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  Report Shows Benefits of LIHTC
As Congress and the White House, Republicans and Democrats, continue arguing back and forth about solutions for our deficit and budget woes, nearly every program and department is "on the table," at risk of being significantly cut or outright eliminated. Though tough decisions have to be made, a new report suggests there's at least one Federal program that should be left alone. A comprehensive study of Low Income Housing Tax Credits found that it outperforms nearly all other affordable housing-related programs and incentives.

The report was developed by Novogradac & Company, in partnership with the Housing Advisory Group (HAG), a coalition that advocates for affordable housing and its various programs. Rather than conducting a stand-alone assessment of the LIHTC program, Novogradac compared outcomes of several affordable housing programs: Section 221(d)(3) Below Market Interest Rate, Section 236, Section 515, Project-Based Section 8 Rental Subsidies, and Section 202.

Five different factors were used to assess the LIHTC program: compliance history, foreclosure rate, agency review experience, year 15 opt-outs, and investor portfolio analysis. Compliance history is considered an effective way to assess whether affordable housing is being made available to the residents for which it is intended. If housing units built with LIHTCs are largely compliant, that means rent restrictions are being enforced, and restricted units are primarily being rented to low- and moderate-income families. Agency review experience is another way of assessing compliance, as credit-allocating agencies are often responsible for dealing with compliance issues.

Though foreclosures are less likely with subsidized housing, even properties built with tax credits can experience financial difficulties. By comparing foreclosures rates of various programs, an accurate evaluation is made regarding the longevity of housing that's developed using LIHTCs. The 15-year opt-out and investor portfolio analysis factors are also used to determine long-term availability of low-income housing units.

The foreclosure rate for properties built using Low-Income Housing Tax Credits is significantly lower than the rate of other programs. A survey of 15,174 properties found that just 129 were foreclosed on between 1991 and 2006, which works out to an annualized rate of just 0.08 percent. In comparison, non-LIHTC properties had a foreclosure rate of 0.27 - more than 3 times higher.

The compliance history of LIHTC properties is strong as well. Two measures were used to determine compliance - tax credit recapture, and credit allocating agency reviews. There aren't many public statistics available regarding credit recapture, but what is available shows a very low percentage among LIHTC properties. In addition, credit allocating agencies reported very low instances of non-compliance among properties that fell within their jurisdiction. A review of IRS Form 8823s found that only 5 percent of California properties had non-compliance issues that required the form to be submitted.

In addition to offering an assessment of the overall performance of the LIHTC program, Novogradac's report suggests several reasons for the program's success. Generally, the structure of the LIHTC program encourages third-party investment, making tax credits as much a leveraging tool as a federal subsidy. In addition, third-party investors are keenly interested in protecting their investments. As a result, properties developed with LIHTCs are screened more rigorously than properties developed through other programs.

Most other Federal housing programs offer front-end subsidies, which means money is spent before a project is successfully completed, creating little incentive for developers to effectively manage costs or operate within a reasonable time line. Conversely, low-income housing tax credits are not earned until the project is finished. This puts greater pressure on developers and builders to come in under budget and meet all deadlines.

Yet another unique aspect of the LIHTC program is that it is administered at state and local levels. This allows the program to be adapted to each region's unique needs and investment environment, while also enabling closer oversight and regulation. In order to receive tax credits, each state or region must first submit a Qualified Action Plan (QAP) detailing how the tax credits will be used. Because plans are developed in advance, projects are completed more quickly and efficiently.

Overall, the assessment of the Low-Income Housing Tax Credit Program found it to be an excellent program that not only provides much-needed affordable housing, but also encourages significant private investment in projects that might otherwise go unnoticed and unfunded.

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