Resources: Novo’s Tax Credit Tuesday

For anyone working with tax credits, the Novogradac podcast “Tax Credit Tuesday” are a useful way to learn about Federal and state initiatives in the tax credit sphere. I’ve always subscribed via iTunes, so I had no idea there was a PDF transcript available.

In this week’s podcast, Novo reports on Rep. Frank’s “TARP for Main Street” proposal, which would direct $1B of dividends from banks that received TARP funding to the Affordable Housing Trust Fund, established last year in the Housing and Economic Recovery Act.

Also covered is a letter from the Affordable Housing Tax Credit Coalition expressing concern about the potential sale of tax credits held by Fannie and Freddie. The AHTCC, providing Congress with a short lesson in supply and demand, is concerned that the sale of tax credits on the secondary market will further depress prices that currently languish between $0.68-0.78 per $1 of tax credit. Instead of selling the credits, AHTCC advocates for the Treasury to accept GSE-held LIHTC as part of the dividend payments owed. Alternatively, AHTCC suggests that credits be sold to LIHTC investors who have been inactive for 10+ years and that the GSEs should immediately reinvest those proceeds back into LIHTC.

Atlanta Housing completing demolition and redevelopment

Last week the NYT noted that the Atlanta Housing Authority was nearly done demolishing its 32 largest communities totaling nearly 15,000 units.

The article presents a quick summary of pro and con positions and mentions a series of articles from Creative Loafing Atlanta, an alternative weekly that has provided more detail on Atlanta’s particular efforts.

Writes the Times:

The elimination of housing projects does not mean the abandonment of public housing. The Atlanta Housing Authority pays for more residents’ housing these days than it did in the 1990s. But they are scattered throughout the city in mixed-income communities and private housing financed with vouchers through the government’s Section 8 program.

Still, critics of the demolitions worry about the toll on residents, who must qualify for vouchers, struggle to find affordable housing and often move to only slightly less impoverished neighborhoods. Especially in a troubled economy, civil rights groups say, uprooting can lead to homelessness if more low-income housing is not made available. Lawsuits have been filed in many other cities, generally without success, that claim that similar relocations violate residents’ civil rights and resegregate the poor.

As always, David Smith, in “End of an Error, Pt. 1″ has both the background on Atlanta and places the demolition in context. In his introductory entry (David’s thoughts ran to 3 parts) he divides housing assistance between place-based (build it and they’ll come) and people-based (pay them and they’ll go).

Atlanta has clearly made the choice to reduce the concentration of poverty by largely eliminating the ownership of housing by the AHA and providing residents with vouchers to assist them in acquiring the housing on their own.

Mentioned in the article is research conducted by Thomas Boston, professor of economics at Georgia Tech. Boston is the author of a case study of mixed-income revitalization in Atlanta. The study (link above to the working paper), was peer reviewed for the Journal of the American Planning Association and studied 2,700 families (1,200 that relocated and 1,400 that did not) from Atlanta public housing communities during a 7 year period and found:

Families who moved from public housing projects to vouchers were 1.5 times more likely to be employed in the long term than were those who remained in projects. Families who moved to mixed-income communities were about 2.1 times more likely to be employed in the long-run than those who remained in projects.

Creative Loafing collected a few of the articles written about the AHA and troubles with the Atlanta affordable housing market. I submitted a few comments in the collector piece, to the extent that well run PHAs were essential to working well with private sector owners. The benefit to an owner of taking voucher holders is that a substantial portion of the rent can be relied upon each month, that lease violations (behavior problems, non-applicant residents, housekeeping standards, etc.) can be enforced by both property management and the voucher-issuing entity. Cooperation, however, requires a PHA that is responsive to residents and owners, provides clear guidelines for enforcement and inspections, and delivers the types of follow-up assistance and counseling needed to bring greater financial stability to voucher holders.

I’ve got some additional thoughts on funding sources in a future post.

Why do we need to broaden affordable housing funding sources?

Because you get things like this 44-unit 1992 LIHTC property that loses $25,000 per year with no hard debt.

Housingpolicy.org, an initiative of the Center for Housing Policy is doing yeoman’s work in spurring ongoing conversations amongst professionals in affordable house. At their nascent forums, Ed Kaminski shares his frustration with the deal above, and its inability to make financial sense.

[Pennsylvania's] low rent levels do speed up the intersection of operating expense with operating income. We even avoid hard debt on tax credit deals whenever possible because at some point, costs will exceed income. This is certainly true in hindsite with taxes, utilities, insurance and maintenance all rising at a greater rent than rents.

We are being offered – free of charge – a 17 year old 44 unit tax credit property that losses $25,000 per year. It has no hard debt payments, but soft debt exceeds the appraised value. [We] have come to the conclusion that the only way to preserve this is to find a source that will subsidize operations. We are willing to enter into a 15 year restrictive use agreement in exchange for a 15 year commitment of $25,000 per year.

That is $568 per unit per year ($8520 per unit for 15 years) and a total of $375,000 of subsidy for 15 years. Producing 44 new units will cost $6-8,000,000 or more.

The ability of a State Housing Agency to exchange tax credits for cash does nothing if the money goes simply to the construction of affordable housing and not to its operations. Financial stability, much less sustainability, will not occur until states and more importantly, counties, become more serious about providing and supporting affordable housing.

LIHTC cannot solve this problem.

Direct HUD subsidies, HOPE VI, vouchers, all are powerless to solve the long term danger to affordable housing: incomes (and thereby rents) do not rise in concert with expenses.