Housing advocates say $25M bond will boost economy

Government debt has taken a beating on the campaign trail this election season, but supporters of a $25 million state housing bond up for voter approval in November say it’s actually a great time for Rhode Island to borrow money.
With interest rates at record lows while consumer demand remains flat, Rhode Island builders, affordable-housing advocates and officials describe the proposed borrowing as not only sound social policy but a needed economic stimulus.
“We are trying to revitalize the economy and construction of housing is a way to stimulate an economy,” said Nellie Gorbea, executive director of HousingWorks RI, a nonprofit affordable-housing proponent. “Affordable housing is part of infrastructure and you have a long-term benefit if people working in clerical and hospitality are able to afford homes on their wages.”
General Treasurer Gina M. Raimondo said the low cost of capital and enthusiasm for Rhode Island debt displayed by investors when the state refinanced $122 million this summer is a great case for infrastructure spending.
“Obviously we have historic lows on interest rates and borrowing costs, so it is a good opportunity for Rhode Island to access the credit market to get capital and invest,” Raimondo said in a phone interview. “Infrastructure lends itself well to bonding and Rhode Island needs good infrastructure to get out of the economic doldrums.”
The $25 million housing bond, appearing on the ballot as Question 7, is the latest in a series of state borrowing measures to fund affordable-housing investments.
The last housing bond, approved in 2006, borrowed $50 million for projects in fiscal years 2007 through 2010. The current bond would cover two years at the same annual value of $12.5 million.
Traditionally Rhode Island has borrowed to fund public functions, such as highway repair, that many states pay for out of direct appropriations to avoid debt service.
This winter, ending the state’s longstanding practice of borrowing to match federal transportation aid was a highlighted facet of the budgets proposed by Gov. Lincoln D. Chafee and passed by the General Assembly. But supporters of the housing bond, many of whom would welcome a direct appropriation for affordable housing, draw a distinction between borrowing for maintenance or operational expenses and doing it for capital investments.
Although below-market-rate apartments and houses don’t fall into the conventional definition of public infrastructure, like bridges or sewers, Gorbea and supporters say they are similar.
“It is not that you are building a home for just one year, it will be deed-restricted affordable for 30 years,” Gorbea said. “It has to have a useful life beyond the life of the bonds.”
According to Brett Smiley, campaign manager for “Yes on 7,” the debt service on the 20-year housing bond is estimated at $3 million each year.
In addition to low interest rates in general, Raimondo argues that Rhode Island is now in a better position to finance a housing investment than it was in previous years because of a better fiscal position due to, among other things, the pension-system overhaul passed last fall.
“I believe one of the big reasons we did pension reform was to fix the fundamentals and improve access to the bond market,” Raimondo said. “These are the kinds of investments in infrastructure that have a very long time horizon. Right now I am very supportive of doing this affordable-housing initiative to put people to work on affordable housing and get people in affordable homes.”
For the Ocean State’s beleaguered residential construction industry, continued state spending is necessary to maintain the depressed level of work for the building trades since the real estate bubble burst.
According to HousingWorks RI, 60 percent of the estimated dollar value of residential construction permitted in the state between 2007 and 2010 involved projects supported by Building Homes Rhode Island, the program funded by the bond. “It will not create a substantial amount of jobs and activity, but it will maintain the level of production, which without it will be that much worse,” said Robert Baldwin, president of the Rhode Island Builder’s Association. “We have been at historical lows and this keeps us hanging on.”
The degree to which the Rhode Island construction market relies on state spending is an issue that shows no sign of changing and no obvious solution.
Baldwin blames the high cost, long time frame and heavy burden of permitting and land-use regulations in the state for holding back construction.
“Virtually to a fault, every city and town is anti-growth,” Baldwin said. “Try to put in a project and see how many units you are going to get. Once you get units approved, then you have a byzantine permitting process.”
The projects funded by the housing bond have not been determined but are expected to include a similar mix of deed-restricted apartments and houses as the last bond, which funded projects such as Crossroads Rhode Island’s Kingstown Crossings in North Kingstown, Blackstone Valley Gateways in Pawtucket and Sandywoods Farm in Tiverton.
Between 2007 and 2010, Building Homes Rhode Island funds supported projects that built or renovated 1,255 affordable units, including 1,002 rentals and 253 for sale.
In its 2012 Housing Fact Book, HousingWorks RI reports that declining home prices have brought the cost of buying a home slightly closer to affordability for the average resident, but only slightly. In six communities, a household earning the state’s median household income could afford a median-price, single-family home there in 2011, up from five in 2010. West Warwick was the town added to the list.
But rents have remained virtually flat from 2010 to 2011, according to HousingWorks, and one-quarter of the state’s residents spend more than half their income on housing. •

No posts to display