Sunday, January 28, 2018

Affordable Housing Options and Pitfalls, part 3

4% and 9% Low Income Housing Tax Credits (LIHTC)

The LIHTC program provides indirect subsidies to developers with many strings attached. The federal government gives states the ability to give out tax credits. States dole out the tax credits to the developers who apply and meet certain requirements. Syndicators find large corporations to buy tax credits. The large corporations use the tax credits to reduce their federal taxes. Developers use the money from the tax credit sale to build their developments. 

In Texas, the Texas Department of Housing and Community Affairs (TDHCA) is charged with handling the applications and awarding the tax credits. The 9% HTCs are awarded on a very competitive point basis; every point helps. With 9% LIHTC awards, there are few funding gaps. The 4% HTCs are not competitive. There are funding gaps with these. Generally, other program awards, city investment, bonds, and partnerships with non-profits make 4% HTC developments workable. This is generally how mixed-income 9% HTC properties are renovated 15-30 years down the line. After the tax credits are given to developers, there is little federal or TDHCA oversight of the properties. The TDHCA doesn’t always ensure the developments make sense before giving out the awards either. The TDHCA has a long list of requirements. One TDHCA requirement is to ensure that fewer developments occur in high LIHTC concentrated areas. Instead, they want LIHTC developments to be in other areas (which will be discussed later).

There are several cost-efficiency issues with LIHTCs that are becoming worse. According to an article from NPR, this tax credit mechanism is growing more expensive and providing fewer low income housing options. Here are some excerpts from it:
In a joint investigation, NPR — together with the PBS series Frontline — found that with little federal oversight, LIHTC has produced fewer units than it did 20 years ago, even though it's costing taxpayers 66 percent more in tax credits.
 In 1997, the program produced more than 70,000 housing units. But in 2014, fewer than 59,000 units were built, according to data provided by the National Council of State Housing Agencies.
 Industry representatives don't dispute the numbers; they say these trends are the result of rising construction costs, decreasing federal dollars that funded other housing subsidy programs, and stricter state requirements to build homes for the lowest-income households. They also say the business is less profitable than it used to be.
 But NPR and Frontline also found that little public accounting of the costs exists, even among government officials and regulators charged with monitoring the program. Some key lawmakers say that needs to change.
 Betsy Julian and Mike Daniel, civil rights lawyers who have been investigating the program for years, say the thriving private industry is a sign that the scales may have tilted away from the tenants. 
 "It's a frightfully expensive way to provide low-income housing and it's got layers of profit built into it that we think we have to provide in order to get people to do something for poor people," Daniel says.
Julian says 30 years ago, attending affordable housing conferences was different than it is today.
"I have the feeling that I'm in the room with nothing but a bunch of rich guys and gals," she says. "That's an impression that has to do with the ambience and the sense that there's a lot of money to be made around affordable housing."
So why are LIHTC costs higher if fewer units are being produced?
The IRS, which oversees the program, declined a request from NPR and Frontline for an interview. We also reached out to more than 20 industry officials, including the leadership of the Housing Advisory Group and the Affordable Housing Tax Credit Coalition, which represent investors and syndicators such as Boston Capital, PNC Real Estate and Cohn Reznick LLP. They did not agree to an interview but answered questions by email through lawyers representing the industry.
They say several factors have led to higher costs and fewer housing units; primarily, increased construction costs. Indeed, NPR and Frontline found in an analysis of government and NCSHA data that the inflation rate associated with rising construction costs accounts for about half of the overall increase during the last 20 years.
The representatives also noted the decline in grants from two other federal subsidies developers used to help pay for these buildings — the Community Development Block Grant and the HOME Investment Partnership program. Still, fewer than one-third of tax credit units have received grants from these programs historically, according to data from the NCSHA.
Many states also are requiring tax credit buildings to target even poorer renters, which means less rent to cover any debt. But data from the NCSHA show that the proportion of LIHTC tenants in the lowest income category rose from just 4 to 9 percent of new units from 2000 to 2014 across the country.
McKinney is most likely to see 4% and 9% LIHTC mixed-income development applications. Application time for both is the first 3 months of the year. Awards come out around July. 

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