HUD Study Finds Most LIHTC Properties Still Affordable

A new report by HUD has found that after an initial 15-year required "affordability period," most Low-Income Housing Tax Credit (LIHTC) Program properties remain affordable.

Washington, D.C.—A  new report by HUD has found that after an initial 15-year required “affordability period,” most Low-Income Housing Tax Credit (LIHTC) Program properties remain affordable. Since its inception, the LIHTC has helped produce about 2.2 million affordable apartment units, or about one-third of all multifamily rental housing built between 1987 and 2006—arguably the largest rental housing production program in history. The study covered properties using LIHTC between 1987 and 1994, all of which had reached the 15-year point by 2009.

Under LIHTC, either 20 percent of a property’s units must be occupied by residents with incomes of less than 50 percent of area median income (AMI), or 40 percent occupied by tenants with incomes of less than 60 percent AMI. Those restrictions remain in place for 15 years, and the tax credits themselves are parceled out to developers annually for 10 years.

Most LIHTC properties remain affordable despite having passed the 15-year use restrictions mandated by the IRS, the report notes. That’s partly because in addition to federal affordability requirements, many LIHTC developments are subject to other use restrictions that last well beyond 15 years, especially state mandates. 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.

Still, as time goes on, thousands of properties financed using the LIHTC program are becoming eligible to end the program’s rent and income restrictions, which prompted HUD’s Office of Policy Development and Research to commission the study. HUD figures that in the worst-case scenario, more than a million LIHTC units could leave the affordable housing stock by 2020, which it characterizes as a potentially serious setback to efforts to provide housing for low-income households.

On the other hand, 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,” according to the report.

But there will be some properties that are candidates for conversion to market-rate status or other uses, namely those with for-profit owners in favorable market locations. The report recommends that state housing finance agencies, despite these times of lean budgets, focus their attention on the developments that are most likely to be repositioned.