AUGUSTA, Maine — Developers’ bids to renovate existing buildings and construct new housing for low-income renters are coming in an average of 24 percent lower than they did a year ago, according to Maine State Housing Authority data.
The 19 housing projects for which developers are seeking the 9 percent Low Income Housing Tax Credit are the first proposed since the Maine State Housing Authority changed the criteria it uses to determine which projects qualify for the credit.
Those changes followed a high-profile, contentious debate earlier this year among MaineHousing board members appointed by Republican Gov. Paul LePage and the authority’s former executive director, Dale McCormick, an appointee of Democratic former Gov. John Baldacci who resigned under pressure in March.
Ultimately, the housing authority added to the criteria a heavy emphasis on low, per-unit development costs and replaced the authority’s green building standards — which awarded developers extra points for environmental considerations such as solar hot water heaters — with the state’s conventional building and energy codes.
“For the first time, we gave developers an incentive to drive down the cost per unit,” said Maine State Treasurer Bruce Poliquin, who sits on the MaineHousing board and was a vocal critic of the old scoring criteria. “There was a financial incentive for them to come in with less expensive units.”
The developers who proposed the 19 housing projects for the 2013 tax credit estimated their units would cost, on average, $150,000 to build or renovate. Developers proposed only nine housing projects last year, for the 2012 tax credit, and the average bid was $197,000 per unit.
“This is our first shot at it with the new building standards that we demanded, and we knocked off 25 percent in our first year doing it,” Poliquin said.
The new scoring criteria have helped to drive down bids, but so have lower construction costs in general, said Matthew Marks, CEO of Associated General Contractors of Maine, which represents the state’s construction industry.
“People are just bidding jobs and taking them for a lot less money than they did years ago,” Marks said. “We’ll see how long the market sustains that sort of level.”
MaineHousing’s new scoring criteria have changed developers’ behavior and influenced the types of projects they’re proposing, said Greg Payne, coordinator of the Maine Affordable Housing Coalition, a group of developers, architects, bankers and others in the housing field. The coalition has generally supported the authority’s efforts to encourage lower-cost affordable housing projects.
But the housing authority could be making lower, per-unit costs the top priority at the expense of awarding affordable housing tax credits to projects that provide housing that’s suitable for families and convenient to jobs, Payne said.
“The scoring is all about getting a certain number of points based on a cost per unit,” he said. “If you have a 30,000-square-foot building and you could divide that into 40 efficiencies or 20 one-, two- and three-bedroom units, you’re going to score much better if you make them all efficiencies.”
Payne said the new scoring criteria also have given developers an incentive to propose low-cost renovation projects instead of new construction.
“When you look at the cost-scoring system, you can get lots of points for submitting projects that have the littlest need,” he said. “These acquisition [renovation] projects out there realized that the system had been changed so that you could get a lot of points for projects that don’t need much work.”
And that raises questions about whether MaineHousing’s new scoring criteria will help the authority make the best use of the limited low-income housing tax credits available, Payne said.
Developers use the federal tax credit as equity to qualify for additional financing to fund projects that include, or consist entirely of, housing units for low-income renters. The Maine State Housing Authority awards approximately $2.9 million in such tax credits annually, and estimates that amount translates into $25 million in financial backing for developers.
According to MaineHousing, the 19 housing projects proposed for 2013 — which include 12 renovation projects and seven new construction proposals — represent the largest pool of applications for the Low Income Housing Tax Credit in more than two decades.
Part of the reason for the large applicant pool, Payne said, is because the 9 percent low-income housing tax credit is the only one available to Maine developers constructing affordable housing. Since LePage won’t allow MaineHousing to issue bonds that help developers finance renovation projects, that disqualifies developers from receiving another type of federal tax credit to provide affordable housing.
“Because that avenue of funding has been shut off, these projects, I think, are going over to the 9 percent low-income housing tax credit round as a way to get funding,” Payne said.
For 2013, developers applied for $9.8 million in affordable housing tax credits, while just $2.9 million is available. MaineHousing staff members have yet to score the proposals against the new criteria and award the available tax credit funds.
For 2012, the tax credit supported 167 affordable housing units, according to MaineHousing; 48 of the units were renovation projects.