Economy: Affordable Housing Faces New Hurdles

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SAN RAFAEL, CA - The nation's credit crunch has substantially boosted the cost of building affordable housing in Marin County, and two initiatives on the June 3 ballot would make matters much worse, says the executive director of the San Rafael-based Ecumenical Association for Housing. As EAH celebrates its 40th anniversary, it faces daunting new challenges, said Mary Murtagh, who has served as the nonprofit organization's executive director since 1986. "It's an appalling disaster," Murtagh said of the credit fiasco. "It really represents an inexcusable failure on the part of the government to do its job in regulating lending in the United States."

Due to the slowdown in the economy, demand for tax credits, which affordable housing developers sell to finance the lion's share of their project costs, has plummeted. Large corporations have lost so much money because of the subprime mortgage crisis and declines in consumer spending that they don't need to buy as many credits to reduce their tax bills. Murtagh said the effect has been "huge." "We're always really strapped to come up with every nickel with these projects," she said.

The market for tax credits sank in February when Fannie Mae and Freddie Mac, entities that are two of the largest purchasers of housing tax credits, announced they would reduce or stop purchasing the credits due to their write-offs of bad loans. The move wrecked a plan EAH had to finance its 24-unit project at Drake's Way in Larkspur. The association was able to find an alternative buyer, Union Bank, for the credits. "We quickly agreed on a price with them that was much closer to our projection and that allowed our project to proceed," said Andy Blauvelt, an EAH project manager.

As if the slumping demand for tax credits weren't bad enough, Propositions 98 and 99 threaten the ability of local governments to generate funds for affordable housing by creating redevelopment districts, Murtagh said. Both initiatives would bar state and local governments from using eminent domain to acquire property from owners who refuse to sell. Use of eminent domain is sometimes required to form redevelopment districts, Murtagh said. Once a district is formed, governments issue bonds that are secured by the estimated increase in property taxes that will be collected once the property is improved.

EAH, which celebrated its 40-year anniversary with a dinner Friday at the Corinthian Yacht Club in Tiburon has developed or purchased 37 affordable housing properties in Marin with 1,336 units of housing and another 38 affordable properties outside of Marin. On average, about 40 percent of its funding for these projects came from federal tax credits. EAH secured the financing for its 79-unit project at San Clemente Place in Corte Madera before the credit crisis hit. At that time, tax credits were a hot commodity selling for $1.05 per dollar of tax credit. Today, the credits are selling for 90 cents per dollar of credit, 15 percent less. If EAH were financing the $33 million San Clemente Place project today, it would be $2 million short, Murtagh said.

Next to tax credits, money from redevelopment agencies is EAH's most reliable source of funding, Murtagh said. Passage of either Proposition 98 or 99, however, could also scotch that. Proposition 98 would also prohibit rent control. "By severely restricting the activities of California redevelopment agencies, they will decimate the single largest nonfederal source of affordable housing funding in the state," Blauvelt said.

Murtagh sees no silver lining to the economic downturn for affordable housing developers even though land prices have fallen and building costs are expected to drop due to a slowdown in new construction in the United States.High commodity prices for building materials and a federal requirement that
Source: MarinIJ.com

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