Industry News

"Credit Crunch Stalls Affordable-Homes Effort"
"Cantwell Aims to Increase Access to Safe, Affordable Housing for Washington, American Families"
"OCC Program Focuses on Low-Income Housing Tax Credit Program"
"Land Information Systems Are Transforming Community Development, New Lincoln Institute Report Says"
"Budget Boosts Project-Based Sec. 8, Reduces CDBG Funds"
"HUD Funds Seed $107M Affordable Development"
"City's Housing Efforts Hit by Downturn"
"Commissioners Support Tax Credits for Housing Projects"
"Is the Mayor's Housing Plan on Track?"
"Woodbury Finds Secret to Success of Affordable Housing"
"Milwaukee Focus of Affordable-Housing Frenzy"
"Market Crunch Threatens N.O. Affordable Housing Efforts"

"Credit Crunch Stalls Affordable-Homes Effort"
Wall Street Journal (03/12/08) P. B1; Frangos, Alex

The low-income housing tax-credit program was established 22 years ago and, having financed the construction of more than a million below-market rate apartments, is considered one of the most successful federal housing programs. 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 under the program have had a very low default rate. 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." Elizabeth Hersch, executive director of the Housing Alliance of Pennsylvania, says this situation has developed just as the slack economy and foreclosure crisis dumps people into the low end of the rental market. "The tax-credit program has been the one production program that has increased supply at the low end." In recent years, investors would pay upward of 95 cents per dollar of tax credit, in some cases even paying above par value. Now credits are being priced as low as 79 cents per dollar of credit. When Fannie Mae and Freddie Mac pulled back from the market last year, the moves sent prices tumbling and created a situation where some projects are having trouble attracting investors at all. Congress has started to tackle the issue, with the House Ways and Means Committee considering a bill that would change the governing legislation and could unleash supplemental resources.
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U.S. Sen. Maria Cantwell (D-Wash.) has introduced the Affordable Housing Investment Act, which seeks to update and modernize the low-income housing tax credit with the goal of increasing the supply of affordable housing units in the country. In a statement to the Congressional Record, the legislator noted that the low-income housing tax credit program has helped create nearly 2 million homes since it was established, including about 130,000 annually for low-income families who receive restricted rents for at least 30 years. However, she declared, the program would be even more successful if it were modernized along the lines of her bill. "First, it eliminates the penalties for combining housing credits with other federal housing programs," Cantwell stated. "Second, the bill helps foster low-income community revitalization by facilitating the inclusion of child care, primary health care, recreation and other community service facilities in these projects and aiding with the specific needs for housing in rural areas." Cantwell additionally argued that the measure also preserves existing affordable housing by making it easier to rehabilitate aging properties and eliminates unnecessary inefficiencies in the tax laws. The bill, introduced on Feb. 26, has been endorsed by the National Council of State Housing Agencies, the Affordable Housing Tax Credit Coalition, the Housing Development Consortium, Local Initiatives Support Corporation and Impact Capital, the National Association of State and Local Equity Funds, the Seattle Housing Authority and the Washington State Housing Finance Commission.
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On Feb. 7, the Office of the Comptroller of the Currency (OCC) released a Community Developments Insights report that explains how the Low-Income Housing Tax Credit (LIHTC) initiative is utilized to create affordable rental housing and the primary considerations that bank investors that invest in the credits encounter. The report details the basics of LIHTCs with a special concentration on areas of interest to community bankers that have just started using this product. The report studies the leading risks and regulatory issues connected with investments in individual plans financed by LIHTCs and investments in funds covering numerous projects. In addition, the report describes how these investments would be regarded in a bank's Community Reinvestment Act investigation. National banks usually make LIHTC investments under the "Part 24" community development investment authority. During the last 10 years, the nation's banks have invested more than $15 billion in affordable housing initiatives via this community development investment authority.
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The latest Policy Focus Report, titled "Transforming Community Development with Land Information Systems," has been published by the Lincoln Institute think tank. Authored by Sarah Treuhaft and G. Thomas Kingsley, the report includes a synopsis of how parcel data systems and recent advanced applications have had a positive impact on community development efforts. It also contains case studies from such markets as Chicago, Cleveland, and Philadelphia that illustrate the use of new technology in facilitating revitalization, improving vacant lots, building on affordable housing programs, heading off foreclosures, or integrating neighborhood efforts into a larger regional framework. For instance, community groups in Chicago used Internet-based GIS tools to support planning for transit-oriented development and to target resources with parcel data so that low-income households could better maintain their homes. A Cleveland-based task force, meanwhile, used data on loan transactions to take action against property flippers; and, in the District of Columbia, an enhanced parcel data system was used to manage affordable properties and preserve Section 8 housing. Additionally, the Pennsylvania Horticultural Society used a parcel data system to rehabilitate 150 acres of vacant lots into public parks and urban greenspace. Rosalind Greenstein, senior fellow and chair of the Department of Economic and Community Development at the Lincoln Institute, states, "There is vast potential in the use of technology in community development. Using geographic information systems and Web services truly facilitates the work of planning, developing and nurturing vibrant neighborhoods that meet the needs of today's residents."
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President Bush has sent a $38.5 billion fiscal 2009 Department of Housing and Urban Development (HUD) budget to Congress that includes a large hike in financing for project-based Section 8 aid and a comparable reduction in community development. The total financing is about $1 billion more than the fiscal 2008 amount, excluding a $3 billion supplemental Community Development Block Grant (CDBG) appropriation to facilitate Louisiana's hurricane-recovery initiatives. The Bush administration wants $7 billion for project-based Sec. 8, compared with $6.38 billion appropriated in 2008, as well as a $400 million advance appropriation for fiscal 2010. HUD says this funding should be enough to renew all contracts into 2010. CDBG finding would be reduced from $3.87 billion to $3 billion, with formula CDBG lowered from $3.59 billion to $2.93 billion. In addition, the budget would rescind $206 million appropriated during the current fiscal year for financial development initiative and neighborhood initiative grants. The budget offers $11.88 billion in new fiscal 2009 financing for tenant-based Sec. 8 aid, bringing the overall program amount for the year to $16.03 billion since an advance appropriation of $4.16 billion is available as well. Tenant-based money for calendar 2009 would be founded on public housing groups' financing eligibility for this year.
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A $20 million HOPE VI grant from the U.S. Department of Housing and Urban Development has moved Washington, D.C., a step closer to building a mixed-income development of 336 units, including 70 stacked townhouse units, 110 family townhouses, 56 manor homes, and a 100-unit family and senior apartment. The new development will replace a 183-unit public housing complex. The total cost of the project is $107 million; and funding will also come from the city, low-income housing tax credits, and the private sector, including most from the development team led by William C. Smith Cos. "These grants have been a great tool in helping turn around some of our most challenged communities," said Mayor Adrian Fenty. "They have been transformative in a lot of our neighborhoods." Washington has completed two projects and has four more in the development stage, including a phased project that will offer 1,400 units of affordable housing.
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Chicago's Department of Housing says the residential property downturn and soaring construction costs are making it difficult for the city to meet its five-year affordable housing goals. The agency planned to shell out $537 million to build, preserve, or renovate 12,309 housing units last year; but it ended up spending more than $661 million on more than 10,000 units. Officials note that affordable housing projects typically are financed by selling low-income housing tax credits, but the price of these tax credits has fallen due to the housing and credit crises. Meanwhile, the Chicago Housing Authority's Plan for Transformation also has been impacted by the housing slump. The initiative aims to relocate public housing residents to mixed-income communities and private market housing during the next seven years, but officials say developers are reporting lackluster sales.
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On Feb. 27, the Wyandotte County, Kan., Unified Board of Commissioners agreed to allow three developers to pursue affordable housing tax credits that could generate investments totaling as much as $16.3 million for the community. Intended to help out with rental projects for low- and moderate-income tenants, the housing tax credits are a federally sanctioned resource that enables developers to mitigate the risk of building such projects. The U.S. government distributes the tax credits every year to states, which then awards them to individual projects. Kansas mandates that every tax-credit application include a support resolution from the area government entity. Constructed on empty lots, 20 rent-to-own single-family houses worth $4.5 million are being erected in Wyandotte County; they would be rented for 15 years before tenants would have an opportunity to buy them. Part of the rent would be used for creating equity in the houses. The board also approved tax-credit applications for a $4.3 million age-limited apartment project and a $7.5 million rehabilitation of another complex.
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New York City Mayor Michael Bloomberg pledged in 2006 to build or preserve 165,000 affordable housing units by 2013, revised from a 2003 pledge of building 65,000 units in five years. Of the 165,000 units, 92,000 would involve new construction and 73,000 would involve preservation through Section 8 or another government program or through low-interest or forgivable rehabilitation loans. According to a report from the city's Independent Budget Office, 39 percent of the 165,000 were financed from 2003 to 2007. The report reveals that the city Department of Housing Preservation and Development has enough money in its capital budget to finance the preservation of most of the 73,000 units targeted. However, generating the funds to build 41,000 new units for low- and moderate-income households and 26,000 new units for middle-income households by 2013 could be difficult. While there are concerns about the impact of the credit crisis on affordable housing development, HousingFirst! coordinator David Muchnick says a proposed national housing trust fund and a state plan to establish a $400 million state housing opportunity fund could help.
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"Stealth affordability" has enabled Woodbury, Minn., to continue to boost its stock of affordable housing with little protest from neighbors who are concerned about an increase in crime or a decline in the value of their own property. Throughout the Twin Cities suburb, Woodbury scatters affordable units that blend into its neighborhoods. "We do not want them to be distinguished as 'affordable' when you drive down the street," says Janelle Schmitz, the city's planning and economic development manager. The 41-unit affordable-housing complex Sienna Ridge opened in February, and it brings Woodbury's affordable housing supply to about 1,800 homes and 120 rental units, which accounts for about 20 percent of all homes built in the town since 1996. Woodbury has already surpassed its commitment, under the guidelines of the Metropolitan Council's Livable Communities program, to add about 1,500 owner-occupied units and 200 rental units by 2011. Schmitz says many people mistake Section 8 housing for affordable housing, which Woodbury hopes to offer to young and working-class families in the town. Most of the units are ordinary homes that sell below a certain price (less than $206,000 in 2007), but many units are also Habitat for Humanity homes and town houses built using a federal tax credit program to reduce rent.
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In Wisconsin, there remains a statewide demand for housing subsidized by the Wisconsin Housing and Economic Development Authority (WHEDA). Many developers are focusing their efforts in this regard on Milwaukee. Of the 59 applications for Low Income Housing Tax Credits received by WHEDA this year, 26 were for Milwaukee-based projects. WHEDA Executive Director Antonio Riley concedes that Gov. Jim Doyle ordered him to place more emphasis on Milwaukee when he took office five years ago. However, he is quick to point out that the scoring program for the tax-credit applications is unbiased and helps ensure that a hot Milwaukee market will not have any discernible impact on funds for the rest of the state. He states, "You strike that balance by maintaining the integrity of your process." Developer Jim Errigo says there is plenty of opportunity elsewhere in the state, as well. "Affordable housing is really an economic development tool," he notes. "As communities add jobs that are paying $10 to $12 an hour--maybe even lower than that--in order to find workers for those jobs they need housing."
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In the wake of Hurricanes Katrina and Rita, Congress created an additional $168 million in tax credits to encourage the development of 27,000 affordable and mixed-income housing units in Louisiana. All projects involving Gulf Opportunity tax credits must be ready for occupancy by the end of 2010. Since the storms, however, rents for the poor have failed to increase as fast as the cost of construction, utilities, and insurance. These costs are typically offset by developers by selling tax credits to investors, but demand for tax credits has declined due to the subprime mortgage crunch and reduced consumer spending. Some developers are seeking extra tax credits from the Louisiana Housing Finance Agency as well as funds from the Community Development Block Grant program. But much of the $1.5 billion block grant money set aside for work-force housing has already been committed, says Wil Jacobs, housing policy director at the Louisiana Recovery Authority. In 2007, tax credits that sold for 95 cents to $1 each are now selling in the range of 80 cents to 85 cents each, potentially reducing developers' equity by 10 percent to 15 percent. In response, state lawmaker have started lobbying for an extension in the 2010 deadline for projects' completion, and federal lawmakers are working to pass the Affordable Housing Investment Act of 2008 and similar legislation. Ghebre Selassie Mehreteab, chief executive at the National Housing Partnership's NHP Foundation, started a fundraising effort that involved the Louisiana Disaster Recovery Foundation, the Ford Foundation, the John D. and Catherine T. MacArthur Foundation, NeighborWorks America, the Qatar Katrina Relief Fund, and the Bush-Clinton Katrina Fund
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