Some small developers are even using tax credits to build their businesses. “Tax credits offer smaller developers a chance to use other people’s money and gain development fees,” Robinson says. “This gives them the chance to earn some fees, do something good for the community, and grow into a larger developer that eventually adds to the tax base.”
Demographic Surge The demographics support demand for affordable housing, meaning that there could be even more competition in the affordable niche. “A lot of the future demographic growth in this country will be with minorities, and a lot of them will be in the affordable market,” Terwilliger says.
So, with demographic growth strong and developers showing a willingness to get into affordable housing, the future seems ripe for more growth. Though the Hope VI program may be going away, the tax credit program still seems strong, according to Greer. “Nothing is ever really permanent, but tax credits should be,” Greer says.
The federal government allocates tax-credit dollars to state agencies, which then distribute them to developers. The problem is that there aren’t enough tax credits for the developers that want to use them. “The real difficulty in developing [affordable housing] is the extreme competition for the 9 percent tax credits,” Greer says. “The competition is so great, and the available allocation of credits is so limited.”
But since it’s a government program, there’s lots of oversight. That’s why Greer doubts that many market-rate developers will move into affordable housing. “It’s so specialized,” he says. “I can’t believe that market-rate guys, even if they got in it, would stay in it. The complications of the program are immense. People are monitoring your every move. If you are not set up for that, it can become a great difficulty for you.”
The Military and Student Sectors
For developers who don’t ride the condo wave or want the hassle of affordable housing, the student and military markets can be appealing. Both offer large groups of renters needing places to live. So, high vacancies shouldn’t be an issue. “I expect even more people to come in because they aren’t finding as many market-rate places to build,” says Joe Coyle, president of College Park Communities, part of GMH Asso-ciates in Newton Square, Pa., a military and student housing builder ranked second on the Multifamily 50.
All four branches of the military offer opportunities to house soldiers on bases across the country. With long-term contracts ensuring stable cash flow for a number of years and a steady supply of renters, military housing has its advantages.
But there also are hurdles. Developers seeking military contracts must be prepared to spend time and money on the bidding process without any certainty that they will get a contract. The bidding process can last from three months to more than a year, says Chris Williams, GMH senior vice president. “You have to be committed [to military contracts], whether you are going after jet craft engines or military housing,” he says. “There is time, effort, and money you must put into it. It’s like any other procurement type of business. Anyone who does it understands that you are spending your time and money on the competition.”
