The Rough Road to Rebuilding

The Rough Road to Rebuilding

photo of Milton BaileyInterview with Milton Bailey, President of Louisiana Housing Finance Agency

Milton Bailey's "road home" since taking over the presidency of the Louisiana Housing Finance Agency (LHFA) in 2006 has not been an easy one. He came to Louisiana from Washington, D.C., where he served as the executive director of the District of Columbia Housing Finance Agency from 1994 to 1999 and again from 2001 until 2006. He assumed the reins of LHFA a little before the first anniversary of Hurricanes Katrina and Rita. In 2005, these storms destroyed more than 200,000 homes and instantly exacerbated Louisiana's pre-existing housing crisis. Then, in 2008, Hurricanes Gustav and Ike arrived, damaging an additional 150,000 to 300,000 homes. Nancy Montoya, senior regional community development manager for the Federal Reserve Bank of Atlanta, spoke with Mr. Bailey to get his perspective on housing recovery for Louisiana, the current state of the housing market, and other pressing issues.

Montoya: What conditions are affecting the retention and development of affordable housing locally and nationally?

Bailey: I'll begin at home and then expand nationally. There's some adverse effect in the capital market: obviously, there's less liquidity for developers and less access to credit for homebuyers to develop and purchase housing. The lack of equity for developers, lack of credit for homebuyers, the overextension of the consumer's debt capacity, and high default rates for multifamily and single family housing all factor into a bleak outlook. Money is not flowing through the market as well as it should and is certainly not trickling down to the end user.… To that I would add that high incidences of NIMBYism, the "Not In My Back Yard" attitude toward affordable housing, has created challenges.

Montoya: Are there any bright spots in how we're addressing this issue as a community or as affordable housing developers?

Bailey: Yes, there are. Remember that in the historical context "workforce housing" was really public housing for Louisiana's industry. Aside from corporate housing, there was no effort to really create a different kind of housing other than public housing for persons and families of lesser means. Housing was never put on par with economic development and business attraction and retention. So the bright side is that the amount of development and advocacy that has occurred recently is going to change that dynamic over time. Once affordable units are managed in a manner that allows those facilities to operate as public assets instead of public liabilities, we will then see a change in attitude as to the placement of those assets within stable communities.

Montoya: Are lessons learned in other parts of the country being applied in Louisiana?

Bailey: I see hope in the economic integration of low-income communities through the tools and incentives to transition renters into homeowners, wealth-building opportunities, and "green" and energy-saving elements. The importation of best practices across the spectrum of housing and economic development, as well as the support mechanisms to ensure that those investments are sustained, are what's making it work. You've seen tax credits for energy efficiency, which means greater efficiency in how one manages his or her home as compared to 25 years ago. Creating livable and sustainable environments is a must.… For an individual to really take pride in their community, they have to have a home to take pride in. Quality of construction is foremost, especially when it minimizes the differences between market rate and affordable housing.

Montoya: What has been the impact of the "green building movement" on affordable housing?

Bailey: Initially, after the storm, green elements increased the cost of building housing. When you have a disaster many people are going to be without income for extended periods of time. So, if you're already dealing from an income base that is depressed, then adding the green element to redeveloping affordable housing means that you are, in effect, pricing rents out of the affordable range of the people that you're trying to serve. I think it's very important that… we provide incentives to manufacturing facilities and concerns that produce the inventory of "green elements" so.… those assets will already be in place and in sufficient quantity so as to have a "de minimus" effect on rents.

Montoya: What else could we be improving upon in the Low Income Housing Tax Credit industry?

Bailey: Well, most things we're doing well. We're probably doing more well than not. However, Fannie and Freddie's lost focus on what they were created to do has taken a lot of equity out of the game, which is about 40 percent of the equity market. That's a sizeable chunk of equity drain. Their slowness to get back into the game has hamstrung us considerably. So creating a fund that will replace Fannie and Freddie's traditional 40 percent market share would be highly desirable. The other issue is how to boost a 9 percent tax credit to encourage high-income corporations to invest in workforce housing. I say that because, if you use Louisiana as an example, while we are oil-rich, a lot of those profits are not being channeled back into the production of affordable housing in favor of the oil companies investing in higher yielding historic tax credits. I would also go so far to say that we need to take a hard look at CRA [the Community Reinvestment Act] with a view towards fine-tuning some of the regulatory elements that ensure that investors are investing in housing development more so than was invested before. I think that we're headed in the right direction regarding capital market reforms, although the devil is in the details. Hopefully those reforms will prevent the type of economic collapse that we have today. We'll have to wait and see how regulatory mechanisms are going to work to the benefit of people who don't have the resources to weather the storm on their own.