Section 42, Affordable Housing That Makes A Lot Of Sense For America?s Senior Citizens
Posted By tsauthor on October 28, 2009
When someone says ?Section 42,? I immediately think of a sequel on steroids to Joseph Heller?s classic World War II novel, “Catch 22.” Where Catch 22 was a no win situation, made worse by bureaucratic arbitrary thinking, Section 42 is a well thought-out Federal program, administered by bureaucrats, that really makes a lot of sense for those needing affordable housing; especially seniors.
The IRS ?section 42? is a tax credit system set up for owners and developers of low-income housing projects to persuade them to build and retain housing for lower income families. Section 42 projects may be built for seniors (residents age 55, and over), or for families (which may be one to six or more persons).
The program works by the Federal Government allocating tax credits (direct offset to ones tax liability, right off the bottom line) to the developer, who then sells the credits to investors (usually big corporations or syndicates of smaller investors). The sale of the ?credits? allows the developer to build a very nice project, one with many Class A amenities, but with financing that makes it possible to lower the rent structure on the project.
The outcome at the end of the day is a project that at once is very nice, comfortable and filled with great features, and at the same time within the price threshold of many low to moderate income citizens. In most cases the rents fall at about 50% of what one would expect to pay for similar living units in a non-section 42 project. Nevertheless, the developer can make the project work economically because it is not carrying the traditional 80% to 97% debt versus cost, but rather 50% to 60% debt versus cost.
The rents for section 42 apartment units are fixed intermittently by the Department of Housing and Urban Development (?HUD?). At the same time qualifications for living at a Section 42 project are based on the tenant having earned no more than a certain percentage of the average median income for a distinct census track area. The percentage varies by local. Then, the rates (set by HUD) are compared to the income limitations and the result is deemed ?affordable? by definition and by law.
For seniors, particularly ones on fixed modest income, the program provides an opportunity to live in a safe setting, surrounded by others that may provide the basis from which friendships can be made, and companionship can be attained for those that otherwise might live in inferior, or remote housing.
Prototype projects like Mansions at Hastings Green, in Houston, Texas, offer two separate but associated projects, one for seniors and one for families, both situated in close proximity to each other, in an upscale area of the city. Mansions at Hastings Green Senior has its own amenity package (geared to senior residents) and Mansions at Hastings Green Family, of course, slants its amenities and programs to families with children. Both projects are brand new and are considered Class ?A? projects with features that are normally found only in market rent properties. As section 42 properties the rent structures are affordable, and within reach of many low to moderate income seniors and families.
I my opinion, someone in government was thinking when they came up with this program. It is not only a program that works for real estate developers and operators; it is also a program that also works for low to moderate income citizens. Win, win; and for a government program conceived, enacted and delivered by the politicians. That is amazing.
Paul Woodall
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