Novogradac Study Calls LIHTC Program a Success

San Francisco–According to a study called “Low-Income Housing Tax Credit” released in June by the accountancy Novogradac & Co. L.L.P. and subtitled “Assessment of Program Performance & Comparison to Other Federal Affordable Rental Housing Subsidies,” the program has worked well in general. The measure of success for LIHTCs over time is low rates of foreclosure and noncompliance, which the program has achieved, as well as its role in the maintenance of an affordable U.S. housing stock.

Novogradac undertook the study on behalf of the Housing Advisory Group, a coalition of organizations dedicated to promoting affordable housing programs. The scope of the comparison between LIHTCs and other federal subsidies of affordable rental housing was limited to supply-side federal policies–that is, programs that increase the supply of housing, as opposed to demand-side programs that decrease the cost of rental housing for low-income renters.

In measuring the foreclosure rate for properties involved in the LIHTC program, the study found that out of 15,174 participating properties between 1991 and 2006, only 129 had been foreclosed. That was 0.85 percent of the total, or an annualized foreclosure rate of 0.08 percent. During the same period, the annualized rate of foreclosures for properties not participating in LIHTC was 0.27 percent.

Why has the program been such a success? Novogradac posits a number of reasons in the report. For one thing, there has been more than $75 billion invested in LIHTC transactions between 1987 and 2008. The vast majority of properties receive more than $1 million in tax credit equity, and such big bucks generally mean that fairly sophisticated institutional investors are involved.

“Because LIHTC transactions involve significant dollar investments and the investors are generally sophisticated institutional investors, LIHTC transactions have more oversight than other supply-side affordable rental housing efforts,” the report says. Also, the report continues, because the financial health of an LIHTC property is very important to an investor, such investors will generally step in to save a troubled property before it actually comes to foreclosure.

Other factors favoring LIHTC success, notes the report, include economies of scale and uniform practices, the result of the program being around so long; the fact that construction and lease-up risk are borne by investors and developers; state-level oversight; and regulatory guidance from the IRS. “The result of states playing such a large role in the administration of the LIHTC program is that the IRS is left to monitor the program at a higher level by focusing on the technical requirements of the program,” the report says.

The report also says that the Section 1602 exchange program, created by the American Recovery and Reinvestment Act of 2009, is no longer needed.