Midwest affordable housing fights for survival
LANSING, MICH.—Keith Molin thinks investors in low-income housing tax credits (LIHTCs) should take a good look at his state.
“Good deals are going to be done in Michigan this year,” says Molin, executive director for the Michigan State Housing Development Authority (MSHDA). It's a tough sell.
Many investors now only consider tax credits from the strongest projects in the safest markets, according to a chorus of national affordable housing experts. Several repeated what has recently become almost a clichÃ© in housing circles: Planned affordable developments located more than 50 miles off the Atlantic or Pacific oceans are unlikely to lure investors—especially in a Midwestern state like Michigan, wracked by home foreclosures and job losses.
But despite the nearly frozen tax credit market, a growing number of affordable housing deals are starting to close in cities and towns throughout the Midwest (see Midwest Update below). To help the process along, state officials like Molin are doing everything they can to remove uncertainty about their programs and make more funding available to build affordable housing.
Last year, MSHDA reserved 9 percent LIHTCs to 60 developments. By the end of April, no more than five of those planned affordable housing projects had closed on their equity and financing, though Molin notes a growing level of interest from tax credit syndicators and direct investors.
Many projects that received 2008 tax-exempt bond cap have also stalled —although in the fourth quarter, a few local banks bought the 4 percent LIHTCs from bond projects, including some supposedly untouchable small deals in rural areas.
Many investors were waiting on the sidelines for the federal government to issue its program rules on hundreds of millions in housing funds, says Molin. The federal American Recovery and Reinvestment Act signed into law in February includes more than $300 million that could help affordable housing projects in Michigan.
To help begin the discussion on how to use this money, Michigan issued a draft of its plans in early April, even though federal officials had not yet released their own program rules at that time.
MSHDA recently held what they called a “listening session” with housing developers and advocates. “There were 150 people in the building and 75 more on conference call,” says Molin. The event swamped MSHDA's conference call system, which could only accept 75 calls.
MSHDA's plan would tentatively set aside $34.5 million to help affordable housing developers seeking reservations of 2009 tax credits through the Tax Credit Exchange Program (TCAP), including developers seeking additional tax credits for 2007 and 2008 projects. Another $30 million would support projects that receive 2009 tax-exempt bond cap and 4 percent tax credits.
This part of MSHDA's plans were expected to be finalized after the Department of Housing and Urban Development issued its rules for TCAP in early May. MSHDA will then hurry to use this year's money before the end of the federal fiscal year. The agency also plans to make up to $400 million in low-interest tax-exempt loans available to support these projects.
Michigan also plans to exchange 40 percent of the total tax credits it would have to reserve in 2009 for cash. The agency will use the $75 million it expects to raise by the trade with the Treasury to provide more support to its pipeline of affordable housing deals and to reinvest in existing affordable housing communities across the state.