Drivers along Interstate 10, tracing the Gulf Coast from the Florida panhandle through Alabama to Mississippi, can still see wreckage left behind by the hurricanes of 2005.
Many lots remain empty except for the still-ubiquitous FEMA trailers found along the Mississippi coast, as homes that were ripped from their foundations by Hurricane Katrina's 140-mph winds are gradually being redeveloped, often at higher densities and often as hotels.
The demand for affordable housing is still high throughout the federally designated Gulf Opportunity (GO) Zone hurricane disaster areas—from the shoreline to towns more than 100 miles inland. Throughout the GO Zone, new affordable properties rapidly fill up to 100 percent occupancies, according to local experts.
Rebuilding is far from complete in these southern states, but the funding available to fuel such efforts is running low. The federal government awarded extra low-income housing tax credits (LIHTCs) to the hurricane-affected states in 2006, 2007, and 2008 to help them recover and rebuild housing stock destroyed or washed away by the storms. However, those GO Zone credits have come to an end.
Adding to the dilemma, affordable housing projects already under construction face deep holes in their budgets as LIHTC prices continue to fall and state and local soft funding sources run dry.
The view from Mississippi
“We need all the tax credits we can get,” says Dianne Bolen, executive director of Mississippi Home Corp.
Mississippi officials expect to reserve just $6.7 million in LIHTCs in 2009. In comparison, the state distributed $106 million in GO Zone credits over 2006, 2007, and 2008.
Officials succeeded in getting all but $650,000 of Mississippi's $106 million in GO Zone tax credits allocated to projects that have closed their financing—no easy task considering that the tax credits can't be carried over to the following year.
Developments have been hit by a range of issues. Prices for LIHTCs have fallen from the mid-$0.90s to the low $0.80s, says Bolen.
Also, the rebuilding has focused redevelopment on small coastal towns not used to affordable housing. The new high cost of flood insurance in these areas made it impossible to rebuild the single-family homes on many sites. Some projects needed to be altered or even moved from one site to another as neighbors realized the scale of what was being built next door and local officials responded, says Bolen.
The credit crisis has made development even more difficult. To keep progress on track, the agency collected quarterly reports from all the properties in its pipeline.
In September 2008, the reports showed that a disturbing number of properties had not yet found tax credit investors. Another set of properties had deep gaps in their construction budgets.
In October, Mississippi asked developers that couldn't use their 2008 GO Zone credits to give them back in time to be re-allocated to other projects. In return, the state would return most of the developers' fees and deposits, equal to 1 percent to 10 percent of total project costs. Also, the developers would be able to apply for LIHTCs in 2009 with no scar on their record.
Developers with troubled properties returned $2.8 million in tax credits, which were immediately distributed to fill gaps in the construction budgets of other affordable housing projects.
Only one project, a 34-unit property planned for Biloxi, failed without having its $650,000 in GO Zone tax credits re-allocated to another project.
The state is preparing a $30 million Community Development Block Grant fund to help any other projects that have budget shortfalls.
The GO Zone properties will continue to come online. As of January, Mississippi developers had finished 2,911 affordable apartments at 34 GO Zone developments. Another 6,341 affordable apartments at 64 communities were under construction or preparing to start construction and were slated for completion by 2010.
Thus far, the wave of new apartments shows no sign of filling the demand for affordable housing, especially in the southern counties of Mississippi. “Everything that opens on the coast is on waiting lists—they lease up immediately,” says Bolen.