Blogs| New Mexico Low-Income Housing Tax Credit (LIHTC) Program
Written by
Nygel Varghese
Published
Nov 27, 2024
Topics
State LIHTC
The New Mexico Low-Income Housing Tax Credit (LIHTC) Program is crucial to solving the state’s affordable housing problem.
The New Mexico Mortgage Finance Authority (MFA) oversees the program, which encourages private investors to build and fix rental homes for families with low incomes. The MFA’s systematic planning and compliance help keep rents low and also supports community growth.
This article gives developers a look at New Mexico’s LIHTC program, how it is set up, eligibility for developer grants, developer compliance, and how the MFA keeps homes affordable for the long term.
New Mexico’s LIHTC program has been a success, but there is still an acute need for even more affordable homes in the state. Cities have high rents and small towns lack investment.
The LIHTC program started, as in other states, with the Tax Reform Act of 1986.
In New Mexico, this program focuses on the state’s special needs. The state’s MFA looks at long-term affordability, how to help underserved groups, and aims to revive the economy.
New Mexico’s Qualified Allocation Plan (QAP) is central to these goals. The QAP uses a scoring system for projects. Updated every year, the document helps developers understand what New Mexico wants when giving tax credits.
The 2024 QAP, the New Mexico MFA focuses on building in rural areas, projects for seniors and people with disabilities, and prefers homes near transport, jobs and good schools.
Since 1986 to the present, the LIHTC program in New Mexico has contributed significantly to promote equity in the state.
According to the ACTION Campaign, a national LIHTC advocacy group, the program has helped create or keep over 27,000 affordable homes in New Mexico.
In addition, from 1986 to 2021, LIHTC projects in New Mexico supported over 46,000 jobs, provided close to $5.25 billion in wages and business income, and added over $1.8 billion in state and local taxes.
LIHTC-funded housing not only impacts a state’s economy but also supports families with stability and better chances.
Stable homes really help children learn better, lower healthcare costs for families and build stronger communities.
Safe, affordable housing allows residents to invest in important life areas like education and healthcare. This finally breaks poverty cycles and allows real social mobility for households with low incomes.
The LIHTC program in New Mexico offers two types of tax credits. The primary funding for new projects is through the 9% competitive credits.
Another type of tax credit that subsidizes a lower portion of the development costs is the 4% non-competitive credits. These are meant for projects that work on the restoration or upkeep of affordable housing developments.
Each type serves different purposes and tackles separate housing issues.
The 9% tax credit finances a large portion, often 70%, of a new development’s cost and involves a very competitive process.
Developers send proposals to the MFA, who scores applications using criteria in the QAP. In New Mexico, 9% credits often go to projects that show creativity in design, focus on lasting affordability, and help high-need groups like seniors and people with disabilities.
New Mexico’s QAP offers extra points for projects developed in preset Qualified Census Tracts (QCT). This reflects the state’s big effort to address housing problems in these regions.
The 4% tax credit is given out at the MFA’s discretion year-round and doesn’t involve a competitive bidding process.
It typically funds a lower portion of a project’s costs. However, it gives an essential finance option for projects that might not move forward otherwise.
The 4% tax credit is often combined with other government subsidies, like tax-exempt bond financing, and is often used for bigger developments or renovation projects.
Eligible projects must reserve some rental units for families earning no more than 60% of the Area Median Income (AMI). Projects must also keep these rent restrictions for a period of 15 to 30 years to maintain affordability.
Moreover, New Mexico focuses on projects in Qualified Census Tracts (QCTs) and Difficult Development Areas (DDAs), offering better credits to balance higher costs in these places.
All developments funded by LIHTC must stick to a minimum affordability period of 15 years. In 1990, an extended use period of 15 additional years was introduced.
So, the rent-controlled duration for new developments under the LIHTC programs in New Mexico lasts 30 years.
During this time, rent restrictions are applied and income limits are enforced. Property owners submit annual reports to the MFA, including tenant income certifications to confirm they follow the rent restrictions.
Noncompliance might lead to the recapture of tax credits.
The MFA conducts regular inspections and reviews properties to ensure that properties follow federal and state requirements.
The New Mexico MFA offer a comprehensive Compliance Plan with detailed information which talks about reporting requirements, tenant income checks, and ongoing monitoring.
When LIHTC properties in New Mexico near the end of their affordability periods, the preservation of these properties becomes a major concern.
Without action, they might switch to market-rate housing and cause a disparity in affordable housing levels in urban areas.
MFA tackles this issue through the Qualified Contract Process. This allows property owners to sell their properties when their compliance period is up.
At the same time, it keeps the affordability requirements in place. So, it’s a win-win. It stops the loss of affordable homes and lets developers exit the program if they want to.
New Mexico, like the rest of the country, has serious housing problems. There is a big gap between the number of houses available and the number of people who need them.
Many people with low incomes spend close to 50% of what they earn on rent. It is a heavy burden.
Plus, rural and tribal areas have their own problems. Developers in these areas have less access to financing and face high building costs, making affordable housing hard to develop.
The LIHTC program can potentially solve these housing issues.
It promotes partnerships between public and private groups. The program uses extra funding sources and focuses on areas that need help most. Plus, with New Mexico’s Qualified Contracts Process, developers here have a unique opportunity to maximize the value of their investments.
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