Dallas Officials Say Federally Funded Housing Programs Are Too Challenging For Developers

Dallas City Council members last month reviewed a pair of development programs used to spur affordable mixed-income housing throughout the city in the hopes that City Council will authorize changes to make the initiatives more developer-friendly. 

The programs are complicated and the funds are restricted by the U.S. Department of Housing and Urban Development guidelines. One council member said it appears that Dallas offers huge incentives for developers and homebuyers on few projects that quickly scoop up the federal funds. 

Assistant Housing Director Darwin Wade reviewed the Single Family Home Ownership Development Program and the Land Transfer Program at a Housing and Homeless Solutions Committee meeting Nov. 14. 

The challenges are many, and if Dallas removes the subsidy it currently offers developers and homebuyers, it’s essentially saying low-income residents aren’t wanted in Dallas, said Builders of Hope president and CEO James Armstrong. 

The city receives about $16 million annually from HUD, which is split among various programs. About $10 million is administered through the Community Development Block Grant and $6 million through the HOME Investment Partnership Program. 

An example of the restrictive nature of HUD funds: CDBG money can’t be used for new construction so it has to go toward acquisition and infrastructure. 

Dallas Department of Housing and Neighborhood Revitalization officials are expected to bring a resolution before the council in March that would address the programs in Dallas Housing Policy 2033. 

Developer Programs and Incentives

Dallas began in 2020 issuing a “Notice of Funding Availability,” or NOFA, which allows the development community to access gap financing through a repayable loan to support the acquisition, development, and rehabilitation of affordable mixed-income rental and for-sale housing, Wade said. 

The Single Family Home Ownership Development Program provides funding to for-profit developers, nonprofit developers, and certified community housing development organizations (CHDOs). 

Additionally, the Land Transfer Program incentivizes the development of quality sustainable housing through vacant surplus and tax-foreclosed land owned by the city. 

“The land can be sold to for-profit and nonprofit developers and our religious organizations below fair market value resulting in the development of housing units for [low-to-moderate-income] households as well as other uses such as commercial,” Wade said. 

Developer Challenges

Operational challenges abound, Wade explained, using an example in which the city awards a developer an $880,000 subsidy in the form of a repayable loan to construct 20 homes, equating to about $44,000 per home. 

“The developers have informed us about the current market conditions such as increased construction costs over the last three years, rising interest rates, inflation, and lot development costs — all factors that have created undue hardships on their bottom line and their performance whereby it is not financially feasible to construct single-family developments for families at the 60 to 80 percent [area median income] range,” Wade said. “Moreover, once you couple these challenges with an additional repayment that’s required with a repayable loan to the city each time the home is sold, it makes it increasingly difficult, if not practically impossible, to make the deal pencil.”

To complicate matters further, the Land Transfer Program’s resale provisions conflict with the Dallas Homebuyer Assistance Program deed restrictions due to the amount of direct subsidy provided to the buyer.

“HUD does not allow both resale and recapture on the same property,” Wade said. “That’s an issue for us. That’s another challenge for us.” 

One option, pending council approval in March, is for the City Council to authorize staff to release the developer’s deed restriction. 

“We need something in our policy and right now it’s silent on that issue,” Wade said. “That would fix us and that would provide relief to the developer community as well as those homebuyers that are pretty much in limbo right now.” 

Council Feedback on U.S. Housing and Urban Development Restrictions

Councilman Chad West suggested that maybe the HUD funds could be pushed through the least restrictive and fastest federal program rather than being split among many options. 

“Whatever is going to make it the most fluid to build the most affordable housing for us to get on the market, I fully support,” he said. 

Councilwoman Cara Mendelsohn questioned how much the city is giving away in the name of affordable housing. In 2023, DHAP funded a total of 33 homebuyers, 15 of whom were under the Land Transfer Program. Fifteen percent of the federal funds have to be used for CHDOs, so there’s not an opportunity to “do things in a radically different way with that 15 percent,” Mendelsohn said.  

Wade reiterated that developers say the burden has increased on their bottom line and their performance to repay $44,000 each time a home is sold. 

“I’m not looking to hear from the developer about their woes,” Mendelsohn said. “What I’m trying to understand is … are you saying we would give the developer the $1,000 lot, we would then do the DHAP for $50,000 or $60,000, and then we would forgo being reimbursed?”

Wade said he was trying to provide an example scenario and solicit feedback. 

“Of course, the developers will still have to purchase the lot through the Land Transfer Program,” he said. “In this example, the $44,000 is repayable. We’ve just heard no information from our developer community that is a barrier for them. And that if council would like, we could make this a forgivable loan if that’s an option or that’s the will of the Council, as an update to the Single Family Development Program.”

Mendelsohn clarified that three pots of funding were being layered for one home. 

“We would essentially be buying people homes and giving them away,” she said. “So what you’re really proposing, the way I’m hearing it, is we should be putting even more resources into a few people as opposed to receiving this and developing more and more housing.”

The councilwoman added that she’s “very much in favor” of using federal pass-through dollars to do what they were intended to do. 

“But helping as many people as possible seems like a good idea,” she said. “These are not small amounts that we’re talking about. I mean $44,000 here, $50,000 there. I mean, this is a whole lot of money for a single homeowner. So I have a lot of reservations about making the changes that you’re proposing here.”

Armstrong, representing Builders of Hope, said the program allows homeownership for individuals who have been priced out of the market. 

“I won’t waste time talking about my woes, but what I will say is … the $50,000 that goes through DHAP doesn’t come to the developer,” he said. “It increases the affordability for someone who may work at a local hospital or as an administrative assistant. We are not building shoddy homes. These are homes that have to be subsidized for our current workforce. Essentially, if we don’t allow the $44,000 to sit as a subsidy on the home, what we’re saying is that homeownership for 60 to 80 percent of AMI is not we’re not welcome in the city of Dallas.”