Low Income Housing Tax Credits

Issue

Modernization of the Low Income Housing Tax Credit (LIHTC) program and tax incentives that promote homeownership by low and middle-income families.

Position Statement

ABA strongly urges Congress to enact legislation expanding the LIHTC program to increase the availability of affordable multifamily housing for low income families and changing the requirements of the LIHTC and other federal programs in order to maximize private and public sector resources for funding affordable multifamily housing. Legislative efforts should make more projects financially feasible and increase community support for developing affordable housing projects. They should also make more housing available for more low-income families, particularly very low-income families. In addition, ABA supports providing additional tax incentives for support of non-profit organizations with missions to promote homeownership by low and middle-income families.
Explanation

The LIHTC has evolved into the mainstay of building and rehabilitating affordable rental housing in the U.S. since it was enacted into law in 1986. The credit is an efficient means of helping to raise capital to provide affordable housing, but the administration process relating to the LIHTC needs to be modernized. The demand in the marketplace is greater than the supply of available credits. Currently, requests for LIHTCs equal more than $1.1 billion, but the total amount available for allocation is only $500 million.

Most affordable housing projects require multiple publicly subsidized funding sources to be successful. Often, the requirements of other funding programs are not always compatible with LIHTC requirements, which situation results in a reduction of available LIHTCs for a project or significantly increases the compliance burdens for projects. Congress should adopt legislation harmonizing the programs in order to marshal more efficiently the public and private sector sources of capital available to finance affordable housing.

Among the reforms that should be included in any legislation are:

• Creating a single 9% tax credit for all projects. Currently, projects are limited to a 4% credit, if they also receive financing from federally appropriated dollars. Most LIHTC projects require multiple sources to be financially feasible, especially those projects that serve the lowest income households. Giving state housing agencies the flexibility to provide 9% credits to such projects will make many projects feasible that cannot currently be built.
• Fixing LIHTC percentages rather than using a discounted rate. Currently, the actual credit percentage is rarely a fixed 4% or 9%, but rather a discounted rate (currently 3.47% or 8.10%). Even if a project is eligible for a 4% or 9% credit, in reality it receives less than this, creating a gap in equity funding that must be filled either with more debt or soft financing. Repairing the credit percentages would infuse more resources into the production and preservation of affordable housing.
• Allowing mixed funding LIHTC projects to be eligible for the 30% eligible basis boost applicable to other LIHTC properties. The change would bring more resources into the development of affordable housing in high cost areas serving the lowest income households.

In addition, ABA supports providing additional tax incentives for support of non-profit organizations with missions to promote homeownership by low and middle-income families. One such proposal is the Community Development and Home Ownership Tax Credit, which is based on President Bush's proposed Renewing the Dream Tax Credit. The Act would create a new tax credit to encourage investors to provide private capital to build or rehabilitate homes for sale to low-income families in lower-income and distressed communities. The credit would be worth up to 50% of the cost of developing each home and could be claimed over a five-year period after each home is sold to an eligible buyer.

Contact for further information: Larry Seyfried (202) 663-5322 or Fran Mordi (202) 663-5317.