Affordable housing hits a wall in time of rising need

Many in the industry also suggest the stimulus plan should seek to attract a broader range of companies, like manufacturing and energy firms, to underwrite America's affordable-housing needs.

"There are still some corporate investors out there that are actually making money" and need tax credits, says Gregory Judge, president of MMA Financial, one of the nation's largest tax-credit syndicators, which structures tax-credit deals.

For Richard Thal, developer of the Centre Street project in Boston's Jamaica Plain neighborhood, the need for affordable housing in his community is obvious and immediate. Planning officials in Boston agree, and they even allowed the Centre Street project to begin construction before the final check arrived, something they almost never do. Then the investor pulled out of pledges to buy more than $6 million in credits.

"We have been scrambling to find investors," says Mr. Thal, executive director of the nonprofit Jamaica Plain Neighborhood Development Corp. "Given the centrality of this funding, it's been a show-stopper and a nightmare for everybody concerned."

For every 100 investor dollars available to buy up tax credits and finance affordable housing, $40 have simply evaporated, estimates Ms. Thielen of the Affordable Housing Tax Credit Coalition. That means about 40 percent of such housing will not be built.

Statistics to confirm Thielen's estimation are not available, but state housing agencies across the country are reporting large numbers of stalled affordable-housing projects.

In Massachusetts, of 39 housing projects that have been allotted tax credits since 2007, eight have closed their deals, according to a report by Boston-based Recap Advisors. In Kansas, 10 of 49 projects are moving forward. In Indiana, it's five of 38.

Moreover, major investors are shying away from deals with smaller developers in places far from the strong markets of coastal cities.

Charles Heintzelman, a principal at Indianapolis-based Milestone Ventures, has seen investment in his rural projects nearly vanish. One 16-unit development with $1.6 million in unsold tax credits "is in a very poor county that has a great need for housing.... [T]here's very, very little interest when it comes to investing in small projects in Orleans, Indiana."

The same is true for more-complicated deals that may require additional considerations, such as those providing for homelessness assistance.

California, a state with a severe affordable-housing shortage, recently saw 13 developers return their credits to the state because they couldn't sell them.

Usually, no developers do that, says Joe DeAnda, spokesman for the State Treasurer's Office. Of those 13, nine were rural or "special-needs" projects, like those offering homelessness assistance.

Another Indiana developer, Terrence Keusch, is staying optimistic, though he's been trying since June to find money for his tax-credit project in the small city of Evansville.

"This ship will right itself. It has worked very well in the past," he says.

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