WASHINGTON, DC - US Representative Barney Frank said yesterday he wants the government to spend $10 billion to jump-start the stalled development of affordable rental housing nationwide, including 31 projects in Massachusetts that can't move forward because of a lack of funds. Frank is proposing that the US Treasury buy $5 billion in low-income housing tax credits, a key source of funding for affordable housing, and provide states with another $5 billion they can spend on hundreds of stalled projects.
"We have some projects ready to go, and there is nobody to buy the tax credits," Frank said yesterday. "We are pushing both of these" proposals, he said. Frank intends to include a provision for $10 billion in spending in the economic stimulus bill Congress is expected to take up next month. The 22-year-old Low Income Housing Tax Credit program is considered the nation's most important financial resource for affordable housing. Developers, particularly nonprofit housing agencies, are awarded the tax credits, which reduce taxable income by a certain amount, then sell them to investors and banks and use the proceeds to finance construction.
But the financial crisis that swept Wall Street this year hit this market hard. Prices for tax credits plunged, meaning agencies were raising much less money than they had expected from their sale - if they could sell them at all. Housing advocates say there are many projects that can't even sell their credits, as buyers have fled the market. With the kinds of losses banks and investors have suffered in 2008, few have any need to buy tax credits to offset profits.
So advocacy groups have been lobbying lawmakers to have the government step in. "I'm very heartened to hear there is a plan to try to get the money flowing as quickly as possible," said Richard Thal, director of the Jamaica Plain Neighborhood Development Corporation, which has three projects that are stuck because of the tax-credit problem. "Everybody knows what a desperate need there is for this housing. We've been ready to go. Until we can get that infusion of money, we can't go forward."
As recently as last year, tax credits were selling at around par - that is, $1 in tax reduction cost about $1. Now, prices have dropped below 80 cents for a $1 in tax reduction. This month, the Massachusetts Housing Partnership released a report that showed demand for the tax credits had fallen 60 percent.
Two of the largest buyers, government-sponsored mortgage buyers Fannie Mae and Freddie Mac, bought roughly 40 percent of all tax credits in 2006 and 2007, but are not buying any now. "In the past year we lost about half of our investor base," said Ronne Thielen, president of the Affordable Housing Tax Credit Coalition. "We've been struggling throughout the year to figure out what to do, and bring more corporate investors in."
Thielen and others argue the federal funds would stimulate the economy through construction of housing. The National Housing Partnership Network says there are 230 projects "shovel ready," with a combined 2,100 units that could go into construction if the federal government provides additional help. Among the projects in Massachusetts is the proposed 150-unit Shillman House in Framingham, sponsored by the Boston-based Jewish Community Housing for the Elderly.
"The investors aren't there because the losses that they are suffering preclude them from being interested in tax credits," said Allan Isbitz, vice president for real estate development for the Jewish housing group. "We were ready to find a buyer at the end of last year when the tax-credit market started to turn down."
The Massachusetts Housing Partnership reported that for the first time in the program's history, there will be a substantial pool of unused credits - just as the government prepares to release its next round of scheduled tax credits.
The report for the partnership, written by Recapitalization Advisors, said the lack of buyers will push prices down, to as low as 60 cents for every $1 in tax reduction. "Fewer pipeline properties will get done in the new reality," the report said. Frank said the Treasury could buy the credits and hold them until the market improves and then resell them to recoup its money. He said the government also could send money to states to help developers with funds they need to get projects moving.
The executive director of Citizens Housing and Planning Association, Aaron Gornstein, said advocates are hoping that through Frank's leadership much-needed projects can get moving. "It's the number one affordable housing issue across the country," Gornstein said. "There's been increased demand for affordable rental housing due to the downturn in the economy and the foreclosure crisis. This program is critical to helping to meet that need, and has been over the past 20 years."
Source: Boston.com