FINANCE onsider the Rubik ’ s Cube challenge of assembling money to pay for an affordable housing project .
In October 2019 ,
California Gov . Gavin Newsom ’ s office issued a statement highlighting a plan by the Capitol Area Development Authority — a joint state and Sacramento city agency — to construct an apartment building at 1322 O St . in Sacramento . Built on excess property donated by the state , it ’ s part of the governor ’ s initiative to use surplus land for affordable housing . As endorsements go , it doesn ’ t get much better .
If it ’ s built , the project will cut rents through smart use of space . All 58 units would be microapartments of about 270 square feet each , with Murphy beds that fold into walls , builtin furniture , high ceilings and floor-toceiling windows . To be eligible , renters will have to earn less than about $ 36,000 a year , with rents projected to run about $ 600- $ 900 per month . The publicity boost and innovative design made the project a financing slam dunk — or so it seemed .
CADA applied to the state for about $ 5 million in low-income housing tax credits to cover roughly a third of the project ’ s cost . Affordable developments rely heavily on such credits to attract private capital . Investors buy them to cut their tax bills and in exchange funnel equity into a project . The credits are awarded through a committee inside the state treasurer ’ s office , and competition for them is fierce . Between Jan . 1 and Nov . 10 , 2020 , the committee awarded more than $ 320 million in federal credits and almost $ 600 million in state credits for almost 200 multiunit projects that will add almost 16,000 units to the state ’ s affordable housing stock . If that sounds like a lot , it ’ s not : California needs more than 400,000 affordable units over the next two to three years to meet state goals .
“ The longer the economy stalls and the longer that we have people who are unemployed and underemployed and not having income coming into their home , our waiting lists are going to grow significantly . People who ’ ve never needed public assistance before are finding themselves needing it . We ’ re in for a tsunami .”
RODERICK WILLIAMS Deputy executive director for development , Sacramento Housing and Redevelopment Agency
CADA also had loan commitments from a private bank and a nonprofit lender and would make another loan of its own to the project .
The committee approved the credits , but CADA never got them . They ’ re issued jointly with state-issued private-activity bonds , which are administered by a separate committee in the treasurer ’ s office and have different screening criteria . More credits than bonds were available this year , so the bonds committee set a cutoff among application scores and dropped projects that fell below it , says Wendy Saunders , CADA ’ s executive director , so 1322 O St . didn ’ t make the cut . Without the credits , Saunders and her team had to start over , governor ’ s endorsement or no . ( Judith Blackwell , executive director of both treasury committees , confirmed the details of Saunders ’ account .)
Financing conventional , market-rate housing typically involves only lenders and investors . By contrast , affordableproject planners must manage a Jenga tower of lenders , tax credits , grant money , city and state subsidies , and more — it ’ s not unusual for affordable developers to have 20 sources of financing for a project , according to construction finance tech firm Rabbet . Remove one element and the capital stack might collapse and have to be rebuilt . “ Nobody understands how this works except the people who do it ,” says Saunders .
In an economic recession , doing that is even more difficult : For those who plan affordable housing , the pre- and postpandemic environments for raising capital are in different latitudes . There ’ s a staggering demand for affordable housing coming just when there ’ s less financing available to build it . CADA is trying to help plug a giant housing hole . Between 2012 and 2017 , median rents in the Sacramento metro area rose by a third , according to a February 2020 report by the Sacramento City Council . More than half the city ’ s renters spend at
62 comstocksmag . com | January 2021