What Happens to Low Income Housing Tax Credit Properties ...

WHAT HAPPENS

TO LOW¨CINCOME

HOUSING TAX CREDIT

PROPERTIES AT YEAR

15 AND BEYOND?

U.S. Department of Housing and Urban Development | Office of Policy Development and Research

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WHAT HAPPENS

TO LOW¨CINCOME

HOUSING TAX CREDIT

PROPERTIES AT YEAR

15 AND BEYOND?

Prepared for

U.S. Department of Housing

and Urban Development

Washington, D.C.

Submitted by

Abt Associates Inc.

Bethesda, MD

Jill Khadduri

Carissa Climaco

Kimberly Burnett

In Partnership with

VIVA Consulting

Laurie Gould

Louise Elving

August 2012

WHAT HAPPENS TO LOW¨CINCOME HOUSING TAX CREDIT PROPERTIES AT YEAR 15 AND BEYOND?

ACKNOWLEDGMENTS

The authors of this report acknowledge the contributions and assistance that a variety of individuals and organizations provided to this study.

We appreciate the guidance and support of the U.S. Department of Housing and Urban Development (HUD)

Government Technical Representative, Regina Gray. We also acknowledge Ben Metcalf of HUD, who assisted

in our efforts to find respondents for the owner survey.

We thank the syndicators, brokers, state tax credit allocating staff, and Low-Income Housing Tax Credit

industry experts who agreed to be interviewed and provided data for this study. A list of these individuals and

organizations appears at the end of this report. We thank the tax credit property owners who agreed to participate in the owner survey. Their names are not listed because we told them that information about them and

their properties would not be identifiable in the report. We also thank the National Housing Trust for granting

us access to their Qualified Allocation Plan database for our analysis.

At Abt Associates Inc., Meryl Finkel provided advice to the study team and reviewed all study plans and documents. Stephanie Althoff and Ruby Jennings assisted with data collection. Nancy McGarry provided data

programming. We thank them for their work on this study.

DISCLAIMER

The contents of this report are the views of the authors and do not necessarily reflect the views or policies of the

U.S. Department of Housing and Urban Development or the U.S. Government.

ACKNOWLEDGMENTS

WHAT HAPPENS TO LOW¨CINCOME HOUSING TAX CREDIT PROPERTIES AT YEAR 15 AND BEYOND?

ABSTRACT

The Low-Income Housing Tax Credit (LIHTC) program has been a significant source of new multifamily

housing for a quarter century, producing more than 2 million units of affordable rental housing since 1987. In

recent years, LIHTCs have provided funding for approximately one-third of all new multifamily housing units

built in the United States. In the past few years, however, thousands of properties financed through LIHTC

have become eligible to leave the program, ending rent and income-use restrictions. In the worst-case scenario,

more than 1 million LIHTC units could leave the stock of affordable housing by 2020, a potentially serious

setback to the goal of expanding housing choices for low-income households.

In addition to exploring the issue of whether owners of older LIHTC properties continue to provide affordable

housing for low-income renters, this study examines the factors that affect those owners¡¯ decisions to leave the

LIHTC program and the implications of these departures for the rental housing market. Based on interviews

with owners, with tax credit syndicators and brokers, and with direct investors, the study describes the issues

and decisions that LIHTC property owners confront as their tax-credit projects reach the 15-year mark. The information from interviews was analyzed in conjunction with tabulations from the U.S. Department of Housing

and Urban Development National LIHTC Database and used to describe what happens to LIHTC properties

as they reach the end of their tax-credit compliance period.

The results demonstrate that most LIHTC properties remain affordable despite having reached and passed the

15-year period of compliance with Internal Revenue Service use restrictions. A limited number of exceptions

are closely related to the characteristics of the local housing market, as well as to events that occur at Year 15

and beyond. Some LIHTC properties will be recapitalized with new tax credits. Others will be repositioned as

market-rate units, especially if they are located in low-poverty areas. Most property owners will confront the

issue of how to meet substantial capital needs while preserving the housing as affordable. Future inquiry

and research should address these issues as compliance periods continue to expire and tax credit properties

continue to age.

ABSTRACT

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