To generate funds for the Housing Trust Fund, CD-MAC will use a variety of earned income strategies consisting of development, employer, and real estate partnerships.

Described below are three strategies CD-MAC will use to generate funds for its Housing Trust Fund and to generate funds to support its operations.

• Bonus Density Initiative
• Employer Initiative
• Developer and Non-Profit Lending

Bonus Density Initiative

The goal of the Bonus Density Initiative is to generate money for the CD-MAC Housing Trust Fund so that CD-MAC can assist families in the community in purchasing homes and to minimize the impact new housing development will have on a community.

How It Works

The program works as follows:

• A developer identifies a piece of land in a community for development and brings that piece of land through the development process;

• The community grants the developer increased density ("bonus density") on the property allowing the developer to construct more homes on the site;

• The developer contributes an agreed upon dollar amount for each unit in the development to the CD-MAC Housing Trust Fund;

• CD-MAC uses the money from the Housing Trust Fund to provide downpayment assistance loans to qualified member families from the community for use in purchasing homes in the community.

Assume that the land area is 10 acres, the cost of the land is $500,000 per acre ($5,000,000 total cost for the 10 acres), and that the allowable density is eight units per acre. The developer could build a total of 80 units with a land cost of $62,500 per unit.

If the developer were granted a 25% increase in density (the "bonus density"), the developer could build 10 units per acre, for a total of 100 units, with a land cost of $50,000 per unit.

The developer will donate the difference in land cost per unit (the increase in value as a result of the increased density) to the CD-MAC Housing Trust Fund, $1,250,000 or $12,500 per unit in this example.

From this $1,250,000 contribution, CD-MAC would take a 4% fee ($50,000) which would be used to support operations, leaving $1,200,000 available for the downpayment assistance. Typically, these funds would be used to provide downpayment assistance to many different families purchasing a variety of property types. Table 6 presents an example of the number of families that could be assisted using the funds generated as a result of the bonus density.

Empty Nester and Retirement Housing

The CD-MAC Bonus Density Initiative can be used with a variety of housing development programs including traditional suburban single family home development, cluster and planned unit development, and intercity development and redevelopment. One area where this initiative could prove very effective is the development of empty nester and retirement housing.

As America's baby boom population retires, the demand for empty nester and retirement housing is expected to grow rapidly, supported by the retirement of three million baby boomers a year.

Empty nester and retirement housing traditionally has a lower impact on a community than many other types of housing. Empty nester housing increases the tax base in a community, yet has a minimal impact on schools and does not generate a significant volume of workers commuting to distant jobs.

By using the Bonus Density Initiative with empty nester and retirement housing, a community is able to increase its tax base, create housing that has a minimal impact on schools, services, and traffic, and generate a pool of housing subsidy funds that can be used to assist existing community residents in purchasing homes.

Advantages of the Bonus Density Initiative

The Bonus Density Initiative is advantageous to developers, to the community, and to the families receiving downpayment assistance.

The Bonus Density Initiative using the CD-MAC Housing Trust Fund is more effective than a traditional inclusionary zoning program in creating homeownership opportunities for families who live and work in the community. A typical inclusionary zoning program grants a 30% bonus density and requires that 20% of the units be affordable. The CD-MAC Bonus Density Initiative is more effective than a typical inclusionary zoning program. Under the CD-MAC Bonus Density Initiative, a community is able to assist the same number of families as under inclusionary zoning, but is able to so by providing the developer a smaller density bonus than it would under inclusionary zoning.

The downpayment assistance funds contributed to the CD-MAC Housing Trust Fund would be available to assist families sooner than they would be under inclusionary zoning. The developer contributions to the Housing Trust Fund are made as the building sites are approved, rather than waiting for home construction to be completed.

The use of downpayment assistance funds from the CD-MAC Housing Trust Fund overcomes one of the major objections to traditional housing assistance programs, objections from the neighbors to affordable housing being created in their backyards. Families receiving downpayment assistance are able to shop for and purchase a home anywhere in the designated community, such as near their place of work, near their family's social activities, or near public transportation. Outside of the participants in the transaction, no one is aware that a family has received assistance in purchasing a home.

Additionally, the developer's donation of funds to CD-MAC's Housing Trust Fund, or a land owners donation of property to CD-MAC, may result charitable donation tax benefits to the developer or land owner.

Program Implementation

To implement the Bonus Density Initiative, CD-MAC will partner or joint venture with private developers and utilize consultants to identify land and bring the land through the development process. CD-MAC will work with identified communities to implement the Bonus Density Initiative as a more effective alternative to inclusionary zoning.

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Employer Initiative

In addition to using the Bonus Density Initiative as a source of funds for the Housing Trust Fund, CD-MAC will work with local employers to create housing assistance programs for their member employees.

The employer will make a contribution to the housing fund earmarked for housing assistance for their employees. The employees will pay the membership fee, join the CD-MAC waiting list for housing assistance, and as sufficient funds become available in the housing fund, will be eligible to receive downpayment assistance for the purchase of a home.

In addition, the Employer Initiative may also be structured so that both the employer and employee make contributions to the housing fund. For instance, an employer could make a contribution of two dollars per employee per week, and participating employees could also make a two dollar per week contribution to housing fund.

Tables 7 and 8 present examples of the Employer Initiative with a four dollar per week, and ten dollar per week contribution.

The Employer Initiative will also be available to unions for the benefit of their members. The union will make a contribution to the housing fund, the union members will join CD-MAC, and as sufficient funds become available, they will be eligible to receive downpayment assistance for a home purchase.

CD-MAC anticipates working with employers and unions to implement the Employer Initiative.

Developer and Non-Profit Lending

In addition to using the money in the Housing Trust Fund to provide downpayment assistance loans, CD-MAC may use a portion of the money in the housing fund to make loans to private and non-profit developers to support their development of affordable housing in designated communities.

It is anticipated that CD-MAC's loans to private and non-profit developers would provide financing in areas where commercial lenders and state housing finance agencies do not lend (the so called financing gaps).

Examples of anticipated affordable housing lending activities include:

• Land acquisition financing;
• Pre-development loans;
• Rehabilitation loans;
• Low-income housing tax credit gap financing;
• Developer financing secured by developer's fees and property equity interests.

CD-MAC will charge market interest rates on loans to private and non-profit developers. The spread between the interest rate the borrower pays and CD-MAC's cost of funds (if any) will be earned income for the organization and will be used to pay for the costs of making the loans and other costs of operating the organization.

CD-MAC uses experienced real estate lending staff or consultants to assist in underwriting and managing its loans to private and non-profit developers.