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The Low Income Housing Tax Credit (LIHTC) program creates more than $8 billion per year to develop and rehabilitate affordable housing units. According to the United States Department of Housing and Urban Development, LIHTC is the most important resource for creating affordable housing in the United States today. More than 2.7 million affordable housing units have been developed over the past 30 years though LIHTC.
However, there is uncertainty about the continued success of the program. Potential changes to income tax law are delaying affordable housing projects currently in development, and projects in the planning phase are suddenly challenged with budget shortfalls.
History of LIHTC
The LIHTC program was signed into law in 1987 and is monitored by the Internal Revenue Service. Housing finance agencies in all 50 states oversee the daily administration of the program. LIHTC differs from the approach the federal government takes towards other housing programs. Instead of using federal funds to build and manage housing resources across the county, the LIHTC program gives states, investors, and affordable housing advocates the ability to plan, finance and build projects that best fit their local needs.
Nonprofit housing developers acquire tax credits from their state housing finance agencies based on a competitive process. States award credits to projects they deem most valuable based on pre-defined criteria. Awarded non-profits then turn around and sell tax credits to private investors such as banks and corporations. Those investors save on their annual tax bill and nonprofits raise capital to build housing. It’s a win-win for all.
Future Uncertainty
Because the sale of tax credits is a bidding process, prices are based on the need for investors to reduce their tax burden. If that need is reduced through tax reform, then there is less competition for tax credits. According to a recent LA Times article, many nonprofits have put projects on hold as private investors wait for new tax rules to come from Washington D.C.
The Boston Globe paints a similar picture, noting that the price of tax credits has already fallen from a pre-election high of $1.04 per $1 of tax credit, down to as little as $.89 cents per $1. Nationwide averages similarly show a 10-15% drop in tax credit value. Those are big concerns for precarious affordable housing development budgets.
Bob Havlicek, executive director for the Housing Authority of Santa Barbara County, says it’s likely that future housing development could drop by as much as 20% because of new tax reform. “We’ve counted on the prices of tax credits to be predictable for a long time. But if investors suddenly have a lot less of a tax burden to offset, our projects budgets will suffer. That’s making a lot of housing developers concerned across the country at a time when demand for housing has never been greater,” said Havlicek.
The Yardi Solution
Yardi offers multiple affordable housing platforms which streamline workflows for all major affordable housing subsidies, including LIHTC regulations for every state finance agency. With connected solutions for accounting, compliance and property management, Yardi clients gain the efficiency of best-of-breed software with the ease of a sole-source vendor. Yardi also offers resident-facing applications for online affordable housing applications, payment processing, and maintenance requests. Learn more about affordable housing solutions from Yardi by calling 800.866.1144 or visiting yardi.com/affordable.
