April 20, 2007
Leverage : The Key to Understanding the Success of the One Penny
Entering into its third fiscal year, the Penny for Affordable Housing Fund has proven to be a successful and effective tool for preserving affordable housing units for a wide variety of Fairfax County families. The Penny Fund was adopted by the Board of Supervisors with the intent of serving a range of incomes—the very low income (50% of the Area Median Income {AMI} and below) and low income (60% of the AMI), to workforce housing (up to 100% of the AMI) and first-time homebuyers (120% of the AMI). The Penny Fund has successfully achieved this mission.

A key to the Penny Fund’s success is the county’s ability to leverage the funds. Out of the 1,364 units preserved to date under the Board’s Affordable Housing Preservation Initiative, 966 units were preserved in transactions that included the Penny Fund. From inception of the Penny Fund, the guidelines adopted by the Board have called for leveraging Penny Fund investments by a ratio of at least 3:1 (three non-county dollars for every one county dollar expended); in FY 2006, the average leveraging of Penny Fund investments was 4.26:1.

A recent report by a local advocacy group, the Coalition for Smarter Growth, which analyzed the use of the Penny Fund and the county’s affordable housing preservation efforts, challenges the approach of reporting units preserved by the Penny Fund on a leveraged basis. However, the value of the leveraging potential of the Penny Fund is far too critical to the preservation of affordable housing to not be considered when measuring the success of the Penny Fund. Leveraging county money with other funding sources maximizes and stretches county dollars enabling preservation of additional units.

The Coalition’s report also finds that those making 50% of AMI or below is the greatest need for affordable housing in the county. While this is an accurate assessment, there still remains a great need for affordable housing for households across the income spectrum. When considering who can and cannot afford housing in Fairfax County, the report takes into account only those households already housed in Fairfax County and does not consider the households who live outside of the county, many commuting from as far away as West Virginia or Pennsylvania.

According to Professor John McClain of the George Mason University Center for Regional Analysis, "the Coalition's report is correct in noting that the greatest need is at 50 percent AMI and below. However, the large increases in the prices of housing in the past five years have caused that need spread to incomes higher than 50 percent. Because of the increases in the ownership housing market since 2000, many current homeowners in the county could not afford to buy the house they currently live in, and this situation faces many middle income newcomers taking jobs in the county. Therefore, the county should explore expanding its policy focus to meet the needs of the increasing workforce for the jobs being created now and anticipated future job growth. Currently, the rental market is affordable for households earning the median income and above, but the dire condition of the ownership market in the county is putting increasing pressure on the rental market, and will cause significant rent increases in the coming years. The changes the region has experienced in the housing market in the past few years have transformed a difficult housing affordability problem into a virtual crisis.”

One of the jewels in the crown of the Preservation Initiative has been Fairfax County’s acquisition of the 180-unit Crescent Apartments in the Hunter Mill District. The Crescent was part of the nearly $2.3 billion real estate portfolio placed on the market last fall by The Mark Winkler Company. The Crescent, an affordable property adjacent to the Lake Anne revitalization area, was at risk for conversion to condominiums like many other complexes sold in the past few years. The agreement between Fairfax County and The Mark Winkler Company, in partnership with the Fairfax County Redevelopment and Housing Authority, preserved the large apartment complex which sits on 16.49 valuable acres of prime real estate in Reston. The county went through a highly competitive bidding process to secure the property and worked closely with officials from The Mark Winkler Company to close the deal. The Mark Winkler Company singled out Fairfax County as the only successful bidder on an individual property. The rest of the residential portfolio was sold to a single bidder, JBG Investment Fund V, L.L.C.

The preservation of affordable housing is often a highly complex financial undertaking, involving a variety of funding sources, each with their own particular requirements and limitations. One of the most complex transactions completed under the Affordable Housing Preservation Initiative was the acquisition and preservation of the Madison Ridge Apartments, the first project to use the Penny Fund. Madison Ridge is a 216-unit development in the Sully District. Purchased by Wesley Housing, a local non-profit affordable housing developer, it was financed using a combination of funds including an acquisition from Wachovia Back, permanent financing from the Virginia Housing Development Authority (VHDA), a loan from the National Housing Partnership Network, the Fairfax County Housing Trust Fund and the Penny Fund. The county’s investment totaled $8.6 million, which included $2.5 million from the Penny Fund. The Penny Funds were used as mezzanine financing for the property. Under that financing the entire property was counted as preserved as affordable housing. Instead of paying back the bridge loan to Fairfax County, Wesley Housing transferred ownership of ten units for very low income households (50% AMI and below) to the Fairfax County Redevelopment and Housing Authority. Wesley also made a commitment to keep rents on the 98 rental units as affordable to those with low income (60% AMI) for 30 years and a commitment to sell the remaining units as condominiums at below market prices and control any resales to a below market price for two-years. Several of these condominiums have been purchased by low and moderate income first-time homebuyers who were on the FCRHA waiting list.

Looking ahead to Fiscal Year 2008 and beyond, the Penny Fund is expected to leverage additional funds to create even more affordable housing opportunities for current and future residents of Fairfax County.