Since its inception, the nation’s Low-Income Housing Tax Credit (LIHTC) Program helped produce more than 2.2 million affordable apartments, accounting for roughly one-third of all multi-family rental housing constructed between 1987 and 2006. A new report by the U.S. Department of Housing & Urban Development (HUD) finds that after an initial 15-year required "affordability period," the vast majority of these LIHTC properties remain affordable for working families.
However, the HUD-commissioned report cautions that once all additional state and local use restrictions expire in the years to come, more than a million units of affordable housing could become market-rate properties that lower income families may no longer be able to afford.
"This report is a wakeup call to all of us interested in preserving our nation’s affordable housing,” said HUD Secretary Shaun Donovan. “As LIHTC properties age, especially in high-cost areas with escalating market demand, State Housing Finance Agencies must do everything they can to protect the opportunities for working families to live in neighborhoods they might otherwise not be able to afford.”
As time goes on, thousands of properties financed using the LIHTC program are becoming eligible to end the program’s rent and income restrictions, prompting HUD’s Office of Policy Development and Research to commission this study. In the worst-case scenario, more than a million LIHTC units could leave the affordable housing stock by 2020, a potentially serious setback to efforts to provide housing for low-income households. Based on interviews with syndicators, LIHTC property owners, and industry experts, as well as analysis of HUD’s LIHTC database and market research, this worst-case scenario is unlikely. The answer to the question of whether older LIHTC properties continue to provide affordable housing for low-income renters is a ‘qualified yes.’
Most LIHTC properties remain affordable despite having passed the 15-year use restrictions mandated by the Internal Revenue Service (IRS). In addition to federal affordability requirements, many LIHTC developments, including those placed in service between 1987 and 1994, are subject to other use restrictions that last well beyond Year 15. After Year 15, properties take one of three paths: they remain affordable without recapitalization; they remain affordable with a major new source of subsidy; or they are converted to market-rate housing.
Most older LIHTC properties are not at risk of becoming unaffordable, the notable exceptions being properties with for-profit owners in favorable market locations. State Housing Finance Agencies (HFAs) will come under great pressure as the large stock of LIHTC housing ages. Restricted by finite resources, state policy-makers are going to have to make choices. HUD’s report recommends that those choices be made on the basis of a set of guiding principles and on careful examination of the housing markets in which the older LIHTC stock within their state operates. The study’s authors suggest that HFAs should place the highest priority on the developments that are most likely to be repositioned in the market as higher-rent housing or conversion to homeownership or another use.