permanent affordablehousing fundtheHouse version,

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The bill's successful passage to the Senate floor, not tomention the delays in funding it, also serves to highlight largerdifficulties in finding financing for affordable housing – a stateof affairs that has been building for the last year or so. Forinstance, the funding delay is a story that is being replayed instate and local legislatures throughout the country as the economyslows, according to George T. Faris, an attorney with LammRubenstone. "Whenever there is a general tightening of budgets, oneof the first programs hit is affordable housing," he tellsGlobeSt.com.

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At the same time, developers are grappling with a steady erosionin tax credit prices. "Tax credit prices have gone down by 15% overthe last year or so," Bernard Carr, executive director with the NewYork State Association for Affordable Housing, tellsGlobeSt.com.

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The impact of these duel trends translates into less fundingavailable for affordable housing construction. "Successfuldevelopers pull together funding sources from a variety ofdisparate places and make it work as a project," Faris says. "Butrule number one with affordable housing is that margins areslender, so if one piece is out of alignment the numbers for aproject can easily get out of whack."

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State agencies that sponsor the tax credits are not being asgenerous as they have in previous market cycles, according toFaris. "As a consequence, the value of the credit decreases for thecommercial lender that has agreed to buy back the credits at theend of the project."

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Also, Carr notes, both Fannie and Freddie -- two of biggestpurchasers of tax credits – have left the market in the pastseveral months. Furthermore, many banks that buy these tax creditshave also loaded up on subprime debt and now are experiencinglosses, which as Carr points out, "is the best tax credit there is- so there is no need for them to buy affordable housingcredits."

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The exit of these two buying sources, he reports, has helpeddrive prices down by 15%, to 85 cents on the dollar. Uncertainty inthe bond market has had an impact as well, he adds.

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Carr, however, believes the tax credit prices will eventuallyrise. "I am hoping Fannie and Freddie get back in the market. Also,while some tax credit buyers have left, other institutions thathave not previously considered investing in tax credits areentering the market."

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Whether this happens in time to salvage projects languishing ondevelopers' whiteboards remains to be seen. Tax credit prices aretoo low for a lot of projects right now, Faris says, which is whyupfront government funding is more critical than ever. "Developersare saying 'we just can't build these houses, especially at thecurrent cost of construction and energy.'"

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The national affordable housing fund established last week is ahopeful development, Carr said. "But in reality we won't see itsaffects for at least three years – and that is assuming the bill issigned by the president."

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