As Maine scrambles to expand its supple of affordable housing, one commonly used financial tool for subsidizing new projects is the low-income housing tax credit. The federal government issues the credits to states, which award them to private developers.
Developers, in turn, sell those credits through brokers and use the proceeds to keep housing projects affordable. Housing advocates say the system has worked well. And that's why it came as a surprise when Evernorth, a prominent nonprofit tax credit broker in Maine, recently pulled out of funding seven projects affecting 283 units.
All Things Considered Host Robbie Feinberg spoke to Reporter Caitlin Andrews about what this latest development could mean for housing development across the state.
Note: This interview has been lightly edited for clarity.
Robbie Feinberg: So, Caitlin, first, break this down for us, if you can. What’s going on with affordable housing development, and why are state housing officials so concerned?
Caitlin Andrews: What happened was that ever North told these developers in July that they wouldn't be able to sell their credits and fund the projects. And that's a big problem because Evernorth's whole job is to work with developers to sell these tax credits, and in exchange, they get a portion of the funds. The Maine State Housing Authority says that this whole development is unusual because the tax credit market is typically pretty healthy and competitive.
Has Evernorth given any indication about what the problem is here? Why is it now having to back out of these housing deals?
So there are two major investors in the tax credit market: one are banks, which have been seeing a lot of financial instability this year. And the other is the lending giants Fannie Mae and Freddie Mac, which are required by Congress to invest in underserved areas.
Recently, their counsel has started questioning their tax status and whether Fannie Mae and Freddie Mac even need to invest in the funds like the one Evernorth uses. They've requested a change in the amount of investment they have to make for the year. Evernote says they heard directly from Fannie Mae that they won't be investing in their funds due to this development, which in turn hurts their ability to invest in housing projects.
Okay, it sounds like these big banks and other institutions used to help fund these low-income housing projects, but now they’re backing away. Do you have any sense about how big a deal this is and what kind of ramifications it could have?
Yeah, so I spoke to Kevin Bunker at Developers Collaborative, which is a real estate developer out of Portland. He says that three of the seven projects that were affected by this are his, and there are low income senior housing projects across the state. Altogether, those projects represent about 114 units, and tax credits were supposed to pay for 74 percent of their costs. Bunker says the news caused him to push closing on those projects by two months.
Here's Bunker: "The lack of awareness and a lack of forecasting that this was going to happen on these deal that this time was, frankly, an unforced error that should have been avoided. If we had found out in March or April, we could have pivoted and found another investor and kind of been fine, and it would have been too bad, but it would have been okay."
So that’s a few project delays so far. But what about the broader housing market – are there any worries what this could mean for other projects?
So ultimately, Bunker of Developers Collaborative says that this is all just a setback for him. And then he's already found another broker, but he thinks the delay could cost him in the low hundreds of thousands of dollars.
I also spoke to Robert Rozen, who is the legal counsel for the National Association of State and Local Equity Funds. He this situation with Evernorth is happening in other rural markets, with other brokers.
But I should also note that some in the industry say this may not be that big of a problem. I also spoke to Dan Brennan of the Maine Housing Authority after his August meeting, and he said that the situation with Evernorth was definitely unusual, but may not be that big of a deal for projects in the long run.
Here's Brennan: "I think nationally, the investment market for tax credits is pretty healthy. So on a big picture, I'm not overly concerned."
And are there any steps being taken to try to improve that situation for developers?
Yes, Maine's Sen. Angus King and Sen. Susan Collins both co-signed a letter in June to the US Secretary of Treasury Janet Yellen. And they essentially warned her that the situation with Fannie Mae and Freddie Mac was going to cause problems in the rural housing market. They asked her to issue some written guidance to them. So far, they say they haven't heard anything back.
