Blogs| New Jersey Low-Income Housing Tax Credit (LIHTC) Program
Written by
Nygel Varghese
Published
Nov 15, 2024
Topics
State LIHTC
The east coast state of New Jersey houses more than 9 million people. Its median household income is $97,126.
More than 275,000 people in the state earn less than half of this amount and almost 900,000 people in the state live below the poverty line.
The state’s housing supply is low and so the Low-Income Housing Tax Credit (LIHTC) program in the state of New Jersey has a crucial role in the state’s fight against abject poverty and homelessness. New Jersey’s LIHTC program has created almost 70,000 affordable homes.
The New Jersey Housing and Mortgage Finance Agency (NJMFA) runs the LIHTC Program. This program uses federal and state tax credits to help private and nonprofit developers build affordable housing.
This state resource covers New Jersey’s LIHTC program in detail, including how it works, its eligibility criteria, the application processes, and compliance guidelines.
The New Jersey LIHTC program uses tax credits to draw private investments for affordable housing. These credits can be used to lower federal tax bills.
NJHMFA gives out LIHTC based on the rules in the yearly Qualified Allocation Plan (QAP). This plan sets the rules for granting tax credits.
The LIHTC in New Jersey includes both federal and state priorities.
Federal Tax Credits: The federal Tax Reform Act of 1986 gives each state tax credits from a central pool of funds based on its population. NJHMFA manages New Jersey’s federal tax credits.
Qualified Allocation Plan (QAP): NJHMFA updates the QAP rules each year. The QAP sets important priorities and details for distributing credits. It focuses on New Jersey’s housing needs, helping areas with few affordable homes.
Local and State Contributions: NJHMFA offers extra help for developers building multi-family affordable housing projects. This help includes state Affordable Housing Gap Subsidy (AHGS), the HOME Investment Partnership program, and AHFP, plus some local grants or tax breaks.
9% Competitive Credits: These credits cover up to 70% of project costs. Developers compete for them based on QAP needs.
4% Non-Competitive Credits: These credits cover about 30% of project costs. They usually go to projects using tax-exempt bonds and suit larger projects or places that need large renovations rather than new constructions.
New Jersey score developer based on its QAP. The state prioritizes certain construction guidelines which receive special points in the bidding process.
LIHTC developers can maximize their advantage by building eco-friendly and easily connected homes.
Green Points: Projects with eco-friendly features, like energy-saving designs and renewable energy, earn extra points.
Job and Transit Points: Projects near areas with higher employability or public transport get priority. They help residents access jobs and cut transport costs for households.
Qualified Census Tracts: These are areas where the NJMFA wants new LIHTC developments. Developers get extra points for launching projects in these areas.
To get LIHTC credits, projects need to follow New Jersey’s QAP rules. The QAP explains many development details. I’ve explained some of these here.
Income Targeting: Projects must save at least 20% of units for families earning 50% or below the AMI (or the Average Median Income). They may also reserve 40% of units for families earning 60% or below AMI.
Affordability Period: Projects must keep rents low for at least 15 years. Longer periods, up to 30 years or more, are encouraged. Longer affordability periods may increase a project’s chances of approval.
Location and Community Benefit: Projects in the state’s Qualified Census Tracts, high-need areas, or where affordable housing is rare get priority. Developments offering community resources such as healthcare or childcare may score higher.
Special Populations: Projects for veterans, seniors, people with disabilities and homeless groups receive priority.
Environmental and Accessibility Standards: Projects must follow environmental and accessibility standards. Designs that are eco-friendly or accessible to people with disabilities earn extra points.
The process for getting the 9% LIHTC is competitive. NJHMFA sets strict rules for the steps.
Developers align their projects with the QAP. The QAP outlines priorities for affordability, community impact and sustainability.
Developers check that projects match NJHMFA’s yearly QAP. QAP holds the rules for tax credits. Projects should meet basic criteria like affordability and location.
A completed application package for NJMFA will be a comprehensive set of documents including many parts.
NJHMFA scores and ranks eligible applications. Projects with high QAP scores get priority. As I’ve mentioned earlier, applications that meet the state’s priorities gain a competitive advantage in this process.
Selected projects get tax credits. These credits are given by the NJHMFA in the form of a letter of intent. Claiming the credits from the IRS is a yearly process spread out over 10 years.
Approved projects receive credits. Developers sell these to investors, creating equity, reducing debt and allowing the building and maintenance of affordable rental units.
Investors buy credits from developers by forming limited partnerships with them, giving developers capital. This lessens the debt developers take out and allows cheaper rents in the long term.
Ongoing compliance is a mandate for the entire 10-year payout term of LIHTC. NJHMFA checks projects long-term for LIHTC program rules.
NJHMFA offers a yearly timeline for applications. This timeline includes submission deadlines and review stages. Developers should prepare ahead to have all documents ready by deadlines.
The LIHTC program brings big, good changes to main New Jersey cities like Newark and Jersey City.
Newark has a big shortage of affordable homes because rent prices keep rising fast. LIHTC-supported projects provide cheaper homes and community spaces. In Jersey City, the population grows very quickly, raising housing prices. Affordable homes here are very necessary.
Newark, the largest city in New Jersey, has a high need for affordable homes. The 102 LIHTC-supported projects in the city that helps increase affordable housing options.
These projects serve families, seniors and disabled people. They offer homes at cheaper rents and include community features like health and job services.
Newark’s housing authority works with NJHMFA to give grants and tax incentives to developers to encourage LIHTC projects.
Jersey City is now one of New Jersey’s hottest housing markets.
It has 57 LIHTC projects to stabilize rents and lower displacement for low- and moderate-income families.
Many LIHTC projects in Jersey City are close to transport centers, helping people access jobs and services easily. Developers are also encouraged to add energy-saving features, supporting the city’s green growth goals.
NJHMFA backs LIHTC projects in smaller cities and the countryside. Affordable homes are often limited in these regions.
Projects in these areas may get higher scores if they meet special local needs, like affordable housing for farm workers or elderly people who need support.
NJHMFA follows strict rules for LIHTC projects. Projects must meet program rules during the first 15 years. The state reserves the right to extend this for another 15 years.
Not following LIHTC rules leads to penalties. It might force developers to repay tax credits. These are called tax credit clawbacks.
NJHMFA acts quickly on problems. They might impose fines or other actions if developers do not follow standards. Since the IRS enforces these “clawbacks,” developers or limited partnership entities are at risk of facing federal action for non-compliance.
In addition, developers who are under penalty by the NJMFA cannot apply for any new LIHTC projects or be part of any LIHTC project.
After 15 years, projects enter the “Year 15” phase. Projects should keep affordability by extending use or meeting exit needs. Tenant protection is really important in both cases.
For the extended use period, the NJMFA defines rules detailing restriction on evictions, income limits, and transfer of units between buildings. It also lists out regulations for reporting, monitoring, and recertification which building needs to follow.
New Jersey encourages private developers to access LIHTC. The state also runs other forms of incentives for developers.
LIHTC developments in the state have helped increase the supply of affordable homes, stabilize housing costs, contribute to the state’s green goals, and promote equitable housing.
New Jersey is keen on new construction and maintenance of LIHTC projects and provides a good ecosystem for developers seeking to contribute to LIHTC projects.
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