In 2011, Enterprise arranged the sale of $717 million of low-income housing tax credits for developments, more than 10 times the funds created by the next-largest program used for affordable housing.
Four years ago, in order to sustain affordable-housing development through the recession, Congress instituted a 9 percent floor on the rate that is used to determine the portion of project costs that can be financed with low-income housing tax credits.
That floor is about to expire — a change affordable-housing advocates say could threaten the industry because the new rates, calculated by the government monthly and tied to interest rates, will drop below 9 percent.
The lower rates, which will apply to any housing complex that opens after 2013, will mean developers receive less equity from the tax credits and must search elsewhere for the cash required to finance affordable housing. And right now, there are few other sources to be found.
Smaller federal programs, like the HOME Investment Partnership and the Community Development Block Grant, will not be able to fill gaps created in project financing by a reduction in the low-income housing tax credit rate, advocates say.
Although the fixed-to-floating change doesn't go into effect for more than a year, it began taking its toll on affordable-housing projects months ago. Because building any housing development often takes more than two years, developers and investors had to assume the floating rate would apply to projects that could open after Dec. 31, 2013.
Enterprise is lobbying Congress to extend the fixed rate or make it permanent. Bipartisan legislation has been introduced in both the House and Senate to make the 9 percent fixed rate permanent, though the last major action on either bill was in late 2011.
"It is really just one of those legislative glitches that just needs to be fixed," said Charles Werhane, president and CEO of Enterprise Community Investment Inc., Enterprise's for-profit equity financing subsidiary. "It exposes the developers to risk and the investors to risk and the states to risk."
Enterprise is "a very powerful player" in Washington, in part because its nonprofit status may give it more credibility in the eyes of elected officials, said Beth Mullen, who is national director for the affordable-housing industry practice group at the accounting firm CohnReznick LLP and works on deals with Enterprise.
Enterprise's leaders and other affordable-housing advocates, though, don't want to focus too closely on this single tree in the forest of tax issues that influence their ability to sustain low- and middle-income housing. There are other housing-related tax issues that also need to be extended soon.
And, whoever wins the presidency, broader tax reform appears to be on the table, said Diane Yentel, Enterprise's director of public policy and government affairs. Community development organizations need to be on guard for changes that could reduce the ability to pay for affordable housing, she told an audience at the Governor's Housing Conference.
"There are so many unintended consequences" that can affect housing tax credits when politicians change the tax code, McFall agreed.
As a result of these threats, Enterprise is working to diversify its sources of funding, Ludwig said. The organization is expanding its use of "impact investing," which finds, without the assistance of tax credits, altruistic investors who want some return for their money, she said.
Its first offering of this type, the Enterprise Community Impact Note, was launched about two years ago. The note is available in terms of two to 10 years, currently offering rates of return from 1.5 percent to 3.5 percent with a $5,000 minimum investment. The funds go into the Enterprise Community Loan Fund, which lends money to affordable-housing projects.
The money Enterprise has raised from the note recently surpassed $10 million, Werhane said. Although that is a small fraction of the funding that can be created using tax credits, the note has attracted more than 65 contributors and helped establish a health center in Oakland, Calif., an education center in Seattle and built affordable homes across the country, Enterprise says.
Enterprise is planning more "impact investing" funds for individual investors, who are not motivated to invest by the same things that influence corporate investors, Ludwig said.
"They're motivated by the outcomes, both the social and the financial outcomes," she said. "It's a matter of necessity right now."
1973: Three women who attended developer James W. Rouse's church approached him to ask for assistance in converting two Washington apartment buildings into low-income housing. Rouse helped them secure financing to purchase and renovate the buildings. The nonprofit that came out of that transaction, Jubilee Housing, still operates.