CY PLAN 113B Lecture Notes - Lecture 10: Transit-Oriented Development, Loan Guarantee, Tax Credit
Couit Deelopet Fiae II February 8,
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• Strategy 1: CRA is one strategy for unlocking private capital (normally, income stream is too low for
investments)
• Strategy 2: reduce the level of risk for the investor (in CD, this is primarily banks) with loan guarantees
o Loan guarantee programs: reduce the risk for the lender so that the bank can offer the loans
at a lower interest rate (project can sustain the mortgage on the loan)
▪ FHA
▪ SBA small business loan guarantee program
o Shares the risk of default with the lender
▪ 100% guarantee is a bad idea because the lender has no incentive to underwrite
loans properly, so it is good to find the right balance
▪ Guarantor has to show that it has to reserves to make good on the guarantee –
generally a government led function
• Missio die leades soeties eate a loss esee pool to see as a
guarantee
▪ Key function of CDFIs is reducing risk by pooling bank funds (diversification) and
doig the due diligee (ie: getting multiple banks to contribute funds, so just in
case it goes bad, there is less to lose)
• Allos the to offe loas o othe fiaial poduts he aks a’t,
often at a lower interest rate
• Transit oriented affordable housing fund
o Housing values tends to rise as they get closer to transit areas
o Goal: build affordable housing in order to access the transit oriented development
o Foundations provide grant capital and help to create a loss guarantee for banks that
contribute to the fund
o Funds are affected by the surrounding market conditions
o Very clear outline of who will lose what when there are multiple banks involved; but there is
a motivation to keep these buildings running or else it will lead to the displacement of low
income people
• Strategy 3: provide a financial incentive – tax credits
o Tax credits
▪ Iestos ith a ta liailit a u edits that offset thei ta ill, losig the
funding gap by providing a tax benefit
▪ Low Income Housing Tax Credit (LIHTC): funds affordable housing
• Every state in the US gets a LIHTC allocation based on per capital instead of
housing needs
• Money goes to the state, but in CA it goes to the TCAC (CA tax credit
allocation committee)
• State develops a Qualified Allocation Plan that lays out a system of points
that incentives certain aspects of affordable housing development (gives
points to developers (ie: give more points if you build an affordable housing
project that is located near transit – access to jobs and lower GHG emissions;
has a medical clinic/other services on site))
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