IRVINE, CA—Demand for affordable housing inmany US markets is growing exponentially because of populationgrowth and the economy to the point wheredevelopers can't keep up, MichaelGaber, EVP and COO of WNC, tellsGlobeSt.com. We spoke with Gaber after the firm's recent closing of the WNC Institutional Tax Credit Fund 39LP—a $125-million institutional low-income housingtax-credit fund that will acquire 25affordable-housing properties located throughoutthe country—about the affordable-housing crisis and what's beingdone about it.

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GlobeSt.com: Why is there a lack of affordablehousing in many parts of the country?

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Gaber: The simple truth is, if youlook at it not state-by-state, but county-by-county, demand isgrowing exponentially, and we're not keeping up with the demandbased on population growth and the economy. Peopleare looking at housing that's not adequate, safe or decent. Thatnumber continues to increase every year. We're falling behind andnot able to produce enough affordable housing to help those whoneed it.

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People should spend no more than 30% of their income on housing,but a lot of people who are not in affordable housing are paying upto 50% of their income on housing. I've been in this industry for18 years, and we're always trying to catch up. The number of unitsdevelopers put on the market every year is not enough. And a lot ofthe properties worked on are rehab properties, so the numbers mightlook overinflated—out of 100,000 units put on the market, 50,000 ofthem might have been just preservation.

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GlobeSt.com: How do the affordable-housing programswork?

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Gaber: Programs go only 15 years, andthen owners have to reapply and maintain the affordable components.One of the nice things is as an industry, we've gotten smarter. Inthe early days of the tax-credit program, you could take thatcredit and convert it to the market the next day and double therents after 15 years. Today, it's changed significantly. InCalifornia, for example, we have steady-use agreements that go outnot just for 15 years, but for 50-plus years. They're always goingto stay in the inventory, but they require significantrehabilitation after 15-20 years. That's what we go through.

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It's exciting for us to go to a property where the same peopleare living there for many years. They don't have significantincreases in income, and they're excited when we go in and put in anew roof, new kitchen cabinets or new countertops.

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There are a number of people who need the housing. The units arewell-maintained, and in most cases you wouldn't realize it's anaffordable-housing property just by looking at it. You could havetwo apartment buildings that are identical, andyou wouldn't be able to tell which is affordable and which isnot—or you might even guess the opposite because of the complianceissue. We don't just have a general partner, but limited partnersand we are going out and making sure the property is in goodworking condition. A lot of times, these properties are bettermaintained than the property next door that's not affordablehousing. You can't be a slumlord of an affordable-housingproperty—it's not allowed. The industry built in such contingenciesto maintain the properties' expected condition.

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GlobeSt.com: What is being done to encourage thedevelopment of this sector of the multifamilymarket?

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Gaber: What generates the investorbase is primarily banks and insurance companies. Large corporationshave significant tax liabilities. Most significant is the CRArequirement which states that if you're going to be taking depositsin an area, you must also reinvest in that community. It preventsbanks from taking investments from an area and not investing inthat area, and it motivates banks to participate on that basis. CRAis obviously much stronger in L.A. or Orange County, but not assignificant in rural areas since banks don't have as manyinvestments in those areas. The requirements are easy to reachbecause banks only need to make a few investments to meet theaffordable-housing requirements. The units are just as nice, butthere aren't as many properties being developed.

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Stay tuned for more exclusive commentary on trends in theaffordable-housing sector, coming up on the Orange Countypage.

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Carrie Rossenfeld

Carrie Rossenfeld is a reporter for the San Diego and Orange County markets on GlobeSt.com and a contributor to Real Estate Forum. She was a trade-magazine and newsletter editor in New York City before moving to Southern California to become a freelance writer and editor for magazines, books and websites. Rossenfeld has written extensively on topics including commercial real estate, running a medical practice, intellectual-property licensing and giftware. She has edited books about profiting from real estate and has ghostwritten a book about starting a home-based business.