Kroger, Google , Waste Management investing in housing?

These companies which traditionally had nothing to do with housing are investing in low income rental housing.

The investments are attracting nonfinancial companies seeking to offset taxable income that is climbing as the economy recovers. The deals, which help make affordable housing more available, also provide an alternative to record-low yields on government and corporate bonds.

Investor returns, which vary based on terms of individual deals, are derived from federal credits and depreciation deductions that reduce tax bills. Investors make money primarily by paying less than a dollar for a dollar’s worth of tax credits. The transactions are usually best suited to companies with consistent profits and a long-term outlook because the tax credits are meted out over 10 years and equity can be tied up for 15 years.

These companies found a new niche.

Corporate investors are helping fill a gap left by mortgage companies Fannie Mae and Freddie Mac, which together accounted for about 35 percent of the market before the housing collapse wiped out their profits and forced them to pull out in 2008. Banks, which use investing in affordable housing to help meet their obligations under the federal Community Reinvestment Act, cut back after the financial crisis amid losses on mortgage securities and leveraged-buyout loans.

And the outlook in the future?

Joe Hagan, chief executive officer of National Equity Fund, a Chicago-based syndicator, said his company expects to be involved in $700 million of affordable-housing investments in 2010. In 2009, it brokered $350 million in private-investor deals. Hagan’s concern is that the popularity of tax credits could work against it.

“What keeps me up at night is that because of our success, returns start coming down to the point where the new investors step out of the market,” Hagan said. “Then we’re back to the drawing board.”

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