90-Degree Turn: Stimulus Package Redirects Housing Efforts to Affordable rentals

By Eugene Gilligan, Multifamily Editor, Commercial Property NewsThe American Recovery and Reinvestment Act of 2009 is now law and on task to kick-start the moribund U.S. economy, including a re-dedication by the federal government to developing and rehabilitating affordable housing.This sharper focus comes at an opportune time, given investors and developers’ difficulty finding financing in today’s capital-constrained environment. Not to mention state and city budget shortfalls and dropping revenues among some related federal programs.The George W. Bush and, to some degree, Bill Clinton administrations turned their attention to increasing home ownership among poor and middle-class residents more than to developing and refurbishing affordable multifamily stock. “The Bush administration was very hands off (on affordable housing),” says Phoenix Realty Group managing director Ron Orgel. He concedes that the lack of attention also owed partially to a homebuilding boom that many assumed would serve constituencies in the low- and moderate-income brackets.But the Obama Administration is clearly embarking on a new path, having telegraphed its intentions early, pre-inauguration, through the appointment of Shaun Donovan as Secretary for Housing and Urban Development. Donovan previously served as head of New York City’s Department of Housing Preservation and Development, spearheading a $7.5 billion plan to build or rehabilitate 165,000 units of affordable housing. The department recently announced that it has completed half those units. The government has backed up Donovan’s federal appointment with cash, devoting $13.6 billion of the $800 billion stimulus package to HUD. States, localities, owners and developers will bid on $3.6 billion, and the department has already allocated the remaining $10 billion based on a predetermined formula.For example, the states will collectively receive $2.3 billion through the Tax Credit Assistance Program. State housing agencies will distribute the funds, giving priority to shovel-ready projects. The initiative is intended to restart rental housing projects that garner financing from Low-Income Housing Tax Credits. According to the National Council of State Housing Agencies, the LIHTC program annually funds 90 percent of all affordable rental housing produced, but investment in the program has fallen from $9 billion in 2007 to between $4 billion and $5 billion last year.”We’ve seen many projects that have stalled or stopped,” says Judith Calogero, CEO of the New York Housing Conference, a coalition of for- and not-for-profit groups involved in affordable housing ownership and development. She notes that Fannie Mae bought $2 billion of these tax credits a year, and Freddie Mac was also a major player. But government-sponsored enterprises are unlikely to be major players in this area in the near term. Banks like Citibank N.A. and Bank of America Corp. also invested heavily in LIHTCs, but Citibank has cut back sharply on its buying.Another piece of the federal stimulus package allows states to exchange a portion of their LIHTC authority for grants. That would put immediate—this year—money into projects that cannot otherwise attract much capital in a constricted lending environment.HUD also is allocating $3 billion to 3,134 public housing agencies to develop, finance and modernize housing in their communities. Much of these funds will go toward making existing public housing units more energy efficient. The Obama administration anticipates that this retrofit program will benefit both affordable housing and the economy, says Gary Painter, associate professor for the University of Southern California School of Policy, Planning, and Development. “They see a strong cost-benefit ratio. These are projects that can be started quickly and can help stimulate the economy.”Appreciated AttentionAll this aid will be greatly appreciated, according to Whiton Street Associates L.L.C. CEO Mike Russo, whose company has broken ground on a Jersey City, N.J., mixed-use project using state and city funding. Of the property’s 120 apartments, slated for delivery in 2010, 20 percent will serve as affordable housing. “The credit crunch has made the environment very challenging.”Michael Lappin, president & CEO of The Community Preservation Corp., however, sees opportunity in the slowdown. Falling land and construction costs and favorable interest rates could boost affordable housing development and rehabilitation, he said. In addition, some overleveraged commercial properties may reenter the market at a discount as candidates for repositioning. The opportunity to retrofit properties to make them more energy efficient also adds to their long-term affordability. “There is a great opportunity to tie these things together,” Lappin notes.The single-family meltdown has prompted policymakers to renew their focus on affordable rental housing, says Enterprise Community Partners Inc. senior policy director Peter Lawrence. “There has to be more diversified housing product than single-family housing, and part of that is affordable rental housing.”(This article first appeared in the April 2009 issue of Commercial Property News, an MHN sister publication. You can reach Eugene Gilligan at eugene.gilligan@nielsen.com)