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Affordable housing agencies see budgets squeezed

AS MARKET-RATE BUILDING SLOWS, FEES ARE IN DECLINE; MAJOR INVESTORS SIDELINED

NORTH BAY – Developers of affordable housing in the North Bay are feeling the pinch of the credit crisis and housing slump as funding from public and private sources becomes more scarce.

Economic troubles are affecting everyone from local cities, which are receiving less money from market-rate developers, to large financial companies whose losses are making it impractical to invest in federal tax credits for affordable housing.

The city of Santa Rosa, the North Bay’s largest producer of affordable housing, has experienced a major drop-off in two key funding sources: developer fees paid to meet inclusionary requirements in lieu of building affordable housing and property transfer taxes – fees paid upon the sale of property.

Declines in those and other funding sources are helping to create an approximately 40 percent drop in the city’s budget for affordable housing production for the fiscal year beginning July 1, according to Nancy Gornowicz, Santa Rosa’s economic development and housing manager.

“Last year we had about $6.7 million available,” Ms. Gornowicz said. “This year, we’re estimating we’ll have $3.9 million.”

The city’s largest nonprofit developer, Burbank Housing, said it is already feeling the impact of the funding shortfall.

“We have about six projects in active predevelopment,” said John Lowry, executive director for Burbank. “Some of them may be delayed because of this funding.”

The city of Petaluma has received about 30 percent less “in-lieu” money from market-rate developments than expected, according to Housing Administrator Bonne Gaebler.

“We’re seeing a couple subdivisions that are not going forward in a way that they would have in another market,” Ms. Gaebler said. “If they don’t build, we don’t get paid.”

She said Petaluma is already transitioning away from developer fees because it expects to never receive the same level of revenue that it once did.

“Petaluma is not going to grow much more, so definitely the end is in sight for all of our development impact fees,” she said.

Investors shy away

Affordable builders in areas with little development have never relied heavily on developer fees, but they too are being squeezed, according to Al Bonnett, senior vice president for EAH Housing, Marin County’s largest affordable developer.

According to Mr. Bonnett, many EAH projects see more than half of their funding come from federal tax credits, which are awarded to affordable developers. But large financial firms experiencing heavy losses no longer need the credits to offset profits, causing the value of the credits to shrink.

“This is the first time since 1986 that this condition has occurred, and it is because of the very large losses by these very large organizations,” Mr. Bonnett said.

The problem represents an unusual trend for affordable developers, who typically get a boost during slumps in the for-profit housing market as land becomes more readily available, according to Mr. Bonnett.

“The market for tax credits is compromised while the opportunity to develop new housing projects has actually increased,” Mr. Bonnett said. “It’s unfortunate that those things happened at the same time because they’re counterproductive to each other.”

In Napa County, funding troubles are surfacing in the state’s Home Investment Partnership Program, according to Kathleen Dreessen, executive director of Napa Valley Community Housing. That program, known as Home, awarded $6.3 million in 2007 to projects in Napa County, which was the only North Bay county to receive such funds.

“Funding is a huge challenge,” Ms. Dreessen said.