Agenda - 06-26-1996 - IX-B - Laserfiche WebLink

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r •a 4 2 First Centrum Corporation is an established and respected FOR PROFIT developer of affordable RENTAL housing. Even though the proposed Carolina Spring project would be rental housing by a for-profit entity, we hope to justify this request by explaining to you the competitive and restrictive nature of tax credit financing for affordable housing; the effect of the Orange County school impact fee on the competitiveness of our tax credit application with the North Carolina Housing and Finance Agency; the inability of developers of affordable housing, whether non-profit or for-profit, to finance costs like the school impact fee, or ever recover this cost through higher rents to the residents or through sale of the property; and the probable impact on the low income senior citizen residents if this project is required to pay the school impact fee. AFFORDABILITY Aside from charitable volunteer-based groups like Habitat for Humanity, the only program in the United States today that is successfully creating housing that is affordable to households with annual incomes far below the local median income is the low. income housing tax credit program. "Affordable" rental housing, according to Section 42 of the Internal Revenue Code, is defined as rental housing for which resident's annual expense for rent and utilities must be no more than 30% of the resident's annual income, which itself must be at or below ITO% of the area's median annual income (AM1). (We propose to voluntarily lower rents on some apartments at Carolina Spring to as low as 45% AMI, to reach even lower income senior citizens.) Affordable rental housing is very much needed in Carrboro, as in virtually every community in America. It is extremely difficult to develop anywhere because the tax credit program's restricted rents (usually about 70% to 90% of market rent levels) do not allow enough net operating income (annual rental income less annual operating expenses) to support a loan amount of much more than half the cost of development. The balance of the development cost must be financed with "soft" or publicly subsidized funds and by private investors. Such investors will usually not invest equity in affordable rental housing as a real estate investment alone, without the return offered by the tax credits. In appraisal terminology, the present value of the capitalized income stream and reversion of an "affordable" apartment project is often worth no more than the cost to develop the project. Affordable rental housing has negligible "return on" investment (annual cash flow after debt service) and marginally probable "return of" investment, which is why it is not attractive to the developer or to potential investors to put equity dollars into affordable housing purely as a real estate investment, and why Congress created the low income housing tax credit program -- to attract investor equity to affordable housing - - not based on the value of the real estate itself, but based on the value of the tax credits sold to the investors by the developer who has received an allocation of a state's annual tax credits for affordable housing.