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Affordable housing built with low-income housing tax credits not only helps people in need, but pumps millions of dollars into the Denver-area economy and creates hundreds of jobs, according to a study released today in Denver.
Elliot Eisenberg, senior economist at the National Association of Home Builders, presented the study results to about 70 public policy makers and other housing advocates at a breakfast today hosted by the Urban Land Conservancy and the Home Builders Association of Metro Denver.
Economic impact bigger than most imagine
“I think most people would be surprised by the size of the economic impact,” Eisenberg said. At one point, he showed a slide of the economic impact over a 10-year period of 615 units constructed, which is the typical number of units constructed every six years in the Denver area, it showed that the total impact to the economy topped $200 million. “I think that even surprised people in the audience, who are in the business,” Eisenberg said. “It even surprised me. I knew it was a big number, but I didn’t know it was going to be that big.”
He said there are many people who think of people living in subsidized rentals as not contributing anything to the economy. “After all, they don’t have much money, or they wouldn’t be living in tax-credit properties,” Eisenberg said. “The flip side is that they spend almost every dollar that they earn. They find themselves in this pickle because they don’t have much income, and most of it goes for food and services, health-care, educating their kids and so on. For the city, that creates a tremendous source of tax revenues. And all of their money is spent locally.”
Tax-credit financing is by far the biggest financing for affordable housing in the country. It also makes a lot of economic sense, he said, because it does not involve Uncle Sam writing a check to fund them, but gives a dollar-for-dollar write-off, which has no initial outlay of funding.
Economy challenges tax credit financing
“Tax credits, in the short-run, are having a harder time,” Eisenberg said. “That’s because you have to sell the tax-credit instruments, and financial institutions that traditionally buy them, don’t need them because they don’t have the profits to offset like they did in the past. So in the past, while they might sell for 80 cents or 90 cents or 95 cents on the dollar, they now might sell for 60 cents on the dollar because they are less valuable to financial institutions. But that’s a short-term situation that will work itself out.”
Eisenberg’s study looks at the impact of building new tax-credit financed apartments in a 10-county Denver Metropolitan Statistical Area , primarily those along transit corridors. The are includes Denver, Adams, Arapahoe, Jefferson, Douglas, Broomfield, Elbert, Park, Clear Creek, and Gilpin counties.
Economic impact generates millions of dollars
Eisenberg identified the first year, direct and indirect, local economic impacts as $57.6 million in local income, $5 million in taxes and other revenue for local governments, and 732 local jobs. These impacts represent income and jobs for residents in the study area, and taxes (and other sources of revenue, including permit fees) for all local jurisdictions in the area.
Eisenberg estimated the annually recurring economic impact beyond the first year at $16.7 million in local income, $2.3 million in taxes and other revenue for local governments, and 192 local jobs. These impacts are the result of the new apartments being occupied and residents paying taxes and otherwise participating in the local economy year after year. It also includes the effect of increased property taxes.
“Low-Income Housing Tax Credits are an important resource for creating affordable housing in the United States,” said Eisenberg. “As the study indicates, this type of housing not only provides enormous benefit to the residents, but it is an ongoing economic stimulus in terms of jobs and local income to the surrounding community as well.”
Affordable housing meets FasTracks
There will be more opportunities for affordable housing along FasTracks, the $6.5 billion, 119-mile light rail and rapid bus transit system that voters approved. This will allow transit-oriented developments to ultimately be built around many of the planned 60 stations. Indeed, 92 percent of the apartments in the study data were taken from developments within half mile of light rail or a quarter-mile mile of rapid bus transit.
“The focus on development around transit stops is especially important,” said Aaron Miripol, president and CEO of ULC. “The demand for affordable housing around transit stops will continue to grow, and understanding the economic impact of building LIHTC housing near transit is critical for policy makers, housing advocates and other community leaders.”
Still, is it imperative that there is an affordable housing component at each transit-oriented development?
Don’t isolate affordable housing to bad parts of town
“I think what is important for affordable housing is to generally have it in broad, geographic locations,” Eisenberg said. “You do not want to consign low-cost housing just to the bad parts of town. That’s not a good thing. You want to focus on having healthy, happy people in affordable housing. The other thing to consider is that people tend to live in affordable housing for only one point in their lives. Maybe someone had some unlucky breaks. Maybe they lost their job and their home. Maybe they had an unexpected child. Maybe they had a health problem. In many cases, the person or the family is in affordable housing for a while, gets back on their feet and moves on.”
Retail not the only answer for TODs
Some communities, however, would like transit-oriented developments to mostly contain retail, as municipalities in Colorado depend so heavily on sales tax revenues to fund their operations. But Ismael Guerrero, the executive director of the Denver Housing Authority, earlier told InsideRealEstateNews that RTD directly benefits from subsidized housing at TODs, because people with lower-incomes are less likely to have cars than the general population, and thus will take public transportation on a regular basis. “They will ride the trains,” Guerro said. “And they are more likely to pay the retail rate for tickets, rather than buy monthly passes, which helps RTD.”
Affordable housing not over-run with kids
Another startling fact from Eisenberg’s study is how many kids per household live in subsidized housing. “A lot of people have this mistaken belief, that a lot of us think is true, is that we think, “Oh my gosh, each unit must have five kids living there,” Eisenberg said. Statistically, there is an average of about one child living in every two units in the Denver area. “So there is about a half-of-kid in each unit,” on average, he said. ”So despite what people think, subsidized units are not burdensome to school districts. They are not causing schools to be over-crowded.”
Roger Reinhardt, executive vice president of the Home Builders Association of Metro Denver, praised the study.
“Particularly as the economy continues to struggle, this study couldn’t be more timely,”Reinhardt said. “Dr. Eisenberg’s study makes clear the vital role of the housing industry in generating local income and jobs and local government revenue. Creating vibrant communities along transit corridors with a mix of housing types, including affordable housing, will benefit the local economy as well as the residents who will live, work and recreate within the community while having transit access to the broader metro area.”
History of tax credits
NAHB developed the model to estimate the economic impact of home building in 1996. The model has been used to estimate the impact of construction in more than 600 projects, local jurisdictions, metropolitan areas, non-metropolitan counties, and states across the country.
The Low Income Housing Tax Credit program was created by Congress in 1986 as part of the federal Tax Reform Act. It is designed to incentivize private sector investment in affordable housing construction and rehabilitation. In return for the equity received through the sale of the housing tax credits, developers agree to income and rent restrictions on the units being constructed or preserved, with the units targeted to residents who earn 60 percent of the Area Median Income or less. Investors, in turn, receives a dollar-for-dollar credit against federal income tax liability, taken over a 10-year period. All states have passed laws that require LIHTC units to remain affordable for 30 or more years.
Industry Income Business Impact Wages,salaries Wages per
Construction $27.2 million $7.01 million $20.2 million $60,000 337
Manufacturing $4,000 $300 $3,200 $62,000 0
Transportation $63,200 $8,600 $54,600 $51,000 1
Communications $403,700 $123,400 $280,300 $91,000 3
Utilities $120,500 $46,700 $73,800 $102,000 1
Trade $3.94 million $721,200 $3.2 million $44,000 73
Finance, insurance $874,300 $71,200 $803,100 $101,000 8
Real estate $1.3 million $1.1 million $153,900 $62,00 2
Personal & repair $25,900 $104,000 $171,900 $40,000 4
Building services $154,000 $30,600 $123,400 $40,000 3
Business services $3.8 million $1.1 million $2.7 million $70,000 38
$129,800 $40,600 $90,300 $40,000 2
Auto repair $130,900 $40,600 $90,300 $40,000 2
Entertainment $22,500 $4,600 $17,900 $55,000 0
$5,100 $1,400 43,700 $46,000 0
Local government $38,600 $0 $38,600 $65,000 1
Other $590,800 $212,800 $378,000 $54,000 77
Total $39.1 million $10.7 million $28.4 million $58,000 486
Contact John Rebchook at JRCHOOK@gmail.com or 303-9456865