Industry News

"LIHTC Investors Weigh Year Ahead"
"House Passes Bill Simplifying Transfer of Ownership of Affordable Housing"
"Middle-Income Households Still Struggle With Affordable Housing"
"MBA Applauds HUD Decision to Hold MIP Steady"
"Affordable Housing Can Have Verve, Value"
"Tax Credit Market Losses Challenge Low-Income Housing Providers"
"The Spread of TODs"
"Homes Still Too Costly, Despite Slump: Study"
"In the Green"
"Rep. on Housing Program: 'People Are Crying for Help'"
"Oregon Housing Council Pushes for Affordable Housing"
"Tax Breaks Spurs Developer Interest in Neglected Lot"
"New Review Process for Developers Seeking State Finance"
"Forum Seeks Solutions to Housing Crunch"

"LIHTC Investors Weigh Year Ahead"
Affordable Housing Finance (01/08) Kimura, Donna

If the country's major low-income housing tax credit (LIHTC) investors are pushed out of the market, developers could face steep declines in home prices and may be less inclined to offer affordable options to consumers. Experts predict the largest investor, Fannie Mae, will cease or significantly reduce such investments this year, with other big-name investors like Freddie Mac and Bank of America expected to follow suit. Though large contributors may be pulling out, many believe the slowing economy will result in fewer requests for tax credits and the absence of the top three investors will have little impact. "Less competition for credits given a stable supply should mean a better environment for investors," says Managing Director Jim Mendelson of tax credit investor GE Real Estate, adding that a continual drop in interest rates would have the opposite effect and reduce profits. Other housing advisors are similarly optimistic tax credit investors will not feel much of a pinch; unlike many other industries, tax credits remain popular despite rises and falls in pricing, and the market could easily be revived if a drop in developer interest occurs.
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The U.S. House of Representatives has passed a bill that changes the Agriculture Department's process for transferring Section 515 rural multifamily housing projects from one owner to another. Under the bill, unprocessed applications for transfer of ownership would be sent to the Department of Agriculture's Rural Housing Service if the department's state-level rural development offices failed to take action on them after a certain period of time. The bill also establishes guidelines that the Housing Service must follow when intervening in the processing of applications, and requires the Agriculture Department to work with the Internal Revenue Service on property transfers. Finally, the bill requires a review of the Agriculture Department's procedure for rural housing projects involving low-income housing tax credits.
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A new joint report by Moody's Economy.com and Homes for Working Families examines the lowest of the Case-Shiller home price index's three tiers of pricing to determine how declines in residential values are affecting affordability for households earning 60 percent to 120 percent of an area's median income. Moody's Economy.com housing economics director Celia Chen says property prices are not moving down enough to close the affordability gap for middle-income households. According to Chen, "Hit harder by price increases during the housing boom, it will be harder for middle-income households to make up this lost ground during the bust. Further, given the fragile conditions in credit markets, home buyers face the added barrier of stricter qualifying standards when trying to finance a home purchase." The study ranked 40 markets by affordability, with numbers below 100 indicating that those earning the median income cannot afford a median-priced home in the area. San Francisco was the most expensive market, with an index reading of 37.7. Also in the top 20 least affordable markets were San Diego, Miami, Seattle, New York, Fort Lauderdale, and Boston.
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The Mortgage Bankers Association (MBA) has praised HUD for its decision to rescind a notice published in October 2007 that would have increased the mortgage insurance premiums (MIPs) on a number of multifamily housing programs--including affordable housing communities. A recent MBA survey looked at programs affected by the proposed MIP increase. Researchers found that a whopping 98 percent of the properties had average rents affordable to households earning 80 percent or less of each given area's median family income. MBA Chairman Kieran Quinn stated, "After the administration proposed the fee increase in its [fiscal year] 2008 budget, 117 Members of the House and 38 Senators signed letters to HUD opposing the premium increase. HUD listened to those concerns, as well as the 229 letters submitted by the industry stating FHA is a vital financing mechanism, particularly in the current volatile credit markets."
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Architects are starting to view public housing projects as another opportunity to pursue innovative design work. Internationally known Helmut Jahn, for instance, designed a 96-unit building in Chicago that has a long, narrow shape, curved roof and glass-and-steel exterior, and resembles a train. The single-room-occupancy building opened in March, and most residents pay less than $160 a month in rent. Quality of design has become more of a concern for private developers and local agencies today, as affordable homes are being included in residential communities that offer middle-class and luxury homes. HUD is spending less on low-income housing these days, and many communities are embracing inclusionary zoning as a way to ensure that units are also made available for households of modest means. Affordable housing is often funded from a mix of private and public sources, with governments providing subsidies to reduce rents and purchase prices to below market rate. Many public housing agencies hold design competitions for architects.
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Developers that construct homes for low-income residents are facing obstacles in financing their projects. In recent years, leading investors like Fannie Mae and Freddie Mac have reduced their use of the tax shelters created by the credit program. This caused the credits to attract lower prices in the investment market, equivalent to a 5 cent reduction per every $1 tax credit sold. In Minnesota, the average bid declined from 95 cents to 90 cents, says Kasey Kier, a tax credit allocation manager at Minnesota Housing. To compensate, developers are downsizing their projects or focusing more on residents with somewhat higher incomes. The industry is also concerned about large national banks like Citibank that comprise the second largest group of tax credit investors. In 2007, however, the U.S. House of Representatives endorsed a proposal to create and fund an affordable housing trust fund. If created, the trust fund would provide $6 million to $10 million in yearly in proceeds for Minnesota, says Chip Halbach, executive director of the Minnesota Housing Partnership. In comparison, the state would receive about $90 million in equity for new developments from the 2008 tax credit allocations.
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Communities, developers and consumers are increasingly focusing on transit-oriented developments (TODs). The aim is to enable more workers to find affordable homes near their city-based employers. Today's higher gasoline prices and long commutes have prompted many individuals to move closer to cities or use public transportation. People are now focusing on creating TODs "through subsides, changes in zoning, and other initiatives," says Tara Mizrahi, vice president at Affirmative Investments, an affordable housing development firm in Boston. Chapter 40R, a law enacted in Massachusetts in 2004, provides financial incentives for communities that create a "smart growing zoning district." At least 20 percent of the housing must be affordable for workers in such districts. Chapter 40S requires that a community be reimbursed for any net education costs resulting from new 40R developments. The benefits of new zoning and new commercial development often include greater tax revenues, infrastructure improvements required of developers, and environmental advantages from the increased use of public transportation.
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According to a study commissioned by the Center for Housing Policy, the cost of owning a home is still elusive for a number of working groups. Nurses, retail salespersons, customer service representatives, food preparation workers, and office clerks are the five highest-growth occupations in the United States; yet people in these fields earn less than the annual median income needed for homeownership in the 201 urban regions surveyed. "We hear a lot about the 'information economy,' but the fact is most working families are still employed in traditional service occupations," notes Jeffrey Lubell, executive director of the center. "In many metro areas, these families continue to face home prices and rents that are beyond their means." While areas such as California and Washington, D.C., have become slightly more affordable, the cost of owning homes in such markets is still out of reach for many working individuals. Barbara Lipman, the center's research director, says the solution for providing more affordable housing is to construct or convert more homes that can serve this demographic.
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More and more cities and states are looking at affordable-housing that is also environmentally friendly and sustainable. To this end, a variety of incentives and mandates have been created, such as a law in San Francisco requiring all municipally supported low-income housing developments to adhere to certain "green" practices. At the state level, the Low Income Housing Tax Credit (LIHTC) is available. The $5 billion annual federal program funds nearly all new and overhauled rental properties for low-income households. Increasingly, state housing finance agencies are urging or requiring developers to use sustainable building standards to gain tax credit funds. Approximately 36 state agencies have incorporated green regulations into their LIHTC programs. Minnesota, Maine, and Washington now mandate that virtually all projects that receive state fund comply with green standards. Such policies are "basically forcing the industry to change faster than it would have naturally," observes Madeline Fraser Cook, vice president of New Ecology Inc.
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U.S. Rep. Kathy Castor (D-Tampa) is confident the U.S. Senate will reauthorize the HOPE VI program later this year and is urging residents of her district to encourage their Washington representative, Sens. Mel Martinez and Bill Nelson, to vote for the program. Addressing a small group at Bradenton Village on Jan. 24, she touted the townhouse community with a 97-percent occupation rate as a success of the federal program. The community with 350 colorful homes was built in the late 1990s to replace Rogers Garden, a crime-ridden public housing project, with hopes of revitalizing the area. In a recent 271-130 vote, the House approved spending up to $800 million a year on HOPE VI through 2015. Extending HOPE VI will enable demolitions of public-housing units, and replacing them with an equal number of mixed-income units, to continue. The reauthorization legislation is critical for affordable housing efforts nationwide as well as locally, according to Bradenton Housing Authority executive director Wenston DeSue. Bradenton would be able to revitalize other areas through HOPE VI, said DeSue. The housing authority received some good news on Jan. 23, when the city council approved a land swap--which will be used for additional affordable housing in Bradenton Village.
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The Oregon State Housing Council has recommended a $4 million increase in the Oregon Affordable Housing Tax Credit (OAHTC) to help preserve more low-cost units across the state. Based on the proposed increase, OAHTC would have a multiplier-value of about $100 million for loans to preserve Section 8 subsidized-rental-housing projects. Last year, the state legislature raised the cap by $2 million to $13 million, which helped keep 1,600 Section 8 units from moving to the regular housing market at market-rate rents. The council hopes an increase to $17 million will help preserve the 1,848 Section 8 units with contracts that expire in 2008. "The Legislature has a profound opportunity to leverage substantial value for its investment," according to State Housing Council member Scott Cooper of Prineville. "The need for basic housing in Oregon is critical. This statewide program touching some 40 Oregon communities helps folks who earn in the range of $17,000 to $21,000 each year. These very-low income Oregonians need this program."
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A vacant lot in Seattle on 17th Avenue South and South Jackson Street was once an urban renewal site, but the federal designation expired and was not renewed. Private investors shied away from the spot until a nonprofit developer invested $22.4 billion to create a mixed-use building with 59 apartments along with retail and office space with parking. Washington Mutual, which issued the $8.3 million loan and $4.87 million equity investment in the property's development, garnered a $6 million tax break under the federal New Markets Tax Credit. The credit aims to spur investors to spruce up low-income neighborhoods; and a 2007 Government Accountability Office report notes a shift in investments from funds to community projects among businesses, and bank investments in these projects also rose. It appears that once one investor and developer take the initiative to revitalize a low-income neighborhood, others will follow, which is what happened in the Central Area where the vacant lot is being developed. Additional investors and developers, including Legacy Partners, are pouring in $90 million in additional investments. The apartments in the mixed-use building will be priced for residents earning up to 80 percent below the King County median income. Enterprise Community Investment Inc. Director in Structured Finance John Ducey says, "The value of the New Markets Tax Credit is based on a project's potential for attracting more investment, as well as the initial private investment. [It is] one of the most important community-development tools that we have to build low-income neighborhoods." He called the credit a cousin of the 1986 low-income housing tax credit.
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New York State's Housing Finance Agency (HFA) and Division of Housing and Community Renewal (DHCR) have established an application and reviewing procedure for housing builders interested in getting financial aid from the state. Under the measure, builders will be able to employ one application when applying for HFA funding and DHCR subsidies for one project. Both agencies will also share responsibility for studying applications in order to facilitate the decision-making procedure. The new application, currently available at the DHCR Web site, can be printed from that location and presented in hard copy to the two agencies. An electronic version of the application, which will enable developers to file one application online, is being created and will be available by March 1.
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Local government officials, housing organizations, and representatives from federal agencies discussed Ulster County, New York's affordable housing problems at a Jan.24 forum convened on the campus of SUNY New Paltz. Affordable housing projects in the surrounding community have waiting lists as long as three years, and over 50 percent of renters in the county spend greater than 30 percent of their income on rent. Although there are several projects in development for senior citizens, local officials called for a focus on affordable units suitable for families. A representative from the Department of Housing and Urban Development discussed federal aid that is available for multifamily housing. One program focused on family housing offered $237 million in grants this year alone. Other organizations represented at the forum included the Department of Agriculture's Rural Development division, the Federal Housing Administration, and the Federal Home Loan Bank of New York. Rep. Maurice Hinchey (D-Hurley), who sponsored the summit, said that while funding for projects is available, the community needs to be more receptive to affordable housing in their areas.
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