Site Selection Strategies for LIHTC Developers

The Low-Income Housing Tax Credit (LIHTC) program is the principal federal program that creates affordable rental housing in the United States. To date, the program has financed more than three million rental units, providing a vital source of quality affordable housing for eligible low—and moderate-income families. 

 

However, choosing the right site for LIHTC development is multifaceted. Developers must consider economic feasibility, neighborhood impact, regulatory incentives, and long-term sustainability. Strategic site selection not only determines a project’s financial success but also influences the quality of life for future residents. 

 

This guide explores the key factors in selecting LIHTC properties, providing developers with a roadmap to navigate the process efficiently and effectively.  

 

Why Site Selection Matters in LIHTC Development?  

 

Selecting the right site for the LIHTC property is a critical factor in determining the success of an affordable housing development. A well-chosen location enhances access to essential services, aligns with funding incentives, and fosters sustainable communities.  

 

Understanding the impact of site selection ensures that developments effectively meet both financial and social goals. 

The Role of Location in Housing Affordability 

 

The location of the LIHTC property directly affects housing affordability, access to amenities, and resident well-being. A well-chosen site provides residents with: 

• Access to employment opportunities 

• Proximity to public transportation 

• Quality education and healthcare facilities 

• Grocery stores and other essential services 

• Community resources such as parks and recreational facilities 

• Safe and walkable neighborhoods 

 

Developers who carefully analyze site selection can create housing that fosters economic mobility while ensuring financial viability for investors. 

The Regulatory Framework and State Guidelines 

 

The LIHTC program has provisions at the federal and state levels, and every state runs its Qualified Allocation Plan (QAP). The QAP defines the priorities and incentives for where and how the LIHTC projects should be developed.  

 

Some of the states prefer developments in the following places: 

 

• Qualified Census Tracts (QCTs) – These are areas where at least 50% of households earn below 60% of the Area Median Income (AMI). 

• Difficult Development Areas (DDAs) – Locations where high construction costs make it challenging to develop affordable housing.   

• Areas with low poverty rates – Encouraging economic diversity. 

• Opportunity Zones – Locations that provide tax advantages and incentives for development.  

 

These designations impact tax credit allocations, making site selection crucial in securing funding and maximizing return on investment. 

 

Key Factors in Selecting an LIHTC Site 

 

Selecting an appropriate site for an LIHTC development is a fundamental step in ensuring the success and long-term viability of the project. The right location enhances accessibility, attracts funding, and provides residents with a high quality of life.  

 

Several factors must be evaluated, including market demand, proximity to employment, neighborhood characteristics, financial feasibility, and zoning requirements. 

 

Understanding Market Demand and Housing Needs

 

Before committing to a site, developers must conduct a market study to evaluate: 

 

• Rental demand in the area: Is there a need for additional affordable housing? 

• Competition from other developments: Are existing LIHTC properties performing well? 

• Expected occupancy rates: Will the project attract tenants quickly 

• Demographics and income levels: Ensuring alignment with LIHTC eligibility requirements. 

• Trends in housing affordability: Evaluating long-term sustainability. 

 

A high-demand location with limited affordable housing increases the likelihood of securing financing and ensures long-term stability for the development. 

 

Job and Transportation Accessibility

 

LIHTC residents need a good job-housing balance, and many rely on public transportation. A good site is close to: 

 

• Job centers and business districts 

• Public transit options such as bus routes and metro stations 

• Major highways for accessibility 

• Biking and pedestrian-friendly routes 

• Emerging economic development zones 

 

When residents can easily commute to work, their financial stability improves, reducing turnover and ensuring long-term occupancy for the development. 

 

Neighborhood Characteristics and Community Engagement

 

Neighborhood selection affects resident well-being and community integration. Developers should consider: 

 

• Crime rates: Lower-crime neighborhoods provide safer living environments.  

• School quality: Access to good schools enhances opportunities for families. 

• Retail and healthcare availability: Nearby grocery stores, pharmacies, and hospitals improve livability. 

• Community services and recreational spaces: Ensuring holistic development. 

• Public perception and stakeholder engagement: Encouraging community support. 

 

Additionally, some states require community approval before awarding tax credits. Gaining support from local residents and officials can prevent project delays and strengthen relationships with stakeholders.

 

Cost Considerations and Financial Feasibility

 

While land costs vary by region, finding an affordable site that aligns with LIHTC program requirements is crucial. Developers must assess: 

 

• Land acquisition costs: Does the price fit into the project finance? 

• Infrastructure readiness: Do the roads, water supply, and sewer infrastructure exist?  

• Environmental impact: Will remediation cost drive up affordability? 

• Availability of tax credits and incentives: Further financial efficiency 

• Possible mixed-income products: Increase revenue stability 

 

Balancing cost and quality ensures the site remains financially viable while achieving the affordability objectives. 

 

Zoning and Land Use Regulations

 

Developers must confirm that a potential site complies with zoning laws and land use policies. This includes: 

 

• Permitted density and building height 

• Parking and green space requirements 

• Restrictions on multi-family developments 

• Flexibility for mixed-use developments 

• Potential zoning variances or waivers 

 

If zoning modifications are necessary, securing approvals early in the process can prevent costly delays.  

 

Challenges in LIHTC Site Selection 

 

Although LIHTC developments bring much-needed affordable housing, the site selection process poses many difficulties. Developers have to consider regulatory constraints, financial limitations, and many other factors that may lead to project failure. Recognizing the challenges leads to better strategic planning and time-wise proactive solutions.

 

The Risk of Economic and Racial Segregation

 

A concentration of LIHTC units in specific areas can reinforce economic and racial segregation. Developers should seek balanced site distribution across various income levels to promote diversity.

 

Rising Construction Costs and Land Prices

 

Escalating land costs make it challenging to acquire sites in desirable locations. Developers must explore public-private partnerships and alternative funding sources to bridge financing gaps.

 

Community Opposition (“NIMBYism”)

 

Not-in-my-backyard (NIMBY) attitudes can delay or derail projects. Engaging with community stakeholders early and demonstrating the positive economic and social impact of LIHTC properties can help mitigate resistance.

 

Infrastructure and Utility Availability

 

Some potential sites, such as roads, water, and sewage systems, may lack the necessary infrastructure. Developing in areas without these utilities can lead to higher costs and project delays.

 

Lengthy Approval and Permitting Processes

 

Local zoning regulations and permitting requirements slow down development timelines. Knowing how to get approved and obtaining permits well in advance will avoid delays.   

 

Regulatory constraints, financial limitations, and community dynamics can all become major challenges to a developer’s success. Knowing these issues beforehand can facilitate more effective strategic planning and proactive solutions. 

 

Choosing a Site That Works for Everyone 

 

A well-chosen LIHTC site benefits both developers and residents. It maximizes funding opportunities, ensures long-term success, and enhances community integration.  

 

By considering market demand, regulatory incentives, transportation access, and neighborhood characteristics, developers can create projects that thrive economically while fulfilling their mission of providing quality, affordable housing. 

 

For those navigating the LIHTC site selection process, careful planning, data-driven decision-making, and community engagement will set the foundation for a successful development.