With the economic downturn, the construction and preservation of affordable housing has fallen into shadow. This year, the funds that the New York State Department of Housing Preservation and Development receives from Low Income Housing Tax Credits stand to drop by $60 million, making many affordable housing plans feel an unprecedented degree of pressure.
At a hearing yesterday held by the New York State House of Representatives, Deborah Van Amerongen, head of the Department of Housing and Urban Development, and Shaun Donovan, director of the Department of Housing Preservation and Development, said that the economic crisis will cause funding for affordable housing to decrease. Some Chinese-American representatives emphasized the importance of preserving already-existing affordable housing.
The good news is that the allotment for affordable housing in the state budget for 2008-2009 has increased, said Van Amerongen. However, at the same time, the economic crisis has caused investment in affordable housing to decrease. A great number of low-interest loans that real estate developers receive for affordable housing projects come from Low Income Housing Tax Credits, which are packaged and sold by real estate finance companies like Fannie Mae and Freddie Mac. Companies that purchase these credits can decrease their tax burdens – to put it simply, a tax credit worth $1, sold for a price of $.95, allows the purchaser to save $.05 for every tax dollar they owe.
Investing in these housing tax credits used to be extremely popular, with the total market for tax credits worth as much as $9 billion, about 40 percent of which were owned by the real-estate giants Fannie Mae and Freddie Mac. But now that the economy has gone into a slump and companies’ profits are sinking, the demand for housing tax credits has decreased dramatically. The price of a one-dollar tax credit has dropped from $.95 to $.75, causing funds for low-income housing in New York State to plummet by $60 million.
Donovan noted that financial institutions’ tightening the reins on housing loans has also been bad news for the housing market. Now, even if real-estate developers can get hold of loans, interest is extremely high, forcing developers to raise rents in order to repay their loans.
Amy Chan, a representative of Tenants &Neighbors, noted that in addition to constructing new affordable housing, maintaining existing affordable housing is also very important. She said that when the real estate market was flourishing, many developers bought up a great deal of property, including Mitchell-Lama housing, at prices much higher than the income landlords can currently draw from the property. This will surely result in new landlords forcing out current tenants and jacking up rents. She said that maintaining currently affordable housing does not necessarily require government outlay: it just needs appropriate legislation to keep the pool of affordable housing from draining away.
