An Essential Preservation Tool for Public Housing
By Sunia Zaterman
This month marks the 27th anniversary of the federal Low Income Housing Tax Credit (LIHTC) program. Throughout the program’s tenure, what lessons have we learned? What key components continue to make it a successful program?
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The Low-Income Housing Tax Credit (LIHTC) has proven to be an essential tool in redeveloping distressed public housing across the country. Federal appropriations for the maintenance and capital repair of public housing has declined severely over the past several years, making it impossible even to keep up with the new repair needs that arise each year for public housing properties. This just adds to the backlog of capital needs, which currently stands at approximately $26 billion nationwide.
Since the federal Capital Fund dollars appropriated are insufficient to redevelop public housing, housing authorities heavily depend upon tax credit financing. Important platforms such as the HOPE VI program, the Choice Neighborhoods Initiative (CNI), and the Moving to Work (MTW) program have been the only mechanisms available to housing authorities to partner with non-profit and private developers in using tax credits to revitalize much-needed public housing properties. Through these platforms, housing authorities are able to combine scarce public housing capital funding with private and other public resources, including tax credits, in a layered financing process in order to rehabilitate properties and revitalize communities. As Adrianne Todman, Executive Director of the DC Housing Authority, stated at a recent Capitol Hill briefing on affordable multifamily housing development, “Without the LIHTC program, we are not able to preserve public housing.”
The LIHTC program is not without its lessons learned. Both the 4 percent and the 9 percent LIHTC programs have particularly expensive upfront soft costs as well as long term compliance costs. These costs can make it challenging for housing authorities to create viable projects with positive net operating income. The accompanying investments of time and expense, coupled with the overall complexity of the program itself, can also present a major obstacle to more effectively utilizing the program. Additionally, the complex HUD underwriting process for housing authorities utilizing the LIHTC program in public housing deals also contributes to the difficulty that many housing authorities have in participating in the program. The LIHTC program could be more streamlined and simplified to enable stronger and more effective use of the program for housing authorities.
Additionally, the Housing Finance Agency (HFA) Qualified Allocation Plans (QAPs) could be revised to give more equal footing to housing authorities competing for credits with for-profit developers. Housing authorities are long-term investors and operators of affordable housing who, as Tony O’Leary, Executive Director of the Akron Metropolitan Housing Authority states, are “deeply motivated to develop financially and environmentally sustainable units that have the durability to operate long beyond the LIHTC compliance period.” The HFA QAPs do not give equal favor to housing authorities despite this intrinsic difference between housing authorities and for-profit developers. As a result, many awards go to for-profit developers, only to be taken over after the initial fifteen-year affordability period by housing authorities who then need to contribute significant and new LIHTC investment in order to rehabilitate the units.
Despite its challenges, the LIHTC program remains an extremely important preservation tool for public housing. Without it, the stock of affordable homes available for low-income families across the country would greatly diminish.
CLPHA would like to thank its members, especially the Akron Metropolitan Housing Authority, for their assistance in preparing this post.
Sunia Zaterman is the Executive Director of CLPHA
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