Most Affordable Housing In New Orleans Is in Jeopardy
Builders With Tax Credits Conclude Many Projects Lack Economic Viability
The Wall Street Journal, April 11, 2007
Developers awarded federal tax credits to build affordable housing in post-Katrina New Orleans are concluding that many of the projects aren't financially feasible and are unlikely to get built before the government's 2008 deadline.
After Hurricane Katrina destroyed more than 82,000 low- and moderate-income rental units in 2005, the federal government substantially increased
Tanglewood, a 384-unit development in
Under the terms of the agreement, the developers must be ready to rent the units by the end of 2008 or lose crucial financial benefits that could help push their projects along. But according to the Louisiana Housing Finance Agency, about 65% of the projects that were awarded tax credits are in jeopardy because developers can't get them off the ground. Some private developers say the number of projects in jeopardy is much higher, perhaps as much as 80%.
"It's a dire situation," says Milton Bailey, president of the housing agency. "It means a lot of teachers, carpenters, firemen and mailmen, every day kind of people, won't be able to come home. It's a tragedy on top of a tragedy."
Developers of affordable housing typically finance construction with a combination of conventional debt, tax-exempt mortgage-revenue bonds and from cash from selling tax credits to investors. But the cost of construction and insurance along the
For example, developers estimate that the per-unit cost to build a new two-bedroom apartment averages about $150,000, up 30% since Hurricane Katrina hit. Meanwhile, insurance costs have gone up as much as 500%.
The problem is that developers don't believe they can charge enough rent to offset the gap and make a profit. Median incomes in
"A very low-income population is only going to be able to afford low rents, so if you have high development costs, you're going to have a disconnect," says Nicolas Retsinas, director of
"Developers of affordable housing will lose money on nearly every single project in
Mr. Mehreteab has been outspoken about the need to fill the "financing gap" by adding soft loans and grants from philanthropic sources. "Low-income tax credits are essential but fall short," he says.
NHP, one of the few developers that has actually broken ground on developments in
But Mr. Mehreteab says the group's developments are economically feasible only because the organization received $10.3 million in philanthropic grants for post-Katrina construction, including $4.5 million from the state of
The Louisiana Housing Finance Agency has been trying to convince Congress to extend the Dec. 31, 2008 deadline requiring units built using tax credits to be ready for renters. (An extension has passed in the House but is being reviewed by the Senate.) In addition, the Louisiana Recovery Authority has allocated nearly $600 million of federal community-development block grants, which funds such
activities as infrastructure development and housing, to supplement the tax credit.
"I think between those two, we've saved a number of affordable-housing projects that would have collapsed because investors felt they were too risky," says Mr. Kopplin.
(c) 2007 Wall Street Journal