Michael Carter recently moved into permanent supportive housing that serves formerly homeless veterans in Battle Creek, Mich.

It's a place of his own after bouncing around, staying with friends and family and living in transitional housing. He's in school part time, hoping to start a new career.

“The job market is tough,” says Carter, who was laid off from an auto-parts factory. It's especially hard in his state where the unemployment rate has languished around 15 percent, the worst in the country.

Nationally, the jobless rate is about 10 percent as the recession lingers.

Unemployment, a weak economy, and growing poverty are huge worries for affordable housing advocates and those seeking to end homelessness.

“I am concerned that the recession will result in a new generation of homeless people,” says Nan Roman, president and CEO of the National Alliance to End Homelessness. “We have been making progress on homelessness, which before the recession was starting to go down. It has stopped going down, and although it is not yet going up, we fear that it will. We can end homelessness, and we can't let the recession stop our momentum.”

Growing poverty

There's reason to worry. Family homelessness and hunger are on the rise in many cities, according to a new report by the U.S. Conference of Mayors.

Nineteen cities, or 76 percent of those surveyed, reported a rise in family homelessness, with the recession and a lack of affordable housing cited as the top reasons for the increase.

At the same time, homelessness among single adults decreased or held steady in 16 of the 25 cities surveyed. Most of the cities that saw a drop attribute the decline to instituting 10-year plans to end chronic homelessness.

The recession is pushing more people into poverty, according to new Census Bureau figures, which show that 39.8 million people lived in poverty in 2008, an increase of 2.6 million, or 6.9 percent, from the year before.

The growing number of families in deep poverty is especially troubling, according to the National Low Income Housing Coalition (NLIHC). Households earning less than half of the federal poverty threshold rose by 1.2 million people, or 7.7 percent, to more than 17 million people overall, according to the coalition.

At the same time, there is a growing shortage of housing that is affordable to the poorest families. In 2007, the shortage of homes affordable to those earning no more than 30 percent of the area median income was 2.7 million. The shortage grew to 3.1 million in 2008, according to a NLIHC analysis.

The troubling numbers foretell a growing demand for affordable housing. However, financing remains the critical issue as institutional investment in lowincome housing tax credits (LIHTCs) has fallen.

Supportive-housing projects, which combine permanent housing with services for homeless individuals or other specialneeds populations, can be more difficult to finance, especially as it competes for a limited amount of LIHTC dollars.

“Since supportive-housing developments are generally structured with long-term rent subsidies and they seldom have hard debt, we have been able to arrange investors for them,” says Mark McDaniel, president of Great Lakes Capital Fund, a nonprofit LIHTC syndicator. “We are seeing increased scrutiny on the part of LIHTC investors with regards to the financial capacity of sponsors. This could make it more difficult for nonprofit sponsors of supportivehousing developments to find investors unless they partner with developers who have significant financial resources.”

Supportive-housing projects are often more complicated, so they require a strong sponsor, agrees one major investor, noting that the developer's experience is key when considering such deals.

McDaniel has seen some investors request a “transition reserve” with developments that have rent subsidies if they are subject to annual appropriation or have a five- or 10-year renewal contract.

“The transition reserve would be used to help reposition the property with tenants who can pay full rent,” he says. “The request for a transition reserve hasn't been limited to supportive-housing developments. However, with these types of development, the reserve would likely be a greater dollar amount, which could present a huge hurdle.”

Some investors may question the financial capacity and durability of supportive- service providers. To strengthen these investments, developers can contract with solid providers and build costs in to operating budgets to pay for services as a budget line item from day one or as a funded reserve that can pay for services if the provider loses its independent funding, says McDaniel.

There has been a slowdown in the project pipeline, but deals are starting to move forward using the new Tax Credit Assistance Program and exchange program, which were part of the American Recovery and Reinvestment Act of 2009 (ARRA), to fill funding gaps, says Deb DeSantis, president and CEO of the Corporation for Supportive Housing (CSH).

CSH hopes to illustrate that supportive- housing projects are as strong as conventional affordable housing deals. It plans to soon work with a large LIHTC investor to examine the performance of the investor's supportivehousing portfolio, says DeSantis.

On the funding front, the ARRA provided $1.5 billion for the Homelessness Prevention and Rapid Re-housing Program (HPRP).

“We hear that the demand for HPRP resources far exceeds supply,” says Roman. “Communities that had been concerned they could not spend the money within three years are now concerned that it will all be spent in one year. Congress is being asked for an additional $1 billion to meet the need.”

The Department of Veterans Affairs unveiled a plan to end homelessness among vets within five years. The department plans to spend $3.2 billion this year to prevent and reduce homelessness. The plan also calls for the department to partner with community groups to provide transitional housing to 20,000 vets and to work with public housing authorities to provide permanent housing to homeless vets in partnership with the Department of Housing and Urban Development.