Construction has ground to a halt at 270 Centre Street. Housing for low-income Bostonians was to be built here, helping to ease one of the tightest housing markets in America. Now an excavator sits idle in an empty lot covered with snow.
The holdup? Financing for the 30-unit project disappeared almost overnight – just as it has for hundreds of other efforts to supply new affordable rental housing across the US.
With the whole housing market in a deep freeze, it's perhaps not surprising that fewer low-income units – which require huge subsidies to get built even in flush times – are being constructed. But the slowdown is happening at a time when rising foreclosures are forcing more people into the rental market.
"For a long time we've had a shortage of decent affordable rental housing and … there are a lot more people who are renters now," says Buzz Roberts, a senior vice president at the Local Initiatives Support Corp., the largest community development group in the US. "We need supply."
The problem stems from the fact that the primary mechanism for expanding housing for the poor – tax credits – has collapsed. These credits, though little known, are responsible for financing as much as 70 percent of the cost of constructing new low-income housing.
"This is the only program that subsidized new affordable-housing production.... [I]t has become the only game in town," says Lan Deng, a professor of urban planning at the University of Michigan in Ann Arbor. "This provides a huge amount of money, and [reliance on tax credits is] getting bigger and bigger."
Credits work by allowing investors, usually big banks, to reduce their tax burdens in the future in exchange for money invested today. But many big banks suddenly have no profits to speak of, erasing tax liabilities and, therefore, demand for tax credits. Credit prices crashed, and when developers can actually locate an investor, they are getting far less money for each credit they sell.
"It's been a calamity to the program," says Ronne Thielen, president of the Affordable Housing Tax Credit Coalition.
Originally created in 1986, the tax-credit program was an attempt to wean affordable-housing construction off its dependence on federal money and bring in the financial expertise and discipline of private companies.
The entities that have come to dominate the tax-credit world read like a who's who of troubled financial institutions: Fannie Mae, Freddie Mac, Washington Mutual, Citigroup, and Wachovia, among others. Fannie and Freddie alone made up more than 40 percent of the market before dropping out of it completely at the end of 2007.
Housing advocates hoping for relief are turning their attention to President Obama's planned stimulus package. Most want direct grant funding from the government to plug budget gaps and get stalled projects moving again.
The stimulus bill being debated this week in the US Senate does just that. So far, it would grant $2 billion to be distributed to individual states to fill affordable-housing financing gaps. Under the House version of the bill, the US government would buy a portion of credits that developers couldn't sell, in the hope that would be enough to get construction moving again. These different approaches would need to be reconciled in the final version of the stimulus legislation.
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.
"This ship will right itself. It has worked very well in the past," he says.