Affordable housing may be builders' savior.

Affordable housing may be builders' savior

Southland developers are starving in what has become the worst real estate famine in recent history. But whispers of hope are now growing louder and more pervasive that a restorative elixir might exist that can possibly sustain some local developers through the lean months to come.

That elixir is affordable housing. And it could be the only niche to see any significant action in the near-term future.

"This (affordable housing) is the one area of real estate that needs to be expanded right now," said Ted Kahan, a real estate attorney with the law firm of Greenberg, Gluster, Field, Klaman & Machtinger. "It's an issue L.A. is just going to have to deal with to sustain itself."

The potential market is huge, explained Gary Squier, general manager of the City of Los Angeles Housing Preservation & Production Department, created for the express purpose of solving the city's affordable housing crisis.

"This city has been growing by 25,000 families a year ever since 1980, while the housing market here produced only about 15,000 new homes (per year) during that time," Squier pointed out. "That means we've been coming up short 10,000 homes each year, and that number is actually 13,000 homes because we've also been tearing down 3,000 homes each year."

Squier said if 30,000 units of affordable housing were produced in the city each year, "that could keep the problem from getting worse and begin chipping away at the solution."

The problem is that more and more families, many of them poor immigrants, are paying as much as 70 percent of their monthly income for housing, while others are illegally living in unsafe and overcrowded storage rooms and garages. Add to that as many as 59,100 homeless people wandering the streets of Los Angeles County on any given night.

L.A.'s affordable housing crisis extends far above the mean streets of poverty, too. Teachers, civil servants, journalists and others earning incomes of $30,000 a year or more cannot afford to purchase a home in Los Angeles. And that's just not right, affordable housing advocates contend.

Only 21 percent of California households could afford to buy the state's median-priced single-family home, reported the California Association of Realtors this month.

The affordable housing crisis is not new to Los Angeles. But it has lately managed to climb to the top of many local officials' political agendas. The money and manpower needed to attack the problem head-on is also now beginning to surface, officials reported.

The Los Angeles Housing Preservation & Production Department, created last September, has a $20 million war chest in direct subsidy money available for affordable housing. And that amount may soon double if federal funding is approved for the National Federal Affordable Housing Act, which Congress passed last January. (The City of Los Angeles is expected to receive about $20 million under that federal legislation.)

Add to that another $80 million to $100 million in direct subsidies available for affordable housing from the CRA.

Other redevelopment agencies in California also have burgeoning affordable housing war chests, bringing the total to about $400 million.

Even more direct subsidy money is available from various other federal, state and municipal agencies. Better yet, that direct subsidy money can be leveraged to raise two, three or four times as much.

The private development community has largely shunned affordable housing projects in recent years; they were just too busy reaping huge profits on higher-end residential and commercial projects.

The amount of affordable housing construction going on in recent years was relatively small and was handled almost exclusively by non-profit developers.

But the heady days of the 1980s are now but a faded memory. So the "skimpy" profit margins on affordable housing projects now might actually seem quite attractive to private developers struggling to survive.

In fact, affordable housing just might be the life preserver that shipwrecked developers need to ride out the dark and stormy seas of the early 1990s.

Unlike private projects, which are typically funded by one or two major sources, most successful affordable housing projects depend on financing from several public sources. Coordinating those sources is crucial and usually complex.

"If there's some unexpected delay and a deadline is missed, you may have to wait an entire year for funding from that particular source to be made available again," explained Larry Kosmont, president of the real estate consultancy Kosmont & Associates. "And once you've lost one source of financing, you may lose others, because grants from one source are often contingent upon another source providing financing first."

The reverse can also be true - securing financing from one source may preclude you from getting financing from another source.

In short, understanding and following all the rules is critical before jumping into the race for public subsidy money.

Making matters even more complex and potentially profitable is the fact that direct subsidy money is only one of several incentives public agencies are using to entice developers into affordable housing.

Others include: tax-exempt financing, density bonuses, reduced parking requirements, donations of government-owned land and low-income housing tax credits.

Each of these individually and in combination can be used to lower per-unit construction costs and, thereby, increase profits. Unfortunately, knowing which of these incentives are available in a given area, and how to go about getting them, is usually a monumental task requiring years of experience.

Hence, private developers might be well advised to consider teaming up with an experienced non-profit developer who knows the ropes, experts say.

In such a joint venture, non-profits could contribute their expertise in securing financing and entitlements, and for-profits could contribute their considerable manpower and resources.

"It can be done, but it's not easy," cautioned real estate attorney Kahan. "The non-profits tend to still be suspicious of the for-profit community's motives in the aftermath of the HUD (federal Housing and Urban Development agency) scandals, where private developers enriched themselves at the public's expense."

Squier of the Housing Preservation & Production Department countered that much of the old suspicion has vanished due to non-profits' increasing sophistication and more frequent use of private real estate consultants.

"The days are gone when private developers can come in and get huge public subsidies to build houses that aren't affordable or convert affordable units to more expensive ones," Squier insisted.

Past transgressions, however, are long forgiven, he added, and the city is now eager to aid private developers in tapping the affordable-housing wellspring.

"We'll bend over backwards to work with for-profit developers interested in developing affordable housing that meets the needs of those in Los Angeles," Squier said.