A fund closing in California can tell you a lot about the state of the affordable housing business. Demand for affordable housing investments has finally stabilized, but there is still a steep difference in demand between different parts of the country. Affordable housing advocates recommend a few changes to federal regulations that could help close the gap.

Today WNC, an investment company based in Irvine, Calif., which focuses on affordable housing, announced the closing of its WNC Institutional Tax Credit Fund X, California Series 11 L.P. The $46 million fund is focused on government-subsidized affordable housing developments in California, including 800 units of housing at 10 properties in spread across five California counties. The properties include both senior and family housing and a combination of new construction and rehabilitation developments.

Investors paid prices between 80 cents and $1 or more per dollar of federal low income housing tax credit (LIHTC) from the properties in the fund, according to WNC. Prices have now fully recovered from the financial crisis and also from the volatility and uncertainty of the years that followed. “It’s become stable,”says Will Cooper Jr., president and chief executive officer of WNC.

But there is still a steep difference between the places where multiple banks have their branches and the rest of the country. Prices are 15 percent to 20 percent high as a rough average in the areas where banks have their branches and need to make investments to satisfy their regulatory requirements under the federal Community Reinvestment Act, according to Cooper.

A recent study by accounting firm CohnReznick found the same trend across the country. With a handful of exceptions, LIHTC pricing is significantly higher in zip codes where one or more top 20 U.S. banks operate branches, according to “The CRA and the Low-Income Housing Tax Credit Program,” a recently released performance study by CohnReznick. The data shows the clear difference between LIHTC prices in states with the most bank branches, and therefore the highest and most concentrated CRA demands.

That’s why WNC’s latest fund focuses only on California, where a great many banks have branches and need to make investments to meet their CRA requirements. The seven investors in the fund are all mid-sized California banks. WNC also creates affordable housing investments funds focused on New York State, another top CRA market. “We are there to organize the CRA needs of state and regional banks,” says Cooper.

Housing advocates says this sharp divide between CRA markets and non-CRA markets is sharper than it needs to be. A few simple tweaks to CRA rules could help, according to CohnReznick:

•           Investment test objectives should be set in a way that recognizes an area’s housing needs and that screens out deposits from people and enterprises located in other areas. Many times people in rural areas will go into the big city to do their banking. That means their money increases the bank’s CRA requirements in the city, leaving the CRA requirements for the rural area where these people actually live artificially low.

•           Bank examiners should be free to take note of the impact of premium pricing. If the only affordable housing project in a given area already has offers at $1 or more per $1 of credit, banks should have the option of investing in other parts of the state.

•           Receipt of a LIHTC reservation for state housing officials should be prima facie evidence that the investment will meet a critical housing need in that state.

•           Banks should make their CRA investment test reports in a form that permits data analysis for many different purposes.

Affordable housing is big business. In a typical year, roughly a third of all multifamily housing units completed are built with help from a mix of federal, state and local housing funds. Developers build more than 100,000 new units a year with help from the federal low-income housing tax credit program, according to the National Council of State Housing Agencies. Most affordable housing developers kept building during the financial crisis, when almost all other housing development activity ground to a halt.