California developers are investing in green housing for low-income residents and turning a healthy profit while they are at it. [For more information on energy efficiency in the home, see the August 2010 first tuesday article, Energy-efficiency in the home: not just for hippies.]
Many affordable green housing projects rely on a low-income housing tax credit established in the 1980s. The Federal Low Income Housing Tax Credit provides tax incentives for corporations who invest in housing, green or otherwise, for those living at or below the poverty line. Corporations purchase these tax credits, which administered to each state, and use them to offset corporate taxes on their profits. [For more information on the Federal Low Income Housing Tax Credit, see the first tuesday publication, Real Estate Finance.]
Aside from the tax benefit, corporate investors are also interested in building green since it is a lower-risk endeavor. Green buildings are currently in high demand across California as energy costs for developing and operating them are exponentially lower than their traditional counterparts, thus providing lower materials costs and a larger profit margin for investors. [For a FARM letter on the tax benefits of energy efficiency, see the October 2010 first tuesday FARM letter, Home energy efficiency; save money by upgrading your property.]
Low-income housing developments obviously generate less revenue than luxury apartment buildings, but the higher demand for green living options and available tax credits means Wall Street corporations are becoming more motivated to produce sustainable housing for people living on Main Street.
first tuesday take: As all eyes are focused on the recent improprieties in the banking industry (read: the BofA debacle), the momentum of the green building movement is continually gaining ground. This ground is fertile for syndicators and builders who are able to arrange to receive these tax credits from the state of California (fed tax credits) and then resell them to limited liability company (LLC) cash investors in their low-income projects. Lots of new, low-income tenants exist today, with more to come in the immediate future.
The greening of the real estate market is an example of a niche in the industry that is thriving in the Great Recession. There is sufficient government support — subsidies for the syndicated investors — and substantial consumer demand for green buildings to contribute to the rejuvenation of the real estate market.
Optimistic and innovative real estate professionals will benefit greatly from taking the opportunity provided by the recession to become a specialist in a particular facet of the real estate industry, such as the green building movement. [For more information on the new real estate paradigm, see the May 2010 first tuesday article, Looking through the window towards recovery: a real estate paradigm shift. For more information on the green movement in the commercial market, see the November 2010 first tuesday article, The demographics forging California’s real estate market: a study of forthcoming trends and opportunities Part II.]
Recent trends toward energy-efficient building in the multi-family housing market are a reflection of a broader trend in single family residence (SFR) construction and home sales. There are currently a number of tax credits and energy mortgages which are very beneficial to homebuyers interested in cutting their energy costs and taking advantage of the vast resources to help them do so. [For more information on energy-efficiency tax credits and energy mortgages, see the November 2010 first tuesday article, Energy mortgages: monthly savings take you from red to green.]
Real estate brokers and agents who apprise themselves of the intricacies involved in securing an energy mortgage and informing their principals of the substantial tax credits they may qualify for will be operating at a higher level than most in their field. This recession will end eventually — when it does, the most successful and progressive real estate professionals will emerge having learned the lessons that will sustain them until the next one.
Re: “Green Building Goes on a Budget” from the Wall Street Journal