Legislative Efforts to Expand LIHTC Address Affordable Housing Shortage

Election season often brings political gridlock but there is one area that could be a welcome example of both parties collaborating to advance an important issue — the critical nationwide shortage of affordable housing.

Analysts estimate that nationwide only about one-third of extremely low-income households have access to affordable housing without being severely burdened by housing costs.

Creating affordable housing

One of the biggest and most successful programs to develop additional units of affordable housing is the Low-Income Housing Tax Credit (LIHTC) program, which has been used to develop more than 3 million units of affordable housing since 1987.

The LIHTC program often sees a not-for-profit agency collaborate with for-profit investors to develop and operate new or rehabilitated rental properties, with rent limitations established to keep the units affordable to tenants with incomes ranging from 35% to 60% of their area’s median income.

The program has proven popular with tenants, not-for-profits, investors, and regulators alike, often producing more than 50,000 affordable units annually — which often incorporate creative wraparound services to deliver safe, decent, and affordable housing to folks who need it.

New legislation to spur development

The biggest limitations of the program are financial — the need for units continues to outpace the availability of funds for development. Some estimates of the shortage of affordable units range up to about 7 million — so while LIHTC is the biggest program used for the development of affordable housing, it could use a boost to do better for more people.

The recently introduced Affordable Housing Construction Act, cosponsored by Senators Sheldon Whitehouse (D-RI) and Jack Reed (D-RI), seeks to do just that. The allocation of credits would be more than tripled, which should enable a significant increase to the number of units produced under the program annually.

Other provisions in the bill would reduce the threshold for using private-activity bonds in rehabilitation projects from 50% of costs to 15%, create set-aside credits for units developed near public transportation or using renewable energy, and a few other factors.

Uncertainties in the expanded LIHTC program

While the increase in funding should enable more units to be developed, the provisions are coupled with a significant extension of the compliance and affordability periods to 50 years, up from the compliance periods of 15 to 30 years in the current law (depending on sources of funding).

Additionally, the program has been in place long enough that a sort of equilibrium has developed between the different groups who use the program for development — and predicting the exact effect of significant changes is difficult.

For example, a tripling of funds allocated by the federal budget to the program may not result in tripling the number of units produced if it lessens competition for the credits (and therefore the credit value to investors). Also the incentives and pro forma financial results for a project may be significantly different for a project needing to maintain 50 years of affordability.

Collaboration between political parties about this critical issue could create significant opportunities for participants in the LIHTC program. Be sure to follow these discussions and offer feedback to your elected representatives to help them understand how this may affect your organization.

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