Massachusetts Low-Income Housing Tax Credit (LIHTC) Program

The Massachusetts LIHTC Program is essential to the Commonwealth’s effort to build and preserve affordable housing. The state program works with the federal LIHTC, encouraging private investment through tax credits for investors and developers of affordable rental housing placed under construction or rehabilitation.

 

Fundamentally, the Department of Housing and Community Development administers the program, which is critical in addressing housing affordability issues in Massachusetts.   

 

An Overview of the Massachusetts LIHTC Program 

Massachusetts LIHTCs are provided to developers to lower the cost of financing for affordable housing projects. Thus, it becomes feasible to offer rents below the fair market value. Tax credits require that eligible projects be accessible to families at or below 60% of AMI. Still, at least some units should be targeted to families at or below 30% of AMI.

 

Annual State Cap and Transaction Limits  

The Department of Housing and Community Development (DHCD) may allocate up to $40 million annually in state housing credits through January 1, 2025.

 

Transaction Cap: 

• First-time allocations for new assisted living projects are capped at $5 million.  

• LIHTC allocations for all other projects are capped at $10 million, though DHCD is allowed, on a project-to-project basis, to go above the cap on larger deals .

 

Maximum Eligible Basis per unit: 

• $250,000 units in the Boston metro area 

• $200,000 units outside of Boston. 

• For preservation projects, the cap is $175,000 per assisted unit . 

 

Process and Priorities for Credit Allocation  

Massachusetts LIHTCs will be allocated competitively. DHCD reviews proposals using key criteria to ensure that project tax credits will most benefit the state’s housing needs and policies. The priorities for allocation are the following:

  

1. For Conformity with DHCD Funding Priorities: Projects must be consistent with the Commonwealth’s statewide affordable housing strategies.  
2. Conceptual Strength: This aspect relates to the design’s integrity and the project’s long-term sustainability. The strength of the development team DHCD takes into account the developer’s credentials, their ability to finance it, and their reputation. 
3. Demonstrated Need: The project shall address a major need for affordable housing in the target neighborhood. 
4. Site Suitability and Design: Projects should be on appropriate sites and designed to meet community and environmental standards. 
5. Realistic and Effective Scope of Work: The project’s scope should be realistic and practical, whether new construction or rehabilitation. 
6. Total Development Cost: DHCD will review the overall cost to ensure that it is appropriate for the type of project proposal.  
7. Financing Feasibility: Projects should be financially viable or feasible with a viable operating plan in the long run.  
8. Local commitment: Proof of a local responsibility and funding commitment is essential, reflecting community involvement and support. 
9. Readiness to Begin: Schemes ready to begin and for which approvals have been received are preferred first. 
10. Track Records in Previous Schemes: Those developers with track records of proven schemes in the previous DHCD-funded schemes are preferred first. 
11. Sustainable Development: Massachusetts requires environmentally friendly development, making sustainable, energy-efficient designs important. 

 

The total LIHTC allocation by the federal and state must be as low as possible to make a project economically viable. This would ensure that all available credits are spread across as many projects as possible, hence maximizing the program’s impact. 

 

The Impact of LIHTC in Massachusetts  

With the launch of the Massachusetts LIHTC program, following the years, the LIHTC has proven to be impactful through the following aspects – 

 

• It has helped finance the creation or preservation of over 70,000 affordable housing units. 

• Over 103,000 jobs have been created or supported, including thousands in construction. 

• The economic activity generated through LIHTC projects accounted for $11.67 billion in wages and business income, and $4.03 billion in tax revenue.  

 

Opportunities and Challenges in Massachusetts LIHTC   

Despite these success stories, the Massachusetts LIHTC program has quite a few challenges to overcome: 

 

Meanwhile, demand for affordable housing continued to outstrip supply, with more than 273,000 renter households in the state paying more than half of their income on rent .  

 

The annual funding cap was increased to $40 million. Still, several projects are left in the funding queue. More than 50 shovel-ready projects currently face a financing constraint .  

 

Labor and material costs have increased aggregate affordability for new projects. With the increases, it has become challenging to come up with projects that stay under the cost caps of LIHTC. 

 

Public-Private Partnerships  

Public-private partnerships represent the building blocks of LIHTC success. Developers, investors, and financial institutions join forces to leverage tax credits in an appropriately productive manner for multiple communities across the state. With public funding and private investment, projects that should not otherwise start in high-cost areas may, too.  

 

Sustainability and Energy Efficiency 

The Sustainable Development Principles become an integral part of the Massachusetts LIHTC. New projects will have to be designed to save and conserve energy, such as advanced heating and cooling systems, insulation, and water conservation, to mean cost savings for the residents in the long term and do well for the environment. 

 

The Future of LIHTC in Massachusetts  

Massachusetts continues to face an acute shortage of affordable housing, and LIHTC is considered a much-needed tool in the effort to overcome this hurdle. Housing advocates support an increase in both state and federal LIHTC appropriations. The proposed Affordable Housing Credit Improvement Act may finance up to 55,840 more affordable homes statewide . More than that, raising the state LIHTC by $10 million yearly for the next four years could help accommodate the growing demand and create thousands of jobs.  

 

Conclusion 

In Massachusetts, the Low-Income Housing Tax Credit (LIHTC) program is one of the most effective tools for developing and preserving affordable housing. Because it rewards private investors with tax incentives that support the production of housing for low-income families and seniors, it stimulates economic development throughout the Commonwealth. Given the clear growth in the demand for affordable housing, Massachusetts must preserve and increase its commitment to the LIHTC program.