Credit Losses Stall Affordable-Housing Projects

Wall Street Journal (03/12/08); Frangos, Alex
The fallout from the nation's credit crisis is trickling down to the affordable housing arena, as some of the biggest U.S. financial entities--from Fannie Mae and Freddie Mac to Bank of America and others--are pulling back from the federal government's low-income tax credit program. Because losses triggered from the turmoil in the housing and credit markets have eroded their profits, many American financial behemoths no longer need tax credits to shield those profits from taxes and to meet community investment mandates. They are cutting down on their purchases of tax credits--which are used to ramp up construction of below-market apartment rentals--and that, in turn, has driven down the value of the credits and created a funding gap for developers. The implications are huge, according to Elizabeth Hersch of the Housing Alliance of Pennsylvania, who says, "The tax-credit program has been the one production program that has increased supply at the low end. If we see decline now, it's piling disaster on top of disaster." Already, the funding slowdown has forced Carlisle Development Group to table Phase I of a Miami project that would have produced 355 units of affordable housing; and other developers are finding themselves in similar situations. Congress is debating legislation that could release supplemental resources to address the problem.