Affordable Housing No Longer So Affordable

Affordable housing may be the latest victim of the credit crunch as many projects are being canceled thanks to banks scaling back their support in the government’s largest and most prolific affordable housing tax-credit program. Large banks and other insitutions that finance these projects are without profits in 2007 and thereofre have very little need for any tax credits to offset taxes. In fact, the operating losses now can be carried forward and hurt future years as well.

The low income housing tax-credit program was created in 1986 to encourage the construction of more than a million below market rate apartments. It is considered to be one of the most successful federal housing programs, which allows developers to recieve between 30% and 65% of a project’s cost back in the form of tax credits in exchange for keeping rents within the reach of residents who earn below 60% of an area’s median income.

Interesting, Fannie and Freddie along with a numbre of other banks are either not in the market or reassessing their situation. This lack of equity has caused a ripple effect across the marketplace, meaning it’s not even a matter or price that’s holding things back. Nobody wants to invest in these projects any longer- there’s a lack of liquidity. Many now estimate that as much as 40% of the equity in what was an $8 billion market has disappeared in the past six months.

This is clearly a problem that needs to be addressed.

Popularity: 19% [?]