Losses Stall Affordable-Housing Projects

[question everything]

The Wall Street Journal

Losses Stall Affordable-Housing Projects
By ALEX FRANGOS
March 12, 2008; Page B1

Affordable housing is the latest victim of the credit crunch that is reverberating through financial markets. Projects are being canceled because some of the nation's largest financial companies, including Fannie Mae, Freddie Mac and Bank of America, have scaled back their participation in the federal government's largest and most prolific affordable housing tax-credit program, designed to boost construction of below-market-rent apartments.

Carlisle Development Group, a developer that manages 6,000 government-subsidized units in Florida, recently shelved the first phase of a $100 million project it was planning in Miami with the local YMCA. It would have provided 355 affordable housing units. The housing authority in Pueblo, Colo., delayed a 25-unit project for senior citizens this week. Developers report similar tales around the country. Reeling from losses in the housing and credit markets, U.S. financial giants are without profits that need shielding from taxes and therefore don't need tax credits. With few buyers, the value of tax credits has declined sharply, leaving a funding gap for developers.

The low-income housing tax-credit program was created in 1986 and has financed the construction of more than a million below-market rate apartments. It is considered one of the most successful federal housing programs that melds aspects of government subsidy with free-market enterprise. Both for-profit and nonprofit developers receive between 30% and 65% of a project's cost via tax credits in return for agreeing to keep rents within reach of residents who earn below 60% of an area's median income. Projects serve the homeless and mentally ill, as well as low-income professionals. The rent restrictions last from 15 to 40 years. Projects under the program have had a very low default rate.

The credits are allocated to states based on population and are distributed to developers by state housing finance agencies. The developers sell the credits to middlemen called syndicators, who in turn sell the credits to investors. Most investors are typically financial institutions looking to shield profit from taxes and to comply with federal requirements to invest in communities that banks had shunned in the past. "Fannie and Freddie and a number of the major banks are either not in the market or are reassessing" how much they will invest, says Richard Richman, founder of the Richman Group, a tax-credit syndicator and developer of low-income housing. He says the lack of equity has "caused a shock to the marketplace. Now it's not even a matter of the pricing. It's even the availability of equity."

(snip)

New Orleans, which received a special allocation of credits following Hurricane Katrina, will be particularly hard-hit by the drop in the value of credits. High construction costs and relatively low rents already made it difficult for tax-credit-driven developments to pencil out. Now that the tax credits are worth less, deals are even harder to accomplish. NHP Foundation, a Washington, D.C., nonprofit developer recently received a $1 million grant from a state-chartered organization in Louisiana to fill the gap on two projects in New Orleans. "What New Orleans was counting on was that the credits would be highly sought," and have high value, says Ghebre Mehreteab, NHP's chief executive. With values of the credits having dropped, "the only way to meet that gap is through other sources," he says. Congress has already begun to tackle the issue. The House Ways and Means Committee is considering a bill that would change the governing legislation and could unleash supplemental resources.


URL for this article:
http://online.wsj.com/article/SB120528204216228891.html (subscription)

[Arctic Dave]

1. Great

So now your options will be McMansion or homelessness.

[bobbolink]

2. Actually, I HOPE that's the choice.

Then maybe some who are now oblivious to homelessness would wake up.

:(