By Thomas P. Deyo, director, Real Estate Programs, NeighborWorks America and Frances Ferguson, senior manager, Real Estate Programs, NeighborWorks America
The development of affordable rental housing has always been difficult, but the past few years have been especially challenging for developers as the tools—mainly the Low Income Housing Tax Credit—that they’ve relied on the past 25 years or more have begun to show their age and not kept up with market realities.
What’s needed is a new way of thinking for additional financing of affordable rental housing that mirrors the private sector development market; one that creates stronger nonprofit developers, while not abandoning the mission focused reason that nonprofit developers exist: to create and sustain affordable rental housing for those most in need.
The LIHTC, the “golden ticket” for financing most of the affordable rental housing stock in the U.S. over the past few decades, has become less valuable and available as the biggest investors in the credit have largely pulled out of the market.
While a few market areas are seeing a resurgence of tax credit investors, the problems that started in 2008 with less demand and lower LIHTC prices are expected to continue in 2011 in many markets.
This situation forces developers to scramble to fill their project financing gaps either by reducing development fees (which weaken already thinly capitalized developers) and pursuing increasingly complicated, time consuming, and inefficient and more expensive multilayered financing packages or by simply not developing the affordable rental housing that their communities need.
The latter is of grave concern as affordable housing remains a present need as economies weaken and more people need housing within their means.
Continue reading this article, What's Next for Financing Affordable Rental Housing?