Melbourne Apartments is a new 84-unit building in Des Moines, where a three-bedroom apartment rents for $775 a month but comes with restrictions - a family of five, for example, can earn no more than $47,460 a year. What is remarkable about this otherwise modest project is that the equity came from the search-engine giant Google, whose Mountain View, Calif., headquarters are more than 1,500 miles away.
The investment by Google and other large corporations in Melbourne Apartments and similar projects is one reason a cloud of gloom has lifted for developers of income-restricted housing. These developments depend heavily on low-income-housing tax credits, which provide the equity that makes the difference between whether a project gets built or not.
But when the economy collapsed in 2008 the market for these tax credits dwindled, and many projects never got off the ground. Just $4.5 billion in tax credit equity was raised in 2009, compared with $9 billion in 2006, said Frederick H. Copeman, who heads the tax credit practice at the Reznick Group, a national accounting and consulting company. People were ready to walk off gangplanks, he said. Mr. Copeman estimated that $7 billion was raised last year.
Created more than two decades ago to instill market discipline into the development of subsidized housing, low-income-housing tax credits are allocated by the federal government and awarded by the states to projects that meet strict requirements. Developers sell the credits to investors - generally financial institutions - that are seeking to reduce their federal income tax over a 10-year period. The banks have another incentive, because investing in tax credits helps them fulfill their obligations under the Community Reinvestment Act to invest in poorer neighborhoods where they have customers.