Editor's note: This is the second of a three-part series exploring possible solutions to increase affordable housing in Northwest Arkansas.
Trust funds could provide a pot of money for developers and residents to use to alleviate housing costs, but they need an ongoing, dedicated source of money.
A housing trust fund can be used to subsidize the cost of construction, renovate dilapidated homes or assist with deposits, but no city in Arkansas has created one.
Home costs and rental rates are exceeding the growth of household incomes in Northwest Arkansas, according to the 2019 Our Housing Future report from the Walton Family Foundation. The report outlines a number of strategies to tackle the affordability issue.
One of the recommendations is establishing a regional housing trust fund. A housing trust fund would provide grants developers could use to lower construction costs, and those savings are passed on to prospective homeowners or tenants.
[LISTEN: Three solutions to housing affordability in Northwest Arkansas]
Private corporations could help start the fund, but an ongoing source of money such as tax increases or developer fees would be necessary to sustain the fund, the report says.
There are more than 600 city housing trust funds in 36 states, according to the Housing Trust Fund Project created by the Center for Community Change, a national advocacy group in Portland, Ore. In 2018, housing trust fund revenue generated by cities exceeded $1 billion, according to the center.
If there's a will
Cities serving as home to major corporations, such as in Northwest Arkansas, cannot rely on private dollars to solve public issues, said Michael Anderson with the Center for Community Change. The problem with relying on private money to launch a housing trust fund is the dollar amounts are usually a one-time gift, he said.
"Really, I think the conversation gets serious about a housing trust fund once you talk about ongoing, dedicated, public revenue," Anderson said.
Arkansas has a state housing trust fund, but it doesn't have any money in it. The Legislature created the fund in 2009. In 2013, it put $500,000 into the fund, which was used for projects in Fort Smith, Harrison and Little Rock, according to Housing Arkansas, a statewide advocacy group.
In Fort Smith, $250,000 went toward construction of Riverview Hope Campus. In Little Rock, $230,000 was used to help renovate substandard homes. In Harrison, $20,000 was used for a utility and rental deposit loan fund.
The fund has stayed depleted since.
The public and political will to address affordable housing is the first step listed in the 2019 Walton Family Foundation housing report. The report includes a section on how to create a regional housing trust fund.
The next steps are finding money, and then an organization to administer the trust.
Overseeing a housing trust fund would fall in line with the mission of the workforce housing center of the Northwest Arkansas Council, said Duke McLarty, the center's executive director. The center was established in 2021 and is trying to figure out what that would look like, he said.
The 2019 housing report says private and philanthropic groups are well-positioned to help create a housing trust fund. A financial commitment from the private and philanthropic sectors could encourage municipalities to join in, the report says.
McLarty agreed public money would have to come into the picture to make a housing trust fund feasible. Public investment also would create a sense of buy-in among the community to help solve the housing affordability crisis, he said.
The most common sources of money for housing trust funds are developer fees, property taxes and the general funds of cities, which get their money largely from sales taxes, according to the Walton Family Foundation report.
Raising taxes is a hard sell in Arkansas, McLarty said.
Adding up the numbers
If a city were to create a housing trust fund on its own, it would need to be careful about how quickly the money is spent, McLarty said. Construction costs alone take up a significant portion of a project's overall budget, in addition to the cost of land, he said.
"Even with relatively large sums of money, it goes real quick," McLarty said. "When you're looking at unit production in the $150,000 to $170,000 range, you could burn a $50 million fund in just a handful of projects."
Although there's no money in the state's housing trust fund, about $4 million is awarded annually from the National Housing Trust Fund to developers to build housing for extremely low-income families. However, more than 100,000 households in the state are considered extremely low-income, so the money doesn't go very far, according to the National Low-Income Housing Coalition. Maximum income for a four-person family to be considered extremely low-income is $26,500.
If the Legislature were to put money into the state's housing trust fund, the money would help with renovation, repair and creation of projects, said Derrick Rose, spokesman for the Arkansas Development Finance Authority. Money could be applied to rental and owner-occupied housing throughout the state, he said.
Projects would have to serve households earning less than 80% median family income. For the Fayetteville-Springdale-Rogers metropolitan area, median income is $92,400, according to the U.S. Department of Housing and Urban Development. Eighty percent of that for a family of four is $70,900.
New construction projects would have to remain affordable for 20 years, or 15 years for a renovation project, Rose said. All housing projects would have to follow the authority's design, building and maintenance standards. No more than 10% of a project's budget could go toward administrative costs, he said.
How to create a regional housing trust fund
FIRST STEPS
• Identify potential private and philanthropic funders and solicit commitments to seed the trust.
• Connect the regional housing trust fund to the development and implementation of a Northwest Arkansas regional housing compact.
• Select a housing trust fund administrator.
COLLABORATIVE TASKS
Public sector:
• Help establish and endorse the regional housing trust fund.
• Create a dedicated local source of funding to support it.
Private sector:
• Support the fund by pledging annual financial contributions.
Philanthropic sector:
• Make financial contributions to the fund.
• Provide capacity building for the housing trust fund administrator.
Source: Our Housing Future, 2019 report from the Walton Family Foundation