January 28, 2013
As we discuss paying for local government with property taxes, sales taxes, fees, penalties, income taxes, capital gain taxes, etc. etc. and on and on, I decided to look into the cost of housing assistance. I went to the Memphis Housing Authority site and found a document on eligibility as shown below.
- You are 18 or over; AND
- Your family earns less than 50% of the Area Median Income, ($28,650 a year), AND
- You have lived in Shelby County for at least one year, AND
- You want to rent an apartment within Shelby County, AND
- You are a United States Citizen OR an eligible immigrant, AND
- Your household’s members are all citizens or eligible immigrants, which includes permanent residents and lawful temporary residents.
I then decided to ask for financial statements on a local public housing site, University Place on Lamar near Crump Blvd. This was the site of the old Lamar Terrace. I have attached three financial documents about the three phases of the development, University Place Southeast, University Place II and University Place III. Now I am an engineer by education and vocation so I do not claim to be an expert in real estate. However I have friends who are and this is their general take on this development.
According to them it appears to be a fairly standard deal with private owners, in it for big front-end fees (typical of the program; probably no abuses out of the ordinary) and tax stuff (credits etc)…and with MHA taking a big part of the risk, having to pay to keep them in the black.
They say the operating costs are out of sight! They also found the construction costs to be really high (as expected) – $130K per unit, probably 15% more than the market, and on a presumably much smaller unit, so the per square foot costs are even relatively higher – they would probably have been reasonably in line had not the deal been so loaded with the various government-permitted-encouraged fees. Hard to tell what they actually were – imbedded in capital costs – but no doubt they were big. While a market-rate apartment might spend about 43% of its revenues on operating expenses (the so-called operating ratio), this property for 2011 spent 74.6%! In analyzing, a few things stood out:
a) market rate properties pay around 27% for real estate taxes and insurance while University Place paid 7% – presumably only insurance, since they don’t pay market rate real estate taxes – so they have a BIG “head start” going in.
Despite that advantage over market-rate properties,
b) their payroll expenses are a huge 47.7% vs. about 29% for a market rate property.
c) Utilities were 18% at U Place vs 14% for market properties – worse than it appears, since the U Place (mostly elderly?) units are presumably much smaller than the average market property, which should have brought them in lower, not higher, than market.
The above comments are from experienced private sector real estate people and they may or may not be totally accurate.
I went on to look at just the obvious rental rate subsidies and found that looking at the three documents the rental revenue less the rental income actually paid by the residents showed an annual subsidy of $2.2 million. Add to that the tax credits earned by the various contractors and you see the heavy hand of government and that you the taxpayers are paying the tab.
Many will argue that we must help people to have decent housing and I do not disagree. However the question becomes is this the most efficient and lowest cost way to do the job? Tell me what you think.