DES MOINES, IA - The national credit crisis is shrinking the market for tax credits, key to financing affordable housing, and threatening projects in Iowa, officials say. Here's why: The investors who bought the tax credits in the past, many large banks and finance companies like Freddie Mac and Fannie Mae, are posting losses from failing subprime mortgages and no longer need credits to reduce their federal tax liability.
That means less money or possibly no funding for some tax-credit housing projects, especially developments in rural Iowa or those with niche markets like renters with disabilities. "The money just isn't out there," said Sam Erickson, vice president of Community Housing Initiatives, a group that develops affordable housing projects across Iowa. "We've had to get creative to close the gaps." Her group has looked at other funding sources such as historic tax credits.
Carla Pope, who leads Iowa Finance Authority's affordable housing efforts, said developers are getting about 80 cents for each tax credit dollar, an amount that has fallen from 90 cents or more a few months ago. Pope fears the return could drop to 70 cents. On a project with $1 million in tax credits, which are provided over 10 years, it could mean the difference between $700,000 and $900,000 in financing.
For the first time, the state agency plans to make additional credits - about $3 million over 10 years - available to developers, fearing some projects may not continue without additional assistance. In March, the state awarded 19 projects tax credits valued at $63 million over a decade. Over the past two decades, the tax credits have helped create 18,477 units of affordable housing, the state says.
Jay Trevor of J&T Development in Chicago said two $15 million affordable housing projects in downtown Des Moines have been on hold for about six months because of the difficulty in finding tax credit investors. The company plans to develop about 120 apartments in the L&L Insulation and Rumley buildings, both near the Science Center of Iowa. Trevor said he hopes construction work will begin later this summer. "It's a market that blindsided everyone," said Trevor. "We're working through it and expect to get rolling again."
Pope said tax-credit investors still in the market want the safest bets. That means investors look first to "extremely large apartment complexes in high population areas" - or projects on the East and West coasts, where high housing costs mean greater demand for affordable apartments.
Jack Hatch, a state senator who's building a $6.2 million affordable apartment project on High Street in Des Moines, said developers are scrambling to find additional financing. He said he was lucky to sell his credits before prices dropped. "It's tough right now," he said, adding that lower interest rates can help developers who are experiencing cuts in tax-credit financing.
Jim Conlin, president of Des Moines-based Conlin Properties, said negotiations are under way on the sale of tax credits for four affordable-housing projects. Conlin said he's confident the developments - near or under construction - will see a good return. "The credit crisis has hit everyone - from the top to the bottom. But we've been doing this for 12 years and showed consistent returns. We're in a good position," he said.
Source: Des Moines Register