In 1989, when Mercy Housing Midwest converted the 100-year-old Mason School in Omaha, Neb., to 32 units of low-income housing, the staff was too happy with a job well done to fret about the future. But more than a decade later, worry began to surface as the Chicago-based nonprofit became increasingly aware of an upcoming deadline that could end the project's affordability.
In 2004, the federal Low-Income Housing Tax Credits used to fund the project would expire, and the investors, no longer benefiting from the program, would almost certainly want out. If Mercy, a division of the larger Mercy Housing Corp. in Denver, wanted to save the building for lower-income households, it would have to find a way for itself or another entity committed to affordable housing to acquire the property from the investors.
Fortunately, says Chuck Wehrwein, senior vice president for real estate investment for Mercy's national operation, the organization was able to pull together funds from a variety of local, state, and federal sources and take title to the property. But not every affordable housing developer is likely to be as adept or as successful at lining up financing.
Since its implementation in 1987, the federal Low-Income Housing Tax Credit (LIHTC) program has contributed to the development of approximately 1.3 million units of affordable housing throughout the nation. Each year another 90,000 units are placed in service with the help of tax credits. Of those, roughly 20 percent are developed by nonprofit organizations; the other 80 percent are developed by for-profit firms, often in partnership with a nonprofit sponsor.
But the future of many of these affordable housing units hangs in the balance: A provision of the program enabling investors to sell the properties after 15 years opens the possibility that a significant number of projects constructed under the program could convert to market-rate status.