHAPTER TWO ALASKA STATE HOUSING AUTHORITY In this chapter, we discuss the history and operations of Alaska' s public housing authorities, the Alaska State Housing Author- ity and thirteen regional Native housing authorities. The Alaska State Housing Authority (ASHA) is the state' s oldest housing agency. Created in 1945 by the territorial legislature, ASHA was a response to an acute housing shortage caused by the limited availability of finan- cing, high costs of construction, and a small construction industry in the terri tory. The Alaska State Housing Authority was given respon- sibility for assisting in the development of decent, .safe, and sani- tary housing throughout the territory and, subsequently, the State of Alaska by building and operating public housing. In the 1950s and 1960s, ASHA's role was expanded to include severa! additional housing- related activities from providing pianning assistance for boroughs as well as cities (1957), constructing water and sewer facilities and authority for their interim operation (1964), and acquiring or con- structing public buildings for lease to the state (1965) to constru.ct- ing rental and ownership housing for moderate income families (1965). Severa! of these functions have since been discontinued due to federal funding cuts or have been transferred to other state agencies; today ASHA functions primarily as a provider of subsidized low-income housing. In an appendix to this report, we describe the early history of ASHA and its housing production under past programs up to the early 1970s . For twenty-five years, ASHA attempted to meet the housing needs of residents throughout the entire state as mandated in enabling legislation (Alaska Statutes, Title 18, Chapter 55). The agency encountered a number of physical, economie, and cultural problems with housing provision in the bush that have been difficult to resolve 1 • 1This discussion draws upon The Housing Element of the State of Alaska Comprehensive Plan (Division of Policy Development and Plan- ning, 1978), which contains a review of several reports on housing problems in Alaska •. 69 Physical problems include such things as getting materials and labor to bush locations on schedule, and the lack of ground water and dif- ficulty of .sewage disposai in permafrost areas. Chief among economie problems is the low level and irregular nature of ca.sh income in most rural areas, making conventional housing finance method.:; unsuitable in the local economy. Housing operating costs such as heating costs can also be beyond the means of many rural Alaskans. ASHA also encoun .. tered a general lack of experience in many Native communities in operating and maintaining standard housing. The combination of these problems resulted in generally poor working relations between ASHA staff and Native communities. This situation led in 1971 to state legislation providing for regional Native housing authorities (RHAs) to be established by the Native regional corporations (Alaska Statutes, Title 18, Chapter 55, Ar- ticle 5). It was expected that regionally based authorities would better represent the needs of their Native constituents and would be better able to understand and resolve the special problems faced in predominant1y Native villages. There are thirteen RHAs in Alaska with jurisdictions corresponq- ing to the twelve regional Native corporation boundaries and the federally recognized tribal lands in Metlakatla. ASHA retains the legislative authority to operate throughout the state but since the creation of the RHAs has confined its new projects to the cities and larger towns in Southcentral and Southeast Alaska. ASHA and the RHAs are public corporate agencies of the state. The major role of each, however, has been that of an agent of the federal government. Virtually all of their housing has been financed through programs of the U.S. Department of Housing and Urban Devel- opment (HUD). Only recently has the state become systematically involved in funding low-income housing, and even in these cases, state money has primarily been used to leverage federal funds. 70 ,'f ..,.; ... ... .., ... ... .... ""' The state housing authority and the RHAs have the same legis- lative authority for carrying out their housing programs. The dif- ferences in their activities in general arise not from differing limits on their corporate powers, but from the different problems of their constituents. Today ASHA is involved almost exclusively in providing rental housing. The agency also manages some houses built under the Turnkey III homeownership program2 which was initiated thirteen years ago, but ASHA has not been involved in any ownerdlip programs since the early 1970s. The RHAs, for the most part, administer a homeownership program for Alaska Natives, the Mutual Help for Indians Program. Since 1978, however, a few RHAs have constructed approximately 129 public housing rentai units for families or elderly residents. There is a growing interest among some RHAs in becoming more involved in providing rental housing in the larger Native towns and regional centers, particularly those that have recently experienced steady economie growth (Patton, October 27, 1981). In general, however, rentai programs designed for large, devel- oped population centers are inappropriate to and not used in the small, isolated communities served by the RHAs. Be cause of the expense of construction and management and the seasonal nature of the local cash economy, HUD is reluctant to build fewer than about twenty rental units in a town and requires evidence that the units it does build will, i,n fact, be rentable (Curtis, October 28, 1981) • Federal Housing Prosrams Table 18 summarizes the federal housing programs that have been used in Alaska. The four programs that are presently active--the conventional public, housing programs, Mutual Help for Indians, and both Section 8 programs--will be described in detail in the following 2Please refer to the discussion of the Mutual Help program of the RHAs and to Appendix A. 71 TABLE 18. FEDERAL HOUSING PROGRAMS IN ALASKA Dates of Activity Housing Pro gram in Alaska Type A geney Conventional Low-1951 to Present Rental ASHA, RHAs Rent Public Housing Turnkey III 1968 to 1970 Ownership ASHA Middle Income 1967 Rental ASHA 221(d)(3) Remote 200/ 1971 Ownership ASHA Mutual Help Mutual Help for 1978 to Present Ownership RHAs Indians Section 8, New 1976 to Present Rental ASHA Construction Section 8, Existing 1976 to Present Rentai ASHA Housing Program sections on ASHA and RHA activities. The operations of programs that are no longer being funded--Turnkey III, 22l(d)(3) ,· and Remote 200-- will not be described in any detail, al though pro gram swmnaries are found in an appendix to this report. The new units prodiu::ed in Alaska in the past decade under these programs are included in total produc- tion figures later in this chapter. There are several requirements which HUD commonly imposes in most of its programs that will be discussed briefly. HUD usually sets program eligibility limits, such as income limits or priority for serving certain groups. In public housing and in both Section 8 programs, eligible tenants must be 62 years of age or older, be handi- capped, or be a family. Their income must not exceed a maximum set by 72 f ·~ .. "" "" ... ... "" ... ... ... ... HUD that is based on household composition and income levels in the area in which the housing is located; consequently, income limits vary across the state. Table 19 shows federal program income limits for Anchorage. The lowest limits are found in the bush, where income levels are the lowest in the state (Czech, December 8, 1981). The highest limits are set for Juneau, where incomes are the highest. TABLE 19. ANCHORAGE INCOME LIMITS, PUBLIC HOUSING, AND SECTION 8 NEW CONSTRUCTION AND EXISTING HOUSING Single Person (Elderly or Family Family Family Pro gram Handicapped) of Two of Three of Four Public Housing $13,700 16,800 18,900 21,000a §8, New and Existing 16,350 18,700 21,000 23,350b aLimit increases by approximately $2,100 for each additional person. bL. 't . ~m1 1ncreases by approximately $1,500 for each additional pers on . SOURCE: Correspondence with John Curtis, Director of 4SHA, November 6, 1981. A second requirement, imposed by Congress in 1969, is a limit on tenant monthly payments that applies to all federal housing subsidy programs. This law originally required that no subsidy recipient could be charged more than 25 percent of monthly income for rent and other housing payments. This rent/income ratio will increase to 30 percent this spring as a result of recent Congressional action (Czech, December 14, 1981) . 73 HUD has also required that tenants in its housing projects have a broad range of incomes, within pro gram income limi ts, that replicates the income distribution in the community. HUD imposed a fu.rther stipulation that at least 20 percent of tenants in a particular proj- ect be in the 11very low incomeu category, defined as having an income of no more than 50 percent of the area median. Both of these require- ments are also being changed. HUD will no longer require a broad income distribution and is effectively lowering income eligibility limits (Czec.h, December 14, 1981). In the future it will be difficult for anyone with an income greater than 50 percent of the area median to qualify for housing subsidies. Finally, HUD imposes a per-unit total development cost limit on all federally fun-ded new housing construction. This limit is cur- rently set at $92,000 and includes everything from architects' fees to brick and mortar and labor. This limi t is particularly important for rural housing projects in Alaska since the costs of construction in the bush are so high. ASHA and Federal Programs Program operations and current and potential problems under Conventional Public Housing, Section 8 New Construction and Section 8 Existing Housing, are discussed in this section. While the programs are described in the context of ASHA, they operate the same way when used by the RHAs. ASHA currently administers six federal housing programs . The three active programs for which new units are funded are Conventional Public Housing, Section 8 New Construction housing, and Section 8 Existing housing. The other federal programs that ASHA administers will be referred to only briefly as HUD funds no new units, and the programs involved no state funds. 74 - lloliiÎ" - - - - - - - -· - - '- - - - - - Public Housing Under the Conventional Public Housing program, HUD finances the development of a project and provides additional operating subsidies. The development subsidy mechanism is somewhat complicated. HUD sells tax-exempt, federally guaranteed bonds to private investors for the housing authority. The federal government pays off the bond principal and interest through annual contributions to the housing authority, which owns and operates the housing project constructed with bond revenues. Federal operating subsidies were not originally intended in the public housing program; tenant rents were expected to cover oper- ating expanses. In the la te 1960s, when these expenses·•namely utility charges, salaries, etc. --began to ri se fas ter than tenant incomes, Congress expanded the federal contribution to include part of project operating costs as well as all of the capital costs of public housing. While ASHA owns, Q-perates, and maintains its public housing, it must adhere to the requirements set by HUD (described above) regarding tenant eligibility and rent payments. HUD allows the housing au• thority the choice of setting tenant asset limits, an option ASHA has chosen to exercise. The Anchorage as set limits for public housing tenants are $15,000 for the elderly and handicapped and $10,000 for a family. The average net income of a tenant in ASHA public housing is $7,350 per year; the average rent paid by a tenant is $150 per month (Curtis, November 6, 1981). Table 20 lists ASHA' s low-income public housing projects. ASHA has built eighteen projects under this program since 1951, totaling 891 units. There is a demand for at least another 500 units, as indicated by the waiting lists. Public housing waiting lists are fairly good indicators of unmet demand since any qualified applicant who cannot be served immediately is put on the list, and that list is updated monthly (Wilson, November 23, 1981). 75 TABLE 20. CONVENTIONAL PUBLIC HOUSING LOCATION: Project Name TOTAL ANCHORAGE 1. Willow Park 2. Loussac Manor 3. Faipnount 4. Acquisitiona 5. Park View Manor FAIRBANKS 1. Birch Park 2. Spruce Park JUNEAU/DOUGLAS 1. Cedar Park 2. Cedar Park Annex 3. Mountain View 4. Geneva Woods IŒTCHIKAN 1. Schoenbar Park 2. Sea View Terrace SITKA: Paxton Manor PETERSBURG: Vista View KODIAK: Pacifie Terrace VALDEZ: Valdez Arœs CORDOVA: Eyak Manor BETHEL: Bethel Heights b NOME: Beringvueb WRANGELL: Etolin Heightsb Year Built 1953 1967 1969 1981 1981 1951 1973 1952 1967 1977 1974 1969 1977 1966 1967 1967 1967 1970 1968 1970 1969 Number of Units 1060 449 150 62 88 99 50 155 75 80 117 50 25 42 25 64 24 50 24 12 40 14 16 12{) 29 20 Number on Waiting List 92 278 263 15 17 17 50 26 24 120 85 35 11 7 43 7 1 47 1 10 aExisting units in three-and four-plexes bought by ASHA. bBethel Heights, Beringvue, and Etolin Heights were built and financed under other federal programs. Public Housing subsidies were granted to them when the se proj ects experienced financial and other operating problems. SOURCE: ASHA Records 76 ' i "'-' ._ -- - - '- - - ..... ..... '- '- - - - .... The primary concern of HUD is that public housing projects be income sol vent, that is, able to meet operating expenses with oper- ating income. The housing authority derives its operating income from two sources, tenant rent payments and federal opera ting subsidies. Because of the low income levels of public housing tenants and the 2.5 percent rent/income limit, ASHA has depended on·. the operating subsidy for about half of its operating revenues (see Table 32). If these funds are signific::antly decreased, ASHA will be placed in a difficult situation under the new federal requirements. It will not be able to ra ise rents ab ove 30 percent of any tenant' s income, an undesirable move under any circumstances; nor will ASHA be able to replace the poorest tenants with new ones having higher incomes. Public housing operating subsidies are .not a guaranteed source of income for housing authorities. The funds are appropriated annually by Congr.ess, which is. under no obligation to continue these appro• priations at current levels, or even at all. lt is quite possible that they may be dramatically reduced in future spending cuts. Given the various constraints on ASHA under this pro gram~ such federal cuts could make it impossible for ASHA to meet program requirements and may result in financial difficulty for the housing authority. Under these circumstances, the authority would probably sell its public housing on the private market, unless other funding sources could be found. Section 8 Subsidy Programs While federal budget cuts may have important impacts on all federal housing programs, they would be less likely to lead to poten- tiel insolvency in the Section 8 programs. Before describing how these programs operate and how budget cuts may affect them, it is necessary to explain why the programs were instituted and how they differ from earlier federal housing programs. In thé 1960s and early 1970s, housing programs proliferated, but many projects floundered financially due to poor program design or 77 administration or faced criticism based on perceived discriminatory or other harmful social effects. In 1973, President Nixon suspended all principal subsidized housing programs for being inequitable, ineffi- cient, duplicative, and tao expensive. Section 8 was advanced to solve these problems by consolidating previou~ programs and relying on the private sector to build and manage subsidized housing, as opposed to relying on the public sector (Weicher, 1980). Before Section 8, housing programs relied entirely on a ''supply- side" approach. That is, subsidies were used to increase directly the number of housing units by financing some portion of capital costs of new housing. The benefits of the subsidies were only · indirectly passed on to the nomimal program beneficiaries. For example, interest subsidy programs 3 were a popular supply-side approach in the 1960s. An interest subsidy effectively reduces the cost to the developer of building housing, the intention being to induce production of new housing units. This development cast savings was expected to be passed along to the program beneficiary in the form of lower rents or house priees. A number of problems arase in many programs in the late 1960s and early 1970s. They cost more than bad been anticipated in sorne cases; in others they were actuarially unsound or did not serve the groups intended as recipients. In general, the uni ts buil t were of teil not affordable to intended program users (Weicher, 1980). Under "demand-side11 approaches, there is a shift away from direct production incentives that are tied to the housing unit being subsi- dized. The emphasis instead is on a subsidy that goes directly to the 3 Section 22l(d)(3) and Section 236 are two examples of interest subsidy programs for rentai housing. Section 235 is an example of a homeownership pro gram that used interest subsidies. See Wei cher, Housing: Federal Policies and Programs. 78 - ..... - - - i.... i..... '- i.r... b..; ._ ._ - - - needy family, enabling the recipient to afford housing in the private, unsubsidized market. The subsidy is tied to the recipient, not to a particular housing unit. The anticipated indirect effect is an in- crease in housing production, caused by the increase in the effective demand for housing from the poor whose incomes are incre,ased by receiving subsidies. The Section 8 Existing program fits this description; it is a pure demand·side approach. The Section 8 New Construction program, on the other hand, fits the supply-side description. Any program that directly produces new units is a supply•side program since the subsidy must be inseparable from the housing units that are built. The only similarity between the two Section 8 programs is the method by which the per-unit amount of subsidy is calculated. Both programs are described below. Section 8 New Construction. ASHA's new Section 8 housing closely resembles public housing since both are constructed and managed by ASHA. ASHA, as a public agency, was able to finance its Section 8 New Construction projects with state low-interest loans and grants. Without these state subsidies made, the projects would not have been financially feasible. The state funds prevented federal housing funds allocated to Ala~ka from being lost to the state, 4 as HUD' s practice is to reallocate funds that will not be used in one area to other parts of the country where they will be used. ln Section 8, the subsidy is not used to reduce the cost of constructing the housing; it is used to make the housing affordable to t.he tenant . The subsidy amount for each apartment is the difference between the rent on the unit and the tenant' s monthly payrnent, which currently may not exceed 25 percent of monthly income. 4HUD' s Fair Share Allocation system is described in Appendix B. 79 For example, for an ·eligible tenant with an annual income of $6,720, or $560 per month, the tenant payment for a subsidized apart- ment may not exceed $140 (25 percent of $560). Assume that the rent required to pay for utilities, maintenance and repairs, other operat~ ing costs, and for debt amortization is $400 per month (see Figure 2). The difference between the tenant payment and the rent is $260; this is the amount of subsidy HUD pays on that apartment each month. Under the 30 percent rent/income ratio to be instituted this spring, the tenant's payment will increase to $168 per month, and the subsidy will decrease by $28 to $232 per month. Note that the $260 or $232 payment is not used to reduce the cost of building or operating the housing. It is used to reduce the cost for that eligible tenant of renting that unit. 0 FIGURE 2. DETERMINING THE AMOUNT OF SUBSIDY UNDER SECTION 8 PROGRAMS TENANT PAYMENT ~ = $140/mo. Rent = $400/mo. ~ 100 200 300 400 \ + J subsidy = $260/mo. HUD sets maximum allowable rents for standard quality (nonluxury) apartments and bouses that receive Section 8 subsidies, cal led Fair Market Rents (FMRs). The FMR is not the rent payed by the tenant; it is the amount received by the landlord from both the tenant payment and the HUD subsidy. The FMR limit is set to prevent landlords from charging rents a hove market levels, thereby preventing larger federal subsidy outlays than are necessary. If the project sponsor, be it a private developer or ASHA, cannot amortize the mortgage debt and opera te the housing with the income from the allowed rents, the proj- ect is not built. 80 ,;' .J i!iliii 1 1 """" 1- - .._ L - ..... - '~.w.. - ..... ..... - Fair Market Rents for Section 8 New Construction units are de- signed to reflect the costs of constructing and operating new housing by setting them at the level charged for comparable private units. The process of setting FMRs is complex. HUD bases them on a survey of rents on nonsubsidized apartments in the area where the project will be built. FMRs are revised annually to account for changes in con- struction costs and in the local housing market. Table 21 shows FMRs for Section 8 New Con$truction in effect in Alaska as of November 1981. There are several criticisms of HUD 1 s FMRs. Some claim that FMRs are outdated by the· time they come into effect due to the time lag between when the survey is made and the time the FMR.s are used·-a year to a year-and·a-half la ter (Young, December 13, 1981). This reduces the incentive for developers to build Section 8 housing. Rents usually increase, so Section 8 housing may rent for less, but it costs just as much to build as unsubsidized housing. ASHA owns and operates five Section 8 New Construction projects, containing 285 ren.tal units (see Table 22). In November 1981, there were 130 eligible 1 applicants on waiting lists for these units. These lists, however, are not a good indicator of unœet program demand. Unlike Conventional Public Housing, Section 8 lists are closed when ASHA anticipates no open units and turnover is low. No new applica- tions are taken by the housing authority, regardless of the eligi- bility of the needy individual or family. 81 TABLE 21. FAIR MARKET RENTS FOR SECTION 8 NEW CONSTRUCTION Number of Bedrooms Market Area Structure ~ 0 1 2 3 4. or more Detached 643 711 735 Anchorage Semi-Detached/Row 553 616 671 694 Walkup 384 453 531 628 650 Elevator/2·4 Story 503 592 662 5 + Story 512 602 673 Detached 633 690 751 Fairbanks Semi-Detached/Row 542 608 683 737 Walkup 476 517 584 657 723 Elevator/2-4 Story 583 670 746 5 + Story 595 684 760 Detached 670 763 794 Juneau Semi•Detached/Row 538 650 727 763 Walkup 431 481 599 693 735 Elevator/2-4 Story 483 545 625 5 + Story 507 572 650 Detached 589 670 745 Ketchikan Semi-Detached/Row 478 561 639 710 Walkup 385 435 510 581 645 Elevator/2·4 Story 442 505 592 5 + Story 464 515 609 Coastal Area,3 Detached 861 947 1042 1146 N. of Aleutians/ Semi-Detached/Row 836 920 1012 1113 N. Coastal Aréa, Walkup 738 812 894 983 1081 Barter Island Elevator/2-4 Story 5 + Story 3 Market areas are not combined. FMRs are identical for these market areas. SOURCE: Federal Register, Vol. 45, No. 170. 82 w ., - - ._ ._ - ~ ~ - ._ ..... ..... - L i- - ..... .... TABLE 22. SECTION 8 NEW CONSTRUCTION Location Year Nwnber Nwnber on Project Name Built Units Waiting List Total 285 130 Anchorage 137 96 1. Chugach View 1977 120 66 2. Ptarmigan Park 1979 17 30 Fairbanks: Golden Towers 1976 96 30 Cordova: Sunset View 1979 22 2 Seward: Glacier View 1979 30 2 SOURCE: ASHA Tenants in ASHA 1 s Section 8 New Construction projects have an average annual income of $6 ,400 and pay an average of $133 per month (Curtis, November 6, 1981) . There are also seven privately owned and managed housing projects in Alaska b.uilt under the Section 8 New Construction program. Each of these projects was financed with FHA mortgage insurance, an important factor in the financial feasibility of these projects. They have a commi tment from HUD for 20, 30, or 40 years, depending on the term of the project loan. Table 23 lists these projects, the nUœber of units, and the subsidy commitment. 1. 2. 3. 4. s. 6. 7. TABLE 23. PRIVAtt SECTION 8 NEW CONSTRUCTION HOUSING IN ALASKA Project Subsidy No. Units Bethel: Ayalpik Apts. $228,804 24 Juneau: Madsen/Tiffany 392,928 52 Fairbanks: Chenana Apts. 320,820 51 Fairbanks: Executive Estates 682,560 108 Fairbanks: Park West Apts. 522,720 84 Anchorage: KBL Apts. 477,024 76 Kodiak: Kodiak Elderly 400,620 55 TOTAL 3,025,476 450 SOURCE: U.S. Department of Housing and Urban Development. 83 Date FY 81 FY 81 FY 76 FY 78 FY77 FY 78 FY 78 Section 8 ExistingHousing; This program bears little similarity to either of the two programs described earlier. ASHA administers the Section 8 Existing program, but its role is not that of landlord. Eligiblè participants must find their own house or apartment in the private market that meets ffiJDfs requirements. They are responsible to their private landlord for their rent payments and for other responsi- bilities as tenants. ASHA is involved in determining eligibility (same eligibility requirements as in Section 8 .New Construction), in inspecting the uni ts , in ente ring into and terminating contracts wi th landlords, and in passing through to the landlords the subsidy from HUD. The only similarity between the Section 8 Existing and New Con- struction programs is the way the per-unit subsidy amount is deter- mined. HUD pays the difference between 25 percent of the recipient's income and the rent on the apartment, just as in the New Construction program. HUD also sets .FMR limits for Section 8 Existing housing lower than the FMRs for New Construction {see Table 24). The reason given for lower FMRs for existing housing is that it should rent for less than new housing because it was less expansive to build. This reasoning, however, may not be valid. All rents respond to the leve! of housing demand, increasing when demand increases. New housing is built only when rents can be charged that offset the costs of building and managing the housing, with a profit margin included. New units rent for amounts close to that for older units; people may be willing to pay a little more for newer housing, but if a new apartment costs much more than older ones, it will remain vacant unless something makes it worth more. Setting lower FMRs for the Section 8 Existing program does not reflect this relationship. Subsidy recipients are experiencing increasing difficulty in finding apartments with rents as low as the FMRs (Strasbaugh, December 7, 1981; Terrell, December 16, 1981). 84 ,~, illloli ....... i l. - ..... ' i ~ - ..... - ..... - TABLE 24. FAIR MARKET RENTS FOR SECTION 8 EXISTING HOUSINGa Number of Bedrooms Locat!2! 0 1 2 3 4 - Anchorage 332 404 475 546 618 Fairbanks 332 404 515 592 670 Juneau 332 404 515 592 670 Kenai 332 404 515 592 670 Ketchikan 332 404 515 592 670 Matanuska-Susitna 332 404 515 592 670 3 New FMRs will be published early in 1982. SOURCE: Federal Register, Vol. 46, No. 52, p. 17505. As program funds become available, the HUD Anchorage Area Office alloc:ates them around the state. They are allocated in the form of a certain number of rent subsidy certificates for different types of units, from efficiency to five-bedrooœ apartments. The mix of units determines the number of certificates: the more certificates for large units, that is, for large families, the fewer the households that receive them. This tradeoff between number and size of families receiving subsidies also applies to Section 8 New Construction and any other housing program, because the amount of available funds is not unlimited. 1fUD attempts to be equitable in its distribution of funds by basing the mix of units it subsidizes on local needs and on the mix of units previously subsidized in that a rea. Table 25 shows the distribution of Section 8 Existing subsidies in Alaska. 85 Tenants with Section 8 Existing subsidies have average annual incomes of $7,100 and pay an average of $148 per month for rent (Curtis, November 6, 1981). TABLE 25. SECTION 8 EXISTINGHOUSING Number Number Certificates Certificates Number On Location Allocated Under Contract Waiting List State Total 1,363 1,032 479 Anchorage a 980 772 299 Fairbanks 100 100 100 Kenai/Soldotna 110 110 47 Ketchikan 40 40 11 Juneau a 11 1 22 Mat-Su a 122 9 0 aAnchorage and Mat-Su received a new allccation of certificates in the fall of 1981; consequently, a large number of these certificates have not yet been contracted. Juneau. received its eleven .. certificate allocation in 1980, but due to extremely low vacancy rates, only one has been successfully .contracted. The remaining ten allocations must be returned to HUD. SOURCE: Alaska State Housing Authority. 86 .... - ....i ... - ..... - - Regional Housing Authorities Mutual Help Housing Most RHA activity currently takes place under the federal Mutual Help for Iruiians housing program. As the name implies, the program serves only the Native population. Today' s Mutual Help program is the latest in a series of three low-income homeownership programs that began in the early 1960s with the Turnkey III program. 5 The major differences between the progams have been in how monthly payments are computed. Participating families initially lease houses owned by the RHA and gradually build up equity in the homes they occupy. Ownership passes to the family under three circumstances: when family income increases to the point where it can obtain permanent financing; when the amount contributed to an equity account equals the unamortized debt and closing costs; or after 25 years . Eligible participants are low-income Native families with a potential for homeownership; that is, the ability to meet the minimum payments required. Income limits vary from one RHA to an.other; each RHA sets maximum and minimum limits for families of different sizes. The maximum income limits must be approved by HUD, which r.equires that they not exceed 80 percent of the area median income unless no other source of mortgage financing is available in the area where the appli- cant lives. The minimum income limit is the level of income the RHA determines · is necessary to pa y home opera ting costs and the minimum monthly payment. 5 In 1968 and 1970, before the creation of RHAs, ASHA constructed 230 bouses under Turnkey III--180 in Bethel and 50 in Nome. Approxi- mately 138 of these units have been converted to rentais due to the inability of many participants to maintain a home buyer statua. (Barbara Wilson, ASHA; Performance Review of ASHA: 2,8.) HUD has not accepted new Turnkey III applications since 1973. 87 Participating families are required to contribute either land for the bouse site, labor in constructing the bouse, building materials, cash, or a combination of these, valued at $1,500. In addition, the family must make a monthly payment to the RHA. This monthly payment has two components; the first is an administrative service charge that covers the RHA program administrative expenses, insurance on the bouse, and payments in lieu of local property taxes. The second component of the monthly payment is an amount that goes into a family equity account. The entire monthly payment may not exceed 25 percent of family income; thus, the amount budgeted to the equity account is the difference between 25 percent of incarne and the administrative charge. A participating family may have an income low enough that no payments are ever made to the equity ac~ount. Nonetheless, after 25 years, ownership will pass to such a family as long as it has paid · its utility costs and the monthly administrative service charge. The monthly payment may change if the costs of administering the program changes and if family income changes. The RHAs periodically recertify family income to adjust monthly payments and to determine if the family is eligible for permanent financing, one of the ways a family can attain ownership status. Once a family is determined eligible for permanent financing and elects to take out a mortgage loan, its obligations change from those under an occupancy agreement to those under a promissory note and mortgage, which are held by the RHA. The RHA lends the family the amount for home purchase at the current FHA int.erest rate. The purchase priee is established as the portion of original development cost that bas not been paid off by HUD in its annual contributions to the RRA, plus loan closing costs. The family continues to make its payments to the housing authority, but now it is paying principal and interest on its mortgage loan. If the family 1 s income subsequently decreases, this payment schedule can be adjusted to a certain extent to prevent hardship and the possibility of default. 88 : . . , ... - - - ..... - - Severa! advantages accrue to a family that achieves this arrange- ment, despite the fact that its monthly payments increase. The family can sell the house without any special restrictions. If it can qualify for a loan from another lender, the family can get out of the program altogether. This means an end to annual house inspections and income recertification. And whether or not it finds private financing or keeps its RHA mortgage, it is able to take the usual tax deductions for ownership expenses. Housing · construction under the Mutual Help program has been financed entirely by the U.S. Department of Housing and Urban Devel- opment. By mid-1981, HUD had financed approximately 2,547 Mutual Help houses under the latest program and had applicàtions from RHAs for another 612 units (see Table 26) • TABLE 26. MUTUAL HELP HOUSING PRODUCTION No. Units No. Units in Housing Authority Financed a ~li cations Aleu tian 131 38 ASRC 146 25 AVCP 698 306 Bering Straits 230 55 Bristol Bay 219 0 Cook Inlet 122 30 Copper River Basin 72 20 Interior 311 125 Kodiak Island 166 12 Metlakatla 36 0 Nana 252 10 North Pacifie Rim 116 21 Tlingit·Haida 48 0 - TOTAL 2,547 612 8 Includes units completed, under construction, and with funds reserved. SOURCE: Department of Housing and Urban Development. 89 The 1981 Alaska legislature established a Supplemental Housing Development Fund in the Department of Community and Regional Affairs (CRA) that makes grants to RHAs for the cost of on-site sewer and water facilities, road construction to the project site, and the extension of electrical distribution facilities to individual rési- dences (1981 House Bill 502 and 503). Staff at several RHAs maintain that without these fu.nds, it would be much more difficult to build any housing in their jurisdictions because of the HUD per-unit total development cost limit. The total cost of housing involves more than the materials and laber that go into the. actual structure. Federal programs often require that houses constructed with federal funds conform to standards that include water, sewer, and electrical service. It is difficult to build within HUD's cost limit because the costs of construction in rural Alaska are high. The CRA grants for water, sewer, etc. are not included by HUD in its development cost calculat.ions, and the grants allow federal funds that would have funded infrastructure to be used to meet other necessary expanses. At this time, the entire $12.3 million appropriated by the state for this program have been committed to RRA projects that will build between 500 and 600 new houses (Crane, January 1982). State-Funded Housing In the early 1970s, the state undertook construction of a rentai housing project under no federal program, with no federal funding or involvement. This project is described below. Marine View During a severe housing ahortage in Juneau, Alaska, in 1972, the Alaska State Housing Authority initiated construction of the Marine View apartments. The 98-unit project consisted of 64 one•bedroom, 32 two•bedro.om, and 2 three-bedroom uni ts. Financing for the $3.9 90 ~ lirolil .... ... - - million project was obtained from the Alaska Housing Finance Corpo- ration (AHFC). Terms of the lean included interest at 3 percent over 36 years with the first five years requiring interest-only annual payments. Despite its predominantly low-income composition, the project did not receive any .federal subsidy due to insufficient federal allocations (Special Review of Marine View) . Since initial occupancy in early 1974, the project has been in financial difficulty. Due to increased annual debt payments (prin- cipal portion) and other costs, in mid-1979 ASHA converted three floors of the nine•floor structure to office space. Various state agencies occupied the three floors in 1979 with the state retaining a negotiable option on the fourth floor. The state exercised the option in early 1980, and ASHA, after examining various alternatives, agreed to couvert. Fourth-floor tenants receiving eviction notices were either provided relocation assistance in the form o.f lump-sum payments of $4,000 or were assisted in moving. Assis.tance to tenants occupying the first three floors was not necessary because there was much greater lead time; the tenants either moved to higher units in Marine View as they became available or to other projects. Marine View now contains 60 apartments on the upper five floors. Tenants must meet income and asset limits: maximum annual incomes cannot exceed $19,500 for a single persan, $22,270 for a family of two, $25 ,lOO for three, $27,825 for four, and $29,600 for a family of five. The maximum asset limit is $50,000 per household. The average gross income of a Marine View tenant is $20,000 annually, and the average rent paid is $308 per month for a one-bedroom unit and $385 per month for a two•bedroom unit. ASHA' s experience wi th Marine View led to the conclusion not to attempt to construct low-income housing without the commitment by HUD of federal operating subsidies. The HUD area manager has indicated to ASHA that housing units developed from non-HUD funds may be eligible 91 for operating subsidies but will be governed completely under the terms and conditions normally required by HUD (Curtis, October 28, 1981). Any sucharrangement could not guarantee a fixed level of sub- sidy, however, since funds for operating subsidies are appropriated annually by the U.S. Congress and are subject to annual congressional adjustments. Low-income housing built under such an arrangement with mm could be of substantial fin:ancial benefit to the state 1 s residents. Project developmertt costs comprise a relatively small part of the total proj- ect-life subsidy cost; a relatively small state expenditure could bring in a rouch larger amount of federal funds. Todayt s political climate makes the future of operating subsidies, and housing subsidies in general, uncertain. Under these circumstances, it would be unwise to consider this strategy, unless the state is willing to provide state funds for. operating subsidies or raise rents to levels suffi- cient to sustain the project if no federal funds were available. Subsidized Housing Production Since 1970, ASHA and the RHAs have constructed about 3,478 new housing units throughout the state. About 2,236 units for homeowner- ship and about 1,242 rental units were built. The combined impact of public housing authority production on the state as a whole has been small; these units account for only five percent of the net change in number of units from 1970 to 1980. HUD is an important factor in determining how federal housing subsidies are distributed around the state. Most federal housing assistance funds are allocated to different geographie regions based on housing need, as measured by population, poverty, and housing conditions (see Appendix B). Housing authorities influence the dis- tribution of these benefits by responding to funds availability with well-prepared project applications. State agencies, therefore, have only limited influence over where the federal funds are spent. 92 t '': .i "" ... ... ... - Table 27 shows the geographie distribution of subsidized housing units managed by the various housing authorities. By far the greatest impact has been in the Northwest region, where one in five households receives subsidies through the public housing authorities . TABLE 27. GEOGRAPHie DISTRIBUTION OF SUBSIDIZED HOUSING MANAGED BY STATE HOUSING AUTHORITIES Southeast b Southcentral Central Northwest No. Households With Subsidya 708 2,424 1,567 997 5,696 Percent of House- holds In Region 3.87 2.92 6.30 20.74 aincludes recipients of Section 8 Existing Housing subsidies and residents of public housing, Section 8 New Construction, HUD Remote Housing, Bartlett, Turnkey III and 221(d)(3) projects. bincludes Aleutian and Pribilof Islands . SOURCES: U.S. Department of Housing and Urban Development Alaska State Housing Authority Program Beneficiaries In this section we examine the income, age and racial character- istics of federal housing subsidy recipients. Current data on RHA pro gram participants are not available; detail will be provided only for ASHA participants. It is certain, however, that RHA beneficiaries are predominantly Natives and families. In at least three regions, Kodiak Island, Bering Straits, and AVCP, they usually have the minimum income required to participa te in the Mutual Help Pro gram (Knight, January 14, 1982). ASHA housing projects contain a high proportion of very low income tenants (having incomes no greater than 50 percent of the area 93 .. • median). Table 28 shows the portion of very law income ASHA tenants in various cities. As a whole, 64 percent of all public housing and Section 8 New Construction project.s fall into this category. Recip• ients of Section 8 Existing subsidies also usually have very law incomes 6 (Snyder, November 19, 1981). TABLE. 28. VERY LOW INCOME HOUSEHOLDS IN ASHA HOUSING 3 Anchorage Fairbanks Juneàu/Douglas Ketchikan Sitka Petersburg Kodiak Valdez Cordova Seward Number 351 190 72 46 10 9 20 8 24 26 I = 756 Percent of ASHA Units 60 76 62 72 42 75 50 57 63 86 64.3% aincludes public housing and Section 8 New Construction units. SOURCE: Alaska State Housing Authority. A large portion of ASHA housing, 37.9 percent, is rented by elderly households (see Table 29). Persans aged 62 or older comprise only 4 percent of Alaska' s population (Bureau of the Census, unpub- lished data). It is difficult to estimate what portion of elderly households needs housing assistance. The problem is generally recog- nized as an important one, however, and the state has had a program to 6 Data on Section 8 Existing recipients were collected only for Anchorage, which accounts for 72 percent--or 980 out of 1,363--of all current certificates. Of those in Anchorage, 78 percent of recipients have very low incomes. 94 '~ looiôil ... .... - - .... - facilitate the provision of senior citizen housing for severa! years (see Chapter Three). A representative of the Older Persans' Action Group indicated that affordable, adequate housing is the biggest problem the elderly face today (McVickers, January 10, 1982). Native and black households living in ASHA's housing are shown in Tables 30 and 31. Nearly 40 percent of ASHA' s tenants are Natives, and 8 percent are black. Only 7 percent of the population in ASHA- served places is Native (1980 · Census of Population Advance Counts), but Natives have his.torically had lower incomes than the rest of the state' s residents. In 1970, 39.3 percent of all Native families had incomes below poverty level, while only 9.3 percent of all families in the state fell into that category (1970 Census of Population). TABLE 29. ELDERLY HOUSEHOLDS IN ASHA HOUSINGa Percent of N~er ASHA Units Anchorage 176 30 Fairbanks 135 54 Juaeau/Douglas 50 35 Ketchikan 18 28 Sitka 3 13 Petersburg 3 13 Kodiak 3 7 Valdez 4 29 Cordova 24 63 Seward 30 100 TOTAL 446 37.9 alncludes public housing and Section 8 New Construction. SOURCE: Alaska State Housing Authority. 95 TABLE 30. ALASKA NATIVE HOUSEHOLDS IN ASHA HOUSINGa % of 1980 Number Percent Population Anchorage 193 33 5 Fairbanks 102 41 7 b Juneau 65 46 11 Ketchikan 31 48 15 Sitka " 14 58 21 Petersburg 1 8 11 Kodiak 24 60 14 Valdez 2 14 6 Cordova 16 42 15 Seward 8 27 13 - TOTAL 456 38.8% aConventional Public Housing and Section 8 New Construction projects. b Includes Douglas. SOURCE: ASHA Public Housing and Section 8 New Construction program records. 96 ... - - - TABLE 31. BLACK HOUSEHOLDS IN ASHA HOUSINGa Anchorage Fairbanks Juneau/Douglas Ketchikan Sitka Petersburg Kodiak Valdez Cordova Seward TOTAL Number 47 25 1 18 0 0 0 1 0 0 92 Percent 8 lOb 28 0 0 0 7 0 0 7.81 % of 198.0 Population 5 9 1 aConventional Public Housing and Section 8 New Construction projects. b Less than one percent. SOURCE: ASHA Public Housing and Section 8 New Construction program records. The evidence presented indicates that the impact of housing authority operations in the state as a whole have been small. The Northwest region has felt the greatest impact: in 1980, over 20 per- cent of households received housing assistance through RHA activity. The distribution of the benefits of housing authority activity appears to be consistent with the distribution of need among state residents, according to RUD's indicators of need. There is no evidence that ASHA' s operations fail to serve par- ticular poor groups, the elderly and Natives, for instance. The greatest gap between needy families and federal program service exists in the bush, where a large portion of the population cannot benefit from the Mutual Help homeownership program because their incomes are so low. Any program to benefit this group must provide operating subsidies to help meet the costs of operating and maintaining a home. 97 State Funding States do not normally provide any funding in the public housing, Section 8, or Mutual Help for Indians programs. In Alaska, however, the costs of construction exceed the limit currently allowed by HUD. To prevent federal funds from being lost to the state, supplemental funds have been provided through the Department of Communi ty and Regional Affairs through two programs: the Supplemental Housing Development Fund and the Senior Citizens Housing Development Fund. The former of these, described briefly in the discussion of RRA àctiv- ities, is a new program, with $12.3 million in capital funds appro- priated by the legislature in 1981. The program for elderly housing has provided funds for four ASHA elderly projects. Sunset View, Glacier View, Se a View Terra ce, and Mountain View received grants totaling $1,658,095; the funds were used to reduce ASHA's debt service for these projects. In five cases with ASHA projects, the state has also made low- interest loans to ensure project feasibility. Permanent loans totaling $11,211,453 at 7 percent interst were made for two elderly projects, Chugach View and Golden Towers. Three interim low-interest loans, also at 7 percent, were made for two additional elderly and one family proj ect, Sunset View, Glacier View, and Ptarmigan Park. The original principal amount of the loans totaled $4,629,000; ASHA reduced its indebtness on Sunset and Glacier View by using its grants from the Department of Community and Regional Affairs to pay off a portion of its loans immediately (Curtis, January 12, 1982). Table 32 summarizes ASHAis state loans and grants. The state, then, has used its resources in a limited way to take advantage of federal housing funds allocated to Alaska. By enabling the financial feasibility of these projects with its grants and loans, the state secured a continuing stream of federal subsidies which surpasses the state investment over the years. 98 >;'; '1 ... ... - ... - .... ... ... .... TABLE 32. STATE FUNDING FOR ASHA PROJECTS Project Sunset View Glacier View Sea View Terrace Mountain View Chugach View Golden Towers Ptarmigan Park ~ $183,600 215,100 761,311 498,084 SOURCE: Alaska State Housing Authority . Program Costs Loan $1,455,000 1,984,000 5,911,453 5,300,000 1,190,000 The costs to the state of its investment in ASHA housing have been small. Its grants have totaled about $1.66 million, nearly $400,000 of which was used by the grantee, ASHA, to pay baek a portion of the state 1 s own loatts to this agency. The actual net grant amount comes to $1,259,395. the state's loans to ASHA, despite their total original principal value of $15,840,453, will cost t~e state relatively little. Most of this total, $11.2 million, will be repaid over 40 years with 7 percent interest. The cost to the state of making these loans equals the value of the interest subsidy, which is determined by the alterna te uses to which the money could have been put and the rate of return on those uses. The remaining $4.6 million was loaned at an interim rate of 7 percent. Negotiations on renewing tb.ese interim loans will probably provide the state with an effective rate of return of 14 or 15 p.ercent on the remaining principal balance (Curtis, January 12, 1981) if the loans are renewed. The costs of the state interest subsidy on these loans will be lower than for the permanent.loans, and will also be determined by the return on alternate uses for these funds. 99 It is illiPossible to determine the real costs of building Alaska's federal projects under the Public Housing and Section 8 New Construc- tion programs. The capital costs of public housing are indeterminate because HUD periodically rolls over the bonds used to finance devel- opment costs. All of the Section 8 New Construction projects were financed at below market rates, so real development costs can only be estimated. It is easier to determine the opera ting costs of these programs. Tables 33 and 34 show operating revenues and expenses for most of Alaska's public housing and for ASHA's five Section 8 New Construction units. Please note that none of the capital costs of public housing are shown and that only a portion of these costs are shown for the five Section 8 projects. TABLE 33. INCOME AND COST OF OPERATION FOR 1980-1981 PUBLIC HOUSINGa -797 UNITS Revenues Income from Tenant Payments HUD Net Subsidy Total Revenues Qperating Exyenses Administrative Cost Utilities Maintenance and Operations General Expanses Addition to Reserves Total Expenses Per Unit Month $154.80 154.70 $309.50 56.88 106.43 75.78 42.18 28.30 -- $309.57 Amount $1,480,487 1,479,611 $2,960,098 544,039 1,017,947 724,712 403,363 270,671 $2,960,752 aCapital costs not shown; they are paid by HUD separately. SOURCE: Alaska State Housing Authority. 100 ~ ... TABLE 34. INCOME ANI)· CùST OF OPERATION .FOR 1980;..1981 SECTION 8.NEW CONSTRUCTION J;lROJECTS-285 UNITS Revenues .. Approximate Renta! lncome lWD Subsidy Total Revenues. Administrative Cost Utilities Mainten..ance a:nd Operations ·. General Expenses Aniount Available for Amortization a Total Expenses Per. Unit Mon tb,. $130.oo· ·. 420.00 $550.00 77.66 66.18 60.03 39.08. 307.05 $550:00 • t\mount $ 444)ti00 1,436,600. $1,881,200 265,610 226,340 205,321 133,683 1,050?:246 $1,881,200 al)oes not include state capital grants and low-i.nterest loans; therefore, does not reflect total. costs of these units . . SOURCE: Alaska State Housing Authority The costs of actual operations of a unit of public housing are about equal to the operating costs of a unit in a Section 8 New Construction project. Administration, utilities, maintenan.ce and operations, and general exp.enses for a public. housing unit total $281.27 per month., and for the Section 8 unit they total $242.50. · Higher average utility costs for public hotlsing units account for most of the difference: public housing · is ()lder and a smalle.r portion of public housing units are located in Anchorage, where utility costs are lower than the rest of the state (Briggs, November 24, 1981). 101 It is impossible to account for government expenditures for Section 8 Existing housing on a basis comparable to thes~:! other two programs. ASHA is not the owner and operator of the housing; there is no way to judge what portion of the federal rent subsidy pays for what costs. George Briggs, the senior bousing management official at ASHA, asserts that not only do tlle costs vary from one unit to another .because of differences in the age and type of building 1 •they also vary with family circumstances and from one city to another. He maintains there is no satisfactory way to control for the multitude of indeter .. minate variables to obtain a figure that accurately representa the costs of this program. If the total program revenue for this program (see Table 35) is spread equally among all units subsidized, the monthly per unit , federal expenditure cornes to $367.70. This figure should not be interpreted to mean that this program is more expensive than the public housing and Section 8 New Construction programs; the full costs of units under these programs are not reflected in the figures con· tained in this report. On the contrary, given the fact that the full capital costs are not included, the Section 8 Existing program bas probably been less expensive than public housing and Section 8 New Construction. It is impossible to say how much less expensive it bas been for the various reasons given above. Data on the costs of the Mutual Help program for Indians are not available. HDD finances the total development costs of the bouses. Program administrative expenses and home operating costs are paid for by program participants. Table 36 shows the amount HUD has committed annually for housing construction under this program since 1976. The figures represent amounts HUD bas committed to various projects in those years; they do not represent amounts actually spent or units actually built in those years. 102 - !*: ... ... ... ... .. ... .... TABLE 35. INcmm AND COST OF OPERATION FOR .1980-1981 SECTION 8 E~ISTING PROGRAM -935 CERTIFICATES FOR ANCHORAGE ALLOCATION AREAONLY Revenues · Total Income (miD} 'l'octal.Rental Assistance3 ·Administrative Cost Utilities ·. .. Maif.Ltênance and Operation$ General. Expens.es · Nondwelling Equipmerit Addition · to ·.Reserves Total E;Xpenses Amount $4,125,691 3~637,742 369,374 .... o- 3,891 61,303 13,721 39,630 $4,l25,661 ~aid to landlords by ASHA on behalf of tentnats • TABLE 36. mm COMMITMENTS FOR MUTUAL IŒLP HOUSING, 1976-1981 1981 3 1980 1979 1978 1977 1976 Dollars $65,122,000 55,148,000 50,392,000 34,730,000 24,108,000 17;633,000 '7irst three quarters of 1981. Number of Units 754 6.04 562 '411 323 216 2,870 SOURCE: U.S. Department of Housing and Urban Development . 103 Summary: Program Effectiveness When the territorial and then the state legislatures established ASHA and la ter the RHAs, the agencies were intended to take advantage of any federal housing programs and funds made available. The housing authorities have done just that in the past decade or so, despite the mismatch between federal eligibility and construction-~ost limits and Alaskan incomes and c()sts. Virtually all HUD funds allocated to Alaska have been used. This has been the most important limiting factor on the activities of these agencies. It is difficult to assess housing authority achievements in goal-oriented terms. No specifie standards were established in state legislation by which to measure performance. The housing element of the 1978 state comprehensive plan provides few directions related to housing authoritiy activities. If considered in the light of the broadly stated goal, " ... to insure the opportunity for each Alaskan to live in safe, sanitary, efficient, and comfortable housing," the housing authorities cannot achieve their purpose unless many more state and federal resources are made available. It is quite unlikely that federal funding will continue at the level of the past few years. New subsidized housing production is being eut significantly under the current national administration. Substantial cuts in operating subsidies may be made. The Mutual Help for Indians program may have no new units funded next year under current plans, and special fund set-asides for Indian housing are being ·eliminated. In the light of these changes, we can expect :few new subsidized units and greater competition between the various housing authorities for available funds. It is clear that these changes will have a greater impact on the bush than on Alaska's cities. Although the Section 8 Existing program will be changed to a less complicated system with more restrictive 104 ... ... i • .... ... ... ... ... - """ eligibility standards, the new vacucher system will still benefit urban rentt!rs ta the extent tb.at there are available rentai units. Most rural towns éilild villag.es, b.owever, cannat benefit from this type of rent subsidy since so few rentai units are aval,lable. The greatest need in rural Alaska is for new b.ousing production, the cost of which is beyond t.he means of most rural residents. 1 The . outlook for the public housing authorities, then, is uncer- tain. . If no new funds be come a'Va'ilable, they wi;I.l func·tion as managers of current, oJ,lgoing programs. Alaska's housingauthorities, however, ·do comprise an experienced organizational structure for housing provision. throughout the state~ Should. the state choose to apply its resources . to the problems of Alaskans who cannat . benefit from mortga.ge programs, i.t would be prudent to talœ advantage ·of the network of housing authorities with housing provision experience and .knowledge of the problems faced by state residents . 105 901 ... -· ... - - - - - ·CHAPTER TIIREE DÊPARTMENT OF COMMUNITY AND REGIONAL AFFAIRS The Division,ofH.ousingAssistance of the Department of Community and Regional Affaiis is the state administrl,ltive offi<)e in ch-'!rge of severa! housing programs. As such, its progr~s and activities are indicative of state housing poli.cies and of p:~;iorities fot direct state action. This office administers the Nonconforming Housing Loan F1ind) the Senior ... .Citizens Housing Dev~lopment fund,, and the. Supple- .. mental HoU.sing Development Fund. .The first two of thes.e three pro- grams . will be described in this chapter; the Supplemental Housing Development Fundis describedbriefly in the discussion in Cbapter:Two of. the · federal· Indian housing program.. These thre~ funds have a combined capi.tal budget of $60.3 m1llion for fiscal year 1982. The Nonconforming Hous:i.ng Loan Program is similar to. the loan programs of AHFC; the Division serves as a secondary mortgage market institution. The first part of this cbapter deals with the role and activities of the Division of Housing Assistance in the program's first year of operations . The· Senior Citi2:ens Jlousing Development Food performs a·· very different function. The primary focus of this program is to leverage · federal housing funds and assist munic:i.palities in meeting the housing needs of their elderly. The second part of this chapter describes the Senior Citizens Housing Development Program. This program' s function is very diffet'ent from that of .the .loan program. The emphasis is on ensuring that available federal funds can be used in Alaska. These two programs represent the. two basic approaches the state bas taken in its housing policies. 107 The Nonconforming Housing Loan Program Legislative History In the 1980 legislation that created the Nonconforming Housing Loan Program (1980 Senate Bill 1; Alaska Statutes, Title. 44, Chap- ter 47, Sections 360-560, as amended), the legislattlre found that private mortgage financing for housing that fails to meet custo.mary design or construction standards, but that is acceptable in terms of health and safety, is generally unavailable, especially in rural Alaska. Existing state and federal loan programs, such. as the rural housing program of the Alaska Housing Finance Corporation, have not met the need for · financing the purchase of bouses that fit this description. Private lenders are at times reluctant to lend because the cost of making mortgage loans in rural Alaska is high; one visit to inspect property with delinquent payments, for example, can easily cost more than a · loan servicer recei ves as annual payment for loan servicing. Banks are also unwilling to hold loans in their portfolios that are thought to be risky or that they cannot sell. The Noncon- forming. Loan Pro gram was · designed to correct this failure of the private housing finance industry and state mortgage subsidy programs. The broadly-stated legislative program goal is to provide finan- cing for nonconforming housing so that people in all parts of the state have an equal opportunity to obtain housing (1980 Senate Bill 1, Section 72, Paragraph 5) . Pro gram funds may be used to purchase from private lenders loans for the purchase of existing nonccmforming housing and loans for building materials, renovations, or improvements to nonconforming housing. In addition, the 1981 legislation autho- rized the Division of Housing Assistance to originate loans for these purposes and added authority for originating and purchasing construc- tion loans to owner-builders. The construction loans need not be for nonconforming housing.; if used to build standard housing, however, the owner-builder must have been rejected for financing by private lenders (1981 Senate Bill 148; Hodge, January 15, 1982). 108 ~ "- .., ... ..; ... ... .... - In addition to·elq)ailding progralll activities, the 1981 legislation focused the program on rural areas of Alaslta by requiring that "Not more than 20 percent of the total p~incipal amount of loans made for nonconforlllin~ housittg may be mad~ in citie~ of organized boroughs and s~rvice _ ai::éas -of unified munici- palities wher~ the population of the city or service area ex~eeds 3 ,500" (1981 Senate_ Bill 148, Section }.7, Para- graph (6)). · Loans that are made in towns larger than 3 ~500, sud! as Nome, are defiiled as rural if they are not locatéd. in an organized borough. Any communi-ty with fewer thâ.n 3,500 re_sidents that is not in the serviée area of a municipality with over 3,500 is also considered rural, even -. if it is l<>cated in a boro1lgb. . The 19th legislation: also provided for estabÜ.shing · field office.s to pi::ovide assistance and information to private financial insti .. tutions arid their borrowers (1981 Senate Bill 148, Section 26 (a)). Five field .offices have been 'established; ·one each ·in Nome, KQtzebue, Bethe!,_ Dillingham, andFairbanks . The program' s goal. is _to ensure that state residents have eqùal access to financing for nonconforming housing. The legislative pro- visions regarding regional funds allocation, however, may have a countervailing effe-ct on the goal of eqùal program ac cess. The director of the Division of Housing Assistance is charged with allo- cating funds across the state. Auy such allocation scheme adopted, however, is minimally binding on the Division; the director is per- mitted to reallocate funds among the regions as he considers neces- sary. This provision is intended to facilitate the speed of fund disbursement, but it may bias the program in favor of those regions with greater access to participating lenders, siitce they can more readily take advantage of the program. 109 Equal program access cannot be achieved merely through the provision of the regional field offices. These offices currently provide information and assistance to seller/servicers and potential borrowers; and while they may perform an important facilita ting func- tion, they do not overcome the limitations of an absence of a well- developed housing market. At !east until the Division of Housing Assistance begins direct lending, areas under-served by participating seller/servicers will be at a disadvantage relative to other areas better served by private financial and real estate institutions. In summary, the Nonconforming Loan Program was instituted because homebuyers in rural Alaska were not being served by other state housing agencie~ and the private mortgage finance industry. The program makes loans available to qualified purchasers of housing who are not acceptable to other lenders, and offers the same low in te rest rates charged by AHFC. The absence of well-developed rural housing markets, however, may limit program availability in sorne areas of the state. Program Guidelines Eligible properties. Nonconforming housing is defined as not meeting minimum building standards established by national or state codes regarding construction practices, design, or structural char- acteristics 1 (Pro gram l:landbook, 1980: Sections 1. 26, 2. 02; Pro gram Information Sheet). The nonconforming appellation does not refer to the financial status of the borrower nor does it indicate the use of unusual or experimental loan terms. It is the house that is noncon- forming, not the loan nor the borrower's characteristics. 10ne widely used code is the HUD Minimum Proper.ty Standards, U. S. Department of l:lousing and Urban Development, which references the major nationally known codes regarding building practices, electrical system requirements, fire resistance, etc. no u - ,. - - l....i - .... \...,; i- .... ' - - .... - - J- A structure is nonconforming because it possesses one or more nonstandard.phy$ical features. It may not meet minimum space require- ments, for · example, or mo1y bave an unco:nventional foundation o.r utility system~ Obsolescent designs, such as no bathroom on the second floor, are also defined ·as nonconforming. The property JJ)Ust, however, b.e certifiable by an appraiser that its noni:Oilforming fea- : . ' .~ . . . ~ tures will not impair tlle health ot. ~afety of the oçcùpants (1981 &te:tgf!ncy R~gulations 19AAC9S.130; Alas.ka l)tatutes 44,47.370(1), (7)) •. . This pr~gram· wj_ll also firiançe. standard bouses that are being ··.con- structed. by their owners·, but only if :the houses are located i.n areas .where other<len,ders refuse to make loans. · Program staff agree that thé. definition of nonconformj.Jl.g housing. is vague but insist .that the mmconforming determination Dl11st be made on a case·by-case basis. They asset;t that any written definition detailing specifie f~atures. would prove unacceptable because it would inevitably exclude properties that should ·. be . eligi.ble. The problem presented by t;his vague def:i.nÜ:ion coBCèt;nS Division . stàff very little .. but does af'fect any evaluation of program activities. It confounds the determination of whether .. the program is, in fact, .being used as inteaded; .that is, to purchàse or make loails only forhousing that is ineligible under any other state or federal housing loan program (Program Handbook, 1980: Seètion 2.02). Eligible borrowers. There are no maximum income limits for borrower eligibility under this program. Borrower ittcome must be sufficient to meet debt service payments and other .living expenses. In determining adequacy of income, steady income obtained through Sf!asonal occupations is included if it is documented. The Division also considers subsistence activites in its determination of income eligibility (Priee, November 5, 1981). Loans are made only to bor- . . rowers who intend to occupy on a year-round basis the nonconforming, single-family house or duplex that is to be financed .. 111 Responsibilities of progr~m participants. The role of the Divi- sion of Housing Assistance as a secondary mortgage market institution is to provide incentives to private lenders to make loans on prop- erties that they otherwise will not serve. These incentives include reducing the risk to lenders of making these loans while compensating them for the costs of servicing them. The Division owns the loans and assumes any expenses associated with default or foreclôsure. Lenders are also compensated by fees for loan origination and servicing. The origination fee is a one-time payment that may not exceed 1 percent of the loan principal amount and is paid by the borrower at closing. The maximum servicing fee is one-half of one percent of the unpaid pr:i,n- cipal balance; it is paid monthly by the Division of Housing Assis- tance. Typically, the origina ti on fee may be about $600; and the servicing fee, around $300 for the first year. The Division expect.s to begin direct lending this spring (Smodey, January 19, 1982). The rationale for direct lending is to extend financing to areas where private lenders are unwilling to do business, even in the limited role of seller/servicer. Lenders will not make loans in some areas because the cost of origination and servicing is high and be cause demand for mortgages is low (Hodge, January 15, 1982). The Division will, of course, incur the same costs of oper- ating in these areas. As a direct lender, it may act as seller/ servicer, or the agency may contract with private institutions for loan servicing (1981 Senate Bill 148, Section 24). Lenders, or seller/servicers, perform a number of activities. 2 They are responsible for reviewing loan applications and securing verifications of borrower income, employment, credit, title, previous 2The following discussion is derived from the Nonconforming Housing Loan Program Handbo~k, Division of Rousing Assistance, Decembe:r 1980. 112 ~~ (. ,·~ 1 Mi - ·l...,. - ..... ._ - - 1...0 ..... ..... i - ._ '- !....,. - ...... .... loan refusai, and veteran status. The sèller/servicer must provide the Division with a statement that the property. does not quàlify for conventional financing if othe:r lenders operate in the area where the hou,sing is located. The seller/servicer also conducts the applicant credit analysis, approves or disapproves the loan, <submits it to the Division for app:roval, prepares closîng and note purc1aase documents, conducts the loan closing, and services the loan . The five field offices, located in Bethel, Nome,. Kotzebue, Dillingham, and Fairbanks, are staffed by' a. loan examiner/information · officer and a. sec:retary. These offices are intended to increase access to and provide information on ali state loan prog:rams, including those of AHFC and the Department of Commerce and EconomicDevelopment. Fiéld staff forward loan. applications to lenders, screen appliçants for eligibility, provide initial property inspections, assist lenders in obtaining documentation for application review and closing; assist in counseling delinquent borr.owers, and so on . Loan terms. The current maximum loan< amounts, lo.an...:.to-value ratios, interest rates, and maximum loan. terms for home purchase mortgages are indicàted in Table 37. The loan · amounts and loan-to- value ratio are those established for Alaska by the Federal National · Hortgage Association (FNMA) . For remote areas not connected by road, railway, or :the State Marine Highway, the maximum loan amount is 85 percent of that set by FNMA fo:t loans with 90 pe1:cent. and 95 per- cent loan~to-value ratios (Program Ha.ndbook, p. 3·4; Alaska Statutes, Section 44.47.390, as amended). Originally, the director of the Division of Housing Assistance set the interest rates, which were required to be at least on a par with rates for other state loan programs, namely AHFC. The 1981 legislative amendments set interest rates at the same levèl as for loans purchased by AHFC from the proceeds of the most recent appli- cable issue of taxal:lle bonds (Alaska Statutes, Section 44.47 .410, as 113 amended). Unlike AHFC loans, however, the low interest rate applies to the entire mortgage principal amount, instead of only the first $90,000. TABLE 37. NONCONFORMING HOUSING MORTGAGE PURCHASE LOAN TERMS AS OF FEBRUARY 1 , 1982 j Maximum Loan-to-In te rest Maximum Type of Loan Loan Amount Value Ratio Rate Term Single-Family (nonveteran) $147,750 95% 12 3/8% 30 years Single-Family (veteran) $147,750 95% 11 3/8% 30 years Duplex (non•veteran) $189,000 95% 12 3/8% 30 years Duplex (veteran) $189,000 95% 11 3/8% 30 years Rural/Remote Areas Single-Family $125,500 95% 12 3/8% 30 years Rural/Remote Areas Duplexes $160,000 90% 12 3/8% 30 years SOURCES: Nonconforming Housing Loan Program Handbook, Division of Housing Assistance, December, 1980. Ray Priee, Division of Housing Assistance. Delinquency and default procedures. If a borrower is late by 45 days or more in loan payments, the seller/servicer must make at least three attempts to contact the borrower and reinstate payments, notify the Division of Housing Assistance, and provide any appropriate loan -counseling. If after 60 days the borrower cannot be reached or the payments are not reinstated, the loan is dèclared in default by the seller/servicer, who notifies the Division of this action. Again, counseling sessions and reinstatement must be attempted. If at the end of 120 days the loan cannot be reasonably reinstated, the seller/ servicer assigns the loan to the Division for servicing. The Division must henceforth bear the expense of reinstatement attempts or fore· 114 ~' ...... - ;....., -· -~ - \ ;.... (,...., - - - .... . . . closure if that should prove necessary. The Division also reimburses the seller/servicer :for expenses connec.ted with delinquent payments, such as the costs Of · property reinspec.tions {Program Handbook, 1980: Sections 11.01-11. 03). In. summary, the Noncon.forming Housing LOan Program1 makes mort gage money available for houses and in ar:eas which private. lenders and AlttC usually would not accept. Witho\lt the. inducements offered .through the program, lenders would ··not finance houses with nonstandard physical features nor .those in certain· remote locations because the risks of · financing and the costs of origination and servicing are high. In addition to expanding the activity of lenders, the program serves as a ccmduit for state subsidies that make homes more affordable to Alaska residents who do not bene fit from the low-interest loans of AHFC. Mortgages made under theNonconforming Housiilg I.Qan Program carry terms and. conditions simila:r to those required by AHFi: and priva te lenders, and they make the same financilil demands on borrowers . Program Activity Any conclusions drawn fr.om an analysis of program activity at this point ŒU$t remain tentative. It is too early to judge the pro- gram's delinquency and default record, or to determine how ej;fectively information has been disseminated, and what level of loan demand. will be sustained. The Nonconforming Housing Loan Pro gram has been in operation for only one year. Banks were advised in January of 1981 that loan processing could begin; it was April when the Division of Housing Assistance actually started receiving applications (Smodey, January 25, 1982). By mid- Decembe.r, 177 mortgage loans had been purchased by the loan fund for an original principal balance of $10,797,025. Thirty-seven applica- tions had been denied, and 114 were in the review process, represent- ing $7,622,250 (Division of Housing Assistance, loan files). Of the 115 328 applications received, 54 percent had been purchased and 11 per- cent denied. Thirty-five percent were under review. Most applications--306 of 328, or 93 percent--have been received in the past six months. Table 38 shows the number of applications received since July 1981. If applications continue at~the same rate, the Division will process about 600 applications in 1982. TABLE 38. LOAN APPLICATIONS RECEIVED IN 1981 FOR THE NONCONFORMING HOUSING LOAN PROGRAM Mon th July August September October November December I No. of Applications 51 77 68 48 31 _11 = 306 SOURCE: Division of Housing Assistance. Poten.tial programdemand. It is virtually impossible to estimate with any accuracy the potential demand for this program using exi~ting information. No data have been recorded from which a reasonable estimate could be derived. Any attempt to collect suèh data, more- over, would be qui te difficult as well as expensive due to the fact that the definitio.n of nonconforming is so vague. A detailed set of characteristics would have to be identified and data on them gathered, and specifie guidelines defining acceptability to other state and national housing lenders would have to be developed and applied. 116 - - - ._ '-' - - ._ -.....; ._ - - .... - - - l'he comple:Xity bf this latter task WQUld be compounded by the vagueness of AHFC 1 s standard regarding acc:eptability . in its loan pu~çhase programs • · AHFê underw:r.:iting standards st.ate tbat it will huy loans that confp:rm to generally acëeptabi.e community standards as long as the structure provides adequate, safe, sound, and sanitary housing. · One would expect, in tact, that community standards 'fOUld .deem mo.st adequate, sa fe, sound, and sani ta:ry housing as acceptable and tllat there should bè only a small residual requiri.ng finançing through the Nonconformingllousi;ag Loan Program. The pool of. houses that qualify for this prog:ram is . further limited by the fact tbat most of them already exist. A homebuilder could not borrow .from a priV'ate lender to build a nonconforming house, and there are few people with ·. the income necessary to build in a reas · where a:ll h()using is èssentiàlly nonconforming because of the absence of standard utilities andother local circumstances. BEmeficiacy and Loan.Characteristics In the following sections , the char.acteristics of borro'Wers and loans are examined to determine who the nonconforming loan program is serving. It is necessary to ascertain whether the program is benefit- ing the people the legislature intended it to benefit and to discover groups who may need housing assistante but who are unable to take advanta:ge of this particular program. Borrower characteristics •. The income, pr-evious ownership experi- ence, and state residen.cy character;f.stics of borrowers under this program are examined in this section . The Nonconforming Housing Loan Program is a p:r.:ogram for home- buyers, and, as in AHFC loan programs, minimum income requirements are iœplicit. Borrowers must demonstrate their abili..ty to repay a mort• gage loan by showing steady employment at a verifiable wage or salary, a verifiable credit record of at least two years, and evidence of 117 repayment of recent credit obligations. This program is not intended as a low-or moderate•income homeownership program, although the interest subsidy does enable some borrowers to qualify for loans that they could not afford at market rates. The income distribution of households with nonconforming housing ;} loans is shown in Table 39. Half of the borrowers have annual house .. hold incomes between $20,000 and $40,000, while nearly as many--almost 45 percent of borrowers-•have annual i,ncomes above $40,000. Oilly 4 percent of borrowers have in.comes below $20,000. Comparison with the incomes of AHFC borrowers (see Table 9 in Chapter 1) shows that nonconforming program borrowers have somewhat lower incomes. Over half, 55.4 percent, of the nonconforming pro gram borrowers have incomes of $40,000 or less, while fewer than 40 percent of all AHFC borrowers fall into this category. Borrowers under AHFC's rural owner-occupied program, while having incomes lower thau those under the Special Mortgage Loan Purchase Program, also have higher incomes than. the nonconforming program borrowers. TABLE 39. DISTRIBUTION OF HOUSEHOLD INCOHE FOR NONCONFORMING HOUSING LOANS No. of Percent of Annual Income Borrowers Borrowers _,; < $10,000 0 0 $10,000 -$20·,000 7 4.0 $20,000 ... $30,000 38 21.5 $30,000 -$40,000 53 29.9 $40,000 -$50,000 34 19.2 $50,000 -$60,000 20 11.3 > $60,000 25 ~ I = 177 100.0% SOURCE: Division of Housing Assistance. 118 ' - ·i- - - - i.- - ..... 1..... - - lo.... - '- 1 1 L - - In. contrast, the incomes · of Alaska' s rural population are con- siderably below those of both AHFÇ and nonconforming program bor- rowers. Half of the rural residents in the Interior, Southcentral, and South~astern regions have family i.ncomes below $20,000 (ISER, 1979 Alaska Pul.>lic Survey) and are UAlikely to qualify for these loans. Residents of those a:reas with a large Native pop41ation, for exam.ple, the NANA and Lower Yulton-Kuskokwim areas, have .even lowér income levels (Kruse;. 1982; House Research Agency, 1981); thus, an even. smaller portion of. the population in those areas is financially able to use this prog:tam. Just over. half, or 51 percent, of. all nonconforming housing loans were made to first•time homebuyers. .This is a fairly high rate o.f . participation by first-time buyers; the national average was 36 per- cent in 1978 (U.S. Department of Housing and Urban Development). Twenty-four borrowers, or 14 percent, had been state J;'esidents for less thail a year. Thèse figures are not unexpected in a growing state . with a young population · Iike Alaska.. We1l•paid newcomers to Alaska and hoU:séholds with an income sufficient for the first time to pur- chase a house. are taking advantage of the opportunity for· homeowner- ship that the program presents. GeographicDistribution of Loans The urban/rural distribution is the first geographie breakdown that we examined. Legislation requires that no more than 2.0 perce·nt of the total principal aœount loaned be made in cities· in boroughs and Qtunicipal service areas when the population of the city or service area .exceeds 3,500 (Alaska Statutes, 44.47 .385(6)). Table 40 shows the number of loans made in areas defined as urban. As indicated, over 75 percent of the total principal amount loaned in the first program year was for housing located in urban areas. The Fairbanks and Anchorage areas accounted for 55 percent of the total. 119 TABLE 40. NONCONFORMING HOUSING LOANS MADE IN URBAN AREAS AS OF DECEMBER 14, 1981 Percent of Total No. of Principal Principal City Loans_ .Amoll!lt. Loaned Fairbanks 62 $3' 113,500 28.8 Anchorage a 40 $2,861,450 26.5 Juneau 10 $813,950 7.5 Sitka 6 $536,400 5.0 Ketchikan 5 $361,650 3.4 Kodiak 4 $353,650 3.3 Kenai ~ $104~550 1.0 - TOTAL 129 $8,145,150 75.4% aincludes Eagle River, Chugiak, Girdwood, Palmer, Wasilla, and Willow. SOURCE: Division of Housing Assistance Program records. The locations of property for which loan applications were still being reviewed was examined to determine if their urban/rural distri- bution differed from that of closed loans. As of mid-December, 114 applications representing $7,622,250 were being processed. Of these, 36 were for properties located in urban areas, with a total mortgage value of $2,015,700, This represents 26.5 percent of the total dollar volume being processed. A much lower proportion of loans being processed were for urban areas than for loans that had been closed. The amount of loans in urban areas would still exceed the statu· tory limit, however, even if none of the urban loans in processing were approved and all of the rural ones were approved. If this were 120 ,_ 1 1 l- - ,_ - ...... .... ~ - - .... L - """' the case, · 48. 9 percent of loa.J;). principal would . be loaned in urban a reas, and 51.1 percent would be in :r:ural arêas.: It is not difficult to explain why so many loans have been made i.n urban areas, · despite the intended rural tocus of the program. The major Alaskan cities alone (Anchorage; Fairbanks, and ~uneau) contain · well o'ler half of the ·state; s entire housing siock;..·àbout 60 percent-- .a large portion of. which is at least t>qenty ye~J:S old ~ l The sheer size of urban llousing IJlarltets, and the number of .older homes in, them, vir• tually guarantee strông urban demand for nonconforming housing loans. F.orty-three loans 3 had been made in rural areas by Deçember 14, 1981, with a total principal amount of, $2,651,875. Table 41 shows their location. Ov.er half .of the rural loans have been made in Nome, Bethel,. and Kotzebue; sixteen are located inNome,alone. Southcentral Alaska bas eleven loans, followed by the Tnterior;. only three loans have beeiiD).ade in Southeast. Severa! factors .. may exp lain this. distribution of 1oans. ·. The most· important of th:ese is that Kotzebue, Be thel, and Nome are regional centers having larger population concent.rations and higher income 1eV'els th•m most of the bush. A loan program such as this one can only function in areas which have a housing market complete with available ho uses, mortgage lenders, and buyers wi th incomes large enough to barrow money. Southeast Alaska may also be at some disad- vantage in having no Division field office . 3 The location of five loans is not available in program records. 121 TABLE 41. GEOGRAPHie DISTRIBUTION OF RURAL, NONCONFORMING HOUSING LOANS AS OF DECEMBER 14, 1981 Southeast Craig Yaltutat Southce~tral Dillingham Homer Chi tina Cooper Landing Gakona Seward Soldotna Unalaska Valdez Interior Fort Yukon Delta Junction Nenana McGrath Western Coastal Nome Be thel Kotzebue Eek TOTAL SOURCE: Division of Housing Assistance 122 Number Of Loans 2 1 1 2 1 1 1 1 1 1 1 4 1 1 1 16 3 3 1 43 1 ·1·,:, ..J ..... ··- 1-.i - - ~ 1-. ..... ..... - - ...... 1-. ....... .._. ..... .r.oan Characteristics The· mean purchase priee for bouses .. financ~d through the. Noncon- forming Housiilg Loan .Progralll is $64; 700 ~ .arid the mean mortgage note .antount is $61,000.. The average loan-to-value ratio f9r these loans is .. 93 percent. , Houses f'inanced by the Nonconforming Housing Loan Program .had .sales priees· and mean note antounts considerably lower than those · f'l.nanced by. AHFC' s rural •. owne:r;-occtipied progtam {see Table l,Z). 'Bouses financed through the nonconforming program sold for $17,766 less on the average, . and mortgage amouuts averaged $7 ,000 less than AHFC :r;ural loans dèspite the fact that the :Piv'ision loaned a h:igher portion of the sales PJ:::ice. This basic relationship holds when . properties with nonconforming loans are compared to only existing bouses ·from this AHFC progtam, although the priee difference drops by nearly $6,000t() $11,900. In other words, the priee difference is not explained solely by the tact that the nonconforming bouses are older~ · Most of the. lo.ans·~OOc93 Percent--financed by the nonconfo:r;ming program were made for the purchase of housing. Only seven loàns, · or 4 percent, have been made for housing construction to owner..;builders, ' . with five of these also for p.ermanent . mortgage financing. Only four loans fall into. the categories covering loans for building materials · or housing renovation or improvement (Divisiop. of Housing Assistance Program records). Fundinl the Nonconforming·Housing Loan Program This program has had a fairly large budget impact on theState of Alaska. All funds,. both operating and capital, are directly appro- priated from the General Fund. The operating budget for the Division of Housing Assistance Nonconforming Loan Program · activities was $662,500 in fiscal year 1981, and $1,176,000 for fiscal year 1982 . Capital funds of $10,000,000 and $40,000,000,. respectively, were appropriated in those years (Pelto, January 29, 1982; Smodey, ·January 28, 1982). 123 The long-term budgetary impact of this program, however, will be much less than the approximately $52,000,000 short-term impact. Because this is a loan program, the state will be repaid the sums it loans, with interest. Unless a high rate of default and foreclosure is experienced, the actual long-term state investment will be rela- tively small; its size will be determined by the dif;erence between the loan interest rate and the rate of return the state would h;:tve experienced had it used its money fox othet programs or financial inves.tment purposes. It is unlikely that sources of program capital funds other than state investment could be found for a program of t'his type. By definition, other mortgage investors, both state and national, are unwilling to invest in this housing. Program Costs The Nonconforming Housing Loan Program has been expensive, in part bec a use it is a new program. Program start-up costs include staff recruitment and training, office orgallization, program design, and information dissemination to the public and to other program participants. In addition, the nature of the program entails costs that traditional mortgage lenders do not incur. It is expensive to provide information and loan services to locations and borrowers not served by other finan.cial institutions. In.vestment in nonconforming housing and rural Alaska is also perceived as riskier than traditional housing investment. Finally, program costs have been substantially increased. by providing field offices for outreach to potential bor· rowers and seller/servicers. A total of $1,838,500 in operating funds has been appropriated thus far, and 177 loans have been closed. If the total administrative budget is averaged over the number of Ioans purchased, the cost of each loan closed comes to an eye-opening $10,387. 124 'l 1 1 - """" - .....; - - ..... -· ..... .1- ~ - .... - A more accurate estimate of the ongoing costs. of operating this progràm may be · obtained by examining program act:ivity ·and funding after .. st(ilrt-up and by spreading a:ctual · expenditures out across the total number <:)f loans p:i:ocessed, since at least an equal am()unt of staff effort goes into applications that are rejected or still under review. Because most activity has occurred sinêe Jùly, 1~81, the cost of proçessingloan applications inthat period ~s examined. From July to Dec~œber 1981, the Divüdon spent about $335 ,9(l0 on operatiQns. Wit4306 loan applications received from July toDecelllber 14, the cost· of processing each application averag~s to $1,097, or 1 .. 8 percent .of the average loan amount. This figure is interpreted as the cast per !()an processed · of administer.ing the program at current levels of activity, net of prog.rani start-up costs. It includes underwriting, information dissem- ination; and general administrative costs. In comparison, AHFC. spends about $192 per applic~tion pr()cessed,4 or approximately . .2 percent of . the a"erag~ AHFC loan amount. This figure, b,owever, is not strictly comparable to that. for .the Division of Housing Assistance. AHFC costs include !~gal and trustee eXJ,Jenses that t:he Division does not incur, and accounting and portfolio management costs, two functions.which are performèd by other state offices for this program. This comparison · does suggest tbat AHFC enjoys lower . costs deriving in part from the sheer size of their operations. A major organizational factor contributing to the cost of ·the nonconforming program is the operation of the five field offices. In fiscal year 1982, operating these offices accounts for 45 percent of 4 Ba.sed on·6,308 applications received in the first five months of FY 1982 . 125 the entire program operating budget, over $500~000 (fiscal year 1982 Division of Housing Assistance Operating Budget). There is some doubt as to the value of the contribution to program activity and operations ·of these offices. Summary # The Nonconforming Housing Loan Program was created to extend mortgage financing at below.,.market rat.es to a portion of the housing market not served by traditional lenders and AHFC, due to the high costs of originating and servicing thes.e loaQ.s. For this reas on, the expense of the program is partially built in, partiàlly due to its short operating his tory, and also due to the expense of operating field offices. The potential· for program demand is unknown but essentially a fixed amount siné:e most nonconforming houses already exist. The major pro gram flaw lies in the flexible, vague definition of nohconforming, which may result in overlap with AHFC' s comparable rural program. If so, this creates needless additional state expense due to program duplication and costs borrowers more because of the higher financing charges for nonconforming loans. Senior Citizens Housing Development Program Program Background The Senior Citizens Housing Development Program was created in 1975 to address the problem of. the affordability of suitable housing for low-and moderate-income elderly households. Elderly state resi- dents frequently have limited incomes and assets and are often further restricted by their physical capabilities, factors which significantly limit their ability to rent or buy suitable housing. These problems are compounded in many Alaskan communities by the shortgage of any kind of housing, but especially housing designed to meet the needs of senior citizens. 126 ~ - .1 ·- - ~ '- - ' '- i- ' 1 1- ~ L i- - - .... The purpose·ofthis program is ~o assist conunlln.ities in obtainin:g fundiilg to develop n:ew or to. improve existing housing for senior Citizens. The Division: c;>f Ilousing Assistanc~ makes grants on loans to . . mUiiicipalities and public and nonprofit corporati~ns for .these pur~ poses. The intent of enabling legislation and program à~inistrators is to. rely on local initiative and resources for solving local housing . . . . . . .. ' ' . ' . . . ... : ... needs.. The Division keeps its inv()l'vement in the proJects to .a mini- IRWD but provides assistance .and information to assist locally~based organizations inprovi<ling housing for .;Sènior.citizens. was designed to supplement' the resources of local housin:g sponsors who have, at times, been unable to take advantage of varions sources of de'lelopment capital because of the substantial expense involved in secuting development funds. Fund matching, ·documentation, and site acquisition requirements, for example, have in the pastbeen barrie:i:s to applying for federal funds for small commun- ities and private sponsors because they ofteri have. limited financial 'resources. Federal housing programs have a number of conditions that must be met th.at require considerable '•up-front11 money. Small communities usually must hire development and design consultants to prepare documents needed in the application process; and while federal pro- grams allow these costs to be included in total project funding loans, these expenses are reimbursed only after the fact. The Division of· Housing Assistance makes two types of grants or loans to · qualified sponsors-to overcome these barriers. These are facilita ting grants/loans .. and seed money grants/loans. Only grants have been made through this program to this point, but loans remain an option that may be exercised in the future. 0 127 Facilitating grants/loans. This program can provide funds to assure the financial feasibility of a project wllich will be funded primarily from other sources. There are several federal programs which specifically fund the development of housing for the elderly. One major obstacle to successfully using these programs, mentioned previously in the context of AHSA, is the total developaent cost limit that HUD applies, which generally will not allow meeting the costs of building even minimally adequ.ate housing. Facilitating grants can be used to fill the gap between allowed federal fUilding levels and the actual cost of building in Alaska. Cost acceleration during project construction is another problem that may prevent the completion of a project. Cost acceleration may increase the total cost beyond the means of both the commtmity and the federal program. Facilitating grants may be used to fill this gap as well. Facilitating funding is used by local housing sponsors which have some capability to begin a housing program with their own resources. The sponsor may be able to afford the required initial survey, needs assessment, and planning but may be unable to make up for the inade- quate federal cost limits. There are other municipalitie.s and private sponsors, however, which have no staff planning or development skills and which cannot afford to hire them. These are the groups for whom seed money was made aV'ailable. Seed ~ney grants/loans. Seed money provides "up-front" money for the preliminary work needed to obtain financing commitments from a federal agency such as KUD or the Farmers Home Administration. The funds are available only for the costs of activities that can be included in a development cost budget that is submitted to a federal agency for approval. These activities may include a needs assessment, site selection, development of preliminary designs and budget esti- mates, and establishment of project feasibility. 128 ...... :..... ,_ - - 1 L l' - - - .... There are also restrictions on the amountof seed money which can be made available to any si11gle projeet. No more than 3 percen,t of the estimated total deve1opment cost or $1,500 per unit, whichéver is leas~ will be funded by the Division of Housing Assistance • Receiving a seed money grant does not preclude the sponsor from ' ·. ' . f applying for a facilitating ·grant or loan làter in project develop- inent. The application process involved. in acquiring either type of ·grant or. loaii. is presented· ·in a Program •Handbook prepared by the Division of Community Planning of t.he · Department of Community and Regional Affai:ts~ Program ActiVity Grants to municipalities from the . Senior Citizens Development .· Fund b.ave contributed to the construction of 350 new ùnits of elderly housing since the program began. Forty-seven of these were financed entirely by the state hefore the strategy of leveraging other so.ùrce.s · of development ··capital was initiated. The total developmènt. cost 0f these staté-firianced ·units was . $2.,278,005. For 303 of the néw units, state grants of about $4 .. 6 million leveraged $16.3 million in federal funds; each state dollar insured that $3.50 of federal funds was spent in Alaska. In addition, seed money grants totaling $303,000 have l>een made to eight municipàlities to assist them in obtaining fonds to build another 118 new units for senior citizens. P:togram Funding, Costs, and Effectiveness The Senior Citizens Housing Development Fund in 1976 was autho- rized $7.5 million from bond revenues for capital funds. These funds became available in increments from· the proceeds of several sales of state bonds wb.ich were to be payed off through state appropriations. 129 In 1981 the state legislature authorized $16 million in addi- tional capital funds for this program, $8 million for fiscal year 1981, and an equal amount to be appropriated for fiscal year 1982 (Smodey, October 9, 1981). Legislation stipulated that at least half of these funds must be used for leveraging federal money, the re- mainder to be used as the need arises. ~ The capital costs of this program have had the gteatè:st impact on the state budget, whether the state appropriates a lump sum directly to the program or whether state appropriations are used to pay off state bonds. The program administrative budget has been small, totaling less than $500,000 over six years of operations. In terms of benefits accruing to state residents, it is. quite cost-effective for the state to pursue its strategy of leveraging federal funds. About 22 percent of the total development cost of 303 housing units was funded by the state, with 78 percent coming frQm federal capital funds. In addition, a continuing stream of federal subsidies for elderly housing is associated with these projects that far outweighs the $4.6 million state investment. The effectiveness of this program strategy, however, does hinge on the availability of housing development funds from other sources. The possibility of significant reductions in federal housing subsidies jeopardizes the future of this strategy. 130 ~ L - ·- 1 ~ 1- L - L r L..o il " ...... ..... Determine Current Housing Market Conditions ES1:imate Bàseline ft1on~siate intervention) Conditions PART2 1 ' ' ' ' ' ASSESSJNG HOUSING MARKÈT IMPACTS The pu:pose of Part. 2 is to assess state progœm impacts on Alaska'$ housing markets. Popl1lation, employment, income~ and. interest rate trends· are used . to •·· estimate hC>Using. sales, pric~s~ and costs,. both. With and' withoût ·the statè .housing progmn ·inteJ:'Ventions. Estimates·. are. then derived for such indirect impacts. as real estate commis$ions~ financial fees, the purchase of construction labor, and materbûs. The analySis and findings are presented in thefollowing chapters: Chapter 4: Direct Housing Market Impacts Chapter 5: Indirect Impacts 131 , ---------_..,..,----------------.,...__-~-------___..--~ .... - ...... - .... 1-i 1 1 ) 1.... i 1 w 1.... ... - - - - GliAPTf;R FOUR -- DIRECT HOUSING MARKET _ IMPACTS Introduction and-Summa.ry 'l'he deman<l for-and the supply of housing _ comprise. the ess-ential • analytic-elements of a housing market, with .the interaction between them determining hou~ing priees. Within a given market, such as Alas~a$ changes in population size and coçositipn; the number of households, household incomes; financirigcharges, and-the desired type and quality of housing all affect the demand for housing. Similarly, the supply :of hollSing is impacted by both the cost -of produèing housing and the.profits earned by doing so. Since the initiation of the_ statet s current .housing programs in July 1980, Alaska' s _ housing . market has. experienced significant in- creases in activities over what .had occurrèd in either 1979 or the fîrst half of 198_0. -Measured by either the. amount of new .construc- tion, the number of houses sold, the changes · in housing priees. or rents, or vacancy rates, dramatic changes have been occurring in Alaska 1 s housing market. However, a substantial portion of these changes are attributable to _ population growth, not to the state 1 s programs. The issue we examine in this chapter is the effect the state' s housing programs had on Alaska' s b,ousing market during the period of July, 1980 through August, 1981. In essence, we determine these effects by coçaring the changes that have occurred in Alaska' s b.ousing market with the changes that would have occurred without the state's housing programs. More specifically, we address the following questions: (a) What caused the large increase in demand for housing during 1981? Was it caused by the state loan programs or were there other causes such as increases in in-migration 133 and population growth in the state? To answer this ques .. tion, it will be necessaey to determine·if the loan programs increased the opportunities for new homehuyers. That is, did the reduced interest payments hring new huyers into the markets or were they simply offset by higher b.ouse priees which resul ted in unchanged monthly mor-t gage payments and essentially unchanged opportunities for potential new home- buyers? The key to this question is whether• the loan pro- grams increased the amount of construc.tion of new housing. J (b) Was the quality or the type of housing constructed affected.by thè loan programs? ( c) How were renter hou.seholds affected? Did the loan programs affect the level of rents, vacancies, or conver- sions? (d) What effect did the rural loan progr:-ams have on housing markets in rural areas? in the bush? · Was financing made availahle in areas of the state and for types of hqusing for which mortgagefunds had previously been unavailable? In 1980, housing priees in Alaska were low, relative to their replacement costs, because of the large supply of housing le ft from the years of the pipeline construction. The number of vacant housing . units started to decline in 1980, falling from le,els as high as 10 percent of the entire housing stock in Anchorage to current levels of under 2 percent. As vacancy levels fell, the priee ofhouses began to rise. This rise in the priee of existing homes during 1980 and 1981 appears to have been caused primarily by increases in population which resulted from high rates of entployment growth, particularly in the Anchorage and Fairbanks areas.1 The increase in demand for housing caused by the growth of popu- la:tion caused the priee of . existing housing to ri se. Until the priee of existing housing was bid up to equal the cost of building similar housing, there was very little new construction. Homebuyers got more 1Net migration to Anchorage in 1981 was estimated to be 10, 700, the third largest annual increase due to net migration in the history of Anchorage. 134 u - - - '- '- i ..... - - - - · for: their mriney hy buyin:g older homes until the priees of older homes were bid up to the cost of building a new house of similar qual:i.ty. Thus, the priees of existing homes rose muchmore rapidly in 1980-1981 than .. did new home priees. To iU.ustrate this po;int, in Anchorage, the priee <Jf new homes of similar qùality rose àpproximately 18 percent during the period . . l979-19fH, which closely parallels the increase in building côs:ts. Aîthough the priee .of néw housing in Anchorage sol.'d for ah average of $25 ;000 more than the . priee o:f existing homes during 1980 and 1981, the average priee of new homes did not · ris.e . by more than 6 percent between the 1980 ànd 1981 building seasons, paralleling aga;inthe rise in cdnstruction eosts. Population growth was suffici.ent during 1980..;1981 to cause exist- ing bouse priees to ri.se up to their replacement costs. As we will demonstrate subsequently, the loan programs added> .to this demand by. allowing at least 1 ,300· addit;ional first•t;i,me homebuyers to buy homes duringtheperiod from July 1980 throughAugust 1981 thanwould other- wise have occurred. The remaining homebuyers during this period would have pu.rchased homes even without the loan programs; for many hotne- buyers, the interest subsidy simply allowed them to increase the qualityof the homes they bought. The loan programs, by increasing the number of potential home- buyers, increased to-tal demand for sales homes and thereby caused the amount of new construction to increase by approximately one-thil;;d and sales of all homes to increase by approximately 4,000. This was equal to one-third of all the bouse sales during the period. The loan programs also significantly affected the quality of new houses built · by incrèasing the priee buyers could afford to pay by as much as 25 percent. The primary effect was to increase the number of new homes built to sell for over$120,000. No systematic effect was seen 135 on the amount of condominium construction; in fact, condominium con- struction decreased as a share of total units built in Anchorage while it increased in both Fairbanks and Juneau. The state 1 s home loan programs also benefited renter households by diverting renter households into home ownership. Without the -1 state' s program, an estimated 1 ,300 households would still be in the renta! market, further lowering vacancy rates and increasing rents. However, these benefits of reducing demand for renta! housing were partially offset by the loan program' s financial incentive to canvert renta! units into sale tilii ts, and thereby, decreasing the available supply of renta! housing. While we know the number of conversions in multi-family renta! structures was not large, we do not know the number of single-fatnily or condominiums which were converted from renta! to sales units. Thus, we are unable to precisely estimate the programts impact on the renta! market. The remainder of this chapter will examine in det.ail the çon~ clusions reached above. Methodology The number of households in the state is determined by the leve! of population, the age structure of the population, and social pat- terns. A household is defined as the persan or persans occupying a housing unit. A housing unit is defined as separate living quarters with either direct access from outside, or a cammon hall or kitchen facilities for exclusive use of accupants.2 Increases in the number of households are accommodated by a decrease in housing vacancies, an increase in housing construction, or by the sale of new mabile homes. If new units are constructed, 2These are definitions used by the U.S. Census. 136 ~ ~.or~ .... .... - - - - .... th.eirprices will be at least equal to their costs of construction and the priee of land. We also assume unsubsidized, nonrental units will not be built unless market rents will cove.r interest costs and mainte- nance. When. priees are too low to induce new construction, priees, and rents for .. the exiStirig housing stock a:te determined solely by their . demand. When priees or rents . are high enough. to induee new construction, the priees of new homes, a1; well as existing homes, is determined by the interaction of b()th. the supply. and demand for housing~ Priees and rents can be in equilibrimn at values below the cost of constructing additional housing units .of simila:t quality. If there is then an increase in · the nmnber of households , vacancies will decline,· ànd priees or rents will increase t.mtil they are high enough to iriduce the construction of new units (see Figure 3). So far, we have dealt with the . en tire housi1lg stock and have argued that the tobü supply is inehtstü: until new construction is indùced. That is, new homes will not be built until the priee of existing homes ri se to equal the cost of replacing the house. How-. ever, the supply of either existingrental or sales housing is elastic below this priee because of the possibility of conversions. Thàt is, sales housing can be rented and rentalhousing càn be sold, depending upon market conditions3 (see Figures 4 and 5). The effect of the state loan programs is to decrease inte:test rates only to homebuyers. This shifts. the demand curve to the le ft for rentai housing, resulting in lower rents, and the conversion of rentai units to sales units (see Figure 5). The demand for · sales units is then met. partly by con- versions a1ld partly by new construction, causing the supply curve to shift to the right. The more inelastic the relevant part of the supply curve is for rentai units, the smaller the effect on conversions . 3ttany people think of conversions only as the change over from apartments ta condominium sales, however, single family housing can be rented or sold depending on market conditions, and the same is true for condominiums. · 137 @ Po Po! F'tgUre3 s 0 1 a 2 No. Ho1.15ing Units-Stock 01 -Represents the demand for the existing stock of housing at beginning of period. 02-Represents a new demand curve which has shifted 1 .•• ,!' to the dght becauS!t of an incr~ in the number kl of nousehokfs. ~ a 1 -02 -Represents construction of new units (or new mobile homesl. :c ~ P 0 -Represents the priee abQve which new constructiotj wiU take .ptace. "• Fi..,. 4 -Sales· Unit1 7' 02 0 1 -Represents demand fot sales units w/o ~~ :jt progtams. Ü D2 -Represents shift in demanq for safes units a1 a result of betow~market interest rates. s1 -Suppty .curve.for sales units (conversionsfj< new constru.:tion)., ~ S2 -Shift in supply curve due to decrease in rents. (Figure 5J a 1 -Represents the number of satei hoi.ISing at beginning of period. ' .l ..! ii§.,. Sales Housing a, · 02 -Represents construction of new sales· units due to shi ft in demand from sales 1 ., rentai units ~ con~rsions f~m rentaltl sales due to tncrease 1n sale pr1ce;; .. R1 R2! *' oa Units a2 • a3 -Represents rentai to sales QQnversions due to decreases in rents as !oan progranl'''l shifts demand curve for rentais. U Figure 5-Rentai Units D1 -Represents demand for rentai units w/o loan programs • D2 -Represents shift in demand for tentai urtits as result of befow.market in:œrest. ratet. s1 -Supply of rentai units (conversions and new eon· , ,, str~cti:onl. , ,, Q a-Represents the number of rentai units at beqinninW ofperiod~ Gz a3-Ftç.resents convenions of rental to sales due to shift in demand from rentai to sales u1lits. J,..,. ________ ...... .....,.. ___ Rental HOUsing aa Os Units ModeJ.of Demanc~· and Suppty of Sales and Rentai Umu ~ 138 L,.; i.... ..... - - -· - -· - - .... - It;. can also be s~en in Figure 4 that the more elastic the supply of new sales units, the less the effect ··on p:r1ces and the smiüler the effect on rental sales conversions. The ext;.entto which the increased demand is met by conversions and new construction depends on the relative elasticities of the two supply curves. 1 The conversion of rentc:Jl imits (the difference between Q1 and Q2 in Figure 5) is less than the increase in sales units (the difference petween Q1 and Q3 in Figure. 4). Theref(.)re, new housing, construction occurred, .and the total nll!llber of housing uriits has increased from Q1 to Q2 as shoJ<m, in Figure 3 and 4. A portion of the supply curve of sales units would be expected to be less elastl.è: than the. supply curve of renta! . units due to grea ter ease of convertibility from single family and condominill!lls to rentai status than convertibility of. some of the rental stock (multi-family · rell.tal) to sal,es status. These relative elasticities r~verse in the upper end of the suppl,y curves with the elastiêity of supp~y of new· sales units being more elastic than the supply of new rental units. The demand curves will intersect the upper end of the supply curve for sales and rentai units if vacancies for sales.and/or rentai units are very low. Since vacancies fell to very low levels in bath sales and rental units during the period in which we. measured impacts (and new construction of sales units occurred), we can assume the demand .. curves were cutting the upper ends of the supply curves. Thus, for sales units, the relevant portion of the supply curve was elastië, and for new rentai units it was ineiastic. To estimate the shift in the demand from renta! units to. sales uni ts induced by the loan programs , we measured the nll!llber of house- holds who would have rented housing units without the state loan programs. Some first time homebuyers and households migra ting to the 139 stat:e would not have bee.n able to buy a sales anit with market in- terest rates. These households would represent the minimum response to the loan program since other· households would have (:hosen to rent rather than buy. The greater the shift from rental to sales, the larger the proportion of t:hat increased demand that would be accom- modated by conversions as the demand curve would eut the supply curve of rental units in its more elastic portion. In Figures 4 and 5, because of the more elastic supply of sales housing, new construction will take place as the demand for rentals decreases and the demand for sales increases. The difference between [Q 2 and Q1 ] in Figure 5 and [Q 1 and Q2 ] in Figure 4 representa either new units constructed, or new mobile homes sold. These additions to the housing stock increase vacancies and lower rents. However, because in actuality, rents rose considerably in 1981 in the major cities in Alaska, and almost no construction of new rental units was induced, we know that the supply curve for new construction of rental units is inelastic in the current rent range. There was a substantial increase in the construction of sales housing during the period, however, making it possible to estimate the elasticity of a portion of the supply curve of new construction. Ideally, we needed to measure the price·of indentical new bouses built in the spring of 1980 and in the summer of 1981. From this measured priee change would be subtracted exogenous changes in the cost of lal>or, materials, financing, and land. The remaining priee change would be the measure of the degree of ~nelasticity of the supply curve for new sales units. A portion of this remaining priee increase would be attributed to the increase in demand for sales housing caused by the loan programs. As prox:ies for these ideal measurements, we collected data on all new single family homes built and sold in Anchorage in 1979, and compared this priee distribution with a sample of these bouses which 140 ; l '- '- f L 1 1 . - - - .J - - - - ..... were resold in 1981. We also had separate priee distributions for ali new single family and èondominium sales in the summer and fall of 1980 and the summer of 1981 in Anchorage. 4 The detailed results of these measurements are discussed in the following text. In general, the data shows in the supply curve of new sales units .in Anchorage during ·· the study year to have been very elastic. 1 We estimated the increased supply of new sales hoû.sing, which was met by new construction.ofsinglefamily condominiums ot mobile homes, by. using historical shàres of thè market. Similarly, . the increase in quality of nèw sales housing .un:i.ts induced by the programs was esti- mated using the standard priee elastic::ity of one. For instance, if the lower interest rates reduced cost of sales housing by. 20 percent, it was .assumed bouseholds .would spend 20· percent more on housing. Construction and Sales Impact NewHouseholds and Demand for Hqusing Increased demand for housing can refer to an increase in the amount of housing desired by each household (such as an increased demand for larger. or bètter qual.ity bouses), or it can re fer to an increase in the total numbèr of housing units demanded. In general, if. household incomes are increasing relative to housingprices, house- holds wilL increase their demand for better quality housing. Although changes in incomes and priees can affect the total number of house- ·holds Ctwo families sharing a bouse can undouble, or children can afford their own apartment), in general, the total number of house- holds is much more a function of changes in the total size and age 4 The priee data . fo-r 1980 and 1981 comparisons doesn' t hold quality of housing constant, and the sample of 1979 homes resold in 1981 may not be a representative sample of homes built in 1979. Nevertheless, the data seems good enough to identify significant changes in priees . 141 s.tructur~ of the. population. The low~r interest rates which resnlted from the state loan ptograms consequently have bad tbeir primacy. e.ffect on tb,e type ~nd quality of housing demanded. Employment growth bas been the · major · cause of the iri.crease in households (Le. , population) between 1980 and 1981. The intrease in. . . . . . population anc:l housèholds can ·be wi"tnessed by ·.the dr amatie fall in vacancy<rat.es, :~s.peci~lly i.n Fairbanks. and AncJ.'lorage, and also by the ' ., ' . .. . . . . incre;:~sed absorption of newly built housing . units. Th:ls large · i.n .. crea se. in · househoids a:ppèars to represent · a significant in .. l.ftigration of. per~;ons to Alaska. Employment in the state has increased by 10,000 jobs during the twelve-month period ending in November of 1981. Most .of the new jobs werê in Anchorage and Matanù.ska-Susitria. Anchorage bad anincrease of 8, 700 jobs--,11 percent--and Matanuska-Susitna. bad. an iricrease of . 800 jobs. Excepting Fairbanks, which also had a significant increase of 800. jobs, the remainder of the. state showed only Small elllployment gains. Apa.rtment vacancies in June 1980 were · approximately 5 ,000 u,nits . . . in Anchorage and· 900 units in Fairbanks. In Junè of 1981, one year later, these vacancies bad been reduced to 2,000 in Anchorage and 300 in Fairbanks (Fed:eral Home Loan Bank of Seattle).5 .In addition, there were at !east 3,000 new homes sold during the last half of 1980 and the first. half. of 1981. · Vacancy levels would have been ·even lower (and pxices. and rents even hi:gher) if the re had not been an excess snpply of housing available in the state during 1980. · 5 All indications are that current vacancies are considerably less. 142 - - - 1 L î._ . ~.. - i ..... i ..... \ f t-: - ..... - - - Demandfor Sales Hôusing The demand for homeownership comes from (a) existing homeowners in the state who are trading up their housing quality; (b) households moving to Alaska; (<::) renter hous.eholds who want to buy; and (d) pet- sons forming new households. Existing homeowners in Alaska who move and buy other houses do not representa net increase in the demand for .f sales housing. Only first•time homeowners (previous renters and newly fol;lDed households) and households moving to Alaska represented net increases in demand. Thèse households may not have bought new bouses, . but homeowners in Alaska who wanted to. ''trade up" could not have done so · unless there had been someon.e who would huy their old homes. Conseqùently, firs·t-time homeowners and hol,Jseholds migra ting to Alaska tepresentthe net increase in Alaska's total demand for homeownership. During the period from July 1980 to August 1981, Alaska Housing Finance Corporati()n financed homes for 4;500 ·first•time homeowners (41 percent of all the homes sold and financed<through Alaska Housing Finance Corporation}; Of these first-time homebuyers, approximately 650 had been. in Alaska less. than a year. 6 First.;..time homebuyers in Alaska and. recent arrivais accounted for. 55 percent of total home sales during the last half of 1980 and the first half of 1981. See Table 42 for the distribution of first-time homebuyers by city and by housing ma.rket in the state. 60f the 10,000 homes sold and financed through AHFC during this same period (which was probably about 80 percent of all home sales), 17 percent, or 1,700 were sold to households who bad beenin the state less than one year. 143 T.Al!LÉ 42~: FIRST.;TnŒ.·HOMEBllYERS BY .TYPE OF HOUSÎNO .PIJRCHAsED3 J ., Total Mobile .Homes First"'Time . New lloiles. Existin~ HO!Des. N'eW Rxistin& . Total toans·· HOIIiebuyer Total ·!2g! lSt Time. ·· Total/lst Total/1.st Anchorage t,:no . 3~7 4,698 2,069 iô 5 3$0 '247 6,374 2,638 Çltugiak 57 20 54 21 6 6 117 47. Eagle River '229 . 62 300 103 s . 7 537 172 '• T()ta.l . . .. 1,596 •399 5,052 2,193. 16 5 . J64 z6o. 7,028 . 2,857 .. 'W'a.Silla 147 .61 151 58. 5 2· 304 121 Willow 10 4 6 2 16 6 Palmer 33 11 77 36 7 2 117 119 Total· 190 76 235 96 12 4 437 176 Kenai. 61 21 114. 50 3 1 .9 5 187 77 Soldotaa 50 12. 107 35. 1 12 10 .·170 57 Total 111 33 221 85 4 21 15 . 357 134. Ketchikan 54 20 163 70 9 7 29 15 260 112 Homer 16 4 38 .11 1 ·4 4 ' 59 Seldovia 2 1 22 11 25 Total 16 40 2 26 ·. 16. 84 39 Fairbàoks 247 84 .· 825 341 4 lOO 67 1,176 .· 492 JW1eau 179 46 340 134 10 6 143 100 672 286 Douglas 6 3 25 12 31 lS Auke Bay 4 1 5 1 Total 185 49 369 147 10 6 143 100 708 302 .wrangell 3 11 2 7 Petersbur::g· 6 25 1 1 11 7 ·Total 9 36 .. Cordova 5 1 16 6 5 3 14 19 40 19 V aidez 15 3 46 15 30 17 91 35 Total 20 62 21 44 36 131 54 Sitka 39 14 . 76 30 3 1 40 20 158 65 ..... ICodiak 11 2 139" 40 2 1 18 12 170 55 aData fr-AHFC on loans made J11ly 1910 to October 1981. 144 i - 1 ..... ...... r- i.... f '- l L - - - ... - ... ... Supply ofSales Housing If as many as 6,000 households became homeowners during a period of slightly more than a. year; what was the source .of these additional housing units? The supply of housing for sale came from (a) home- owilers leaving Alaska and selling their homes, (b) v~cant homes which were sold, (c) aales of new mobile homes, (d) conver~ions of rental units to sale units, and (e) the construction of new homes.7 Vacant single .. family homes and new mobile homes did not con- tribute a major share tothe supply. There were only200 fewer vacant single..:family and fllobile homes in Anchorage and 70 less in Fairbanks· in June of 1981 than in June of 1980 (Federal Home Loan Bank Board of Seattle). Sales of new mobile homes also were low. Mobile home shipments to Alaska h<ilVe been falling since 1975, when 1 t400 units · were shipped to the state. In 1980, only slightly more tha11 a hundred units were shippéd in. . Shipments. in 1981 totaled approximately 200 (National Conference of States on Building Codes and Standards, Inc., Mc:Leon., Virginia). Of the 833 mobile homes fin.anced through Alaska Housing Finance Corporation from July 1980 through October 1981, only 58 were new units. The supply of sales housing provided by conversions of rental units to sales unit.s is difficult to estimate; however, the number of multifamily conversions appears to have been small. For instance, multifamily rental units proposed for conversion in Anchorage in the fall of 1981 was 227 units (Anchorage Real Estate Research Report, Fall 1981) . Conversions in multifamily structures desi:gned for renta! use require planning, fairly extensive legal work, and usually require rehabilitation. Conversions of single-family bouses or condominiums, on the other band, require essentially nothing but the owner' s decision to sell . 7Homeowners in the state who sell their homes and huy another do not provide net additions to the supply of sales housing and, there-. fore, are not counted he re as part ·Of the supply ~ 145 ·~------------------------------------------------------------------------------------------------------~---------------------- Alt:l~ough no data is collect~d on. single-!amily or mobile home con- versions from renta:+ to sales, the 19~0 Cens us showed approximately 30 percent of · the single-family homes in Ânchoràge occupied by renters. Owners of rental homes may have chosen t.l:lis. year as an opportune time to sell, especially owners who may have left the state during the past couple of years and have been un.able t.o sell becalise 'of the low houslng demand. ·. The last source of · supply. of sales ·•· units . is new construction. There were 2, 600 n:ew homes financed through Alaska llousing Finance Corporation, and an estimated .additional. 300 new homes financed through. other lending institutions during the last half .of 1980 and the first half of 1981. Residentialconstruction inAnchçrage trebled . . .:in 1981 over its 1979-1980 levels; in Fairbanks, it doubled. Juneau ànd I<etchikan, however, llad new construction levels similar to that of 1979 and only 30 percent above the ir 1980 levels. Because Anchorage . . . and Fairbanksexperienced large increases in employment and population during 1981, the demand for additional·housing was g:reatest inthese cities;·and, therefore, more neto~ construction occurred there. Effect of the State.Loan Programs on theDemand. for Sales Housing and the·ConstructionofNewHomes The major effect of the state' s loan prograJDs has been to in- crease the number of households that could afford to become home- owners. Whether these new homeowners bought older, existing homes or newly constructed ones did not matter. Owners of older homes, by selling . to th~se new homeowners, were then able to upgrade the ir housing quality by buying new homes. If tewer new homeowners had entered the market for sales housing, fewer existing homeowners would have been able to sell their homes, and demand for new homes would have béen reduced. 146 iriliÎ _, "" .... .... - .... - ... To analyze the importance of this new•homebuyer effect, we es ti~ mated the number of first-.time homebuyers who could not have afforded to buy a · h.ouse at the market interest · rates which existed during 1980 and 1981. Of all the homes financed through Alaska Housing Finance Corporation, 41 percent (4,483 out of a total of 10,986) were bought · by first-time homebuyers. Of. these first-time homebuye;rs, 578 bought mobile homes.s j Most of these first-time homebuyers could not have afforded the bouse they bought at market interest rates, and many also could not have affordèd to buy even the least expensive bouse without the in.ter- est subsidy provided by the state. For instance, for a homebuyer borrowing the maximum subsidized amount of $90,000, the difference in monthly payments betwee:n borrowing at a market rate of 15 3/4 percent and the AIIFC current rate of 12.375 percent is $215. This reduction in interest costs allows a housèhold with $10,000 less income to still (}lialify for a mortgage. Low-income households qualifying for the · Housing Assistance Program cau borr.ow at 6 percent up to a maximum of $76,000. To borrow the·. maximum of $76,000 with monthly mortgage payments not exceeding 28 percent of income requires an· income of $19,000 per year. It would require .monthly payments of almost $1,000 per month and an income of $45,400 to borrow the same $76,000 at a market rate of 15 3/4 percent. Of the 2, 600 first-time homebuyers in Anchorage, 1, 130 could not have afforded a minimum-priced $65,000 bouse at market interest rates of 15 3/4. Of the 425 first-time homebuyers in Fairbanks, 96 could not have afforded the minimum-priced bouse of $54,000. In Juneau, the minimum•priced bouse was $65,000, and 80 of the almost 200 first-time homebuyers could not have afforded to buy it. 8 Approximately 3,200 bought homes in Anchorage, Fairbanks, and Juneau . 147 These households represent 37 percent of the :firr:;t-time home- . buyers in the th-ree. cities, and they would have ~ouàd it difficult to ·· afford desirab,l~ hou:Hng since oniy a small part of thé salés inven- tory would . be available to them. It would be exj>ected that niost of these households would have èhosen to .·rent.~ lf these first~time homebuyers had not l:)ought houses du:ring the past thirijeen months' it would have decreased the demand for sales hous:b:ig by 1,300 units. Jileop~e moving to. Alaska also represen.t inc:reases in tl:le dèiJland for sales housing. Approximately 1, 700 homebuye:rs (17 percent of the total who bought.homeslastyear} hl:ld been inAlaska less t.han a yea:r. . . About one-th.ird (3à percent) of this nuniber we:re :fÏrst..:time h.omeowners . . . and have been discussed abbve. Of the remaining two-thirds, only a · small pe:rcentage did not have sufficient income to .· afford a. minimum"" priced house. at· market in te rest rates. Therefore, it appears that most persons who were previous homeowners and who moved to the state· during 198l.would havebeen able to buy a home even withoutthe inter- estsubsidies provided by thestate. In .sUIDBlary, it appears that the demand for additional sales hous:(.ng in the state was increased by at least 1 ,30:0 units by the stàte.programs. The estimates include only those householdswho would not havé been able to buy a · home; they do not include households which, though they eould afford to buy a: home at market interest rates; would have ehosen to rent.1 9 9 An additional 1,400 first-time homebuyers lived outside these three . cities, and we will assume the same pereentage of these home- buyers also eould.not afford to buy a home • . l 0 These estimates were made using the priees of home.s sold during the period from July ],980 through August 1981. Qur analysis of house priees shows that priee levels would have risen to their eurrent l~vels even in the absence of the loan programs (see succeeding sec- tions on house priees). Therefore, 'it is appropriate to use these priees·when making the above estimates on the affordability of housing. 148 - - ... .... - .... - - The increased demand for sales housing · was .met by the construc- tion of new s~les housing, the sale of new mobile homes., and by conversions of rentals to sales. Because of the relative elasticities of the. sùpply of rentai and sales housing--inelastic for rentai housillS and elastic for sales housing--a larger proportion of the increased demand for sales housing was met by new construction11 than .. by conversions of rentai to sales .units (see Methodology section). For the purposes of this study; we are assuming that approxi ... mately 300 of the supply of additional sales units were conversions of rentai units. For the. increased demand to have been met totally by conversions from rental to sales woul(} have required a perfectly elastic supply of rentai units, and for none of the increased demand to have been met by. conversions wou,ld have required a perfectly inelastic supply curve. Neither polar case is realistic~ We have chosen what we feel is a reasonable proportion of the supply response attributed to conversions. · Effect of State, Loan · Programs · on Total· Home ··Sales There is a relationship between the sales of older homes and the sales of new houses. The number of older home sales, relative to new ones, depends upon the type of housing being built and the incomes of the new homebuyers. If, for instance, lower-priced homes are being built and most of the first-time homebuyers are younger with lower incomes, the new homes will be sold to the first•time homebuyers. If, on the other hand, the new homes are more expensive than the majority of the existing stock, existing homeowners will trade up, and the first-time homebuyers (with the lowest in~omes) will buy the least e:xpensive older homes. Therefore, the ratio of new to existing units sold will vary àccording to the priee range of the new units built relative to the incomes of the first-time homebuyers. If there are fewer sales of new homes, there will be fewer sales of existing homes. Using the ratio of new-to-older homes sold during 11Sales of new mobile homes were very low. See previous page. 149 1 ' ' .. .• .·.. : 'the period July 1980 through August 1981 (approximàt~ly 3,000 newand 9,000 older homes we:re sQld), it is probable that there would have been about three fewer old7r homes .sold for each new·· home . not sold. The state loan . programs, by inereasing the sàle of new homes by perh.aps. 1,000 units, therefore, appear to have increased total house ·sales by approximately 4.,000 (33 percent of all sales) . 1 2 . 1 Priee Impacts ·In this section, we examine th~ priee impact of the program. We focus on how the program impaêted the priee of· a similar house. · This differs. from. the iiDpact on the average .priee of' housing since average housing priees reflect the increasirig proportion of higher quality ··. housing. We argue that because housing priees are determilled by the interaction ·of supply and · demand; as lQng as housing priees (of existing units) are bel.ow the cost of new constructiçm, increases in demand bring only priee increases. Once new construction is profit- able, subsequent priee iricreases are moderated by increases in supply. Although the program had the effect of increasing demand, we show that population growth moved t,he demand onto the elastic portion of the supply curve. · thus, the effect of the pro gram on priees can be mea~ sured by examining the priee changes of the replacement costs of similar housing. Priees of Existing Homes. Priees . of existing homes may or may not reflect land. values and the costs of building a home of similar quality •. For instance, after .. the. oil pipeline was finished in 1977, many households le ft·. Alaska, leaving behind a housing ·· · stock much larger .than needed .by the remaining hoU:seholds. Vacancy levels in 12Average ratio. of new home sales to existing ··home sales in 59 SMSAs was .9 to 3.2 for years 1974-1976. Ratio was higher in high growth a reas. "Transactions in New and Existing Homes," J. Weicher, Urban .Institute, Washington, D.C., 1980. 150 - - - sal-es and rental units were extremely high, and priees and rents fell. Vacancies were as high as 10 percent of the housing stock in Anchorage and 9 percent in Fairbanks in June 1980. The priees of existing homes did not rise as rapidly as construction costs because of this excess supply. For the same reason, there were very few new housing units constructed in either 1979 or 1980. Priees of existing housing in several housing markets in the state were bid up by . the state' s recent population growth until, by the latter half of 1980 and 1981, they reflected the costs of new home construction. Builders responded to these market conditions, and home construction in 1981 tripled in Anchorage and doubled in Fairbanks over 1980 levels. Home construction in Juneau and Ketchikan, on the other hand, was higher in 1981 than in 1980 but did not increase significantly over 1979 levels. In cities such as Juneau and Ketchi- kan, the rate of new home construction between 1975 and 1977 was small compared with that experienced in either Fairbanks or Anchorage. These cities were not lè.ft with the large stock of post-pipeline excess housing as were Anchorage and Fairbanks. Therefore, their ·rate of home construction maintained a more even· pace. Juneau and Ketchi- kan also have no.t had the employment and population growth experienced by Fairbanks and Anchorage in 1981. As a result, they have had much less demand for new housing. Again, this illustrates the points that when the existing housing in a city is selling for less than the costs of building new housing of similar quality, very little new construc- . tion will occur. Priees of New Houses. Priees of new homes will rise bec a use (a) better quality or better located houses are built; (b) costs of construction and site development increase; or (c) builders and land owners are able to charge higher priees and make higher-than-normal profits. 151 Most homes are built on speculation; that is, builders tcy to judge what the market demand will be and then build the type and quality of housing which they think they will be able to sell. If builders see larger or higher quality units selling rapidly, they will start building more expensive houses. If they see the reverse, they will start building smaller, less expensive ones. Once a house is built, the builder has to accept whatever priee homebuyers are willing to pay for it.13 However, if there are more persons wishing to buy houses than there are houses available, house priees will be bid up. They will then sell for more than they cost to build, and builders in the short run will make abnormal profits. Each builder will wish to rapidly respond when demand is high relative to the supply of housing, for that is when the highest profits can be made. If they do so, the supply of houses increases more rapidly than the number of potential homebuyers and -priees will fall until there are no extra profits made. Site developers go through the same process. The planning periods for site development are 12-to-18 months, . allowing for the approval and recording of plats and developing of the sites. The construction and sale of new houses require an additional six months. Therefore, if increases in demand for housing are unanticipated by land developers and builders, it may take as long as 18-to-24 months before the supply of new housing increases sufficiently to bring house priees into alignment with the costs of construction. Increases in demand for housing can temporarily affect the c_ost of construction materials; i.e. , unexpected demand can crea te short- ages. But, in general, construction material priees and construction interest costs are set in national markets and are not affected by local demand. 13The builder could, of course, pay off the construction loan and wait for a better market, but few builders are either able or willing to do this. 152 llliloli - .... - - .... - - - - """ .... Lot pricest on the other handt are very much affected by local changes in demand for housing. Lot priees will increase for two reasons: (a) the costs of land development increaseor (b) the demand for raw land increases. If more land is demanded for housing, land will be bid away from it.s present uses and put into housing. The cost of an addition to the supply of land for housing is set by a combina- tian of the value of the land in its alternative uses and the cost of developing the land into a home building site. The lowest cost lots available for housing set the bottom priee for new home sites; and all other building lots, including those with existing bouses t will attain their value by being some multiple of these lowest-cost lots. New building sites are usually further away from the center of town and are usually less preferred by homebuyers to those closer to town. Therefore, when new building sites are demanded, priees of older sites will rise to reflect their new, higher relative value. In order to define the effects of the state loan programs, we will compare the change in bu:ilding costs to the change in housing priees. If priees rise more rapidly than costs, à portion of the difference will be attributed to the additional demand generated by the state programs. Conversely, if building costs ànd housing.prices changed by the same relative amounts, we will conclude that the state programs did not produce any measurable priee effects. A second issue is whether the state programs may have increased housing demand enough to cause the cost of construction labor and materials to rise in the state. This issue will also be examined. Since the largest priee increases and the greatest number of new housing units constructed during the last year were in Anchorage, we will focus on this .housing market forour analysis of priee impacts. If measurable priee impacts cannot be obtained for Anchorage, it seems certain that they cannot be obtained for anywhere else in the state.14 14The Anchorage housing market also has the best data available in Alaska. 153 Priees of Homes in Anchorage The most rapid rate of population growth in the state during 1980-81 occurred in Anchorage; therefore, if home priees did not rise fas ter than building costs in Anchorage, it is doubtful if this occurred anywhere in Alaska. To estimate what part of the rise in Anchorage house priees was ' attributable to the state's loan programs, we first had to measure the actual increase in the priee of existing and new homes. We expect priees of bouses of constant quality and location to rise by at least the increase in construction and land priees. As was mentioned pre- viously, if .the demand for housing increases more rapidly than supply, priees will be bid up higher than costs and higher-than•normal profits will be made.15 If bouse priees do not rise as rapidly as costs, then there will be no new housing constructed. 1 In Table 43, changes in single-family house priees for the two- yèar period from June of 1979 to June of 1981 are given for various districts in Anchorage. Priee. changes vary between 8 percent in Mountain View to 37 percent in Spenard. The problem is the need to measu:te changes in priees of houses of similar size, quality, and loca~ion. For instance, in Table 43 the priee changes in several of the Anchorage Districts are heavily impacted by new housing. The higher priees of new housing may represent increases in quality and not necessarily increases in priee when quality is held constant. ·In Anchorage, new home sales as a proportion of all sales have been rising, going from 19 percent in the summer of 1980 to 35 percent in the summer of 1981. The average priee of all homes sold also has been increasing. Therefore, the increases in the average recorded priee of all homes sold do not necessarily indicate at what rate the priee of existing houses rose during the period. 15Existing homeowners would also be paid more for their homes than they would receive la ter when the supply of new houses increases. 154 - - ..... ..... - - ... ... - ... _, TABLE 43. HOUSE PRICES IN ANCHORAGE New and Existing Single-Family Sales Anchorage Multiple Listing Service Spring 1979 to Spring 1981 Number of Sales Percentage Change in Median Single-Family Home Priees J 299 592 503 569 1,228 251 393 Anchorage Spenard West Tudor-Dimond Dimond South Abbott Road-Rabbit Creek East Debarr-Tudor Mountain View Eagle River a Newly Constructed Single Family Homes Sold in 1979 Under $80,000 $80,000-$100,000 $100,000-$140,000 Over $140,000 12% 36% 41% 11% Average Bouse Priee $102,000 Percentage Priee Increase 1979-1981 = 17.6% 21 37 20 27 30 16 8 19 ·1979 Single-Family Homesb Resold in 1981 8% 35% 35% 22% $120,000 SOURCES: 8 Multiple Listing Service, Inc., Anchorage. bAlaska Housing Finance Corporation 155 In order to set a baseline from which to measure the changes in priees of housing of constant quality and location, we chose to com- pare the selling priees of new, single-~amily homes in 1979 with the selling priees of 1979 homes resold in 1981. We also chose newly built homes because the selling priees would reflect construction and land costs in 1979. Data were obtained from the Multiple Listing Services, Inc., of Anchorage on all sales of new homes in 1979, and this was compared with data from Alaska Housing Finance Corporation on houses built in 1979 and resold in 1981 (see Table 43). The average increase in priee over the two-year period was 18 percent. We then measured changes in construction and land costs from 1979 to 1981 and compared them to the changes in house priees. If house priees rose faster than their replacement costs, we took this to mean that demand increased faster than supply; and house priees were, in the short run, inflated. To mea·sure increases in the priee of new houses, we compared the priees of new homes built and sold in 1980 with those built and sold in 1981. New home sales between July 1980 and May 1981 represented units constructed during the 1980 building season while the new home sales between June and August 1981 were built during the 1981 building season. There was a 5.6 percent increase in priees between the 1980 and 1981 new homes, which corresponds to the relatively small increase in construction costs reported during the same period (see Table 44). Using priee data on all single-family homes sold and financed through AHFC during the period, we found that the priee of existing homes rose 9 percent (see Table 44). Priee increases of this magnitude appear to contradict the expe- riences of many homeowners in Anchorage who saw priees rising very rapidly in 1981. Anchorage priees did not start to rise significantly until the spring of 1981, however. By then, vacancy levels in Anchor- age had been reduced to less than half of their 1980 levels, and priees of existing homes were bid up rapidly. Priees from July 1980 through May 1981, however, rose monthly by an average of 0.3 percent 156 - r r-· r-( r f r r ( ( r r 1 r···~ r r .. r-.. TABLE 44. CHANGE IN DISTRIBUTION OF PRICES OF SINGLE-FAMILY HOMES IN ANCHORAGE Sales Priees Existing Homes New Homes July-Dec. 1980a Jan.-May 1981 b June-Aua. 1981 c July-Dec. 1980 a Ja{l.-May 1981 b Ju11e-Aug. 1981 c < $80,000 25% 29~ 20% 8% 12% 8% $80-100,000 40% 29% 27% 24% 25% 16% $100-140,000 29% 33% 41% 38% 35% 44% > $140,000 6% 8% 11% 30% 28% 32% ..... VI ...., Avg. Home Priee $98,000 $101,000 $107,000 $124,000 $123,000 $131,000 Percentage Change in Priees Between (3%) (6%) (0) (6.5%) Bond Sales Newly Constructed Units as a Propor-19% 23% 35% 19% 23% 35% tion of All Sales aJuly 1, 1980, Bond Sale, Alaska Housing Finance bDecember 1, 1980, Bond.Sale, Alaska Housing Finance cJune 1, 1981, Bond Sale, Alaska Housing Finance for a total average annual increase of 3. 1 percent. But during the. period June through August 1981, the monthly increase averaged 2 pèr- cent for an annual rate of 24 percent. During this same general period of time (April 1979 to the spring of 1981), developed building lots in Anchorage increased approximately 26 percent, from $30,000 to $38,000. This increase. was divide,d between increases in raw land priees and increases in site development costs. The priee of land rose two-and-one-half times, while site development costs increased by approximately 12 percent (Alaska Valua-· tion Service Data; Investigator's Estimates). Construction costs•-including labor, materials, builder's profit, and overhead--increased over the three-year period 1979 to 1981, inclusive, by 22 percent.16 The priee of construction materials in Anchorage for the period August 1979 to August 1981 showed an overall increase of from 5-to-10 percent between 1979 and 1981; priees fell between August of '1979 and 1980 as the contraction in the national building industry began. Priees for some materials--lumber in par- ticular--are still less than they were in 1979 (United Builders Supply, Anchorage). The costs of labor and materials in Anchorage have thus been held dawn by the virtual collapse of home building activity in the rest of the country despite the large increases in construction interest rates.1 7 In summary, we estimate that the costs of a new home in Anchorage increased by about 20 percent between the spring of 1979 and the summer of 1981, for an average annual increase of between 8 percent and 9 percent. The Alaskan Construction Escalation Index shows an 16As measured by the Boeckh Construction Index. 170n a typical new bouse of $130,000, construction interest.costs can add $15,000. 158 - - L ~ i - ..... - L - .....; - i ..... - ._ ..... ..... - ________________________________ ._____~ increase of 13 percent from spring 1979 to spring 1981 oms' !ne. , Anchorage, Alaska), and the Boeckh Index shows 15.5 percent. Our estimates of 20 percent include both the increase in the costs of land and site development costs. None of this evidence is definitive, but the picture we have pieced together is that priees of homes rose at the same rate as costs. The state loan programs did not increase demand so rapidly that the priees of new homes were bid up faster than the increases in their construction costs. Home building kept pace with the increasing demand, and few short-term supply bottlenecks occurred.18 Land priees, on the . other hand, did ri se rapidly, and the loan programs, by increasing the demand for more single-family homes did affect their average levels. Sin ce t~ priee of land depends entirely on the amount of i ts demand, the state loan programs, by affecting the amount of single- famil:y home building, had an impact on land priees. Land priees, as we mentioned previo~sly, rose by two-and-one-half times in Anchorage between the spring of 1979 and the spring of 1981. Raw land values in Anchorage rose from an average of $3,000 for a developed building lot èosting $30,000 in the spring of 1979 to $7,600 for a developed lot selling for $38,000 in the spring of 1981. A large percentage of the rise in the priee of land measured between 1979 and 1981 occurred in the spring of 1981 as the demand for lots by homebuilders increased. The loan programs increased the amount of new construction and, hence, the demand for 'building lots by approxima:tely 33 percent in Anchorage during the. period from July 1980 to August 1981; therefore, the pro- grams are responsible for approximately the same percent of the rise 18This last year was a good time to have a building boom with the rest of the country in a construction slump. There were excess supplies of materials and of construction labor in the rest of the country, and, therefore, these costa have seen only nominal increases in Alaska . 159 ~ in raw land priees. Even though land priees rose rapidly in the spring of 1981 (and will be higher for the 1982 building season if the demand for new homes continues), the impact on house priees is still relatively small. For example, a 36 percent increase in undeveloped land increases the priee of a $130,000 home by only 2 percent. Effect of State Loan Programs on the Quality and the Mix of Housing Effects on the Type and Quality of New Housing Of the 2,500 new houses sold and financed through AHFC in the period from July 1980 through August 1981, 800 (32 percent) were sold for less than $90,000; 855 (34 percent) were priced between $90,000 and $120,000; 504 (20 percent) were priced between $120,000 and $150,000; and 375 (15 percent) were sold for over $150,000 (see Table 44). At market interest rates of 15 3/ ~ percent, it would have re- quired an annual income of $64,000 and a 20 percent downpayment to afford a $130,000 home. Only 12 percent (approximately 1,100 house- holds) of all the homebuyers at AHFC had incomes of $64,000 or greater. Approximately 1,500 homes over $130,000 were financed through AHFC (about half were existing'homes and half were new homes). The house- holds who could afford these homes would have been reduced by approxi- mately 400, or 27 percent, without the low interest loan programs. The average new homes built during July 1980 through August 1981 sold for almost $25,000 more than the average existing home (see Table 45) • In Anchorage, 44 percent of all new homes sold for over $120,000; whereas only 17 percent of existing homes sold in that priee range. The difference in priee between the newly constructed homes and the existing homes is greater in Anchorage than in any other area of the state. In Fairbanks, 48 percent of the new homes and 32 per- cent of existing homes sold for more than $90,000, much less than what 160 - - -'l'ABLE 45. DISTRIBU'l'ION BY PRICE OF NEW AND EXISTING HOMES FINANCED BY AHFC DURING PERIOD JULY 1980 -OCTOBER 1981 -Priee Anchorage Fairbanks Juneau Remainder Total New Existins New Existins New Existing ~ Existing New Existing -< $70,000 104 962 26 296 2 74 51 334 183 1,668 $70,000-80,000 127 732 52 133 16 56 100 169 295 1,093 -$80,000-90,000 154 696 53 136 9 72 101 191 317 1,087 $90,000-100,000 189 762 45 128 9 59 63 120 353 1,051 $100,000-110,000 152 526 21 llO 56 29 51 77 257 694 $110,000-120,000 177 491 10 62 32 27 43 53 248 613 $120,000-130,000 118 294 15 22 18 16 29 41 174 373 ..... $130,000-140.000 133 217 11 16 12 15 25 15 186 263 $140,000-150,000 112 123 6 5 16 10 8 13 134 1:51 $150,000-160,000 106 89 2 3 8 3 4 7 118 102 : -$160,000-170,000 67 51 2 3 5 3 8 3 80 60 $170,000-180,000 44 32 2 3 3 2 1 1 48 35 $180,000-190,000 30 20 2 1 1 1 3 1 35 21 $190,000-200,000 30 20 2 1 2 1 2 1 35 21 > $200,000 53 37 2 3 1 58 40 1 - Total 1,596 5,052 247 825 185 369 492 1,026 2,520 7,212 Percenta,&e Distribution -< $90,000 24% 47% 52% 68% 14% 55% 51% 68% 32% 53% $90,000-120,000 32% 36'% 32% 26% 59% 31% 32% 24% 34% 32% $120,000-150,000 23% 13% 13% 5% 20% 12% 13% . 8% 20% 11% -> $150,000 21'%. 4'% 3% 1'%. 7'% 2'% 4% 0 .15% 4% ~.,.., ' - - 161 - has been seen in Anchorage.19 The new housing built during 1980-1981 was on average considerably more expensive than the average existing home, with the difference being largest in .Anchorage and !east in Fairbanks. The loan programs also changed the type of housing lower-income households bought. Many homeowners with incomes less than $30,000 were able to purchase a home because of the loan programs. Households borrowing $90,000 or less in 1981 could borrow 25 percent more.at the current AHFC inte.rest rate (12.375 percent) than at the market rate (15 3/4 percent) and still have the same monthly mortgage payment. At the 1980 AHFC interest rate on the first $90,000 of 10 percent, they were able to borrow approximately one-third more. Low-income home- buyers qualifying for the Homeowners Assistance Program at AHFC in either 1980 or 1981 found their house-purchasing power tripled (see Table 46). The increase in the abili ty of lower-income households to buy homes did not necessarily increase the number of lower-priced homes built. Approximately 4,000 (60 percent) of older homes sold were priced under $90,000; whereas only 800 (32 percent) of all new homes sold for less than $90,000. If the loan programs had not existed, many lower·income buyers would have dropped out of the 'sales market, and households which bought homes selling between $90,000 and $110,000 would have had to settle for homes costing from $70,000 to $90,000. Sales of new mobile homes would probably not have increased sub~tantially without the loan programs because of the lack of available mobile home pads. (Mobile 19In Juneau, 53 percent of the new homes and 21 percent of exist- ing homes sold for over $110,000. 162 ~ ,$ r ( Year 1980 1981 ...... a-w 1979 1980 1981 { r f ( r-,~-~ r· ·· r··· · r, r 1 r r-~,· r TABLE 46. MAXIMUM AFFORDABLE HOUSE AT VARYING INTEREST RATES 8 Annual Income Levels AHFC Interest Rates $20,000 $30,000 $40,000 $50,000 <$90,000 -10% $58,000 $89,000 $116,500 $144,500 >$90,000 -11% <$90,000 -12.375% 48,000 73,000 99,000 113,000 >$90,000 -19.5% <$90,000 -12.375% 48,000 73,000 99,000 116,500 >$90,000 -16.0% Market Interest Rates 12% 50,000 72,000 100,000 126,500 15% 39,000 61,000 83,000 100,000 16.5% 38,000 55,500 74,500 94,500 aEstimated using 10 percent down payment and .28 income-to-loan ratio. bMaximum mortgage amount at AHFC is $149,000. $~0!()(}0 $171,000 130,500 136,500 150,000 124,500 111,000 f $70,000 $198,500b 146,500 156,000 112,000 145,500 131,000 ( 1 J homes continued the trend of the last severa! years, representing an even smaller share of all new housing in the state in 1980 and 1981 than in 1979.) Multifamily construction was not affected by the loan programs in any systematic way; multifamily was a smaller share of new construc- tion in 1981 in Anchorage but a larger share in Juneau and Fairbanks than in previous years. However, the demand for condominiums and townhouses would probably have been larger without the increased purchasing power provided by the loan programs. Multifamily housing units have accounted for more than 50 percent of new housing built in Anchorage every year since 1974 until the building seasons of 1980 and 1981 when, for each year, multifamily housing accounted for less than 30 percent of the housing constructed. Multifamily has increased as a share of new construction between 1980 and 1981 in both Fairbanks and Juneau, increasing from 10-to-22 1 percent in Fairbanks and from 34-to-46 percent in Juneau. Almost all multifamily construction since 1978 in all three cities has been sold as townhouses and condominiums. The gap between rent levels and construction costs has been too wide to support the construction of new multifamily rentals (see section on Effects on Renters). Effects on the Existing Bousins Stock Quality of the housing stock ~has increased, not only by the addition of new houses but also through rehabilitation of older houses and apartments • No data on the amount of rehabilitation which oçcurs is available for the state, but we can at least speculate about the effects of the loan programs on the rehabilitation of older housing units. There is no active loan program at AHFC for households who would like to barrow money to remodel and repair their homes, although a new 164 i.- ._ 1....,. - ..... - """" - ....... - ..... - - ~· - ...... """"' loan program for housing rehabilitation is planned for 1982. The existing loan programs, by reducing the cost of housing to homebuyers, might encourage buyers to seek higher-priced, better quality housing; and sellers, therefore, would have a greater chance to profit by remodeling and improving the quality of their homes. Such effects, however, would be of minor significance . The conversion of older, multifamily rentals to condominiums is usually accomplished with substantial rehabilitation of the rental apartments being converted. The loan programs, by increasing the number of homebuyers (particularly in low~r-income groups), would have increased the demand for lower-priced sales units and, therefore, would encourage the conversion and rehabilitation of former rentai units. Rental Housing If the state loan programs had not reduced the cost of buying a home, at least 1,300 more households would be renters rather than homeowners. The increased demand for rentals would have decreased rental vacancies-even further than current levels and rents would be higher than they are now . Most of the increased demand for rentai units would have occurred • in Anchorage and Fairbanks, the cities which had the largest popula- tion growth during 1980 and 1981 and the largest number of first-time homebuyers who were able to buy a house because of the loan programs. Renta! vacancies in Anchorage and Fairbanks are low, and additional renters would not have been accommodated without overcrowding and even more pressure on rent levels. The change in the number of renter households due to the loan programs can be estimated, but there is no data on the change in the number of rental housing units. The nwnber of conversions from multi- family rentals to condominiums is relative! y small; however, single- family homes, which constitute a large proportion of the supply of 165 rentals, can pass from renta! to sales status, and the number is unknown (see above section on Supply of Sales Housing). The current rent levels in most parts of Alaska, even though considerably higher than they were two years ago, have not yet en- couraged developers to construct new units. Rent levels will have to be higher than they are now or long-term interest rates will have to fall before new rentals will be economically feasible. For instance, at long-term interest rates of 18 percent, the monthly interest pay- ment on a new $50,000, one-bedroom apartment would be $750. Rents for a typical 600-square-foot, one-bedroom. apartment would have to be close to $900 per month. Demand for rental units at those necessary rent levels is not very large. The planning period for a multifamily project is at !east two years. It requires oné year for the designing, financing, and per- mit ting processes and another year for construction. Therefore, even if the loan programs had not existed and rents had risen to higher levels, it is improbable that any construction of rentai units would have occurred during 1981. Because of the disparity between the costs of building and financing multifamily renta! units and current rent levels, construction of renta! units will probably not occur until interest rates decline. Effects on Rural Housing Markets 20 of · State Mortgage Loan Programs The new mortgage loan programs established by the state in 1980 promoted mortgage lending in rural as well as urban Alaska. There were over · 300 loans pending or purchased by the state in rural a reas bet~een July 1980 and October 1981 through AHFC and the Housing Assistance Division of CRA. 2 ~ural housing markets are defined as the areas outside of Anchorage, Matanuska-Susitna, Fairbanks, Juneau, and Ketchikan. 166 i.- - 1- L. ._ ._ ..... - i.- - ....... l-t L. ._ ..... ..... The six areas of rural Alaska in which more than 20 mortgages were purchased were Nome (68), Kobuk (48), Kenai-Cook Inlet (53), SE Fairbanks (27), Yukon-Koyukuk (30), and Bethel (20). Housing sales and mortgage demand is usually highly correlated with population, employment, and income growth. We · therefore expected to find more mortgages originated in areas which were having the most rapid growth. Four of the above mentioned areas have had substantial growth in per capita income during 1974-1979: Nome, Kenai-Cook Inlet, Yukon-Koyukuk and Bethel; SE Fairbanks and Kobuk exhibited no growth in per capita income during the period; however, they have had increases in popula- tion (see Table 47) . The effects on rural housing markets of the state loan programs cannat be evaluated as yet. The programs are too new, and the number of loans purchased is too small to be able to say whether the lean programs had an impact on new construction or quality of housing. Since the planning period for new construction is longer in rural areas than in urban areas, effects on the housing stock would not be expected to show for at least a couple of years. The amount of construction of new housing in rural Alaska has been $Ubstantial during the last decade. Comparisons between the 1970 and 1980 Census show additions to the housing stock in rural Alaska of approximately 18,000 houses. Comparing the additions to the 1970 housing stock shows that 42 percent of the housing in rural Alaska is less than ten years old. Removing the Kenai Peninsula housing inven- tory from these figures to better estimate housing changes in the more remote · rural areas changes this percentage of new housing only slightly, to 40 percent. Since housing is being built in substantial numbers in the most remote areas, the question is how is it being built and financed? The United States Department of Housing and Urban Development has been financing large numbers of homes in rural Alaska under the Mutual Help 167 TABLE 4 7. RURAL HOUSING MARKETS Change in Number Housing of Houses Rural Census Areas Units-1980 1970-1980 Wade Hampton 1,173 483 Nome 2,608 908 Kobuk 1,486 565 North Slope 1,158 557 Yukon-Koyukuk 3,192 1,364 Aleutian Islands 1,704 441 Kodiak 3,557 1,018 Valdez-Cordova 4,145 1,757 Kenai-Cook 11' 740 5,671 Prince of Wales/ Outer Ketchikan 1,385 378 Haines 743 263 Skagway-Yakutat-Angoon 1,553 618 Wrangell-St. Petersburg 2,363 728 Dillingham 1,952 '894 Be thel 3,297 1,331 SE Fairbanks 2,490 1,061 Bristol Bay 369 155 8 Local area persona! incomes, 1974-1979 b AHFC and CRA Mortgage Purchases cPer capita income for Cordova-McCarthy Change in Pop. 1970-1980 +20% +14% +19% +22% +12% 0 +6% +68% +52% 0 +20% +26% +25% +19% +23% +33% -5% Change ina Per Cap. In come 1974-1979 -16% +42% 0 +116% +120% +30% +59% +80%c +42% . +14% +20% +53% +80% d +33% 0 +51% dPer capita income not measured separately for Dillingham SOURCE: U.S. Department of Commerce. 168 State b Mort gage Purchases 1980-1981 1 68 48 6 30 4 12 53 13 8 4 4 9 20 27 5 ~ .... .... 1 L ...... ' ._ ~...... - ..... - ' l- ._ ! - ._ and Turnkey III programs. The bouses are built by the Regional Hous- ing Authorities and financed by HUD. Over the last six years, HUD has provided 250 million dollars to finance 2,900 homes. The two other federal agencies which provide financing and grants for homeown.ership in rural Alaska are the Farmer' s Home Agency of the United States Department of Agriculture and the Bureau of IndiaJ]; Affairs. Farmer' s Home Agency has financed over 1, 400 homes, provid- ing almost $61 million in low-interest mortgage funds, and the Bureau of Indian Affairs hàs financed 429 homes for over 10 million dollars during this same six-year period. The se three federal agencies--HUD, Farmer' s Home Agency, and the Bureau of Indian Affairs--have been significant sources of funds for financing homes in rural Alaska. However, less than half of the new housing constructed in rural Alaska during the 1970s was financed by these agencies. The remaining homes have been self-financed or financed through financial institutions in the state. To evalua te the relative effect of the state' s loan programs in rural Alaska, a comparison can be made of the dollars provided by the three federal sources of home financing and the mortgage purchases made by CRA and AHFC in rural Alaska. The state loan programs purchased approximately 300 mortgages for $20 million in the first 18 months of the loan programs, which can be compared to the approximately $70 million per year which has been pro- vided by the three federal agencies. It appears that the state is becoming one of the significant sources of mortgage funds in rural Alaska. 169 OLt 1 ~ Il 1..... 1 L L : f - '-. ._ - - - ...... L- - ~ CHAPTER FIVE INDIRECT IMPACTS In Chapter Four, the direct effects of state loan programs on housing markets were identified. The housing programs have implica- tions not only for the borrower who qualifies for a loan at below- market interest rates but also fo.r the sectors of the economy which are involved in the production and sale of housing. The major in- direct. impact is the generation of income which results from increases in housing market activity. 1 In this chapter we describe how each sector generates its real estate related income and estimate the magnitude of income generated in selected sectors as a result of state loan program induced real estate activity. Income is generated in the sale of both new and existing bouses. The sale of real property, whether new or existing, can require the participation of the finance, real esta te,. insurance, and service sectors. These sectors provide goods and services which are paid for by the buyer and seller. In the sale of a new structure, income is also earned by the factors of production. The major components of income to the factors of production are wages to construction and other la bor, payments for building materials, and profits to the builder and original land owner. For each sector we provide estimates of income on a per unit and on an aggregate sector basis. The estimates of income for each sector 'are based upon common, but not universal, practices of the industries involved. For example, real estate commissions are collected on sales where realtors participate, but realtors do not participate in every transaction. We have factored these considerations into the aggregate estimates based on information obtained from these industries. 1 Income is defined as the flow of money to each sector. 171 The purpose of the aggregate estimates is to identify the magni- tude of the effects, not to calcula te exactly the incomes earned by the sectors as a result of state programs. The income estimates reported are not for total sector income, but the income generated as a result of state loan programs. To review, in Chapter Four we estimated that the state loan programs were responsible for the con- struction of approximately 1,000 new housing units and the sale of 3,000 existing residential units during the period July 1, 1980 to October 31, 1982. Those estima tes are the basis of the aggregate income calculations presented in this chapter. Finance Under the state mortgage loan programs, the financial industry acts as the seller/servicer of state-funded mortgage loans. Financial institutions charge fees for these services. The loan fee, charged at the time of closing, is usually one percent of the original loan amount. The servicing fee paid by AHFC for the Special Mortgage Loan Purchase Pro gram is 3/8 of one percent of the unpaid balance. The service fee is collected over the entire life of the mortgage. Based on these fees, we estimate that finan,cial institutions earned approximately $3.5 million in mortgage loan origination fees between July 1, 1980, and October 31, 1981, as a result of the state loan programs. 2 Furthermore, the mortgage loans resulting from the program made during this period generated approximately $1.2 million in loan servicing fees in the first year. Financial institutions also participate in the production of new housing units by providing the construction financing. While the térm of construction loans varies, the typical construction loan has a 2 Assumes the average loan-to·value ratio is .90; the mean sales priee of new structure is $110,800; the mean sales priee of existing structures is $91,100; and the loan origination fee is one percent of loan balance. 172 ~ .... .... 1 r, - L ~ - i- - - .... 1.5-to-2 percent loan origination fee and has interest rates 1-to-2 percentage points above the prime in te rest rate. Construction loans are usually disbursed over the life of the loan on a percentage com- pleted basis . The 1,000 new units constructed as a result of state loan. pro- grams generated demand for construction loans. This demand is esti- mated at approximately $78 million. 3 With a construction loan fee of 2 percent, construction loan fees are estimated at $1.6 million. The interest income earned on a construction loan depends on the interest rate and the length of the loan. The length of loan depends on the construction scheduling and on the market conditions. Interest costs can escalate quickly if the structure does not sell according to schedule. Given the variability, estimates of construction interest income are more speculàtive. Using an 18 percent interest rate and a five-month term, we estimate construction loan interest payments at approximately $3.0 million. Real Estate The real estate industry acts as agents for the buyers and sellers. Generally, the real estate sector receives coumissions based on the sales priee for their participation in a real estate trans- action. In Anchorage, the commissions are six percent.of the sales priee for existing housing and five percent for new housing. For an existing house with a sales priee of $91,100, the real estate commission calculated at 6 percent is $5,466. A new house with a sales priee of $110,800 would pay a commission of $5,540. Estimates of income earned by the real estate industry depend on use of the industry by sellers. As a result of state loan programs, 3 Assumes the construction loan-to-sales priee ratio is 70 percent, and the average sales priee is $110,800. 173 --~~-------,-~-- we estimate the real estate sector earned $4.2 million in commissions on the sale of new homes and $12.3 million on existing homes.4 Services and Insurance The completion of a real estate transaction requires services from title insurance companies, surveyors, appraisers, and credit rating agencies. Additionally, private mortgage insurance may be required for the new mortgage. .Rach of these businesses genera tes income from their real estate activities. We estimate that the clos- ing costs of a real estate transaction, excluding those previously discussed, can typically range from 1.0-to-2.5 percent of a property's sale priee. Closing fees, other than finance fees and real es tate commissions, can range from $900 to $2,700 per unit. We estimate that the income generated by these fees as a result of the state loan programs ranges from $3.5-to-$8.6 million. Construction The construction of new housing units creates construction jobs. The National Association of Home Builders has estimated that the construction of an average single-family unit generates .862 persan years in construction employment: .627 in building and .235 in land development (National Association of Home Builders, 1979). We esti- mate that the state loan programs increased construction employment by the equivalent of about 850-to-900 jobs for one year. To place the increased employment in perspective, we compare it to past employment levels in the construction sector. 4 Assumes 75 percent of real estate transactions involve payment of a real estate commission. 174 ... - .... .... .... ...... i... 1- ! L - - 1...... \ - 1.- i... In the third quarter of 1980, the last quarter for which detailed employment data is available, total construction employment averaged 14,044, of which general building and special employment was 8,861 (Alaska Department of Labor, Third Quarter, 1980). Of this total, 1,500 were in residential building and 5,800 in special trades. Since specialty trade workers also participate in nonresidential building, the total size of the residential construction work force is less than 7, 700, and probably in the range of 2,500 to 3, 000 workers. 5 The 850-900 person years of employment generated by the state loan pro- grams represent approximately 30-to-35 percent of the residential construction work force as measured in the Third Quarter 1980.6 Residential construction workers are usually nonunion in Alaska. Based on an average wage rate of $14 per hour, construction income generated as a result of state loan programs is estimated at $20 million. Who les ale The suppliers of construction material also benefit from an increase in residential construction activity. While the ratio of materials cost to the sales priee varies depending on the design and size of structure, th~ choice and availability of materials, and the magnitudes of the other costs of production, it typically representa 30-to-40 percent of a structure' s sales priee·. 7 The total volume of &this number is obtained by allocating the special trades employ- ment into the residential, nonresidential, and heavy construction categories on the basis of employment in each construction category. 6 Alaska Department of tabor estimates of construction employment in the third quarter of 1981 are approximately the same as actual employment in Third Quarter 1980. 1These figures are based on data collected by the Anchorage Real Estate Research Committee. 175 material purchases resulting from the state loan programs for the period July 1, 1980, through October 31, 1981, is estimated at $33-to- $44 million. Unlike the income generated by Alaska financial institutions, real es tate companies, and construction workers, a major portion of this income goes out of state since the Alaska economy imports. a high proportion of the g~ods it uses. Based on data presented in the 1977 Census of Wholesale Trade for Alaska, we estimate that the cost of goods sold constitute approximately 75 percent of total sales. As- suming that all of the goods are imported, we estima te that 8 to 11 million dollars of income was generated in Alaska as a result of the state housing loan programs. Indirect Impacts Not guantified There are two types of indirect impacts which we have identified but did not quantify. Fir~t, we did not quantify income flows in specifie sectors due to insufficient information. These sectors include manufacturing, transportation, and mining. As with wholesale, these sectors are subject to a high level of out-of-state leakage. Also, we did not estimate the profits earned by landowners and home- builders. The reason is that any estimate would be highly speculative, since we do not know the cost structure of the many transactions which affect profitability. The second type of indirect impact not quantified is the mul- tiplier effect. The effects of the in come generated through real estate transactions depend on how the income is distributed. Major types of distribution include wages and salaries to employees; the payment for other operating expenses including rent, supplies, and services; and profits. Through distribution of the income generated through increased real estate activity, there is also an increase in " activity in the general economy. This effect is ref~rred to as the multiplier. While the concept of the multiplier is easily understood, the actual leve! of the multiplier is difficult to estimate. One 176 - ... - ..... :..- ~ !...... .... ~ .... :..- ._ particular point is that the multiplier based just on real estate activity would be less than multipliers commonly quoted for the so- called nbasic" sectors of the economy. Total Versus Net Income The estima tes· of income presented in this chapter represent estimates of total income generated by the state induced real estate activity. The net effect of the programs on Alaska income depends on two factors: out-of-state leakages and diversions· of resources to single family housing. As discussed in the wholesale section, a high percentage of total income leaks out of state due to the import of 0 building mate rials. Similar leakages can occur in other sectors in cases where out•of-state firms or owners are involved. For example, out of state banks providing construction loans and out-of-state insurance companies selling insurance. Another example is the employ- ment of temporary migrants · to Alaska in housing related jobs. The second factor which affects net income is the extent to which re· sources were diverted from other activities to owner occupied resi- dential construction. For example, if construction workers wo.uld have had other woJ;"k, the full effect of these jobs is not a net benefit. Since diversions did occur, our estimates overstate the effect of the state housing loan programs on incomes in Alaska. Summaey In this chapter, we have identified the sectors of the Alaska economy which are affected directly by the increased activity in housing markets resulting from the state housing loan programs. Based on the estimate of state loan program induced housing activity of 1,000 new and 3,000-existing units, we estimate that the measurable indirect . impact of the housing programs is approximately $57 to $65 million. This estimate factors in the leakages in only the wholesale sector. Leakages in other sectors were not estimated. Furthermore, the estimate does not include profits earned by landowners or builders, and the multiplier effects on the impact of diversion of resources. 177 Determine Impacts on Sources of Funds in. Housing Markets Determine Costs ofState Housing Programs 1 ___,. ~ ...,.. PART3 • FINANCJAL IMPACTS The purpose of Part 3 is to assess the financial impacts on thè · ··sources of funds going mto Alaska' a housing markets as well as the costs of hoùsing programs to the state. Impacts on sources of funds were detemrlned by comparing the actual portfolios of primary lenders, secondary lenders, and homebuyers with what they probably would have been without state program interven- tions. State appropriations to the programs are identified. Program costs are then defined in present value terms and compared with the value of the subsidies received by home- buyers. The analyses and findings are presented in the follow- .ing chapters: Chapter 6: Impact on Sources of Mortgage Funds hf Alaska Chapter 7: Costs to State Government 178 6!t ï ..., ! - - - ... . f CHAPTER SIX IMPACT ON SOURCES OF MORTGAGE FUNDS IN ALASKA The State of Alaska, through its public agencies, has for many years been a major source of funds f~r the financing of owuer-occupied homes. During the.past six years, the state's holdings of residential mortgages have increased over four-and-one-half times from appxoxi- mately 6,400 mortgages in 1975 to slightly more than 31,000 in 1981, a loan portfolio worth close to two billion dollars (see Table 48). The state' s role is that of a secondary mortgage lender per- forming similar functions to that of the two national mortgage lenders, the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation; that is, the state, through its agencies, purchases loans from financial institutions which originate and service mortgage loan:s. Commercial banks, mutual savings banks, and savings and loan associations are the loan originators and primary lenders. Alaska Housing Finance Corporation, the State Pension Funds, and the Department of Community and Regional Affairs Housing Assis- tance Division perform the role of secondary mortgage lenders. The State' s Veterans Loan Program was a major purchaser of mortgage loans until 1980, when the program ended and a Veterans Loan Program was initiated at AHFC. The Pension Funds now hold almost 6,000 mortgages valued at almost $315 million, which represents about 15 percent of the mort- gages held by ali state agencies. The funds place about $60 million a year into residential mort gages. The State' s Veterans Loan Pro gram, which purchased loans made to veterans in the state from about 1975 to 1980, was turned over to AHFC in 1980. The dollar volume of mortgages purchased per year under the Veterans Program rose from $43 million in 1976 to $94 million in 1978, and then feil to $29 million in 1979. There are presently about 4,000 mortgages worth about $270 million in 180 ...,; r- ...... 00 . ..... , r [ r -.-r r ( 1 TABLE 48. VOLUME OF ALASKAN RESIDENTIAL MORTGAGES HELD IN THE PORTFOLIOS ' ,' ~ ' . . ' " PRIMARY tENDERS Alaskan Financial Institutions Savings & toan Institutions Commercial Banks Mutual Saving~ Bonds National Secondary tenders Federal National Mort. Assoc. Federal Home Loan Mort. Corp. State of Alaska State Pension Funds Veterans' Loan Program Non~Conforming Loan Programs Permanent Fund Alaska llousing Finance Corp. Total Secondary tenders National Secondary tenders State of Alaska · OF P~IMARY AND SECONDARY tENDERS, 1976-1981 1976 1977 1978 !ill. ill!! 198i Dollars·of Residential tfortgages Held in Portfolios .(10&) $515 $579 $605 . $558 $520 $505 Number.of Residential Mortgal$es Held in Portfolios 8,346 8,279 9, 718 10,187 9,280 8,637 6,386 9,336 13,089 17,193 22,460 30,157 14,732 17,615 22,807 27,380 31 '740 .. 38,794 Sbare of Secondary Market for Residential Mortaages in Alaska 57% 43% 47% 53% 43% 57% 37% 63% 29% 71% 22% 78% 1 1_ J • the Veterans Loan portfolio. These loans are about 13 percent of the residential mortgages held by state agencies (see Table 49). AHFC holds by far the largest number of residential mortgages of any of the state agencies and is also the largest secondary mortgage purchaser in the state. At the end of the third quarter in 1981, AHFC held 19,500 mortgages valued at about $1,400 million, representing approximately 70 percent of the residential mortgages held by the state (see Table 49). The number of mortgages purchased by AHFC has been increasing each year since 1975, with the exception of 1978. Mortgage purchases doubled between 1976 and 1977, rose by 46 percent between 1978 and 1979; by 20 percent between 1979 and 1980; and then increased by about 120 percent between 1980 and 1981 (see Table 49). In July 1980, the state initiated a below-market interest rate mortgage purchase program th:tough Alaska Housing Finance Corporation which was available to all homebuyers in the state. Since only AHFC, with appropriations from the state, could buy mortgages written at below-market interest rates, AHFC effectively became the only second- ary lender in the state for all qualifying mortgages. AHFC uses the Federal National Mortgage Association and Federal Home Loan Mortgage Corporation guidelines for underwriting standards, maximum loan amounts, and property qualifications. Therefore, all mortgages qualifying for the national secondary lenders also qualified for AHFC purchase, and AHFC completely took over the market former! y held by Federal National Mortgage Association (FNMAE) and Federal Home Loan Mortgage Corporation (FHLMC). Mort gages not qualifying for purchase by AHFC, FNMAE, or FHLMC have been puréhased by the State Pension Funds. For instance, mort- gages for amounts greater than the $149,000 maximum allowed by FNMAE guidelines or mortgages on nonowner-occupied homes will qualify for 182 ( r"""~""-r~"~"" ( f ,f l r l TABLE 49. SOURCES OF FUNDS FOR tQ~OWNIRSHIP IN STATE OF ALASKA 1976-1981 (Dollars in Thouaanda) 1981 (lat three quartera) 1980 Numbec Dollars NUIIIber Dollars Share llf Number Dollars ~Humber Dollars Share of Mortaaae Mortaaae Hortaaae Hoctgage Mort. Pur~ Mortaage Mortgage Mortgage Mortgage Mort. Pur. Sourc_e __ Held He1d Pur chase Purchal!e !!!_.State Held Held Pur chase Purcbase in State State of Al.-ka Alaska Bousin& Finaace 19,463 1,379,311 6.537 577,006 u,:no 850,634 3,582 261,317 CRA-Nonconfo~ing Loana " 290a 18,000 291) 18,000 Veterana Loana 4,030* 270,000* tl tl 4,600* 300,000* 69 4,835 Permanent Fund 8Q 10,400 80 }0,400 Pension Funds 5,150 314,700 675 58,600 4,287 263,000 690 62.400 State Mobile Home Loana 203 5,763 203 5,763 203 5,763 Municipal Houaing Bonda ·t;ê; Commercial Banka Single Family 173,766 166,!192 1,..) Mobile Homes. 54,444 64,476 Mutual Savings Banks 64,500 64,000 Savings and Loan 6,565 211,789 6,062 224,602 Credit Unions 43,956 Federal Nat'l Mortgàae Asaoc. 5,443 14 1,558 5,841 338,179 lOO 9,021 Federal Home Loan Mort. Corp. 3,194 tl tl 3,439 3* 210 Bureau of Indian Affaira b 70 1,230 Farmer'a.Home Administration 125 6,349 244 15,287 Dept. Housing-Urban Develop. c 754 65,122 604 55,148 .. Life Insurance Companies 5,300 5,300 Total aClosed and in-process loans. bB!A Housing Grant&. cReservations for: H•itual Help and Turnkey III Houa es, HUD pr:ovidea low~cost financina for Hutual Help and "Turnkey Ill bouses. *Eatimated ........ ..-..~·-.f--. SOURCES OF FUNDS FOR HOMEOWNERSHIP IN STATE OF ALASKA 1976-1981 (Continued) 1979 1978 Humber Dollars Number Dollars Sbare of Number DoHan Humber Dollars Share of Mort gage Mortgage Mortgage Mort gage Mort. l'ur. Mortgage Mortgal'e Mortgage Hortgage Mort. Pur. Source Held Held Pur chase Pu.rchase in State Held Held Purchase Pur cline in State - State of Alaaka Alaska Housing Finance 9,0l3 496,p00 2,940 189,967 6,616 336,848 2,004 117.799 CRA-Nonconforming Loans Veterana Loans 515 2$,761 1,527 94,190 Permanent Fund Pension Funds 3,480 22.1,000 720 61,200 2,373 178,000 694 59,000 Municipal Housing Bonda 469 42,400 . Commercial Banks Single Family 115,500 201,100 Mobile Homes · 82,422 90,760 ..... 00' Mutua.l.Savings Banks 69,000 70,~90 .p. Savings and Loan 4,656 230,735 4,259 241,9'88 Credit Unions Federal Nat'l Mortgage Asaoc. 6,302 363,965 820 70,468 5,976 319,883 1,811 142,047 Fed. Home· Loan Mort. Corp. 3,885 432* 37,171 3,742 60,355 Bureau of Indian Affaira b 88 2,927 122 1,500 Farmer's Home Administration c 343 23,687 244 15,287 Dept. llousing-Urban Develop. 562 50,392 411 34, no Life Insurance Companies 6,200 Total • r r ~ 00: ln ( ·----r~---r··-r ( SOURCES PF FUNDS FOR HOHEOWNERSHIP IN STATE OF ALASKA 1976-1981 (Continued) 1977 Humber Dollars Nwber Dollars Mortaaae ttortaaae Hortgage Hortgage Source Held Held Purchaae Pur chase State of Alaaka Alaska Housin& Finance CRA-Nonconformins Loans 4,923 248,900 2,448 122,665 Veterans toans 1,139 56,886 Permanent Fund Pension Funds 1,813 136,000 687 58,400 Municipal Housing Bonda Collllllercial Banks Single Family 197t500 Mobile Home& 85,350 Hutual Savinga Banka 58,000 Savings and Loan 5,235 237,653 Credit Unions Federal Nat'l ttortgage Aasoc. 4,842 744 44,921 Fed. Home Loan Hort. Corp. 3,437 26,225 Bureau of Indian Affairab 89 1,291 Farmer's Home Adminiatration 219 14,464 Dept. Houaing-Urban Develop. c 323 24,108 Life Insurance Companiea Total l { L 1976 Shue of Nwber Dollars Humber Dollars Share of Mort. l'ur. Hortaaae Mortgage Hortgage Hortgage Hort. Pur. in State Held Held l'Ûrchase Pur chase in State 3,756 147,800 . 1,167 ~ "52,888 849 43,121 176,200 72,000 62,000 4,909 204,433 4,782 701 39,592 3,564 60 2,482 216 17,633 .. SOURCES: Federal Deposit Insurance Corp.; Federal Home Loan Bank Board, Washington, D.C.•and Seattle; Federal National Hortgage Assoc., Washington, D.C. and Los Anaeles; Federal Home Loan Hortgage Corporation, Washinaton, D.C.; Department of Revenue, State of Alaska; State of Ahska Division of. Loana and Veterans. Affaira; Alaska Permanent. Fund Corporation; National Credit Unions, Wisconsin; American Council of Life Inaurance Companies 0 Devartment of Community and Regional Affaira, Housing Assistance Div.; Alaska Housing Finance Corporation; First Federal Saving& and Loan Assoc.; U.S. Department of Housing and Urban Development; Bureau of Indian Affaira. and the U,S. Department of Agriculture, Farmers Home Administration. · 1. purchase by the Pension Funds, but not by the other secondary lenders. Unlike FNMAE and FHLMC, the mar:ket for mortgages purchased by the ' Pension Funds was not altered by the initiation of the below-market interest rate programs. The Department of Community and Regional Affairs Nonconforming Loan Program and the Rural and Mobile Home Loan Programs at AHFC are also mortgage purchase programs which do not use FNMAE guidel ines. Mortgages purchased under these programs can be made on properties which, because of structural characteristics or location, would not qualify under FNMAE guidelines. Mortgage loans on properties such as these were, before the initiation of the loan programs, either held in the portfolio of state financial institutions, or th~ loans were never originated. The state initiated a mobile home moi:tgage purchase program in 1980 which was turned over to AHFC with a portfolio of 200 loans worth approximately $5,700,0CO. The mobile home loan program has been very active at AHFC, purchasing over 1, 100 mortgages since the pro gram began. Mobile home loans were, before the initiation of the state loan programs, held in the portfolios of the primary lenders in the state. For example, mobile home mortgages held by commercial banks in the state fel! from $82.5 million in 1979 to $54.5 million in 1981. • Though · the role of the national secondary lenders in Alaska effectively ended when the new state loan programs began in July 1980, the national share relative to the state' s share of the secondary mort gage market has been decreasing for the las t six years. In 1976, the two national secondary lenders held 53 percent, and the state held 47 percent of the mortgages in the secondary market. In 1980, the national lenders' share was 29 percent, and the state's share was 71 percent. The relative number of mortgages held by the state and the national lenders reversed themselves during the last six years even though the yearly number of mortgages purchased by the state and . 186 -.1 .. .... - - - .... - - 1 - J;.... ...... - the national secondary lenders did not change. The state, though, has been purchasing between 4,000 and 4,500 loans per year, and the national lenders have been purchasing approximately 1.,200 per year (see Table 50). While the state has been increasing its portfolio of mortgages, primary lenders in the state only increased their holdings of resi- dential mortgages by $43 million between 1976 and 1979. In 1976, savings and loan institutions, commercial banks, and mutual savings banks held, in residential mortgages, $515 million, which climbed to $605 million in 1978, then fell back to $558 million in 1979, falling further to $505 million in 1981. During the same year that the below-market interest rate loan programs were initiated at AHFC, total secondary mortgage purchases by all buyers in the state fell by 20 percent, going from 5,850 in 1979 to 4,647 in 1980. Even though the new below-market interest rate programs of the state took away the market from the national secondary lenders (purchases feil from 1,250 in 1979 to 103 in 1980), the hous- ing market was so inactive in 1980 that state purchases only rose by slightly more than 350.1 (See Table 50.) In 1981, however, housing markets in the state became very active (see previous section), and the nwnber of mortgage purchases by state agencies almost doubled, going from 4,650 in 1980 to 8,850 in 1981. Although mortgage purchases by state agencies in 1981 were 112 percent greater than purchases in 1979, total mortgage purchases in Alaska by ali secondary lenders increased by only 50 percent between 1979 and 1981. 1Purchases at ABFC rose by a greater amount than total state purchases because the state' s Veterans Loan Program was shifted to ABFC in 1980. 187 TABLE 50· NUMBER OF RESIDENTIAL MORTGAGES PURCHASED BY SECONDARY tENDERS National Sècondary Lenders Federal National Mortgage Association Federal Home Loan Mortgage Corporation State of Alaska Alaska Housing Finance Corp. State Pension Funds Veterans Loan Program Non-Confo~ing Loan Program Permanent Fund Municipality of Anchorage Total Loans Purchased by Secondary Lenders SOURCES: See sources, Table 48. 1977 1,200 4,274 5,474 1978. 1979 1980 - 2,600 1,250 103 1 4,225 4,175 4,544 425 6,825 5,850 4,647 188 • ill.! 0 8,850 8,850 : ...J .J - .. - - - - .... - ~ 1...... ! L - ; ~..... ...... To sum up, the increase in loan purchases in 1981 by the st~te was due to the following factors: (a) loans were no longer purchased by national secondary lenders; (b) housing activ~ty and total mortgage originations went from an unusually low year in 1980 to an unusually high one in 1981;2 (c) AHFC loan purchases increased more rapidly than the state's involvement as a whole because the Veterans Loan Program (which had been purchasing as many as 1,500 mortgages per year) was turned over to AHFC; and (d) the state began to purchase mobile home mortgages. The state' s increasing participation in the purchase of resi- dential mortgages has been funded by a combination of state funds and bond sales (see Table 51). During the last seven years, over one billion, two hundred and seventy million dollars of state funds have been allocated for the purpose of purchasing residential mortgages. Added to the state funds has been an additional $1,720 million raised by the sale of bonds. The ratio of state funds to money raised by the sale of bonds has gone from 2.13 in 1976, down to 60 percent in 1979 and back to 58 percent in 1981. This ratio is expected to. decrease still further to 45 percent in FY 1982 because AHFC bas restructured its bond sales to be able to raise more bond dollars for each state dollar used. This increased leverage of state dollars will allow for an increase in the volume of mortgage purchases in FY 1982 for the same level of state funds. During FY 1981, the state imported $610 million from "out of state" sources for mortgage purchases through bond sales at AHFC. During the same period, state funds of $353 million were directed into the purchase of residentiel mortgages. Of the total $963 million, almost 92 percent was used for mortgage purchases through AHFC. The State Pension Funds, the Permanent Fund, and the Nonconforming Loan Program used the remaining $80 million. 2 Fifty percent higher than in 1979 and 30 percent higher than in 1978. 189 TABLE. 51, ST~TE OF ALASKA FUNDS AND. BOND SALES FOR OWNER-OCCUPIED RESIDENTIAL MORTGAGES, 1976-1982 (millions) State Funds Bo{ld Sales Total Funds -- Veterans Pers ion Permanent Total State Program Funds CRA Fund AHFC Funds 1976 43.0 58.0 .891 102 48 150 1977 56.9 58.4 14.41 130 80 210 1978 94.0 59.0 .995 154 182 336 1979 28.7 61.2 10.1 100 169 269 1980b 4.8 62.4 7.2 39.4 106.6 ~ \0 198lc lOc 0 58.6 10.4 274 353 610c 963 1982 (budget) 60.0d 40c 265 365 592e 957 TOTAL 227.4 417.6 50 10.4 565.43 1,271 1,720.4 1,992.6 a Rows may not sum due .to rounding. b AHFC changed fiscal years from November 30th to June 30th. ... c d . For year ended June 30. Projected for 1982. e592 is bond ceiling, AHFC requesting additional 210. 1~-,-~ .; .. ... - - iiiOdw 1 ! . !...,.. - - • The effects of the new loan programs at AHFC have been to sub- stitute bond dollars fbr dollars raised through the national secondary lenders and to increase the importance of the state as a primary source of mortgage funds. Portfolios of ptimary lenders in the state were not altered significantly by the new loan programs; dollars invested in residential mortgages by primary lenders have been decreasing in constant value dollars for sever al years, however, especially with.the high market intêrest rates of the past two years. Savings and loan institutions and mutual savings banks would probably have increased their holdings of residential mortgages during the last two years if the state purchase programs had not existed . Homeowner equity was also substituted for state and bond dollars. Because of the reduced interest. rates at AHFC during 1980 and 1981, homeowners who sold a home and bought another had an incenti ve · to withdraw equity dollars and substitute borrowed money for their own. ~uring the first twelve months of the program, the interest rates on the total amount borrowed were below current mar~et interest rates, and, therefore, it would have benefited homebuyers to borrow as much as possible and use lower downpayments. Since June 1981, the interest rates at AHFC on amounts borrowed over $90,000 have been higher than market rates, and, therefore; homeowners no longer have any added incentive to borrow more than $90,000. To estimate equity withdrawal, we took a sample from the Multiple Listings Service, Inc., of homes sold in Anchorage in the first three quàrters of 1981. The average sales priee was $105,000, and the median homeowner equity was $40,000. During this period, the median downpayment of pers ons financing homes through AHFC, who were also previous homeowners, was $6,000. After allowing for selling and buying costs, the median withdrawal of equity per previous homeowner in Anchorage was $24,000. 191 Slightly more than 4,000 previous homeowners financed homes through AHFC during the period from July 1980 through October 1981, and by using a more conservative figure of $15,000 instead of $24,000 to allow for lesser equity of homeowners outside of Anchorage, total withdrawal of ownet equity equaled at least $60 million. The new loan programs caused substitution of state and bond dollars for dollars from FNMAE, FHLMC, and financial institutions in the state, and for equity dollars of homeowners. However, total mortgage demand would perhaps have been reduced by as much as one-half without the lower interest rates provided by the state loan programs. Total home sales would have been reduced QY approximately one- third (see previous section); assumptions would have increased to perhaps 20 percent of sales; and homeowners would have increased their equity financing, thereby reducing the total demand for mortgages. 192 r lill ~-, 1 :,,., ~ !,',',, - .... ..... - > l .... - ..... .... - - ;.... - .... ;....,., - - - ...... CHAPTER SEVEN COSTS TO STATE GOVERNMENT During the sixteen-month period, July 1980 through October 1981, the State of Alaska appropriated approximately $667.1 million in support of its mortgage loan programs. Of this total, approxima tel y 43 percent ($286.0 million) was in the form of transferred portfolio assets (primarily the Veterans Program mortgage portfolio), with the remaining 57 percent ($381. 12 million) in the form of appropriated funds (Table 52). TABLE 52. ALASKA STATE GOVERNMENT APPROPRIATIONS IN SUPPORT OF MORTGAGE LOAN PROGRAMS JULY 1980 -OCTOBER 1981a Total Appropriations (millions of dollars) AHFC Programs State Assisted Mortgageb Home gwnership Assistance Rural Mobile Home DCRA Programs Nonconforming TOTAL Cash - $312.0 2.5d 23.7 18.5 24.4 $381.1 Portfolio of Assets $236.0 50.0 $286.0 aincludes FY 81 and one-third of FY 82 appropriations. b Includes 1 percent veterans buy-down. Total $548.0 52.5 23.7 18.5 24.4 $667.1 c . Includes Rural Housing Mortgage Purchase and Rural Nonowner- Occupied Purchase Programs. dincludes $4.4 million in Rural Housing Bonds purchased by State of Alaska. 193 The State Assisted Mortgage Program received the largest share of these appropriations, approximately 82 percent, with $236.0 million in assets and $312 million in funds appropriated to it during the sixteen- month period. The Home Owner Assistance Program was appropriated $52.5 million, with most of it (96 percent or $50.0 million) being in the form of transferred portfolio as sets. The two rural programs administered by AHFC and the one administered by DCRA, together, received $48.1 million, all of it in the form of appropriated funds. (This amount includes $4.4 million in rural housing bonds purchased by the State of Alaska.) The mobile home program was appropriated $18.5 million, all of it in funds. The state 1 s appropriations in support of the mortgage loan pro- grams, however, are nqt the same as the costs to the state. It is as if the state had appropriated funds to a single, special-purpose housing agency and that agency had done two things with its money. First, it used its funds to buy a collection of income-earning assets. Second, it used the value of its new assets to borrow against by going into debt (i.e., by taking out loans secured by the assets). If the agency were a profit-making organization, it would borrow at one rate and lend at a higher rate. The difference between the two rates would be its profit. This is how a commercial bank operates. It borrows at one rate (e.g., from its depositors) and lends at a higher, market rate of interest. The difference between what it pays its depositors in this example and what it receives from its loans is equal to its profit (after all operating costs are deducted) .- Since our hypothetical housing agency was created to subsidize homeowner mortgages and not make a profit, it does just the reverse. It uses its appropriation to buy assets (i.e., homeowner mortgages) at a lower rate and borrows at a higher, market rate of interest. The difference between the market rate and the subsidized rate is the equivalent of a profit-making organization' s '1 lossesn; and the present value of these los s-es, over the lifetime of the loans, equals the cost of the hypothetical ~ousing agency's program to the state. 194 - ,, l illlill ' ~' - ._ ..... i.- ..... - ...... ..... ..... ...... - ~ 1 L 1 L i i.... - The present value of the difference between the market interest rate at which the state borrows and the subsidized rate at which it lends is the minimum cost to the state of its housing programs. Actual appropriations required, however, are also affected by the efficiency with which the programs are managed. The more accurately the programs forecast their average life of loan or better control their cash flow, the smaller the appropriation required for each point of interest subsidized • During the sixteen-month period, July 1980 to October 1981, the largest program was State Assisted, Mortgages (accounting for about 85 percent of a11· mortgages purchases). Both its interest rate dif- ferentiai cost and appropriation requirements per point of interest subsidy showed significant changes. Table 53 illustrates the range of interest rate differentiais experienced by this program during the sixteen-month period and how state costs were affected . TABLE 53. STATE ASSISTED MORTGAGE PROGRAM COST UNDER DIFFERENT INTEREST RATES (Average Mortgage Amount of $88,500 . And Life of Ten Years) Interest Average Differentiai Cost to State Sixteen-Month Average 4.18 $17,800 Sixteen-Month High 7.036 26,400 Sixteen-Month Low .25 1,300 Long-Term Average 3.00 12,900 SOURCE: Estimated by the Institute of Social and Economie Research. 195 The lowest interest rate differentiai during the sixteen-month period occurred as a result of the July 1980 bond sale. Federal law at that time allowed the issuance of tax-exempt state bonds to support housing programs. The subsidy was set at a rate of 10 percent for the ' first $90,000 and the tax-exempt bonds went at 10.25 percent. To buy down the spread of 0.25 percentage points cost the state $1,300 on an average mortgage of· $88,500. By October 1981, the situation had totally changed. The state was no longer allowed to issue tax-exempt bonds for housing programs, and AHFC had to compete in the general bond market, at market rates of interest, for its money. At the same time, national demands for funds, coupled with a restrictive monetary policy by the Federal Reserve Board, had pushed interest rates to an all-time high. The net result was that the state had to pay a 19.41 percent rate at its last bond sale. The subsidized rate was set at 12.375 percent (by a formula adopted by the legislature), and the interest differentiai had climbed to 7. 036 percentage points. The costs to the state of buying down those 7. 036 points for the same $88,500 mortgage discussed earlier had climbed to $26,400. Over the sixteen-month period of the study, the average buydown was a differentiai of 4.18 points, at a cost of $17,800 for an average $88,500 mortgage. Under the formula adopted by the legislature, the interest rate differentiai will be adjusted over the next several bond sales until a stable spread of 3 points is reached. At this long-term rate spread, the average cost to the state of the buydown subsidy will be $12,900 for an average value mortgage of $88,500.1 While the rise in the subsidized point spread was driving up the costs to the state, AHFC was gaining experience improving its funds management and requiring lower appropriations for the buydown of each point of interest rate. Table 16, Chapter One, reports state appro- priations as a percent of total funds for each percentage point buy- down of the interest rate. Between the last half of 1980 and the last 1An average loan life of ten years was used for all calculations. 196 ...... 1- 1- .... .._ ..... - L [ ~...,; - - ! ...... î.... .... half of 1981, the ratio fel! by about 40 percent. This implies that AHFC can now operate at the same leve!, incurring the same costs and obligations as it did a year ago, with only about 60 percent of the appropriation leve! it then required. Table 54 uses sixteen-month averages to compare the costs of Alaska' s severa! mortgage purchase programs. As already discussed, the State Assisted Mortgage Program was largest in terms of both number of mortgages purchased (63 percent) and costs to the state (62 percent). The Veterans Program adds an additional point to the buydown; during the sixteen-month period, this increased state costs by about $4,400 for each average $88,500 mortgage purchased. This program accounted for about 19 percent of mortgages purchased and 23 pe.rcent of the total costs to the state. The Home Owner Assistance Program is targeted toward the state's low-income population and offered the largest point buydown of any program, 9.05 percent. This resulted in the highe~t average cost tQ the state of each mortgage purchased: over $26,000, even with an average mortgage value of only $63,400. The size of the program, however, was small, and it accounted for only 7 percent of total mortgages purchased and 10 percent of total costs to the state. The rural programs administered by AHFC and DCRA, together, account for about 4 percent of both total mortgages purchased and costs incurred by the state. The two agencies had different adminis- trative procedures, however, and AHFC bought down rural 'mortgages by 6. 3 points on the average, while DCRA bought them down by only 4. 18 points. As a result, the buy-down cost of an average rural mortgage of $68,000 was $20,100 in the AHFC administered programs and $13,600 in the DCRA administered program. All together, the State of Alaska incurred about.$200 million in costs buying down the interest rates (by point spreads which varied by 197· ---~-----~ TABLE 54. COST OF MORTGAGE PURCIIASE PROGRAMS TO STATE OF ALASKA JULY 1980 -OCTOBER 1981 aAverage life of mortgage assumed to be ten years. bDifferential interest coat only. No adjustment made for different residual principal values at end of mortgage life. clnclùdes both. Rural Housing Mortgage Purchase and Rural Nonowner-Occupied Purchase Programs. SOURCE: Estimated by the Institute of Social and Economie Research. - - - - L - 1.... - ' 1 l...i l' ~ - - .... ..... - program) over the sixteen month study period. As a result, approxi- mately 11,000 households in the state purchased homes at less than market rate mortgage interest costs. The present value of the interest subsidy to the homebuyer varied not with the size of the state's interest buydown, however, but with the differentiai between his mortgage rate and the mortgage rate available through private · lending institutions. These values are given in Table 55. The value to the homeowner of the interest subsidy under the State Assisted Mortgage Pro gram during July 1980 was $12, 150; by June of 1981, the subsidy's value had climbed to $25,600, after which it began declining under the formula adopted by the legislature. The present value of the subsidy to homebuyers is currently about $17,000 (for an average mortgage amount of $88 ,500) and will decline to a value of about $13,000 when the stable buydown of three points man- dated by the legislative formula is reached. The cost to the state in July 1980 was only about $1,300 for a homeowner' s subsidy value of a round $12, 150 on an average mortgage amount of $88,500. The difference between the state's costs and the homebuyer's subsidy was the cost incurred by the federal government in giving tax-exempt status to the state's housing bonds. By the end of the study period, the tax-exempt status of housing bonds under federal law had been eliminated, and it cost the state about $26,400 to pro- duce a subsidy to homebuyers of about $16,950. This occurred for several reasons. The removal of federal tax-exempt status from hous- ing bonds increased state costs enormously since the state had to absorb the total costs of the interest rate buydown. At the same time, interest rates in national bond markets, where AHFC was ob- taining its money, were reaching new highs . 199 ----~-~ TABLE 55,!. PRESENT VALUE OF INTEREST SUBSIDY TO HOMEBUYER8 Average Sixteen-Sixteen- Loan Amount Month Low Month High AHFC State Assisted Mortgage and Pledged Account $88,500 $12,150 $25,600 Pro gram Veterans Loan Pro gram 88,500 17' 150 29,400 Home Ownership 63,400 21,050 28,850 Mobile Home 23,500 3,400 6,850 Rural Housing 68,000 14,000 23,400 fS! Nonconforming Loan 68,000 9,850 19,900 8 Calculated from the following: · ( 1) Ten year mortgage (2) 7/80 FNMAE Rate -12.807; AHFC Rate 10.0 (3) 6/81 FNMAE Rate -16.3; AHFC Rate 10.0 (4) 10/81 FNMAE Rate -16.5; AHFC Rate 12.375 Sixteen- Month Avg. $19,000 23,200 26,900 5,000 21,000 14,400 (5) 7/80 -10/81 Average·FNMAE Rate -15.4; Average AHFC Rate -10.88 SOURCE: Calculated by ISER. .. 200 L 'L.; r L.; ~ 1...... ..... - il... - - - This was a short-term phenomenoil and could not persist. Sub- sequently, bond sales by AHFC under the new legislative formula began moving the State Assisted Mortgage Program to a stable buydown of three interest rate points. At that time, the value of the subsidy to homebuyers and the costs to the state should be about the same . ..., j • ' :; However, the cost to the state will always be determined by its cost of borrowing money, while the homeowners' subsidy will always be determined by the cost of borrowing money by other secondary mortgage institutions such as FNMAE. Because the national institutions have portfolios which are both larger and less geographically concentrated, they will probably be able to obtain funds at approximately three- quarters to a point lower than AHFC. This would imply a permanent difference of the cost of buying down three-quarters to one point between the present value of the subsidy to homebuyers and the pro.- gram's cost to the state. If this occurs, it may become more effi- cient for the state to buydown the FNMAE rate than to intervene in the state's secondary markets directly. "' 201 ·zoz L - - .... ...... - - """ Forecast Number and Value of l State Mortgages Analyze Alternative Future Scenarios ~ -PART4 1 FUTURE FISCAL IMPACTS· · The purpose of Part 4 is to assess future fiscal impacts in terms of the number and value of state mortgages and their implica- tions· for appropriations. This is done by using population, income~. interest rate, and household size trends to.project total future home sales and state mortgages for 1986 and 1980. · After using · these projections to illustrate potential state appro- priation requirements, the volatility of the f()recast to unfore- seen national market shifts · is discussed in terms of forecast ranges of probability. The analyses and findings are presented in the following chapter: Chapter 8: The Fiscal Impact of Alaska's Housing Prof.nuns .. ··-203 v oz - • f ..... ...... ..... ...... il il- i r: il- - - CHAPTER EIGHT ' THE LONG TERM FISCAL IMPACT OF ALASKA'S HOUSING PROGRAMS Introduction This chapter focuses on the long-term fiscal impacts of the state' s housing programs. Up to this point in our study, we have described how th_e housing programs work and have assessed their effectiveness and how they directly and indirectly impact both the housing market and the financial markets which finance housing in Alaska. The chapter immediately preceding ascertained the costs the state bears as a result of operating these programs. Our task in this chapter is to draw upon this knowledge of how the state' s housing programs currently affect the Alaska housing market· and to project the fiscal demands the programs will impose upon the state over the next ten years should the programs continue as currently structured. To prepare such a projection or even a range of projections is a most ambitious undertaking. It involves-projecting not only future levels of economie activity in Alaska and the resulting population growth but also the formation of new households in Alaska, the future mix of housing choices (i.e., to rent or own a house, condominium, duplex, etc.), the future priee and supply of housing, the abilities of people to buy the housing of their choice, and the share of the Alaska housing market the state's programs will finance. Obviously, substantial uncertainty afflicts each of these required projections and the results of our projections can only be interpreted with a full appreciation of these uncertainties. We make every effort to subject each projection to rigorous statistical tests and professional judg- ments. Nonetheless, the projections which follow can only be viewed as approximations of the magnitude and range of possible fiscal impacts the programs will impose upon the state over the next ten years. 205 This admonition of precaution is not to suggest that the projec- tions which follow are of no value. Quite to the contrary, we regard the approach employed as the most appropriate way the state can assess its financial liabilities. The methodology designed produces projec- tions which systematically incorporate checks and balances and explic- itly identifies each major variable and the assumptions on which it was constructed. If experience or better information proves these assumptions to be in error, the effect of the error on the final housing demand projection can be systematically traced and adjusted and a revised projection prepared. Methodology The principal task at hand is to project total mortgage demand in Alaska to 1990 and to estimate the market share state housing programs will finance and at what total cost to the state. Although the de- tails of preparing the mortgage demand forecast and the fiscal impact assessment be come somewhat technical, the logic required to produce them can be simplified and explained in a step-by-step sequence. Figure 6 displays the seven major tasks we have undertaken to produce our assessment of the fiscal impacts of the state's housing programs. The first four tasks are essentially interdependent. For each year of the forecast, they address the questions: how many households • are in Alaska; of those households, how many are likely to move or change their housing; what determines people' s housing choices; and can people afford the housing of their choice. The fifth task exam- ines the current condition of Alaska' s housing market and the sources of housing finance and estimates (assuming current program policies persist) the market share the state' s housing programs will under- write. Based on the.· analysis of costs the program imposes on the state conducted in Chapter Seven, an estimate of the housing programs' total fiscal impact is then estimated. The final task analyzes how the projections would change if interest rates were to fluctuate. 206 '4 .J L 1 '- L ~ L .._ l....i .... ..... - .... ..... """" - .... FIGURE&. A METHOD OF PROJECTJNG MORTGAGE DEMAND PROJECT POPULATION AND NUMBERS OF HOUSEHOLOS TASK 1 ~ ESTIMA TE HOUSING MOBI LJTV TASK2 RESIDENTS JN-MIGRANTS ~. '1 DETERMINE EFFECTIVE TASK3 HOUSING ùEMAND PROJ-ECT TOTAL SALES -$ ESTIMATE MORTGAGE - OEMAND TASK4 ESTIMATE STATE'S TASKS SHARE OF TOTAL MORTGAGE OEMAND ~ . ... . ESTIMATE THE PROGRAMS' FISCAL IMPACT TASK6 ANAL YZE SENSITIVITY · TASK 7 OF THE PROJECTION 207. Unfortunately, for us as researchers, the work required to perform each task shown in Figure 3 is not as simple as the above description might suggest. Unfortunately, for the reader, to under- stand the results of our analysis requires a more thorough explanation of how we actually performed each task, the assumptions we made, and the conclusions we reached. Hopefully, the following pages, once carefully read, will enable the reader to understand and critically judge our methods and the results we have produced. Task 1: Project Population and the Number of Households To be able to get to the point of projecting mortgage demand, we first need to be able to project the demand for housing, be it single- family, multifamily, a duplex, or mobile home. We do this by project- ing population growth and composition and household formations. We assume each household needs shelter and, thereby, represents addi- tional housing requirements. Subsequently, in Task 2, we separate housing demand into the demand for owner-occupied housing. Table 56 presents two sets of projections of Alaska' s population to the year 1990, each of which includes the projected number of households and the average household size. These projections were prepared by the Institute of Social and Economie Research through the use of its computer model of the Alaska economy, referred to a.s the MAP model. We selected a high and a low development scenario in an attempt to estimate the likely range of economie development which may occur in Alaska. Appendix A details the different economie assump- tions which went into our low and high development cases. The MAP model genera tes both economie and demographie data. Increases in economie activity in Alaska stimulate population in- migration with concomitant effects on the state's population composi- tion. Thus, Alaska's total population in 1990 under the high develop- ment case is projected to be 562,488 compared to 503,232 residents in the low development case, a difference of some 59,000 people and 20,000 households. The main difference between the two scenarios is 208 "- L - J.....i l ._ [1 Il- ,, ~ - - ... - ... ..... that the high development case assumes the construction of a natural gas pipeline, which explains the rapid increase in population growth from 1985 to 1987. TABLE 56. PROJECTIONS OF ALASKA'S POPULATION.AND NUMBER OF HOUSEHOLDSa 1980-1990 High Development Case Low Development Case Po,Eulation Householdsb HH Sizec Po,Eulation Households b HH Size 1980 400,457 131,463 2.933 400,457 131,463 2.933 1981 412,3.95 135,789 2.926 410,320 135,229 2.924 1982 428,825 141,264 2.923 425,440 140,472 2.920 1983 444,492 147,015 2.918 436,268 144,728 2.908 1984 463,274 153,670 2.911 446,033 148,731 2.894 1985 498,151 164,.912 2.921 460,344 153,936 2.886 1986 531,933 176,387 2.919 474,491 159,265 2.875 1987 545,304 182,636 2.892 482,066 163,074 2.854 1988 547,669 185,727 2.857 491,274 167,469 2.835 1989 558,208 190,980 2.833 498,962 171,419 2.815 1990 562,438 194,444 2.804 503,232 174,458 2.790 aThe low case is created by subtracting an assumed Northwest Gasline impact from the railbelt low case. The high case is based on the moderate case in the railbelt study. bHousehold estimates are adjusted to reflect 1980 census results. cPeople in households per housing unit. Excludes persons in group quarters. SOURCE: Alaska Economie Projections for Estimating Electricity Require-· me11ts for the Railbelt, Goldsmith and Porter, 1981. 209 c In the high development case, housing demand increases on the average about 6,300 units per year in contrast to the low development case in which housing demand grows at approximately 4,300 units per year. Thus, while it is apparent that actual rate of economie growth will significantly affect housing demand in Alaska, we project housing demands to increase sorne 4,000 to 6,000 units per year. To provide a point of comparison, Figure 7 contrasts our two sets of projections for the 1980s to the actual changes which occurred in Alaska in the 1970s. In summary, in our high development case, total population grows at a fas ter rate than it did in the 1970s, while in the low development case, the rate of growth is somewhat slower, although still substantial. Figure 4 also illustrates an often overlooked change which occurred in Alaska throughout the past decade, which dramatically affected the demand for housing--that is, that the number of house- holds in Alaska increased at twice the rate that the population increased. The influx of young adul ts wi th no or small families, rising divorce rates which divided one household into two, and con- tinuing the decline in birth rates, all combined to genera te a rapid rate of' growth in household formations. Although we project the rate of household formations in the 1980s to continue to exceed the overall rate of population, we do not e~ect the difference between the two rates to be as great as they have been. The e~lanation for the narrowing of the different growth rates is twofold. One reason has to do with the size of the population by age group, and the second has to do with changes that affect household formations within a particular age group. Without going into lengthy detail, the effect young inmigrants have on the overall population declines in relative importance (sta- tistically) as the resident base of the population increases. Also, 210 ' (" ~Y .... ..... 1 1 ..... ........ ~ ..... L -· - - - - FlGURE 7. A COMPARISON OF THE. RAT.E OF CHANGE IN POPULATION, NUMBEROF HOUSEHOLDS, ANO·AVERAGE. HOUSEHOL.O SIZE, 1970-80 AND 1980-90 60 ·50 40 ~0 l 1 bj1···. 20 ~ ,. v•· -. --Il -V- 10 0 -10 -20 Population 2il 1 r/11 r Y'/11 1 1/- Numberof Households • 1. · KEY: D 1970-80 Actual 1 ~ 1980-90 High . · · Oevelopment 1980-90 Low Development Average Size of Household there are limits to such things as the decline in birth rate and the rise in divorce rates, and we have incorporated these limits, based on national trends and research into our model of household formations. Having projected net increases in housing demand, the next task is to estimate housing mobility or the total number of households that change housing. Task 2: Estimate Housing Mobility In this task, we esti~ate the number of households that will be in the market for housing. These include households moving to differ- ent housing within the state, newly formed households looking for housing for the first time, and in-migrating households. We classify the first group as movers and the other two groups as new-ta-the- market households. The size of each group is a function of the age distribution of the heads of households, primarily because age serves as an indicator of life cycle changes. These changes include· such things as changes in family size and composition, employment, income, and wealth. Thus, it becomes essential to project not only the number of households but also the age of heads of households. Table 57 projects the age distribution of household heads. The projection incorporates both the effect of aging of the resident population and of age shifts resulting from the out-and-in-migration exchange. The effects of development on the age of household heads is demonstrated by comparing the 1990 age distribution of the two devel- opment cases. Percentage Distribution Age of Head 1980 1990 Low Case 1990 High Case < 24 .114 .108 .115 . 25-29 .179 .141 .160 30-55 .555 .583 .573 .ss < .153 .168 .151 Total 1.000 1.000 1.000 212 ""' - .... SOURCE: Based on moderate and low scenarios in Goldsmith and Porter (1981). 1980 figures are estimates derived from the census and are used to adjust scenarios. 213 To estimate the total flow of in-migrating households, we first estimate the number of households migrating from Alaska and add this number of households to the net increase in households. Again, because of the importance of the age of the household head, we make all of our projections by age group. Table 58 estimates the annual out-migration rates for Alaska between 1970 and 1978, and compares these rates to a study conducted in Anchorage and to other selected national rates. Although the out-migration rate we have estimated is lower than the Anchorage study, it appears to be within the range of the country' s overall mobility experience. TABLE 58. ESTIMATED RATES OF ANNUAL OUT-MIGRATION FOR ALASKA AND THE UNITED STATES BY AGE OF HOUSEHOLD HEAD Annual Rate of Out-Migration Alaska Estimates ·c U.S. Actual Age of 1978a b Household Head Survey High Low 18 -24 .11 .25 .16 .08 25 -29 .07 .18 .13 .07 30 -55 .os .11 .os .03 55 < .06 .10 .02 .01 aThe 1978 estimate is the 1970 population survived to 1978 minus the 1978 population living in Southcentral Alaska in 1978 (Alaska Public Survey) who lived in Alaska i.n 1970, divided by the eight years, the dividend of which is expressed as a percent of the 1970 survived population. b The "Ender Survey" of with plans to move in 1978. Local Public Policy Issues, 1978 reported the share of household heads The Opinions of the Anchorage Citizens on 1977. eThe rate reflects the proportion of total households which moved in 1979. The high estima tes include all movers, except for those moving within the same SMSA. The low estimates exclude movers whose origin and destination are outside an SMSA. From U.S. Dept. of Com- merce, Geographical Mobility: March 1975 to 1979, 1980. 214 J ' ~ .... - - - - - By applying these rates of out-migration to the projected numbers of Alaska household heads by age in Table 57, we can estimate the total number of out-migrating household heads by age. Similarly, by deducting this number of migrants from the preceding year' s projec- tions, we, in effect, estima te the number of in-migrating households by the age of the head of the household. · These estimates are shown in Table 59. The major determinants of mortgage demand are the demand for housing and the household's housing choice decision, i.e., the type of housing--single-family, multifamily, duplex, or mobile home--chosen and whether to own or rent. It is important to remember that mortgage demand is influenced by the total demand for housing, not simply the demand for new housing units. While the increase in the housing stock is an important con- cern, total demand includes not only the increased demand generated by increased population but also by the turnover of existing owner- occupied housing. Although the growth in total population and the demand for new housing receive the greatest attention, as mentioned earlier, there are other equally important changes which affect the demand for hous- ing. Even in a region with a stable level of population, the popu- latio,n is not static. Children age and form their own households; families grow and require more living space; and adults age and move in with families or into nursing homes. These changes are often referred to as life-cycle changes. Table 60 illustrates the effect of life-cycle changes on the probability of owning a home. Each of the variables shown in the table reflects a significant element of !ife- cycle change. As the demographie characteristics of our proj ected population changes over the decades, the probabilities of homeowner- ship shown in Table 60 enable us to estimate the incidence of home- ownership in each year. 215 TABLE 59. ESTIMATES OF THE TOTAL NUMBER OF HOUSEHOLDS MIGRATING TO ALASKA BY AGE OF THE HOUSEHOLD HEAD 1981-1990a Age of Household Heads Year . < 24 25 .. 29 30 -55 55 < High.Development Case 1981 1,884 1,777 3,912 1,168 1982 2,272 2,047 4,283 1,218 1983 2,382 2,068 4,446 1,267 1984 2,690 2,281 . 5,129 1,317 1985 4,181 3,523 6,691 1,366 1986 4,310 3~506 5,936" 1,417 1987 2,720 2,043 " 4,934 1,469 1988 1,708 1,257 4,478 1,523 1989 2,318 1,927 5,168 1,579 1990 1,750 1,465 5,464 1,639 Low DeveloEment Case 1981 1,695 1,618 3,817 1,168 1982 2,186 1,990 4,268 1,218 1983 1,883 1,649 4,157 1,267 1984 1~806 1,553 4,224 1,317 1985 2,190 1,873 4,604 1,367 1986 2,243 1,877 4,737 1,418 1987 "1,776 1,440 4,526 1,470 1988 1,950 1,607 4,782 1,524 1989 1,813 1,481 4,812 1,580 1990 1,533 1,238 4,751 1,639 aThe estimates are based on the replacement of out- migrants plus net migration. 216 .\ -A - ... .... - ....; - .... .... .... TABLE 60. HOMEOWNERSHIP EQUATIONS Constant .Female Household Head Family Size Age 3-s·members 6 or more members $ .. 24 30 ... 55 55< Tenure .545 -.218 .079 .191 . -.230 .121 .087 Less thaa one year residency -.272. = Number of owner occupied households R2. 19.9 Ender's 1978 Anchorage Survey • 217 1 F (13.295) ( 3.986) ( 4.840) (20.571) ( 6.986) ( .771) (40.323) Having separated our projected households into two groups--in- migrating households and resident households--both by the age of the household head, we can estimate the incidence of homeownership by the length of residency and age of household head. These probabilities are based on the equations in Table 60. They isolate the effect of residency and age by assuming the other characteristics remain at their 1980 levels. Table 61 reports our findings. In all age cate- gories, the incidence of·homeownership is greater among residents than in-migrants, particularly in the younger and older age categories. Table 61 confirms and clearly demonstrates the importance of distrib- uting household heads by age and of separating · in-migrants from residents. By applying the incidence of homeownership by age of household head to our projections of the total number of in-migrating households (Table 59) and to the projections of the resident households (the difference between Table 59 and Table 57), we can project the increase in ·the number of homeowners and first-time homeowners who are new to Alaska's housing market (Table 62). You will note in reviewing Table 62 that even in the low develop- ment case, the number of additional homeowners increases by over 2, 200 households each year. Reviewing survey research re sul ts over the past few years, combined wi th our knowledge of the incidence of homeownership by length of residency, we estimate that approximately • 44 percent of all household heads who leave Alaska owned a home. Thus, Table 62 also shows the estimated flow of homeowners leaving Alaska over the next ten years. As mentioned earlier, because in-migrating households have a lower probability of being homeowners than out-migrants, the net exchange in many years results in fewer homeowners coming in than leaving. This occurs despite the fact that the actual number of people projected to move to Alaska is greater than the number leaving 218 l -t· -- .... - - - """" .... - - - - - - - - - TABLE · 6~. AN ESTIMATE OF THE INCIDENCE OF HOMEOWNERSHIP IN ALASKA BY I.ENGTH OF RESIDENCY Age of Head of Household < 24 25 -29 30 -55 55 < Length of Residency in Alaska More than Less than One Year One Year (residents) (in-migrants) .285 .013 .540 .268 .687 .415 .594 .322 219 TABLE 62 P.ROJECTED INCREASES IN THE NUMBER OF l:IOMEOWNERS AND FIRST•TIME HOMEOWNERS 1981-19904 No. Out-No. In No. No. Resident Total No. Add·'t. No. · MigratinSJ, Higrating Discont'd lst Time lst Time d ~ Homeowners Homeowners Homèbuye·rs Homeownersc Hollll!jbuyers Homebuyers Hish .Development Case 1981 2.,701 3,2.38 2.,499 600 4,040 4,832. 1982 2;895 3,344 2~748 626 4,117 4,988 1983 3,261 3,487 .2.,838 653 4,563 5,463 1984 3,461 3,634 3,199 678 4,574 5,588 1985 4,704e 3,807 4,215 705 5,001e 6,337e 1986 6,4G3e 4,117 3,915 734 7,340e 8,581e 1987 5,792e 4,431 3,104 766 7,885e 8,869e 1988 3,307 4,568 2,701 795 5,969 6,825 1989 3,012 4,608 3,199 825 5,246 6,260 1990 2,922 4,721 3,212 856 5,287 6,305 Low Development Case 1981 2,481 3,250 2,416 597. 3,912 4,677 1982 2,700 3,340 2,724 622 3,938 4,802 1983 2,858 3,476 2,598 697 4,383 5,207 1984 2,572 3,578 2,615 673 4,208 5,037 1985 2,778 3,673 2,881 697 4,267 5,180 1986 3,106 3,805 2,955 723 4,679 5,616 1987 2,817 3,939 2,760 798 4,744 5,619 1988 2.,591 4,020 2,932 774 4,453 5,382 .1989 2,613 4,129 2,927 801 4,616 5,544 1990 2,285 4,220 2,852 829 4,482 5,386 aTechnical Note: The number of additional homeowners (column 1) is equal to the number of in-migrant homebuyers (colUJI!ll 3) plus the number of residents, first•time homebuyers (column 5) minus the number of out-migrating homeowners (column 2) and minus the number of discontinued homeowners (column 4). bThe number of out•migrating homeowners is computed @.44 of ~ll migrating. cDiscontinued homeowners include homeowners who die and those who. transfer to other housing such as nursing home. dTotal number of first-time homebuyers includes resident first•time homebuyers plus .317 of the in-migrating homebuyers. This ratio is derived from AHFC records. ein our judgment. this surge in first-time home purchases, triggered by the potential construction of a natural gas pipeline. will be significantly reduced by supply constraints which could limit the· growth by as much as 30 percent of the prior year's experience. -· -------220 - - .... .... - - - .... the state. How is it then that we project substantial annual increase in homeowners each year? The answer is that we have a sizable number of resident Alaskans who will be forming households and seeking to own a home for the first time. Referred to as resident, first•time home- buyers, column 6 of Table 62 shows that the proj ected number of the se resident, first-time homebuyers constitute a larger group than either the incoming homebuyers or the total net increase in homebuyers. The last column adds to our resident, first-time homebuyers the proportion of in-migrants who will also be buying a home for the first time. Task 3: Determine Effective Housing Demand The reason we go to such lengths to identify first-time home- buyers is that our research suggests that existing homeowners have enough equity in their homes to be able to qualify for buying a dif- ferent hôme; whereas first-time homebuyers do not have the 11 home equity" equivalent and cannat be assumed to be able to afford a home . Therefore, we assume that all households who already own a home either as a resident or as an in-migrant household will be able to secure a mortgage; whereas first-time homebuyers may not have sufficient equity or income to afford a home. In the following pages, we examine the conditions under which potential first-time homebuyers actually would be able to afford to own a home anâ should, the re fore, be regarded as part of the effective mortgage demand. Table 63 takes the total number of potential first-time home- buyers projected in the preceding table and divides them into two geographie groups, urban and rural. We assumed that the urban-rural split of in-migrants would remain constant at a 91-to-9 allocation and of new homeowners would remain constant at a 95-5 allocation. The projected share of employment growth in rural areas is higher. This allocation assumes (1) a large share of these jobs allow workers to live away from their jobs, such as at Prudhoe Bay; (2}fewer new rural households are homeowners; and (3) a portion of the increase in jobs are taken by existing population. For our purposes, we have defined 221 TABLE· 63 •. · AN ESTIMATE OF THE POTENTIAL NUMBER. OF HOMEBUYERS WHO ARE NEW TO THE ALASKA MARKET, 1981 -1990 Number Number First Time Homebuyers In-Migrant Priôr-Homeowners a Year Total b Urban Rural b Total Urban c Rural c - High Development Case 1 1981 4,832 4,590 242 1,707 1,553 1982 4,988 4,539 249 1,877 1,708 1983 5,463. 5,190 273 1,938 1,764 1984· 5,588d 5,390d 279 2,185 1,988 1985 6,337d 6,020d 317 2,879 2,120 1986 8,581d 8,152d 429 2,674 2,438 1987 8,869 8,426 443 2,120 1,929 1988 6,825 6,484 341 1,845 1,679 1989 6,260 5,947 313 2,185 1,988 1990 6,305 5,990 315 2,194 1,997 . Low Development Case 1981 4,677 4,443 234 1,650 1,502 1982 4,802 4,562 240 1,860 1,694 1983 5,207 4,947 260 1,774 "1,614 1984 5,037 4,785 252 1,786 1,625 1985 . 5,180 4,921 259 1,968 1,791 1986 . 5,616 5,335 281 2,018 1,836 1987 5,619 5,338 281 1,885 1, 715 1988 5,382 5,113 26,9 2,003 1,823 1989 5,544 5,267 277 1,999 1,819 1990 5,386 5,117 269 1,948 1,773 aFigures i.nclude in-migrants who previously owned a home prior to moving to. Alaska. bThe allocation of first-time homebuyers between rural and urban Alaska remains constant at the 1981 experience of 95 percent urban and 5 percent rural. 15 percent of urban first-time homebuyers purchased mobile homes in 1981. eThe allocation of in-migrant prior homeowners to rural and urban Alaska remains constant at the 1981 experience of 91 percent urban and ·9 percent rural. din our judgment, this surge in first-time homebuyers, associated with the po•tential construction of a natural gas pipeline, will be signifi- cantly reduced by supply constraints which would limit the growth to 30 percent of the prior year's experience. 222 154 169 174 197 259 241 191 166 197 197 149 167 160 161 177 182 170 180 180 175 .... - - - - urban as the census divisions which include Anchorage, Fairbanks, Kenai, Seward, Valdez, Kodiak, Matanuska-Susitna, Southeast Fairbanks, Sitka, Ketchikan, and Juneau. We recognize that not everyone who works to purchase a home can afford to do so. Thus, the effective demand for housing is a function of both the type of housing wanted and the ability to purchase it. Simply stated, the ability to buy a house depends on the priee of the house and one's income and/or wealth. Tables 64 and 65 report both the actual incomes of homebuyers in 1981 and a summary distribution of housing priees. Both the Special Mortgage Purchase Program and the rural program serve similar income groups with the majority of mortgagees falling in the $30-50,000 range. In contrast, the Home Ownership Fund Program serves prin- cipally homebuyers in the $10-30,000 income groups, as does the mobile home program. TABLE 64. THE DISTRIBUTION OF FIRST-TIME HOMEOWNER' S INCOME BY TYPE OF PROGRAM Special Mort gage · Home Pur chase Ownership Mobile In come Pro gram Pro gram Rural Home $10,000 >_ -.027 10,000-20,000 .008 .319 .050 .194 20,000-30,000 .142 .654 .175 .474 30,000-40,000 .346 0 .258 .242 40,000-50,000 .273 0 .225 .067 50,000-60,000 .144 0 .192 .017 60,000-70,000 .060 0 .058 .003 70,000 < .027 0 .042 .003 TOTAL(S) l.Oo 1.00 1.00 1.00 SOURCE: AHFC files, 1980 -1981. 223 i""' ________________________________________________ .... _ Very little information is available on the priee dimension of supply. Our assumed priee distribution is based on records of par- ticipation in the state' s housing programs. As Table 65 shows, the priee of almost half of new single-family homes in Anchorage exceeded $120,000; whereas, the modal priee for similar units in other places was in the $90-100,000 range. Absent other comprehensive data sources on the priee of the existing supply of housing, we use this priee distribution to represent priees of the existing supply of housing. Equipped with both priee and income data, we can now move to the task of estimating effective demand; i.e., the number of potential homebuyers who can actually afford to buy a house. Before doing so, however, we introduce alternative assumptions about three critical variables, each of which affects a pers on' s ability to buy a home. These are mortgage interest rates, changes in personal income, and change in the priee of housing over the projection period. The pur- pose of these alternatives is to assess how sensitive mortgage demand is to changes in these three assumptions. Referred-to as a sensitiviy analysis and shown as Task 7, we actually used these scenarios to generate sets of alternative volumes of home sales. Table 66 summarizes the assumptions built into each of the three alternative scenarios. The assumptions made in the high interest case essentially lower effe-ctive demand. Fewer people can afford to buy homes under this case. In contrast, the low interest case enables more homeowners to buy because the lower interest rates effectively lower the cost of housing, thereby making homes relatively more affordable. Drawing upon the above-described priee and income information, we can estima te the incomes required to purchase a minimum-priced home. Table 67 presents the threshold in-cornes, based on the state housing program's current lending standards, required to buy a $60,000 home. Projected increases in both incomes and housing priees are based on national rates of inflation, with costs for new housing construction 224 ... Priee ... $120,000 < 110-120,000 100-110,000 90-100,000 80-90;000 70-80,000 .60-70,000 -50-60,000 . < 50,000 $120,000 < 110-120,000 . 100-110,000 90-100,000 80-90,000 70-80,000 60-70,000 50-60,000 < 50,000 TABLE 65. THE DISTRIBUTION OF HOUSING PRICES INALASKA BY TYPE OF HOUSING, 1981 Type of Housing Single Family • Condominium New Existing New Existing - Anchorage 49.7 25.6 15.2 3.4 14.0 12.5 1'.3 2.5 12.6 14.2 7.6 4.6 . 10.5 13.4 13.9 7.4 5.6 14.0 8.9 4.3 7.0 13.6 8.9 18.9 .6 5.0 25.3 25.1 -1.3 15.2 21 •. 4 -.4 3.8 12.4 Other Places 20.9 10.2 6.7 8.0 12.1 8.0 20.0 12 .. 8 20.5 13.3 10.0 7.7 15.1 17.1 ... 2.6 18.0 18.6 40.0 12.8 4.2 14.4 20.0 30.8 2.1 7.1 -17.9 .4 3.3 10.0 15.4 225 1. Base 2. Low Interest Case 3. High Interest Case TABLE 66. THRÈE ALTERNATIVE SCENARIOS OF CHANGES . IN MORTGAGE RATES , PERSONAL INCOMES, AND HOME SALES PRICES a Rate AHFC borrowing costs fall to 16.4 by 1986. Subsi- dized rate remains at 12.4. Remains constant for re~inder of the period. AHFC borrowing costs fall to 13.4 by 1986. Subsi- dized rate falls to 10.4 by 1986. Remains constant for remainder of period. AHFC borrowing costs rise to 18.4 by 1986. Subsi- dized rate remains at 12.4. Both rates increase by l.S by 1990. b In come Household income~ grow at an annual rate of 1.78 over the period. Same as base case. Same as base case. P . c r~ce The minimum priee of units rises at a rate of 1.08 over the period. Same as base case. The minimum priee of units rises at a rate of 1.09 over the period. aBased on interest rate projections for AA Corporate bonds found in Data Resources, Ino., U.S. Long Term Review, 1981. Base case is base of trend projection, high on optimistic and low on pessimistic. bincome growth is that projected in moderate case in Goldsmith and Porter (1981). 'itinimum. priee of new housing is assumed to increase two percent fas ter than increase in priees in the base and high scenarios, and four percent fas ter in the low scenario. The two percent spread between con- sumer priee increases and the priee of new construction is based on (DRI 1981) trend projections. 226 .. .. ... .... - • .... - il- adjusted to Alaska. The minimum incomes are determined by the lending criteria of the state programs. Under the base ( current interest) and low interest cases, the cost of the minimum-priced house increases 46.9 percent by 1986 and 100 percent by 1990. In our high interest case, the cost of housing increases at a faster rate, 53.9 percent by 1986 and 117.2 percent by 1990. TABLE 67. PROJECTIONS OF INCOMES REQUIRED TO PURCHASE MINIMUM PRICED HOMESa Current Rising Declining Interest Interest Interest Year Rates Rates Rates 1981 Income required $26,900 N/A N/A Min. housing priee 60,000 60,000 60,000 1986 Income required $38,728 40,554 33,225 Min. housing priee 88,160 92,317 88,160 1990 Income required $52,690 63,709 45,202 Min. housing priee 119,941 130,313 119,991 aThe cost of new home construction for 1986 and 1990 is based on national projections prepared by Data Resources, Inc. (DRI), and income requirements are computed according to prevailing policies of AHFC. 227 Task 4: Project.Total Sales and Mortgage Demand Before estimating total mortgage demand, we first have to esti- mate the total volume of housing sales. Table 68 presents four sets of projections. Two sets . of projections were prepared for both the high and low development cases. For the high development case, we selected our low interest case and the base case; whereas, for the low development case, we selected our high interest case and the base rate. Thus, the high development-low interest case establishes the upper range of our projections and the low development-high interest scenario forms the lower range of our projections. Having previously computed both first-time homebuyers and in-migrants who previously owned a home, we can, by the use of a multiplier, proj ect total sales. Table 69 presents the total sales multiplier found in the ARFC data. The stability of this figure across areas provides the support for assuming the 1.95 urban multi- plier. For example, each time a new-to-the-market homebuyer buys a home in the urban a rea, another home is also being bought by an existing homeowner, resulting in an urban sales multiplier of 1. 95. The range of urban sales spans 16,511 in the high development-low interest rate scenario to a low of 10,087 in the low development-high in te rest case. This spread of 6, 500 sales exemplifies the difficul- ties and uncertainties which plague such forecasts. Unable to predict with precision either economie development and population patterns or housing priees and interest rates, the best we can do is to establisli a reasonable range, which in 1980 is a broad one. Thus, considerable precautions are required in interpreting these projections to allow for the potential volatility of the Alaska housing market. Figure 8 graphs the data shown in Table 68 and enables the reader to get a visual image of the four sets of projections. As the graph shows under the low development case with current interest rates, housing sales remain steady at about 10,000 sales throughout the decade. When interest rates rise, total sales drop on the average of about five percent per year over the projection period. In the high 228 f i.l *- 'fliBU~ 68. COHl'MATIV~; PROJ1iCTIONS Of TOTAL /IO!JIHNG SALES lN 1\J,/ISKA, UNDIŒ AT,TI~RNAT!VE ECONOMIC lJEVELOP111~NT CASIES AND ALTE!UIATJ!VE CHANGES IN TUE .BOND MARKJ~T INTEREST RATES, 1981-1990 1 lligh Development Case Low Development Case -- Dt•cn•asinglnh!rt'sl l!ah·sa Curn~nt lntm·eslllal!!!ia Currcnt lnteresl Uat<lsll Risinf! lnterc~t lhtlt•s8 Ye.1r Nuntber Number Numbcr Numbcr Numbcr Number Number Number l<t 'l'inw ln-~lit:tatiug hl Time ln-1\>tî~ntl ing lsl Time ln-Migrating lst 'fime ln-Mi~rating UdHIII l.!.!.!.t.!!o:..l.!.!!.Yt·rs Prinr llonll' Ownc~s '!.!!!.!!! llnme lluycrs t•riur llnmc Owners '!:!!!!! l.!.()!!!t' lllt)'_!!_l_S l'rior llornt• Owm·rs '!2!!1.. Jlomc Ouy..r$ l'rior llomc Owntrs Total IJni.ts b b b b 1981 3,947 1 ,'398 l0,423b 3,947 1,398 10,423b 3,821 1,352 10,087 3,821 1,352 10,087 1982 3,813 1,537 10,433 3,767 1,537 10,343 3,786 1,525 10,356 3,741 1,525 10,269 1983 4,308 1,588 11,497 4,100 1,588 11,092 3,908 1,453 10,454 3,809 1,453 10,261 1984 4,300 1,789 11,874 4,035e 1,789 11,357 3,637 1,463 9,945 3,493 1,463 9,664 1985 4,756e 1,905 l2,995e 4,334 1,908 12,172e 3,543 1,612 10,052 3,395 1,612 9,764 1986 6,277e 2,190 I6,5Üe 5,788e 2, 19.0 15,557e 3,788 1,652 10,608 3,521 1,652 10,087 1987 6,488e 1,736 I6,037e 5,982e 1,736 15 ,o5oe 3,788 1,544 10,397 3,469 1,544 9,775 1988 4,993 1,5ll 12,683 4,604 1,511 11,924 3,630 1,641 10,278 3,170 1,641 9,381 1989 4,579 1,789 12,418 4,222 1,789 11,721 3,740 1,637 10,485 3,160 1,637 9,354 1990 4,612 1,797 12,498 4,253 1,797 11,798 3,633 1,596 10,197 2,968 1,596 8,900 Hobile Home Units c c c c 1981 643 155 1,277 643 155 1,277 622 150 1,235 622 150 1,235 1982 . 667 171 1,341 694 171 1,384 698 169 1,387 716 169 1,416 1983 794 176 1,552 862 176 1,661 821 161 1,571 856 161 1,628 1984 849 189 1,677 956 199 1,848 861 163 1,638 909 163 J' 715 0"1 1985 . 999e 212 1,938e 1, 162e 212 2,1!18e 950 1719 1,806 1,019 179 1,917 ('.! 1986 1,410e 243 2,645e 1,630e 243 2,997: 1,067 184 2,002 1,158 184 2,147 ('.! 1987 1 ,458e 193 2,642e t,685e 193 3,005 ' 1,067 172 1,982 1,201 172 2,197 1988 1,122 168 2,064 1,297 168 2,344 1,023 182 1,928 1,192 182 2,199 1989 1,029 199 1,965 1,189 199 2,221 1,053 182 1,976 1,264 182 2,314 1990 1,036 200 1,978-1,198 200 2,237 1,023 177 1,920 1,279 177 2,330 Rural Units d d 1981 242 154 574 234 149 555 1982 249 169 606 240 167 590 1983 273 174 648 260 160 609 1984 279 197 690 252 161 599 1985 Jli~ 259 835e 259 177 632 1986 429e 241 972e 281 182 671 1987 443e 191 919e 281 170 654 1988 341 166 735 269 180 651 1989 313 197 740 277 180 663 1990 315 197 742 269 175 644 --- a See Table IX.8 for details on assumptions used. b The total sales of urban units equals the sum of Columns 1 and 2 times the multiplier of 1.95. c The total sales of mobile home units equals the sum. of Columns 1 and 2 times the multipler of 1.60. d The total sale·s of rural uui.ts equals the sum of Columns 1 and 2 times the multiplier of 1.45. . Interest rate changes were not àssumcd to affe~t rural demand. .. __ J e ln ohr jiidglllent, tlli.ll stirgc ill tirst•l:l.me homebuyets, assot:hted with the potent:l.ài torilitrtidÜlfi of a naturai ftàli pipeline, ) lw ___ Jifiec, <J re•l ___ lby s __ J cor. __ .Jntll ~-:<~,jl w(u' ·.Jimit ·· Jrow·· _:_) 30 _"~]bt o,~ ~-J pH~-·rr•r ---~der .... J __ j J TABLE 69 ~ SALES MULTIPLIER (SALES/NEW ENTRANTS) a Reaion SMPD Mobile Home Ané:horage 1.96 • 1.43 Fairbanks 1.93 1.55 Juneau 2.11. 1.44 Ketchikan 1.90 1. 72 Kodiak 2.01 ~ 1.68 Matanuska-Susitna 1.91 3.0 Road Connected South Central 2.13 1.83 Rural Southeast 2.08 1.90 Assumptions Urban 1.95 Rural 1.45 Mobile Home 1.60 ,. ~ew entrants equals first-time homeowners and other migrants for SMPP. New entrants consists only of first-time homeowners for mobile home. SOURCE: AHFC Files 1980-81. -230 aJ ,1, ( 'nnuat Jrban iousing Sales N w' """': 1 16,000 15,000 14,000 13,000 12,000 11,000 10,000 9,000 8,000 4,000 ~ r r r [~~-( r r---. r f f ·--I r -r FIGURE 8. A COMPARISON OF ANNUAL URBAN HOUSJNG SALES IN ALASKA UN DER ALTERNATIVE DEVELOPMENT CASES AND INTEREST RATES. 1981-19901 2 . . . .. . . · .. ,~2 1 .• . . . . • • . . l .----·-----.. . . . . .. '!:=~SI::;!:t;;;!.:::c~·~. • • • • • • • . . ·. . . . • • • • • • • • • •••••• ....... . .......... -______ ..... ·- 1981 1982 1983 1984 1985 1986 ..... ..... _ .... ~ .... ----...... ...... -..... KEY: -- -High Development & lower lnterest • • • • • • • High Development & Cu.rrent lnterest ---~---low Development & Current lnterest - - - --Low Development & Higher lnterest .. 1987 1988 1989 1990 1see Tabht1X.11 for specifie figures anciAppendix A and Table lX.8 for specifica~ions of assumptions under each alternative. 2tn our judgment, the surge in the number of firsHime home buyers (and the concomitant multiplier eftec;) is associated with the construction of a natural gas pipeline and will be significantly reduced by supply constraints on the. order of 30 percent of the prior year's experience. r development case, the reverse is the case; i.e., on the average, total sales increased about 5 percent per year, but total sales are substan- tially higher in the high development case than in the low development case. Task 5: Estimate State's Share of Total Mortgage Demand The distribution of state government' s share of Alaska' s total primary and secondary mortgages will undoubtedly vary over the next decade. Although the state programs are likely to continue to domi- nate the market for state housing funds, we expect AHFC' s share of total home sales to fall from its 1981 level of about two·thirds down to about one-half by 1990.1 The reasons for this projected fall in market share are several. First, as average housing priees increase, AHFC' s current $147,000 total loan limit, of which $90,000 is sub- sidized, will become exceedingly restrictive. Further, as the dif- ferentiai between the subsi:dized and the market interest rates falls to 3 percent, the relative attractiveness of funds from other second- acy lenders will also increase. This will be particularly true if long-term rates should spurt ahead of those available through national secondary markets or if other loan-qualifying standards are used. In contrast to the above, we expect AHFC' s share of the market for mobile home funds will increase from its 1981 level of 50 percent of total sales to about 90 percent by 1990. Similarly, we expect the state's share (including DCRA) of the market for rural home funds will grow from about 60 percent of sales in 1981 to about 90 percent by 1990. Both of those programs are relatively new and the advantageous rates they offer should make them the dominant secondary lender in the state. 1 Total home sales are different than total primary mortgages by the number of assumptions and contract sales. Primary mortgages are different than secondary mortgage sales by the amount of mortgages that savings and loan institutions or other primary lenders keep in their portfolios. For examples, in 1981 AHFC operations equaled about 85 percent of secondary mortgage sales and 67 percent of total home sales in Alaska. 232 "'i ~1 ~ - ( }' ... - i - ,_ - - -~ - ...... ...... ...... - - - Task 6: Estimate the Programs' Fiscal Impact Using these market share projections (and the projections of total sales discus~ed above), the estimated state appropriations required and bonded indebtedness incurred were derived. These esti- mates are based on our high development current interest rate case, and are given in Table 70. TABLE 70. FISCAL IMPACTS OF STATE HOUSING PROGRAMS (millions of dollars) Appropriations Bonded Indebtedness Total Urban Mobile Home Rural a Accrued 1986 $280.8 $127.8 $75.5 $77.5 $1,165.2 1990 293.3 88.4 106.7 98.2 875.8 aAssumed to be half AHFC and half DCRA appropriations • SOURCE: ISER Projections The mortgage subsidy program for urban areas reflects the population and employment changes in the state, which are e:xpected to grow rela- tively fast for the first half of the 1980s and then slow down some- wha t. Most of the ear ly 1980' s growth is expected to occur in the Anchorage and Fairbanks areas and produce 1986's high level of urban program activity ($128 million in appropriations). The slow down in population growth during the late 1980s will also be most noticeable in the urban areas, causing required appropriations for this program to decline by about one-third. Also contributing to this decline will be the rise in average home priees to a level of about $200,000. 2 Under current program standards, this will disquality many home mort- gages from the AHFC guideline of a $147,000 total loan amount, unless substantial downpayments are made. 2 Increases in average home priees were projected using the DRI index of future costs of new home construction. 233 Assuming that the interest subsidy differentia! is at 3 percent and that AHFC maintains the operating efficiencies exhibited during its last bond sale, appropriations will be supplemented by an increase in the state pro gram' s bonded indebtedness accrued of about $1. 2 billion in 1986 and $0.9 billion in 1990.3 The mobile home program, which is totally funded by state appro- priations, is expected to increase rapidly throughout the 1980s. This is caused both by the state' s increased share of total sales and because the program' s maximum loan amount eligibility requirements will continue to be above proj ected average sales priees. As a result, required appropriations are expected to grow from less than $20.0 million to $106 million in 1990. By the end of the decade, the mobile home program could have the highest appropriation requirements of any of the state housing programs now operating. The rural housing programs are now split about equally between AHFC and DCRA, and both are entirely funded by state appropriations. The state' s increasing share of this market combined with the rising average sales priee of rural homes will cause this pro gram' s appro- priation requirement to rise from a 1981 level of around $25.0 million to about $78.0 million in 1986. Thereafter, the slowdown in demo- graphie trends will combine with the program' s maximum loan amount limits to slow the program's rate of growth, with appropriation re- quirements growing to about $98.0 million by 1990. Overall, state appropriations for housing programs, as they now are structured and operating, are expected to be in the range of $280.0 million in 1986 and $295.0 million in 1990. The state's total in 1981, adjusted to reflect the "bonded indebtedness accrued" concept discussed above, was less than $200.0 million. And finally, the most 3 Bond debtedness accrued is determined by the volume and average value of secondary mortgage transactions engaged in by AHFC during a year. Actual bond sales will differ from this depending upon the timing of demand in the state' s secondary market and conditions in national long-term money markets. 234 ~ ,, Mil ~ ' ,, .J - .... ._ ._ 1.- - ...... - ...... - - ...... ..... w - j_, rapid growth in appropriations required will occur in the mobile home program which will account for about 36 percent of total requirements by 1990 (up from less than 10 percent in 1981), the largest share of any of the housing programs. Task 7: Analyze Sensitivity of the Projection As shawn above, the change in interest rates has a direct effect on housing sales. It does so by changing the cost of housing to the purchaser. As housing costs rise relative to incomes, fewer people can afford to buy. In Tables 71 and 72, we report how interest rate changes could affect participation in the state' s housing programs. Table 71 shows both the income distribution of first-time home- buyers and the projected minimum incomes required to purchase a home in 1986 and in 1990. The real income requirements under current interest rates would be $27,000 in 1986 and 1990. However, as inter- est rates ri se under our scenario, the minimum income requirements also rise to $28,000. Should the interest rates fall, as in our low interest case, the income requirement would fall to $23,000. Table 72 transposes the projected minimum income required to buy a bouse onto Table 71's schedule of income distribution for first-time homebuyers. Under our base case scenario, 20.8 percent of the poten- tial first-time homebuyers would fai~ to meet the income requirements of the s. tate' s pro gram. Under our high interest case, the percentage increases to 23 percent, but under the low interest case, it falls to 12 percent. However, as the footnote to Table 72 states, we estima te that approximately 15 percent of the first-time homebuyers who were ineligible to participate in the special mortgage program would be eligible to participate in the Home Ownership Fund program. This would reduce the ineligible first:..time homebuyers to 18 percent in our base case; 20 percent, in our high interest case; and 10 percent, in our low interest case. 235 Incomes of First-Time Homebuyers > $10,000 10-20,000 20-30,000 30-40,000 TABLE 71. THE INCOME DISTRIBUTION OF FIRST-TIME HOMEBUYERS AND THE MINIMUM INCOMES REQUIRED TO BUY A HOME IN 1986 (REAL 1981 DOLLARS) Percent of First-Time Homebuyers .004 .053 .216 .296 Minimum Incomes to Buy Homes With Current With Rising With Falling Interest Rate Interest Rate Interest Rate $21,000 $28,000 $23,000 40-50,000 50-60,000 60-70,000 70,000 or more .234 .123 .051 .023 Total TABLE 72. Yéar 1986 1990 1.000 PERCENT OF POTENTIAL FIRST-TIME HOMEBUYERS EXCLUDED BECAUSE INCOMES FALL BELOW THRESHOLD REQUIREMENTS Percent Below Minimum Income Requirementsa With Current Interest Rates .208 .208 With Rising Interest Rates .23 .33 With Falling Interest Rates .12 .12 aPotentially 15 percent of the homebuyers falling below the minimum income would be eligible for AHFC' s Home Ownership Pro gram, reducing the percentages to 18, 20 and 10 in 1986 and 18, 28 and 10 in 1990. 236 u - ~ .._ - ._ i - - i.- J.... 1.- - - ..... ..... ii- ~ - ' A STUDY OF ALASKA' S HOUSING PROGRAMS EXECUTIVE SUMMARY Preparedfor: Legislative Budget and Audit CoDDDittee Alaska StateLegislature Prepared by: Institute of Social and Economie Research University of Alaska ·March 1982 237 • Sf:Z ' - - PARTS • EXECUTIVE SUMMARY AND CO.NCLUSIONS - - i.- - - ..... ..... - - ..... ..... 239 O?l l j i....l """' ...... L 1- - - ..... 1.....; l- ..... - - - - CHAPTER NINE AN EXECUTIVE SUMMARY On August 21, 1981, the Alaska Legislature' s Legislative Budget and Audit Conunittee, following a competitive solicitation of pro- posais, formally entered into a contract with the University of Alaska's Institute of Social and Economie Research (ISER) to conduct a study of the State of Alaska's major housing programs. The purposes of the study, identified as seven major tasks, are summarized on the preceding page. ISER was essentially to furnish the Committee with an overview of the state' s housing pro gram impacts on housing markets, and to assess their cost to the state. ISER was also to estimate the future fiscal impact of the housing programs upon the state. The major state housing programs examined include the Alaska Housing Finance Corporation' s (AHFC) programs--the Special Mortgage Loan Purchase Program, the Home Ownership Assistance Program, the Mobile Home Loan Mortgage Purchase Program, the Rural Housing Mortgage Purchase Program and the Rural Nonowner Occupied Mortgage Purchase Program, the Alaska Department of Community and Regional Affairs (CRA) programs--the Nonconforming Housing Loan Program and Senior Citizens Housing Development Program, and the federally funded programs of the Alaska State Housing Authority. (In 1980 the Veterans Home Loan Program was transferred to the AHFC.) To avoid repeating the various assumptions and methods we em- ployed to perform each taslt, the reader is referred to the full study report. For ease of reference, each chapter of the study report pertains to one of the seven major tasks identified. Similarly, the findings and conclusions we have reached as a result of research are also presented below by major task. 241 Before proceeding to the findings, a few precautions are worth repeating. First, the study assesses the state's housing programs as they currently exist. No effort was requested or made to play the "what if we changed this policyn game. Thus, our projections of future fiscal impacts assume that the current programs reniain un- changed, including such things as loan limits and interest subsidies. Second, limited reliable data is available on Alaska' s housing stock or market. Even results from the 1980 Census of Population and Housing are not yet available. Fortunately, thanks to the full coop- eration of the state's housing agencies, we were able to approximate most of the missing information. Nonetheless, much of the data we used in our analysis are approximations of the past and present, not hard facts collected over time. And finally, regarding our projections of fiscal impacts to 1986 and 1990: to get from 1981 to 1986 or 1990 requires, among other things, a knowledge of changes in Alaska' s future employment oppor- tunities, shifts in demographie trends and social patterns, and fluctuations in housing priees and financial markets. Because our knowledge of these issues is imperfect, we substitute judgment,·in the form of assumptions, as our way of dealing with many implicit uncer- tainties. Thus, our projections are inextricably tied to our assump- tions, and can most appropriately be interpreted with an understanding of the assumptions. and methods from which they were derived. By no means can the projections be appropriately viewed as our prediction of the future. 242 ~ 0<') J ~. - i, - (,..,. - l.... ...... - - - - - - - - 1 1 1- !.-. EFFECTIVENESS OF ST ATE HOUSING PROGRAMS ' For each of the programs included in our study, we examined the operations and outcomes of the pro gram in the context of i ts goals as meàns of assessing its effectiveness. Eac.f::t of the followingsummaries correspond to a chapter of the study report. Elsewhere in the suuunary and in the report, we deal separately and explicitly with such con- cerna as the direct and indirect impacts of the programs and their present and projected costs. :The Alaska Housing Finance Corporation The Alaska Housing Finance Corporation (AHFC) adlninisters several housing programs which aid different segments of the housing market. These include the Spécial Mortgage Loan Purchase, the Mobile Home Loan Purchase, the Rural Housing Mortgage Purchase, and the Rural Nonowner Occupied Mortgage Purchase programs, each of which have different interest, rates and loan tems. AHFC's basic goal is to proVi.de resi- dentiàl housing at the lowest possible interest rate. State inter- vention in the housing market. has been previously justified as a means of improving the economie welfare and growth of the state, and of correcting deficiencies in Alaska's housing market. In all instances, AHFC operates as a secondary lender. It has no direct dealings with prospective homebuyers. Figure 6 illustrates the • .role AHFC plays in Alaska's housing market. All prospective buyers go "" 243 FIGURE 9. THE ROLE OF AHFC IN ALASKA'S HOUSING MARKET Other Secondary Mortgage Markets to lending in$titutions, primarily banks, to apply for home mo.rtgage loans. The lending institutions process the loan and, if accepted, service i t, all in exchange for a fee. AHFC' s ro le is to underwri te· each loan application for approval of property and credit, and to purchase the loan after it is closed. Its abilities to do so are con- strained by the combined circumstances of the bond market and the legislative appropriations which serve as the state' s subsidy of the mortgage or, as in the case of HOF, Mobile Home and Rural programs, the primary source of mortgage funds. 1. AHFC has had a substantial impact on home mortgage interest rates. Under the Special Mortgage Loan Purchase (SMLPP) program which began in July 1980, AHFC interest rates on the first $90,000 of a loan balance were 2.5 percentage points below the market rate, which stood at 12.5 percent~ By December of 1981, the market rate had climbed to 16.5 percent, and the interest subsidy was equivalent to slightly over 4 percentage points (AHFC's base interest rate was 12.375 percent). 2. AHFC's volume of home mortgage activity has swelled since June of 1980 when the SMLPP Program was enacted. AHFC's c:ommitments, which averaged $15.5 million per month in 1979, averaged $77.4 million per.month for the first nine months in 1981, a five-fold 244 ." - ..... 1.... - ..... - i, ..... ._ 1 ..... 1.,.; - .... 3. 4. increase. Correspondingly, from July 1980 to October 1981, AHFC purchased over 10,000 loans which represented approximately 85 percent of all home loans made in Alaska during this period. The primary beneficiary from AHFC's mortgage interest subsidies are obviously homebuyers, the vast majority of whom would (in the case of SMLPP) have been in the housing market anyway. Indeed, 62 percent. of the SMLPP participants previously owned a home. a. Sixty-one percent of the homebuyers participa ting in the SMLPP had incomes exceeding $40,000 per year. b. c. d. Twenty percent of the participants in AHFC's Home Ownership Assistance (BOF) program had incomes less than $20,000, with the other 80 percent concentra ting in the low $20,000 per year range. BOF participants represented 46 percent of all SMLPP homebuyers with incomes less than $30,000. In all likelihood, these participants would not have been able to afford a bouse without this state program . Similarly, 60 percent of AHFC' s mobile home buyers (891 mortgages through October 31, 1981) had incomes less than $30,000 per year. In contrast to the BOF and Mobile Home Program participants, the incomes of AHFC's Rural Housing Mortgage Purchase program participants closely paralleled those of SMLPP, with less than 20 percent of the first-time homebuyers having incomes less than $30,000 per year. The geographie distribution of benefits resulting from AHFC' s 1 housing programs reflect Alaska's housing market and the overall distribution of housing sales in Alaska. 245 a. Sixty-eight percent of SMLPP participants reside in the Anchorage area where the housing market has been very active. b. Participants in AHFC' s rural program are concentrated in regional centers where incomes are relatively higher and where Regional Housing Authorities and lending institutions have offices. 5. AHFC's SMLPP program did not disproportionately serve prospective homebuyers moving to Alaska. Approximately 18 percent of the SMLPP participants lived in Alaska for less than one year, where- as we estimate approximately 23 percent of all homebuyers are recent arrivais to Alaska. 6. Because AHFC is a secondary lender, its programs do not appear to have had any significant impact on increasing the access of lending to prospective homebuyers. The value of the program to primary lending institutions is insufficient to justify their opening up new branch institutions. Similarly, service fees collected are unlikely to cover the expense of servicing loans outside the service area of a branch bank. state's housing programs are a function location of the primary lending institutions. Thus, access to the of the geographie Even in AHFC's HOF Program, which is designed for low and moderate income house- holds, 82 percent of the mortgages concentrated in the Anchorage area. The Alaska State Housing Authority The Alaska State Housing Authority (ASHA) and various Re- gional Housing Authorities (RHAs) administer the low income 246 lllllli ~ .... ..... - - - - ...... ~ - - - housing programs sponsored by the U.S. Department of Housing and Urban Development (HUD) programs. These programs provide housing and housing subsidies for low income people .. HUD finances all of the capital costs of housing constructed under the Public Housing and Mutual Help for Indians Housing programs. In thé former, HUD has also provided operating subsidies, while in the latter, ali operating costs are paid by the homebuyer. Under either Sec- tion 8 program, it is impossible to determine the portion of the total subsidy that pays for operating costs, as distinguished from capital costs. Currently ASHA and the RHAs manage about 6,000 units, of which 3,500 were built over the 1970s. Regionally, 12 percent of these units are located in southeast, 43 percent in southcentral, 28 percent in interior, and 17 percent in northwest Alaska. An estimated 620 Alaska native households receive benefits from ASHA' s Public Housing and Section 8 programs, and all 1, 700 of the RHA-built Mutual Help homes are owned by Alaska native families. Although the complexity of HUD financing precluded us from determining the total cost of HUD's units, the state did supple- ment HUD' s Public Housing . and Section 8 programs with $1. 7 million in grant funds and about $16 million in loans. 1. 2. Federal budget cuts will not affect HUD' s commitments to ASHA' s subsidized proj ects nor the RHA' s home ownership projects that already exist, but it will affect the number of new units that are built. In FY 81 the value of new units authorized by HUD for Public Housing and Indian Mutual Help Housing was $51.8 million. Federal budget cuts may also affect the operating subsidies ASHA receives for public housing projects, which in FY 81 amounted to $1.5 million, and represent 50 percent of oper- ating revenues for these projects. 247 3. The Section 8 program, which generates about $5 million in rental subsidies for some 1,250 households, is scheduled to be replaced by a voucher program which is still in the planning stages. 4. HUD' s "Mutual Help for Indiansu is likely to be the program most affected by federal cuts. In recent years, the program has financed most of the new units constructed. The Nonconforming Housing Loan Program Like AHFC, this pro gram opera tes as a secondary lender and provides no direct loans (although the agency indicated it may offer direct loans this spring). The Nonconforming designation applies to physical characteristics of the house being bought, not to the char- acteristics of the loan or of the buyer. In other words, loans purchased are underwritten according to the same standards--loan amounts, down payments, and borrowers incomes--applied to conventional home loans. Nonconforming may describe a house thatJ does not meet minimum space requirements, has unconventional foundation or utility systems, or obsolescent design. However, if any of these nonconforming fea- tures present either health or safety hazards, the loan application will be rejected. 1. The vague definition of nonconforming may allow duplication of AHFC's rural owner-occupied housing program. Despite statements from participating lenders that nonconforming program applicants are unacceptable to other secondary lenders, no specifie evidence of acceptability is required. Similarly, without a specifie defini ti on of ttnonconforming," staff and lenders have no al ter- native but to exercise their judgments, which varies from person to person. 248 ... ... - - - ~ 2. Despite the legislative mandate that no more than 20 percent of the principal amount of loans be made in urban areas, in the first year of the program, approximately 75 percent of the amount loaned went to urban areas, i.e., $8.1 million of the total $10.8 million in loans went to urban areas. 3. The scarcity of primary lenders (banks) in parts of rural Alaska makes access, both to inf~rmation and loan services, difficult for many rural residents. Residents of the Aleutians and rural Southeast Alaska, for example, face this problem, and only four loans have been made in these areas. Because of these access problems, the agency is planning to become a direct lender, the details of which are still being prepared. 4. The administrative cost of the Nonconforming housing program (about $1,100 per loan application processed} is about five and a half times that of AHFC' s programs. Although the agency costs are not directly comparable, they do reflect the magnitude of the differences. Under a _direct lending program, the Agency's admin- istrative costs would increase substantially above its current costs. 5. Of the $50 million in total loan funds available, 20 percent have been incumbered. 6. The Nonconforming loan program is not structured as a low income program. Correspondingly, only 7 of 177 home mortgages went to households wi th incomes under $20,000 per year. In many rural areas of Alaska where incomes are low, this program will not bene.fit the majority of residents. For example, in 1976 in the NANA and North Slope region, 76 percent of the households had incomes under $20,000 per year. Thus, although access to infor- mation and services is an important issue, it is one compo~ded by the fact that most rural households simply are not eligible because of low incomes. 249 The Senior Citizen Housing Development Program Administered by the Division of Housing Assistance, the Senior Citizens Housing Development Program provides grants and matching funds to local sponsors. State funds are used to augment federal housing programs for the elderly and to help local sponsors pay for the preliminary work required in submitting federal applications. 1. This program completely funded the construction of 47 units at a cost of $2.3 million, and partially funded ($4.6 million) 303 units for which the federal agency contributed $16.3 million. In addition, the state has awarded $300,000 in planning grants to local sponsors, which in turn generate applications for an addi- tional 118 new units. 2. The state has made $24 million available for this program, $16 million from direct appropriations, and $7.5 million from dedi- cated bond revenues. Approximately $466,000 over the past six years has also been available to cover the administrative expenses of the program. 3. As with all federally supported programs, reductions l.n the federal budget will result in fewer federal dollars being lever- aged, and with an increased demand for the state to completely finance local applications for senior citizen housing, obviously with a fixed appropriation and fewer federal dollars, the number of new units this program can support will be directly impacted by the federal budget cuts. 250 - "" "" ... .... .... ..... - - .... ....: - 1 ' ..... ..... ....., - DIRECT IMPACTS ON STATE HOUSING MARKETS • 1. The rise in housing priees between 1980 and 1981 appears to have been· caused . primarily by the state' s growth of employment and popu- lation, not by thestate's housing programs. a. This growth first caused vacancies to fall rapidly and then beg~n bidding up the priee of the existing housing stock. b .. · Although the priee increase of a new home was not large measured over the two year ·· period from 1979-1981, about 18 percent, be- 2 . ... cause .the·. past pipéline s·lowdown left an excess supply of housing in .the s.tate,. the existing ·stock was undervalued relative to its replacement costs ,. and therefore, ~isting home priees rose by a greater proportion than priees of new homes~ Priee increases did not occur until. vacancies reached marginal levels in the spring of 1981. At that time priees were bid up rapidly. Population growth was sufficient to cause existing housing priees to rise up to their replacement costs by 1981; but state programs also had important effects • a. The state's low interest loan programs appear to have caused the construction of new ho11sing to have increased by about 33 percent, or about 1,000 units. b. This increased demand · represents~ homebuyers who otherwise would not have qualified for mortgages . ~~ .;F 251 c. Be cause of '' churning," the se 1, 000 ad di tional new homebuyers caus~d a total of about 4.,000 total housing sales. 3. Renter households appear to have benefited from the state' s low interest loan programs. a. Even allowing for conversions, the programs appear to have caused net shifting from renta! demand to homebuyer demand. b. This reduced at least sorne of the pressure for renta! units and helped hold rents from rising even faster than they did. 4. The priee of new housing in Alaska rose during the 1980-1981 period, but only in proportion to the real costs of construction plus increases in the priee of raw land. a. Real construction costs appear to have increased by about 7 percent to 8 percent a year between 1979 and 1981. b. While the priee of raw land increased significantly over the period . (about two and a· half times), this cast is a small enough part of the total selling priee of a new bouse that it is not particular],y significant. Undeveloped land priees caused new housing priees to increase by about 2 percent to 3 percent a year. 5. In conclusion, the state' s low interest loan programs do not appear to have had a significant impact on housing priees, but they have been important for: a. Qualifying about 1, 000-homebuyers who otherwise would probably not have been able to obtain mortgages; 252 "' .. ... .. ... ... 1. -· - .... 1.... [,.. 1 ...... - b. Increasing total housing sales by about 4,000 units; c. Increasing new housing construction by about 1 ,000 units; d. Contributing to the rapid (two and a half fold) increase in raw land values; e. And reducing. slightly tht! upward pressure on. rents, partic- ularly in the Ailchorage area . IMPACTS ON SOURCES OF HOUSlNG. FUNDS The state is not new to: the residential mortgage market. Since 1976 it has been the· largest purchaser of Alaska' s residential mortgages. a. National secondary lenders, on average, annually purchased about one fourth of the residential mortgages ($100 million), while the state purchased the remainder ($270 million) during the 1976-1979 period. ·b. For the national secondary lenders, their 1976-1979 pur- chases increàsed their total Alaska mortgage portfolio by about eight percent. c. · State purchases of mortgages have been by the State Pension Fund, the Veterans Loan Fund, and the Alaska Housing Finance Corporation. The Alaska Permanent Fund and the Alaska 253 Department of Community and Regional Affairs purchased about 400 residential mortgages in 1981, representing three per- cent of the annual totaL 2. Since the state initiated the below market interest rate programs in July of 1980, the state 's housing pt;ograms have become vir-• tually the sole purchasers of residential mortgages. Thus in 1981, all $780 million of residential inortgages were purchased by the state' s housing programs. Those mortgages which AHFC could not purchase were bought by state pension funds. 3. Subsidized mortgage interest rates and population growth combined to double 1980's demand for residential mortgages in 1981. Residential mortgages had fallen from 6,800 in 1978 to 4,650 in 1980 before climbing to 9,000 in 1981. a. In 1981, AHFC purchases increased by 250 percent over i ts 1980 purchases (3,600 mortgages. up to 8,000), and the value of its purchases climbed from $261.3 million in 1980 to $700 million in 1981. b. Part of AHFC's increase in purchases is attributable to its assumption of the Veterans Housing Program, which had pur- chased as many as 1,500 mortgages in 1978 .. · The unusually low number of mortgages in 1980 also contributed to the apparent 1981 surge. c. In essence, AHFC purchased in 1981 the equivalent of sorne $200 million of residential mortgages, which in previous years had been purchased by national secondary lenders when AHFC offered no interest subsidy. 4. From July 1980 to October 1981, homeowner equity withdrawal for homebuyers who sold a home and bought another was on the order of $60 million to $90 million. 254 .. - - l 1 ..... - .... - ..... i.... - - - i- ,_ ~~ ..... ,_ k.. s. In summary, state and bond dollars were substituted for national secondary lender funds and, in smaller magnitudes, from savings and loan associations, mutual savings banks, and from homeowners' equity. However, it is important to keep in mind that the mag- nitude of this substitution was lessened by the fact that the state had already grown to be the dominant secondary lender . INDIRECT IMPACTS ON STATE HOUSING MARKETS 1. · The . construction an4 sale of new homes or the re$ale of existing homes affect all sectors of the economy that are linked to the housing market. These ~elude land owners, building contractors, building suppliers, realtors, ap- praisers, home insurance sa.lesmen, and mortgage/loan of- ficers, to mention the more obvious ones . In the preceding section on direct impacts, we estimated that the state's housing programs stimulated the construction and sale of 1,000 new h9using units and the resale· of approxima tel y 3,000 homes. Based on these direct impacts, we can estimate the order of the magnitude of indirect impacts. a. b • Primary lending institutions are estimated to have collected about $3.5 million of mortgage related fees and an additional $4.6 million in construction loan fees and interest payments. Realtors are estimated to have collected an additional $16.5 million in real estate commissions. 255 c. Appraiser, ti tle search, and home insurance companies generated somewhere on the order of $3.5 to 8.5 million of additionalbusiness. d. The value of the additional contract construction is estimated at $20 million, .which in tem;; of wages and salaries, generated an additional 800-900 full-time equivalent construction jobs. e. Wholesalers of building supplies are estimated to have realized a ·gain of $33 to 44 million in the volume of their sales. f. Although each of the above indirect impacts genera te a second round of impacts, generally referred to as a multiplier effect, we did not attempt to estimate the multipliers for each of .these indirect impacts. • COSTOF ST ATE HOUSING PROGRAMS L During the 16-month period, July 1980 through October 1981,-the State of Alaska appropriated approximately $667. 1 million in support of its mortgage loan programs. a.· Of this total, approximately 43 percent ($286.0 million) was in the form of transferred portfolio assets, and 57 percent ($381. 1 million) was in the form of appropriated funds. 256 j illiiÎ " .... ...... ...... L ..... - ..... ..... - ' . 1..,.. ;_. ..... - ._ l~ l- -b. The State Assisted Mortgage Program (including the addi- tional percent buydown Veterans Program) received the largest share of these appropriations, approximately 82 per- cent. The Home Ownership Assistance Program received about 8 percent of the total, and the two Rural Programs, to- gether, about 7 percent. The Mobile Home Program received about 3 percent. 2. The state's appropriations in support of the mortgage loan programs, however, are not the same as its costs. a. Its costs are the present value of the differentiai between the bond market rate at which it borrows, and mortgage interest rate at which it lends over the lifetime of the mortgage loan • 3. Over the 16-month study period, changing market conditions, a new legislatively mandated formula for linking bond market rates to mortgage market rates, and the elimination of housing bonds' tax exempt status, combined to cause significant fluctuations in the State Assisted Mortgage Program's cost. a • b. At the beginning of the 16-month study period, the value of the subsidy to homebuyers was about $12,150 for an average mortgage of $88,500, and loan life of 10 years; but the cost to the state was only $1,300. The difference was the tax exempt bond status cost of lost federal revenues . The loss of tax exempt status forced AHFC to obtain its money at higher market rates, increased the differentiai between the rates of which it borrows and lends, and caused the costs of the program rise sharply. At its maximum, the differentiai spread went over 7 percentage points, and it cost the state over $26,000 to buy these points down for an average mortgage valued at $88,600 with a ten year life. 257 c. Averaged over the 16-month period, the average buydown for the State Assisted Mortgage Program was 4.2 percent, at a cost of $17.,800 for an average mortgage .valued at $88,500 with a ten year life. d. Under the legislatively mandated formula linking bond market • rates with mortgage market rates, the differentia! will be adjust.ed over the next severa! bond sales to a stable spread of 3 points. When this happens, the state' s buydown subsidy cost will be at about $12,900 for an average mortgage valued at $88,500 with a ten year life. 3. Over the study period, AHFC gained experience in funds manage- ment, and required lower appropriations for each percentage point of interest bought down. a. Comparing the last half of 1980 with the last half of 1981, AHFC could operate at the same level of costs and obli- gations as it did a year earlier with only about 60 percent of the appropriation level required per point of buydown. 4. All together, the State of Alaska incurred costs of about $200 million buying down interest rates (at point spreads which varied program by program) over the 16-month period. a. The State Mortgage Assistance Program (including the 1 per- cent Veterans buydown) accounted for about 84 percent of total costs. b. The Home Ownership Assistance Program, which is targeted toward the low income, accounted for about 10 percent of total costs; all Rural Programs together, about 4 percent, and the Mobile Home Program, about 2 percent. 258 w !....., i L ------- 1- ~ ~ '- ,_ - - 1 -.. L. !....., "- ..... 1. 2 •. 3. FUTURE FISCAl IMPACTS OF STATE Population growth in the 1980s is projected to be comparable 7o that of the 1970's, ranging between a growth of 2.5-4.0 percent per year. The main difference between the two rates is that the higher rate ass~es the construction of the NW natural gas pipeline whereas the lower rate does not~ Unlike the 1970s,_, the number of households in Alaska are not expec"t:ed to inc:rease: at twice the rate of the general popu- lation -in the 1980s • We projèct-household formation rates · in the' range of 3~2~5.0 percent per year, with substantial variations in this annualized average during any given.year, particularly between 1985-1987 should construction of the natural gas pipeline project initiate during this period. The annual increase in additional homeowners, the equivalent of new housing units (excluding replacement), over our projection period range-s from about 2,700-3,800 per year, again with substantial year-to-year variations. 4. · Total housing sales, which includes not only new housing sales; but also the turnover of existing homes, is projected to range on the annual average between 10,000 and 17,000 sales per year, again with large year-to-year variations . 259 5. Assuming AHFC' s loan limits remain constant, we expect its share·of the total primary and secondary market to fall from i ts current share of approxima tel y 66 percent to about 50 percent by 1990. In contrast, we expect AHFCfs share of both mobile home mortgages to grow from its current 50 per- cent share to 90 percent by 1990. Similar g:rwwth in AHFC' s market share for rural home funds is also projected, i.e., from 60 percent in 1980 to 90 percent in 1990. 6. Consistent with our analysis of the state's housing program costs, we project fiscal impacts, as shown in our reprint of · Table 69. TABLE 69. FISCAL IMPACTS OF STATE HOUSING PROGRAMS (millions of dollars) Appropriations Bonded Indebtedness Total Urban Mobile Home Rural a Accrued -- 1986 $280.8 $127.8 $75.5 $77.5 $1,165.2 1990 293.3 88.4 106.7 98.2 875.8 aAssumed to be half AHFC and half DCRA appropriations. SOURCE: ISER Projections 260 :_; - l..... !._ - .,._ -. "- - 1.... ..._ '- ..... - - Conclq.ding Remarks One of the effects of the state's interest rate subsidy has been to make AHFC the primary decision maker in financing housing sales. Because the interest subsidy is only obtainable through AHFC (with the exception of CRA' s comparatively small housing programs which also offe.r interest subsidies), financial institutions in the state, home- buyers, builders, and real estate developer:; must meet AHFC' s rules and standards or forego the lower-interest money. This effectively precludes a developer who wants to build a particular kind of sub- division or a homebuyer trying to qualify for a loan from shopping at severa! sources (such as commercial banks, Savings and Loan Associa- tions, Mutual Savings, FNMAE, and FHLMC). In a <;:ompetitive lending market, one lender may decide a project or homebuyer is credit worthy, while another may not. By funneling the mortgage subsidies through one organization, the state has also directed all home financing decisions into one organization. As was discussed in Chapter Seven, the state, through its bond sales at AHFC, has been paying more for its borrowed funds than home- buyers would have paid to borrow money through FNMAE or FHLMC. This difference represents a loss to the state. A difference between FNMAE rates and the interest attainable by AHFC in the national bond markets is expected to continue; therefore, the state may wish to explore neg:otiating a cooperative "interest buydown11 program with FNMAE and FNLMC. For example., the state could propose to buydown the interest rate paid by homebuyers by 3 percentage points for the first five or ten years of the life of the mortgage. The mortgages could then be sold to the national secondary lenders. Such an arrangment could result in lower costs to the state and to the state' s homebuyers . 261 The mortgage interest rates of 1980 and 1981 have been at his- torica,lly high levels, and these rates are expected to decline within the next two or three years to lower long-term rates. The state, by subsidizing mortgage rates, has kept interest rates closer · to their expected long-term levels. By stabilizing interest rates, the state has maintained housing market activity and residential construction • nearer their long-term equilibrium 1evels. Thus, home sales in Alaska have been sheltered from the effects cause.d by mercurial changes in national monetary policies and the associated escalatioll in interest rates. 262 - "'; - ~ 4- ..... 1.....: 1,..... ..... _._- - ·-'- - ..... - I~'DUSTRY PRO.IECT AGRICULTURE FISH.ERIES Oit. GAS, ANl) HINING Trans•AKPipdine ~Torthwest Gas Pipeline Prudhoe Bay Oïl- and Gas Upper Cook Inlet Oil and Gas- N'ational Petroleuar Reserve in AK -Outer. Contineneal Shelf (OCS) petro- leWil and-gas Coal Development u, S. Borax Ottu~r Mining tt.~,NUF ACTL'Rl NG PeLroleum Refining -Pacifie LNG Project PetroC'hemica b Food Process:ing APPENDIX A ASSUMPTIONS USED IN 1981 ALASKA HOUSING PROGRAM STUDY E."'Œ'LANATION Various levels of development depending on Stàte & Federal policies, combined with market conditions. LOW DEVELOPMENT Slow decline in acti:Yity Constant employment in existing No development fishery. Development of bottOà fishing to repl,tce foreign fishing in 200 mile limit varies. _ Construction of 4 additional pUIIpiDg stations Construction of uatural gas pipeline from Prudhoe Bay & associated facilities 1983-87 Production fr0111 existing and newly-developed fields resulting in increased permanent_employment Declinin& employment in oil production offset'by e~loyment •.g;rowtà· in gas-production Development·& productioa.from 5 oil fieldll & construction of S2S mileS of pipeline Exploration~ development &pro-- duction ba·sed on current OCS -le.ase schedullt' w/additional sales after 1985 Development of Beluga coal reserves for export & synfuel production - Development of mining_ operation by 1993 Hardroc:k & other petroleum act.ivities Construction of 100.000 barrel 'per day refinery at Valdez Developmcnt of liquid natural gas project in the Anchorage areas·between 1935•87 Development of a projcct sim- ilar in concept to the Dow- Shell proposa! Y es Yu Y es Exploration but no devel- opment Beaufort Sea produc~ion; no sales after 1985; 1 billion bbl discovered No No. Constant at current levels No No Mo HIGH DEVELOPHENT Employment growt.h at 81. annual. rate 50~ replacement Y es Y es Y es Y es Slow development 3 lease ·sales after 1985; 7 billion bbl discovered & de:vel- oped Eventual 'production· of 4.4 million tons per year No "'l'X. annual growt:h of uployment Y es Y es No ' Development based on & corre• spondent. to growth of fisheries Grows to accommodate growt.h in fishing industry. 263 ... Tir.:ber, Lwnber, Pulp t!a;:iufacturing for Local AK Use TOt.'!RISH CO:V"ER11MENT- State Capital Hove Federal Government State Goverwnent Expansion to accommodate annual eut of.960 million ta 1.3 billion board feet by 2000 Expansion of existing produc• tian as well as new manufac• turing as a proportion of total employment Annual growth rate of tourism State capital mo~e ta Wil1ow beginniug in 1983 Increases in civilian employ• ment; military remains constant Spending grows with population priees and incomes 960 million board feet. 1% of total employment 2% •• 960 million board feet 2% of total emplO}'IIlent 4% No No Growth at hist.or-Sadie as. tow ical -rate of 0.5 Per c:apita spending unchanged Per capita spending increases at same rate as' per' c:àpita in come ----~ SOL"RGLS: Alaslca Ecunomic Projections for Estimating Electridty Reguirements for the Railbl'!lt. Scott Goldsmith and Ed Porter, Instituee of Social and Economie Research, October 1981. ----------.---------------· ------~-"""'"- 264. ._ '- - ..... '- - - ....... ._ ..... '-· - l..... ...... -....; APPENDIX B HUD FAIR SHARE ALLOCATION SYSTEM The Federal Department of Housing and Urban Development distrib- utes most·-80 percent•-federal .housing assistance funds subsidized units according to the Fair Share System. for newly Under this system, funds are allocated by HUD' s ·national office to different parts. of the country according to the. amount of housing needed in-that area. Need is measured by several variables! area population, poverty, substandard housing, overcrowding, and vacancies. Poverty is defined as the number of families with incomes below 50· percent of the median a rea income. Substandard housi.ng is measured by the number of units lacking · complete pll1mbing. Overcrowding is defined~ as the number of units With .morè. than one person per room. · The indicator regarding vacancies is known as the vacancy deficit;' it is the number of new uni ts needed to increase the vacancy rate in the a rea to. 6 percent. The final variable included is the number of renter households who (1) spend more than 25 percent of their income on rent and (2) live in an overcrowded or substandard unit • Each of these variables is given the same weight, and the amount of housing need i~ each area is calculated as a . percentage of the national total housing need. If an area is determined to have 10 per- cent of the national need, that area is allocated 10 percent of the pool of housing assistance funds. Tliere are 44 areas to which HUD Central Office allocates these funds, each having a HUD Area Office. Alaska is one of these 44 areas. Once the Anchorage HUD Area Office receives Alaska's allocation, this office allocates that money around the state. 265 The. HtJD Anchorage office designates allocation areas within the state. Each metropolitari. area, as defined by the Census~ is an allo- ca ti on a rea; Anchorage is the state' s only metropolitan a rea. The remainder of Alaska is divided into four allocation areas correspond- ing to the state 1 s four judic;j.al districts. The mm area, office determines the housing need in each area on the • ;;ame basis as described above, and allocates HUD funds within the state according to need. In any single year, however, one allocation area may receive a larger or s~aller amount of assistance than its share. This occurs · because the amount of funds available ta Alaska in any onè year may be tao small to splitup strictly accordin,g ta need. Over the course of several years, however, HUD attempts to spend its funds around the state according to thé distribution of need. The actual distribution of HUD spending also depends on the project applications received by HUD. If no acceptable applications are made by agencies in an area ov:er the course of several years, that area will not receive its share of federal housing subsidi.es. Please note that this allocation system applies to funding for units that are to be subsidized for the first time. Once that unit is contracted for o.r built, a continuing stream of federal subsidies is associated with it. HUDts coiJIDitment to continue the subsidies varies from five-to-forty years, depending on which program is used. The amount of money allocated to the state each year, then, does not include these continuing subsidies; it only includes funding for the first year for new units. This description of the Fair Share System is by no means complete. More detailed information is av,ailable at HUD offices. 266 lui ! - '- - :.... """'"' :.... ~ .._..:. u ~. ~ r L - - ..... APPENDIX C EARLY HOUSING PROGRAMS OF THE ALASKA STATE HOUSING AUTHORITY 1 Early Management In the early 1940s the Federal Public Housing Administration constructed, pursuant to the Lanham Act, a total of 324 family dwelling units in Anchorage, ·Fairbanks, and Juneau for the purpose of housing war workers. Following its creation, the Authority assumed the management of these units although title remained with the United States Government. Besides these units, the Authority was contracted to manage veterans' housing p:rojects by the cities of Anchorage and Fairbanks. Both the war housing--classified as temporary--and the veterans 1 housing projects have since been phased out of the Author- ity's operations. Veterans' Housing In the 1946 Territorial Legislature, a $100,000 revolving fund was established for use by the Authority in making accommodations available to veterans of Wo:çld War II who were enrolled in educational institutions in Alaska. Acting on this mandate, the Authority under- took construction of a 50-man dormitory for veterans at the University of Alaska. Upon completion, the Authority was responsible for its maintenance, and the University of Alaska for its management. Like the housing units, this dormi tory has been phased out of the Author- ity's operations. Alaska Housing Act The Territorial Legislature directed the Housing Authority to recommend and seek passage of legislation, both territorial and federal, which would establish a program to remedy the Alaska housing _shortage. Since the economies of Alaska were different from those of most states, the Authority examined the problem and in 1947 submitted 1Adapted from the 1972 Annual Report of the Alaska State Housing Au tho ri ty and Weicher, Ho us ing Federal Poli ci es and Programs; 1980. 267 suggested legislation to the U~S. Congress. With this proposal, assistance then came from the Housing and Home Finance Agency, the Department of the Interior, and other federal agencies. These agencies, with the Alaska Housing Authority; produced a plan which wa.s introduced in Congress and the Territorial Legislature and latet became the program of the Authority. The 1949 Territorial Legislature approved legislative bills which '~<fould enable the Authority to aètivate provisions of a federal bill then ready for presentation to Congress. This legislation included an initial appropriation of $250,000. When the federal legislation was approved, it included an initial appropriation of $15,000,000 and was called the 11 Alaska Housing Act" (P.L. 52, Slst Congress). The initial concept of the Alaska Housing Act recognized the limited home financing available in Alaska, the . high construction costs resulting from hurried defense and war construction, and the absence of a self-sufficient construction industry. The purpose of the plan was to encourage an adequate building industry and to estab- lish the capacity to meet the increasing need for home construction. The pro gram included production of more than 6, 000 dwelling units, encouragement of private financing (including a secondary financial market)·, and adjustment of existing Federal home mortgage insurance programs to the higher costs prevailing in the Terri tory. The Alaska Housing Act met these problems by: 1. Creating a $15,000,000 revolving fund for the use of- the Alaska Housing Authority, of which $1,000,000 was set asi.de for a Remote Dwelling Program. (Later this fund was increased by $4,000,000.) 2. Increasing FHA mortgage insurance limits up to one- third over the established limits under the National Housing Act. 3. Liberalizing mortgage purchasing privileges for the Federal National Mortgage Association in Alaska. 268 la - - 1- \ 1[ - - - ..... ii...; ._ - 1- - - 4. Allowing the Alaska Housing Authority to make loans from the revolving fund where private financing was not otherwise available. S. Allowing direct construction by the Alaska Housing Authority of necessary dwelling units for any community where private sponsors were either unwilling or unable to undertake such housing construction. 6. Liberalizing certain mortgage insurance plans. 7. Calling upon private capital and all elements of the private building industry to participate in the con- struction of necessary housing in Alaska. By so doing, it accomplishes a two-fold purpose: (a) supplying necessary dwelling units and (b) promoting a self- sustaining building industry for strategie Alaska. During the life of the Public Law 52 program, the original goal of the Authority was more than met. By 1953, 7,500 units bad been constructed. This new housing construction represented an investment of $10,000,000 by private enterprise. Prior to enactment of the Law, only eight single-family units had been built in Alaska under FHA regulations. Low-Rent Public Housing Program Preliminary work on the Housing Authority' s law-rent program began in 1949. Initially, the Authority constructed 325 units: 50 in Juneau, SD in Ketchikan, 75 in Fairbanks, and 150 in Anchorage. By • 1953, all of the units had been completed; and they have been occupied continuously since that time. The program was reactivated in 1963 with an obvious statewide need for housing designed for the low-income families in urban areas. By 1972 an additional 326 units had been constructed by priva te firms under contract to the Authority. The total construction cost of these units was $9,836,215. In addition, the Authority undertook comprehensive modernization of the original units at a cost of about $3,000,000. 269 Middle-Incarne Program The middle-incarne program, authorized by the Board .of Directors in 1965, produced two projects: 32 in Wrangell and 24 units in Peters- burg. The housing was built under the provision of Section 221(d) (3) of the National Housing Act and is permanently financed by the FNMAE at below-market rate interest. The project in Petersburg is no longer under management by the Authority. In 1961 '· this progtam was created in an attempt to allow lower- income families to benefit from FHA insurance on the rented apart- ments. The FHA-insured mortgages on apartment projects owned by nonprofit sponsors or limited dividend corporations if the mortgages carried below-market interest rates. The low rates and absence of profit were expected to reduce rents, making these apartments afford- able to those too po?r to take advantage of the FHA homeownership insurance program, but with incomes too high to qualify for public housing. This "moderate-income" group generally could not af:ford the rents in unsubsidized new apartments. The pro gram also included dollar mortgage limits per unit to insure that the program reached the targeted population. To induce priva te lenders to lend at below-market rates, the Federal National Mortgage Association (FNMA) .bought the loans from the lenders at face value. The net effect of the arrangement was that FNMA lent mortgage funds at low interest rates to private sponsors to build moderate-income housing. The 221(d)(3) program was short-lived. ·Its initial budget impact was very large, making it politically vulnerable, even though the end cost to the government was much smaller due to principal and interest pay back. In addition, the interest subsidy proved inadequate in reducing rents to a level affordable to the target population. The subsidy did not result in very many units being constructed, and the program was scrapped in 1968 to be replaced by another program 270 Uli - - - - """' - - - ..... - - ;,.,..; - - ._ (Section 236) using interest subsidies and FHA insurance. section derived from a discussion in Weicher: 38-40.) Remote Dwelling Program (This This pro gram was established by Public Law 52. The pro gram was based on home improvement loans, to a limit of $500 per person, and a 5 percent interest rate. Loans were to be repaid to the Alaska Housing Authority over a period of six years and were character loans, requiring no collateral. As originally established, the Authority acted as agent in purchase and delivery of materials, while the bor- rower either built or improved his own dwelling. By the end of 1952, the Alaska Housing Authority had assisted in the erection or improve- ment of approximately 550 housing units in 30 villages from north of the Arctic Circle to as far south as the lower mouth of the Yukon River. Native Village Program In 1963, the Housing Authority was granted $180,000 by the Federal Government to conduct a low-income housing demonstration project in remote native villages. The program called for experi- mental housing constructed in the three ethnological areas of the State--Southeastern Indian, Athabascan Indian, and Eskimo. The most ambitions project undertaken by this grant was the relocation of an entire village to a new site on the Yukon River, commonly called the Grayling Project. The Authority administered the grant and provided materials and technical assistance to the village to build 23 new homes .. The mutual-help approach to construction was utilized. This experiment provided a basis for future grants and programs for Alaska Natives. Remote Village Housing Program Section 1004 of the Demonstration Cities and Metropolitan Devel- opment Act of 1966 authorized $10,000,000 for grants and loans to the State of Alaska to assist in providing housing and related facilities 271 to remote Alaskans in accordance with a statewide plan approved by the Secretary of the Depàrtment of· Housing and Urban Development. In 1967, because of a statewide plan formulated by theAuthority with the cooperation of other state agencies, the program. was established by law under the Office of the Governor, who was directed to designate the agency to carry out the program. In 1968, Governor Hickel de.signated the Housing Authorîty as the agency to adminiSter this program. The State Legislature authori,zed appropriations equal to 10 percent of actual federal appropriations. Congress appropriated $1,000,000 in fiscal 1969, and with 10 percent of the $1,000,000 in State matching funds, 160 houses were constructed / in ten villages, using Native labor working under experienced con- struction supervisors. Similar am.ounts were appropriated and made available in fiscal 1970, and 175 houses were constructed in eight villages. Since Congress made no further appropriations for that purpose, the State Legislature appropriated $1,000,000 in fiscal 1971 ·as a substitute for the federal funds so that the program might continue uninterrupted, and 111 houses were complete.d. The State Legislature a1so autb.orized the sale of $3,000,000 in general obligationbonds for construction of additional housing in the remote areas. Half of the authorized bonds were issued and their proceeds made available to the Authority for use in 1971. During 1971, the Department of Housing and Urban Development funded 200 units. under a 100 percent federally funded Mutual Help Program. Ten villages were selected and the program was completed in 1974. The program operated in the sam.e manner as the original 1969 and 1970 program, except for the method of funding. 272 "' ... ... - - - -· - - - - - - - - - Turnkey III The Turnkey III program was the first homeownership program tar- geted specifically to low-income families. It operated the same way that the current Mutual Help for Indians program works, with the homebuyers' equity building up gradually. The major differences between the programs are in participant contributions and payments and in the fact that this program was not limited to Natives. 273 ..,; .. ... .... ..., - - - - - - - - - APPENDIX D STATE HOUSING RELATED PROGRAMS Pioneers Homes The primary goal for the Alaska Pioneers Homes is to provide a comfortable living environment for elderly citizens of the state. Services provided to residents include physical and mental health care and social activities in residential care and nursing care accom- modations. Any persans who have lived in Alaska continuously for at least fifteen years immediately preceding their application are entitled to admission at little or no cost. Persans not considered destitute, but meeting the fifteen-year residency requirement, may be admitted upon payment for .the cost of their care and support, currently $275 per month. In addition, any persan with a total of 30 years state res·i- dency cannat be disqualified due to absences from the .. state if the absences are determined to be reasonable by the Commissioner of Admin- istration and if the applièant is otherwise qualified. The Department of Administration operates Pioneers Homes in Sitka, Palmer, Fairbanks, and Anchorage, providing residential ca re for 340 persans and nursing care for 178. A new home in Ketchikan was scheduled for completion in December 1981, with 19 resident and 30 nursing facilities. A new nursing wing at the Anchorage Pioneers Home will be ready for occupancy in May 1982, providing 96 additional nursing beds. This program also funds the Kotzebue Senior Citizens Center, which is operated by a private corporation. The Center pro- vides social, recreational, and nutritional services and has 16 beds for ambulatory residents. 275 Senior Citizens Tax Relief This program was initiated to reduce the financial pressues on senior citizens of housing""'related taxation. Property taxation can contribute to the unwilling relocation of their resid.ences for the state' s elderly, especially for those wîth fixed incomes. Exemption from local property taxes for homeowners and tax equivalency pàyments ' for renters and deferment of special water and sewer assessments are the three housing-related items under this program.l Eligible citizens, 65 years of age or older, apply to their local government for the exemptions and deferments. The local government is reimbursed for lost revenues by the State Assessors Office. The property tax exemption and renters equivalency amounts are totally forgiven. A special assessment deferment becomes a lien on the prop- . erty which is due and payable when the property. cornes into the owner- ship of an ineligible taxpayer. Veterans Loan Fund The State of Alaska had a direct loan program for veterans and national guardsmen, administered by the now-defunct Division of Veterans Affairs. The program was funded by direct state appropria- tions. Most of the loans made were for residential mortgages, but they could also be used to finance farms, busines.ses, education, fishing, mining, persona! use, or for investment in rentai property. From fiscal year 1977 to fiscal year 1980, $213,869,600 was loaned for single-family mortgages. In 1978, the Department of Revenue purchased most of the loans made by the Division of Veterans Affairs. No new applications were accepted, and the program was discontinued. because of its large impact on the state budget. The Department of Revenue continues to service outstanding veterans loans, most of which were purchased by the Alaska Housing Finance Corporation. 1Motor vehicle tax exemption is the only nonhousing tax relief provided under this program. 276 ... .... ... - .... -· .... - ..... - ..... - Residential Energy Conservation Program This program, administered by the Division of Power and Energy Development, was initiated. in October 1980. Program goals are two- fold: to conserve energy and to reduce housing costs by reducing home heating costs. The re are no pro gram eligibili ty restrictions; both renters and homeowners can benefit. All program costs are funded by direct state appropriations. State funds are used for severa! purposes. The state trains and contracts with home energy audi tors, who inspect llomes to determine their energy characteristics. State funds are used to pay for all .but $10 of the cost of an audit; the :J;."esident pays that $10. The state makes g:J:."ants or refunds to the home resident for the cost of taking energy conservation measures that are recommended by the auditor, for amounts up to $300 for single-family, d.etached homes, or $200 for homes in multifamily structures. In addition to grants and refunds, the Division of Business toans offers loans up to $5,000 at five percent interest for energy improvements reconunended by the audit. In the first year of the program, 8,000 homes were audited in 24 communities. More than 2, 700 residents received grants and refunds, totaling $798,308. It is estimated that about 98 billion BTUs will be saved the first year because of energy conservation measures the program financed. This is equivalent to 710,000 gallons of fuel oil; . and at an estimated cost of $1.25 per gallon, this would equal $887,000 saved over the first year after the measures have been in- stalled (Appropriate Energections, October 1981). Program adminis- trators anticipated conducting 24,054 audits between September 1981 and January 1982 . State Mobile Home Loan Program From May to October 1980, the state had a Mobile Home Loan Pro- gram, administered by the Department of Revenue. toans were made for 277 a 25-year term at 11.75 percent interest, with a 10 percent down- payment required. In the six inonths of activity, 203 loans were made totaling $5,763,000. This program was discontinued when the Alaska Housing Finance Corporation initiated its Mobile Home Loan Program (Alexander) . Housing Program Debt Service The. state has a continuing obligation to pay off the bonds it issued .to finance certain housing programs. The Pioneers · Home and Senior Citizen Housing Development programs are current programs with ongoing debt service costs. There .was also a Remote Housing Program in the early 1970s for which payments are still beingmade. State Institutional Investors The State of Alaska has also invested significant amounts in housing through institutional investors such as state pension funds and the Permanent Fund. These investors act much like national secon- dary mortgage market institutions, purchasing residential mortgages originated by direct lending institutions. They invest in loans at or close to market interest rates. Recently they have served homebuyers who do not qualify for AHFC low-interest loans. The State Pension Funds, for example, buy 30-year loans to owner-occupants with at least 10 percent equity, carrying 15 3/4 percent interest and meeting FNMA guidelines. Since 1977, the State Pension Funds have purchased $299,600,000 in residentia1 mortgages. The Permanent Fund began investing in mortgages in 1981; in the first nine months of that year, it purchased $10,400,000 in loans. 278 c STATE SPENDING IN HOUSING AND HOUSING-RELATED PROGRAMS (000) ... Pro8_ram FY 1982 FY 1981 FY 1980 FY 1979 FY 1978 ... Pioneers Homes Opera ting $13,910.8 $11,716.4 $11,381.8 $10,344.9 $9,178.0 -Senior Citizens Tax Relief Opera ting 2,236.0 3,103.0 2,735.1 2,510.9 2,141.6 ... Veterans Housing Loans $ Volume Loaned 0.0 0.0 5,082.4 79,926.5 82,949.4 Residential Energy Conservation Not Operating & Capital 20,000.0 Available - State Mobile Home Loans $ Volume Loaned 0.0 0.0 5,763.0 - Debt Service Pioneers Home 2,481.8 1,471.3 1,322.8 1,134.8 1,029.2 Senior Citizen Housing 1,750.4 1,295.8 880.3 313.9 66.3 -Remote Housing 239.8 246.1 227.6 230.3 238.0 Institutional Investors -Pension Funds ($ Volume Purchased) 58,600.0 62,400.0 61,200.0 59,000.0 Permanent Fund ($ Volume Purchased) 10,400.0 - - - 279 ......., Pioneers Homes Senior Citizens Tax Relief Veteran Housing · Debt Service Pioneers Homes Senior Citizens' Housing Remote Housing Pension Funds FY 1977 FY 1976 7,494.6 1,525. 0 45,911.3 40,182;4 900.7 0.0 223.0 58,400.0 SOURCES: Executive Budget, Fiscal Years 1978, 1980, 1981, and 1982. Alaska Budget in Brief, FY 1982. Bill Pelto, Division of Budget and Management. Richard Alexander, Department of Revenue. 280 .. ""' - ... .... - - 1 - ·- APPENDIX E INFORMATION NEEDS FOR HOUSING PROGRAM EVALUATION Introduction Many methods of program evaluation have been developed. Each is primarily a product of the different decision making situations in which they are applied. Different decision making situations include evaluating present or proposed actions; evaluating capital investments. or opera ting programs; and evalua ting one .. particular program or a number of programs designed to reach the same goal. Independent of the type of evaluation, the primary goal of this .type of exercise is to allocate public funds in a way that is most beneficiai to the poli ti cal· constituency. Ths concept is similar to the economists concern with efficiency, the attempt to reach a par- ticular outcome at the !east resource cost. Cost~benefit analysis is program evaluation conducted in this strictest sense. Program evalu- ation may differ from the strict concern with efficiency for two reasons. First, the particular public agency may not bear the burden of all the cost; their concern is only with efficiency in terms of costs they bear. Secondly, the political process may define par- ticular goals which prevent the most efficient approach. Given these constraints, the purpose of project evaluation is the most beneficiai allocation of public funds . Basic Concepts A set ·of ~sic concepts should be consistently applied in any . ! type of program evaluation. These concepts provide consistency both· within a particular evaluation and across different evaluations. Consistency across evaluations is important since the alternate evaluations could be used to select the best method of achieving a particular objective or to select from competing users for a fixed amount of public resources. 281 ,,,,----------.,-------------------------------------------------liiliilliill The following basic concepts should apply in any program evalua- tion (see Devanney, et al, 1976). 1. Make the client, group explicit. Any particular public action will generate costs and benefits for a number of groups. In a program evaluation, the costs and benefits to a specifie group . ' are considered and effects to other groups are ignored. For e:xample, whe11 public housing is provided through federal grants,, these federal fundS are not costs to the state. 2. Make the greatest use of market priees. Since the changes which result from public actions affect many different types of re- sources, applying market priees to these resources allows their comparison. When applying pri<:es to outcomes and costs, three concerns are important. .' First, priees may not reflect the value to the public of certain resources. Priees may ignore social cost and benefits. Secondly, priees are not independent of the present income distribution and distributional consequences must be treated e:xplicitly. Finally, this does not mean outcomes which cannot be valued with a market priee should be ignored. 3. Value net rather than gross changes. The benefits created by a public action include only the net change. For e:xample, if one effect of the action is to create jobs, the total number of jobs measures the benefits of the action only in certain cases. If the workers hired would have been unemployed, then the jobs are a benefit. To the e:xtent workers would have been employed, these jobs are not a benefit. 4. Make explicit distributional effects. Public actions will affect different groups in the community differently. Certain groups may bear a greater share of the costs than the share of benefits they receive. Policy makers may consider these distributional consequences in addition to the overall efficiency ,effects. 282 - ~ "' ... ... - - - - - - s. Make the baseline explicit. The effects of public action are determined by comparing what will (or did) happen with the action to what would happen without the action. The baseline describes what would have happened without the program; it is the scenario to which the pro gram effects are compared. For example, when examining the effects of the AHFC program, the baseline is what would have happened in the pro gram year wi tho ut the program, not what happened in the previous year . Uncertainty A program evaluation is conducted under conditions of uncer- tainty. The source of uncertainty lies primarily in the description of what would have happened or what will happen. This uncertainty is primarily an information problem. The information problem is of two general types. First, pro- jection of events which either will or would have taken place is an important part of estima ting program effects. Knowledge of how the important systems work is necessary. Uncertainty can arise if the workings of these systems is not clearly understood. The second type of information problem concerns data. Data problems exist most importantly when we attempt to understand what happened because of a program. Missing data prevents the development of a·complete picture of what happened. Information Needs For Housing Program Evaluation In this section, we will de scribe the information gaps we found in doing the evaluation of the housing programs. We concentra te on those gaps we feel are most important. The housing information needs can be grouped into three classes: program data, housing market data, and housing market analysis. Each of these is described briefly below: 283 1. Program data. In our study, we found a surprising amount of data collected by the programs. ·A good deal of demographie data was available in an easily àccessible form (much of it accessible by computer). Helpful additional .information would include~ a. Racial information for the borrower or renter. b. Prior housing information for borrower or renter, including prior housing type, location, and àmount sold for. c. A similar complete set of demographie and housing data on unsuccessful applicants. 2. Market data. The primary constraint to completing our analysis was data on housing markets. Anchorage is the only market for which very complete information exists. Other urban markets have only limited information. Housing market data on rural markets is non-existent. Housing market data consists of information on priees, new construction, sales, and quality of the existing stock. Another type of market datawhich is needed is information on the population not served by the. programs. Except for cens us years, this information is not available. This type of information • would be extremely important, for example, when trying .to measure the housing demand effect of the programs, since demographie factors importantly influence demand. 3. Hoû.sing market analysis. Finally, certain . systems which affect housing need to be better understood. The supply side of the housing market is not very well understood. As we have shawn, important impacts depend on the supply response. This side of the market includes bankers, builders, land developers, and those sectors of industry which supply inputs to these groups. 284 .. .. ... .. ... """ - .... - - ..... - ._ ._ "- An especially important component of the supply side is the conversion of housing between rental and owner housing. The conversion factor is important for estimating the net effect of the program on new construction . 285 9SZ' / .. - - _. - ..... ...... ..... REFERENCES Books, Articles, Reports, Surveys Anchorage Municipality. Population Profile, 1978. Anchorage Real Estate Research Counnittee. Anchorage Real Estate Research Report. Vols. !-III, Fall 1978 -Fall 1981 . Bannok, G., R.E. Baxter, and R. Rees. The Penguin Dictionary of Economies. New York: The Viking Press, 1977. Counnuni ty. Research Center. Counnunity Research Quarterly. Vol. IV. , No. 2. Fairbanks North Star Borough, 1981. Daniels, Les lie D. and Charles Webster, Jr. The Effect of In te rest Rates on Housing Priees. St. Louis: Department of Economies, Washington University, no date. Data Resources, !ne. U.S. Long-Term Review, Autumn 1981. Devanney, J.W.; G. Ashe; and B. Parkhurst. in Coastal Zone Economies, Cambridge, Parable Beach: A Primer Mass., MIT Press, 1976. End er, · Richard L. The Opinions of the Anchorage Citizen on Local Public Po licy Issues. Anchorage: Anchorage Urban Observa tory, December 1977. Federal Hou~ing Administration. The Residential Mortgage Market in Alaska. Washington, D.C., 1963. Federal National Mortgage Association. "Free Market System Historical Packet. 11 Washington, D. C. : Office of the Control 1er, 30 June 1981. Federal National Mortgage Association. A Statistical Summary on Hous- ing and Mortgage Finance Activities, 1975-1980. Washington, D.C.: Federal National Mortgage Association, no date. Forrest, Marilyn. Cost of Living Comparison, Fairbanks/Anchorage 1980. Special Report No. · 7, Counnunity Information Center. Fairbanks: Fairbanks North Star Borough, 1980. Goldsmith, S., and L. Huskey. Electric Power Consumption for the Rail- belt: A Prqjection of Requirements. Anchorage: Institute of Social and Economie Research, 1980. Goldsmith, Scott. Analyzing Economie Impacts in Alaska. Anchorage: Institute of Social and Economie Research, 1981 • 287 ,~ 't Goldsmith, Scott, and Edward Porter. Alaska Economie Projections for Estimating ElectricityRequireme:nts for the Railbelt. A report for Battelle Pacifie Notthwest Laboratory, 1981. Hoagland, Henry E.; D. Stone; and William B. Brueggeman. Finance. Homewood, Illinois: Richard D. Irwin, Real.Estate Inc., 1977. Institute of Social and Economie Research. Alaska Pùblic Survey, unpublished data. Anchorage, 1979. NANA Regional Strategy Survey conducted by Mauneluk Asso- ciation and the Alaska Public Forum, unpublished data, Anchorage, 1978. Kruse, John; Judith Kelinfeld; and Robert Travis. Energy Development and the North Slope Inupiàt: Quantitative Analysis of Social and Economie Change. Man .. in..;the-Arctic Pro gram,. Monograph No. L Anchorage: Institute of Social and Economie Research, 1981. Lamb, Robert, and Stephen P. Ruppapo:tt.. Munièipal Bonds:. The Compre- hensive Review of Tax-E:xempt Securities. and Public Finanèe. New York: McGraw..;Hill Book Company, 1980. · Light, · J.O .. and William L. White.. The Fin.ancial System. Homewood, Illinois: Richard D. Irwin; Inc., 1979. Multiple Listing Service, Inc. Photo Sold and· Marketing Analysis Book. Anchorage: MLS, Inc., 1979, 1980, 1981. National Association of Homebuilders. "The Economie Impact of Single- Family Housing." Washington, D.C., 1979. Northern Consultants, Inc. A Study and Evaluation ofthe Alaska Hous- ing Finance Corporation. May 1, 1980. Ross, William B. "Finding New· Markets for Mort gages." Mortgage Banking, Vol. 41, No. 12. Washington, D.C.: Mortgage Bankers Association of America, 1981, pp. 18.;,20. Selden, Maury, ed. The Real Estate Handbook. Homewood, Illinois: Dow Jones-Irwin, 1980. U .S. Bureau of the Census. Detailed Housing Characteristics. 1970 Census of Housing, Final Report. Washington, D.C.: U.S. Depart- ment of Commerce, 1971. Financial Characteristics of the Housing Inventory: 1978. Annual Ho us ing Survey, Part C. Washington, D. C. : U. S. Department of Commerce, 1980. General Housing Characteristics·for the United States and Regions: 1978. Annual Housing Survey, Part A. Washingtoa, D.C.: U.S. Department of Commerce, 1980. 288 .J Housing Characteristics of Recent Movers: 1978. Annu~l Ho us ing Survey, Part D. washiogtori, D. C. :· U. S. Department of Commerce , 1.980 . U.S , ~ureau ~f the Census. 1977 Census of Wholesale Trade Geographie Area Series,. Alaska, Washington, D.C.: U.S. DelJ.•rtment of Com- merce, 1980. U.S. Congress. House. Omnibu~ Reconciliation Act of 1980. 96th ~ongr.ess, 2nd Session, 1980. U.S. Department of Commerce. Geographical Mobil.ity: March 1975 t.o 1979. Washington, D.C.: Bureau of the Census, 1980. U.S. Department of Housing and Urban Development . Equal Employn1ent Opportunity Monitoring Review. Office, November 3, 1981. Fair Housing and Anchorage Area "Scctiou 8 a~d Section 23 Housing As~istance Payment.s Programs-Amendment of Fair Horket Rent Schedule, Existing Housing." Federal Re&ister 46, No. 52, 18 March 1ry81, pp. 17366, 17503- 17506. "Schedule .A-f .ir t1arket Reots for New Construct:ion and Section 8 P~:(. ;P.cts." federal Regis ter 46, No . 227, 25 No- vember 198i, pp. 57838-57839, 57881. U.S. Department of Treasury, Inte rnal Reveui.le Service. "Mortgage Subsidy 'Bonds; Temporary Income Tax Regulations." 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An Act Relating to tb.''!· Nous:Ùig ,Pr<lgrams of Public Corporations of the State . . • , July· 17, 1971L Session Laws of Alaska, Corrective Amendment.s on the 1976. Î976 Chapter 218. Alaska Statutes . An Act Maki.ng .. , JtJne 20, Session Laws of Alaska, 1975 Chapter 151 . An Act Relating tô Housing and to Political Subdivisions of the State Involving Hous'ing ... , june 19, i975. Session Laws of Alaska, 1974 Chapter 102. An Act Relating to the Sale o( Public Bonds and Bond Anticipatio,a·· ~ot,es, Hay 15, 1974. Session Laws of Alaska, 1912 Chapter 81. An Ac.t to Provide Financing and Developmeot of Housing for Persons ·of Moderate Income ... , Hay 23, 1912. 2,90 • • • • 1 ••• ... .. · ..... f ... ',••,' :=1 1 '.1 Session Laws of Alaska, 1971 Chapter 107. An AGt to Pro- vide Financing and Development of Housing for Persons of Lower Income and to Create and Alaska Housing Finance Corporation ... , May 25, 1971. Agency Budgets, Handbooks, Reports Alaska. Executive Budget. 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April 16, 1979; June 18, 1979; July 24, 1979; September 7, 1979; November 7, 1979; November 9, 1979; February 26, 1980; March 10, 1980; May 9, 1980; June 19, 1980; June 30, 1980; January 27, 1981; April 17, 1981; July 20, 1981; September 17, 1981. "Offering Circular, State Assisted Mortgage Bonds, Series B and c.n Septeînber 30, 1981. noffering Circular, State Assisted Mortgage Bonds, Series D andE." October 27, 1981. "Official Statement, State Assisted Mortgage Bonds, Series A." June 18, 1981. "Official Statement, Home Mortgage Bonds, 1981 First Series." November 11, 1981. 291 Rating Agency Presentation. October 24, 1980. Selected Corporation and Pro gram Information. October 1981, August 1981, June 1981. Seller/Servicers Guide. June 1981. Alaska Permanent Fund Corporation. Annual Report. 1981. Alaska State Housing Authority. Annual Report. 1977, 1978, 1979, 1980. 1972, 1975' 1976' Department of Community and .Regional Affairs. 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Division of Loans and Veteran Affairs, Department of Commerce and Economie Development. 16 December 1981. Buckley, Robert. Office of Economie Aff airs, U. S. Department of Housing and Urban Development, Washington, D.C., 15 October 1981. Glubb, Wes. First National Bank of Anchorage. 21 December 1981. Daniels, Leslie. Washington University, St. Louis, Missouri. 6 Novem- ber 1981, 1 December 1981, 12 January 1982. Department of Community and Regional Aff airs, Division of Housing Assistance, Anchorage. Jack Smodey, 9 October 1981, 5 November 1981, 19 January 1982; Hank Hodge, 15 January 1982; Raymond Priee, 5 November 1981. Dillman, John. Alaska Valuation Services. 20 November 1981. Duffy, John G. Area Manager, HUD. Letter to John M. Crawford, Deputy Executive Director, ASHA. 20 May 1981. Eisman, Jean. Federal National Mortgage Association, Washington, D.C. 14 October 1981, 10 November 1981, 11 November 1981. Ender, Richard. Urban Observatory, University of Alaska, Anchorage. 13 October 1981. Gamel, Rob. Gamel Homes, Inc. 30 October 1981. Hastak, Don. Division of Loans and Veteran Affairs, Department of Commerce and Economie Development, Juneau. 1 and 4 December 1981. Knight, Marlin. Kodiak Island Housing Authority. 14 January 1982. McVickers, Nona. Older Persons Action Group, Anchorage. 25 Novem- ber 1981. 293 Murphy, David. United Building Supply, Inc. , Anchorage. ber 1981. 18 Decem~ Patton, Arlene. Aleutian ilousing Authority. 27 October 1981. Pelto, William. Division of Budget and Management, Office of the Governor. 29 January 1982. Rhodes, James. Alaska Permanent Fund Corporation, Junequ. 19 October 1981. Smith, James. First Federal Savings and Loan, 17 December 1981. Strasbaugh, Kathleen. Attorney, Alaska Legal Services. 1 and 7 Decem- ber 1981. Stietz; Lucille. National Bank of Alaska. 15 December 1981. Sullivan, Robert. Alaska Mutual Savings Bank. 18 December 1981. Swanson, David.. Alaska Department of Labor. 12 October 1981. Terrell, Laurie. Coalition for Economie Justice. 16 December 1981. Toll, Cyrus. Office of Indian Housing, U.S. Department of Housing and Urban Development, Washington, D.C. 20 January 1982. U.S. Department of Housing and Urban Development, Anchorage. E. Allen Robinson; Donna Czech, 14 December 1981; Marlene F. Boberick, 2 December 1981; Charles Leo, 17 November 1981; Miller Lutton, 19 October 1981; Eldon Young, 3 December 1981. Other Sources Alaska Credit Union League, Anchorage. American Council of Life Insurance Companies, New York City. Bureau of Indian Affairs, Washington, D.C. Federal Home Loan Bank of Seattle. Federal, Home Loan Bank Board, Washington, D.C. Federal Home Loan Mortgage Corporation, Washington, D.C. Federal National Mortgage Association, Los Angeles . . Mortgage Insurance Companies of America, Anchorage. 294