Opinion: Affordable housing projects boost southwest MO economy

Southwest Missouri enjoys several economic benefits, including stable and diverse employment, a low cost of living and expanding and diverse amenities. An additional economic benefit often overlooked to most is that southwest Missouri has a strong group of affordable housing developers. In 2013, the Missouri Housing Development Commission, the state agency administering the affordable housing program in Missouri, approved nine projects to be developed in southwest Missouri. All nine will be under construction in 2013.

Today’s affordable housing
In the past, typical affordable housing projects could be easily identified because they stood out from surrounding neighborhoods. Historically, affordable housing did not place an emphasis on creative design and construction or services to its residences in order to be a successful project.

In the past five to 10 years, the Missouri affordable housing industry has become more competitive, leading to thoughtful design and construction of projects, led in large part by the affordable housing developers working in southwest Missouri. Today, the style and design of affordable housing projects allow them to blend and even enhance surrounding neighborhoods.

Affordable housing is more than sticks and bricks. The MHDC maintains a priority to award “service-enriched” projects, including financial and job training to residents, after-school programs for resident children and credit/budgeting programs. This gives affordable housing developers an incentive to integrate such value-added programs into their projects.

This year, The Kitchen Inc. was approved for an enriched services affordable housing project to be constructed in Springfield, known as Beacon Village. A majority of the residents of Beacon Village will have free access to the social and economic services offered by The Kitchen, including access to an employed social worker, job interview workshops and substance abuse classes. The Kitchen also has partnered with Catholic Charities, which will provide free access to a community resource coordinator to enable the residents to receive tutoring, job training and participate in other community, social and economic resources.
    
Tax credits
Affordable housing projects would not be developed in the state of Missouri without an allocation of sufficient low-income housing tax credits. Each year, Missouri receives an allocation of federal low-income housing tax credits based upon a per capita formula. Missouri is also one of a handful of states maintaining a state low-income housing tax credit program. Affordable housing projects awarded by MHDC receive an allocation of federal and Missouri low-income housing tax credits.

Construction costs of affordable housing projects are typically higher than the construction costs associated with market-rate housing projects, in part, because affordable projects must be built in compliance with prevailing wage laws. In addition, affordable housing projects are required to comply with restrictions limiting the rental rates charged to its residents, in place for a minimum of 15 years. Therefore, the rental cash flow generated from an affordable housing project would never satisfy the debt service maintained on comparable market-rate housing projects.

As a result of construction and rental requirements, affordable housing developers syndicate their federal and Missouri low-income housing tax credits, allocating the tax credits awarded to the project to the syndicators in return for capital contributions in the project entities. The project entity applies such capital contributions to reduce the construction loan for the project to a level that allows the project to maintain a reduced permanent loan at levels sufficient to allow the project to sustain itself through minimal cash flow.

Economic impact
As market-rate housing developments, and particularly single-family housing projects, came to a standstill during the economic slowdown, affordable housing projects thrived. The economic activity generated by an affordable housing project requires the involvement of numerous parties fulfilling several key roles. The impact to the construction industry is self-evident and the local affordable housing developers have shown a preference for southwest Missouri contractors, subcontractors and suppliers. Each affordable project requires extensive services from title companies, surveyors, architects, engineers, environmental companies and multiple professionals, including attorneys and accountants. Springfield’s local affordable housing developers also utilize southwest Missouri banks to provide various financing sources during the development of such projects.

In the end, affordable housing projects boosted by both federal and state tax credits allow economic activity to remain local and have provided a strong economic boost during the housing recovery.

Richard E. Walters, a partner with Husch Blackwell LLP, specializes in real estate, development and construction. He can be reached at richard.walters@huschblackwell.com.[[In-content Ad]]