A Vital Lifeline for the Production of Affordable Housing

Filed in Economics, Housing Affordability, Multifamily by on July 23, 2020 4 Comments

apartment building

The Low-Income Housing Tax Credit (LIHTC) plays a critical role in the housing market by ensuring a supply of attainable rental housing. Created as part of the 1986 tax reform legislation, the LIHTC has been responsible for financing the development or preservation of more than 3.2 million rental homes. The housing credit also has been a success story in terms of generating jobs and economic impact for communities.

However, the primary beneficiaries of the program have been the residents of the housing developed under the program. New NAHB analysis that focuses on the demographics of LIHTC housing reveals that approximately 8 million low-income households, or 18.7 million people, have benefitted from the program and reside in homes financed by the LIHTC as of 2018. This is a significant total and illustrates the important role the housing credit has played in terms of providing high quality, affordable rental housing.

As the most successful affordable rental housing production program in U.S. history, the LIHTC provides federal tax credits to developers for building income-restricted housing: Those individuals or corporations receive a dollar-for-dollar tax credit which provides the motivation and facilitates the development of low-income housing.

Those tax credits provide the project with additional equity during the construction phase, which helps to make it less expensive to build and maintain an affordable apartment complex.

A Permanent 4% Credit Floor

With the nation in the midst of a housing affordability crisis and struggling with the COVID-19 pandemic, the LIHTC is more important than ever. As America seeks a return to normal, federal policymakers can do their part to help the housing industry be an engine of job and economic growth by strengthening the LIHTC when Congress crafts its next coronavirus relief package.

The need for affordable rental options remains acute. More than one in four renters spends more than half of their monthly income on rent. Establishing a minimum 4% credit floor would provide more predictability and flexibility in financing projects, making more types of properties financially feasible and significantly increasing unit production. This credit rate floats, and the current low interest rate environment stemming from COVID-19 fiscal policies to stabilize the economy has resulted in nearly 25% less equity available for much-needed development. Nearly 126,000 additional affordable rental units could be financed over the next 10 years by establishing this minimum floor, according to an analysis by Novogradac.

Shelter is a basic human need. NAHB is calling on Congress to uplift the lives of millions of Americans in a fiscally responsible manner by establishing a permanent minimum 4% credit floor for acquisition and bond-financed projects.

NAHB Chief Economist Robert Dietz provides an in-depth analysis on the number of Americans benefiting from the LIHTC in this Eye on Housing blog post.

 

Tags: ,

Leave a Reply

Your email address will not be published. Required fields are marked *