Box 5, Folder 10, Document 12

Box 5, Folder 10, Document 12

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M. National Housing Partnerships



‘the 1968 Act authorized the creation of a National Housing
Corporation, and a system of national housing partnerships,
to meet the national need for low- and moderate-income housing.

The Act provides for the formation of a national consortium
of major industrial and financial companies to build low- and
moderate-income housing, the capital for the consortium being
subscribed by these companies. Although the housing industry
is one of the largest in the nation, there is no single
existing entity which accounts for more than one-third of one
percent of the market, and few firms carry on activities of a
national scale. The proposed consortium is envisioned as a
dynamic input for lower-income housing that is now lacking.

The consortium would be organized as a limited partnership,
and the Corporation would serve as the general partner of the
limited partnership. Larger investors in the consortium
Might invest, for example, ten percent of their commitment in
shares of the corporation and agree to provide the balance as
direct partners' investments in the limited partnership.

Large corporations would thereby involve themselves in meeting
the need for more low- and moderate-income housing by investing
in the consortium rather than actively using their personnel

to produce the housing.
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The Congressionally chartered corporation, along with its
shareholders, will enter into a real estate limited partnership
that would participate with local partners in the building of
housing units with subsidies under federal housing programs.

The partnership piss pxevide up to 25 percent of the initial
equity investment unless the Corporation determined that

more was needed because the necessary investment is not readily
obtainable from other responsible investors residing or doing
business in the local community.

The financial feasibility of this proposal is based upon
existing real estate practice and tax law. Most multi-family
housing projects, including low- and moderate-income projects
eligible for federal assistance of various.kinds, realize little
or no net cash return from operations auring the project's life.
However, the owners of any project are entitled to take
depreciation deductions on the full cost of the building. More-
over, under existing tax law, depreciation may be taken in
various accelerated forms, so that substantial amounts are
deductible in early years of the project's life. These deprecia-
tion deductions plus other deductions result in substantial book
losses for the first ten years or longer.

Under existing tax laws, project owners may use these book

losses to offset other income in computing annual taxes. For
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this reason, iwany project owners are willing to make invest-
ments that result in book- losses in the early years of the
project, since these losses reduce the amount of tax currently
payable on other income. Each dollar of book loss would reduce
the sponsor's current taxes on other income by an amount
varying from 50 cents for a corporation to as high as 70 cents
for individuals. Accordingly, many housing projects today
are directly owned either by corporations or by individuals
possessing other income. The Internal Revenue Code allows
partnerships to pass through such tax losses to the partners.
The consortium is proposed to achieve the following
purposes:

a. To attract new financial resources from majcr corporate
enterprises to an instrument organized primarily for the pro-
duction of housing for low- and moderate-income families;

b. To increase substantially the volume of production
of such housing over levels presently attainable;

c. To attract and to develop managerial and professional
talent able to work KiowLedGenbly and sensitively with housing

programs at all levels of government;

ad. To use economies anticipated from large-scale production
to introduce systematic innovations that will reduce costs

and improve the design of low- and moderate-income housing;

e. To conduct applied research and provide technical

assistance in connection with its activities.
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The Corporation is thus intended to become a national
"yardstick" for the application of systematic but sensitive
techniques to materials fabrication and assembly, labor
and contractor relationships, management and occupant
relationships--the entire range of economic, social and
aesthetic implications of subsidized housing.

The creation of the consortium opens up the possibility
of locally organized, broadly based profit motivated develop-
Ment groups receiving technical assistance (architectural

‘and legal service) and financial investment from this national

source.