Blogs| Strategies for Long-Term LIHTC Housing Preservation

Strategies for Long-Term LIHTC Housing Preservation

Written by

author

Sajan Sharma

Published

Aug 22, 2024

Topics

LIHTC

LIHTC program

Article Contents

    The Low-Income Housing Tax Credit (LIHTC) program has been an essential source for constructing low-cost housing in the United States since 1986. This program is responsible for producing over 2.4 million rental properties, making it the most extensive affordable housing production scheme in the country. However, the most important thing is to guarantee that those units will remain affordable in the future. 

    This blog discusses the importance of LIHTC preservation, the challenges involved, and the strategies needed to maintain affordable housing stock in the future.

    The Importance of LIHTC Preservation 

    LIHTC preservation needs to be done because, in the first place, it stops the movement of tenants who have occupied the housing units. The homes offered through the LIHTC program shelter some of the most vulnerable people in America, with over half of them earning less than thirty percent of their area median income (AMI) as tenants who live under a LIHTC Project. It could be really hard for low to moderate-income families since many of them are just managing to meet their housing expenses.

     

    A second advantage to saving the existing LIHTC stock is that it maintains an adequate supply of low-cost houses. The United States has a deficit of around 7.3 million rental units for low-income tenants. Therefore, destroying LIHTC stock accelerates this deficit, aborting any efforts to increase the number of reasonably priced constructions by building new homes that are cheaper than buying them at retail prices. 

     

    Lastly, conservation efforts could also result in environmental benefits. Upgrading the older LIHTC properties for energy efficiency might reduce greenhouse gas emissions and lower utility bills, which are important to broader environmental sustainability goals. 

    Challenges in LIHTC Preservation 

    Despite its importance, LIHTC preservation faces several challenges: 

     

    Expiration of Affordability Restrictions 

     

    Low-income housing tax credit properties have restrictions on them, which control affordability for at least 30 years. Landlords are allowed to raise their properties’ rent payments to match the market rate, which makes it possible to drive away poor tenants who can no longer afford such accommodation.  

     

    In case owners decide to leave the program even before these years are over, there is what is known as the Qualified Contract (QC) process made in the income tax regulations to guide them throughout this leaving process. Such clauses, together with others, only indicate that long-term affordability is at stake here too. 

     

    Depreciation Risk 

     

    LIHTC properties will eventually deteriorate physically and financially. Without any more operational aid or budget cuts, a lack of sufficient funds due to low rental incomes could impair necessary maintenance or renovation funds and threaten these properties.

     

    Data Limitations

     

    For a preservation effort to succeed, it needs to be backed by detailed data on LIHTC properties, such as expiration dates of affordability restrictions within the properties, owners of the properties, or even QC waivers where applicable.  

     

    Nonetheless, the existing mechanisms of collecting this data are disjointed and do not usually include vital data, making accurate assessment and mitigation of preservation threats difficult. 

     

    Funding Constraints 

     

    Federal funding is crucial to maintaining LIHTC units, which includes investment subsidies for capital improvements and rental assistance for sustainable affordability. 

     

    Nevertheless, the escalating price of maintenance/management and inflation have eroded the appropriation of federal funds for this sector. 

    Strategies for Ensuring Long-Term Impact 

    To address these challenges and ensure the long-term impact of LIHTC, several strategies need to be implemented: 

     

    Strengthening Data Collection and Reporting 

     

    It is crucial to improve the quality and accessibility of LIHTC data gathered at a property level. More staffing and technology investment are required for better data collection and reporting. This includes updating HUD’s LIHTC Database to contain actual restriction end dates and making sure Housing Finance Agencies (HFAs) give comprehensive and timely data. 

     

    Enhancing Federal Funding 

     

    Increasing federal capital and operating subsidies is essential for conserving the current amount of low-cost housing. This involves directly channeling money into the capital funds of public housing while ensuring that the federal government’s yearly fiscal allocations are influenced by inflation. 

     

    Reforming the Qualified Contract Process 

     

    Closing the QC loophole for future LIHTC properties and changing the QC sale price formula to actual market value can prevent early exits from the program. As a result, more properties would be affordable for a longer time period.

     

    Incentivizing Longer Affordability Periods 

     

    States can also require or provide incentives to ensure longer affordable periods in their Qualified Allocation Plans (QAPs). States may award more credits or other rewards to developers who agree to elongate affordability restrictions. 

     

    Promoting Energy Efficiency Upgrades 

     

    Providing motivations for energy retrofits in older LIHTC properties can perform the two-fold function of reducing greenhouse gas emissions and reducing utility costs for tenants. This requires financing and technical assistance for energy efficiency improvements.

    Conclusion 

    Maintaining a sufficient stock of low-income housing tax credit (LIHTC) properties is necessary to support affordable housing, avoid tenant evictions, and ensure home stability among low-income tenants. Collaboration between various government arms, such as federal, state, or local governments, is needed to address issues like expiring affordability covenants or protracted real estate decrease. 

     

    By boosting technology advancements with LIHTC software, information collection, reducing SILOS in LIHTC, increasing federal funds, revamping the QC process, encouraging longer affordability periods, and promoting energy efficiency improvements, we can sustain the long-term effectiveness of LIHTC and continue to afford homes to the most vulnerable populations in the United States. 

     

    Preserving affordable housing is more than a concern on paper; it is a dedication to ensuring that every tenant can get a safe, stable, and reasonably priced place to call home.  

     

    Let us, as we proceed, place more emphasis on these endeavors to ensure that the lack of residential security is a thing of the past. 

     

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