These are bad times and good times for affordable housing. The supply of new low-cost housing is barely a trickle compared to a river of demand. A 1993 American Housing Survey sponsored by the U.S. Department of Housing and Urban Development showed a 4.7-million-unit shortage of housing for low-income renters, a gap that has grown, and is now wider than at any point on record. There are nearly two low-income renters for every low-rent unit.

But this scarcity could represent opportunity for some. A recent six-year study of the San Francisco Bay Area by the Non-Profit Housing Association of Northern California, for example, found that non-profit housing developers have on average doubled their annual affordable-unit production since 1988. From 1988 to 1994, these developers created nearly 12,000 units of low-cost housing units at over $1 billion in development costs in the region.

How can developers, owners and investors of multifamily properties gain entree to this market? There is one financing approach a California multifamily developer calls "the only game in town" for affordable housing - using Federal Housing Administration (FHA) multifamily insurance as credit enhancement for tax-exempt bond financing coupled with low-income housing tax credits.

Some developers are not interested in such loans because they perceive them as too complex and too time-consuming. Investors may also think compliance and record-keeping requirements are too burdensome. In reality, such deals allow multifamily developers and owners to lock in low-interest, 40-year, nonrecourse, fixed-rate loans. Developer fees can be relatively large - up to 15%-of total development cost, with a cap determined by the state allocation agency. Moreover, construction and permanent financing are rolled into one, potentially decreasing overall legal and fee requirements. Investors benefit because they receive tax credits totaling 4% of the project's taxable basis to apply against their federal tax bill.

More important, arranging this financing is less time-consuming than commonly believed. TRI recently received a commitment for such a deal through FHA's FastTrack program in less than 40 days, and closed the entire extremely complex transaction in less than five months.

The primary disadvantage of tax-exempt bond/tax credit deals enhanced by FHA is the upfront investment cost. The borrower must have building plans nearly complete and most other elements of the financing essentially in place before the mortgage loan can be finalized. The requirements and paperwork associated with such deals are also substantial. The best approach for borrowers is to work with an FHA-approved mortgage lender to navigate the process.

A multifamily developer or owner selects an FHA-accredited mortgage lender who originates a loan for new construction or substantial rehabilitation. The lender secures FHA insurance for the loan. This mortgage insurance serves as AAA-credit enhancement for the tax-exempt bonds; it enables the lender to issue a Ginnie Mae triple-A mortgage-backed security, a government-guaranteed instrument, for the loan. Working with a bond underwriter and the housing bond issuer and developer apply to the state bonding authority for an allocation of bonds. When the allocation is received, the underwriter can structure a tax-exempt issue that may be sold on the capital market.

The FHA credit enhancement makes possible a better mortgage loan interest rate. Moreover, successful applicants for such tax-exempt bonds automatically qualify for tax credits without having to go through the "beauty contest" of the regular application process. The developer/owner receives a dollar credit against federal tax liability for an applicable percentage of the project's taxable basis, for each of 10 years. An active market in equity investments has grown as understanding for this benefit stream has spread, arid investors have become more sophisticated in structuring such investments.

Currently, tax-exempt bond/tax credit deals enhanced by FHA work best for acquisition and rehabilitation projects in high-cost markets, but they are also promising for new construction in regions with lower development costs, or for deals with substantive subsidy, such as land donated by a local government. California currently gets the largest share of federal tax-credit allocations. Seattle, Portland, San Diego and Los Angeles may be emerging markets for rehab projects, given the existing supply of housing stock and strong support for such projects by city leaders. New construction will make sense in these areas on a case-by-case basis. Selected areas in California's Central Valley, southern Nevada and urban Arizona are also increasingly viable.

While the tax-credit program was seriously threatened by Congress in the past yeas, it appears secure for the short term, since the Republican Congressional leadership sees it as a market-driven financing tool requiring limited federal subsidy. Pricing is also excellent currently, although this can change quickly with shifts in the economy and political environment.

Given these uncertainties, those who want to take advantage of tax-exempt bond/tax credit financing for multifamily projects shouldn't wait.

Cort Gross is vice president at TRI Financial Corp., based in San Francisco.