A recent report from the University of New Orleans entitled “Supporting Permanently Affordable Housing in the Low-Income Housing Tax Credit Program: An Analysis of State Qualified Allocation Plans” examines how state policies and procedures within Qualified Allocation Plans (“QAPs”) influence the allocation of LIHTC resources and in turn support permanently affordable housing.
The report authors first examined extended affordability policies through the use of threshold requirements, set-asides and point-based scoring criteria in QAPs. According to the report, 13 states currently include threshold requirements that LIHTC applications must extend affordability beyond the 15-year compliance period to be eligible to receive tax credits. Of those 13 states, nine mandate that LIHTC applications commit to maintaining affordability for a minimum of 30 years. Twenty-four states incentivize extended affordability periods through the allocation of points. Nine states both require affordability restrictions beyond the 15-year compliance period and reward applications that go beyond the threshold requirement with points. Of the 33 states that offer point incentives (alone or in conjunction with threshold requirements) almost half allocate only a small percentage of total points to projects that extend affordability periods. Five states do none of the above.
In addition to extended affordability requirements, several states also incentivize lease-purchase models or the conversion of rental units to tenant ownership, which in general enables states to use tax credits as a tool to promote homeownership. According to the report, 44 states incentivize LIHTC projects that provide homeownership opportunities to tenants after the 15-year compliance period, however, only eight explicitly offer conversion to homeownership as an alternative. In these states, developers can either opt to abide by affordability restrictions for a full 30 years or offer homeownership opportunities to existing residents in year 15 in order to meet threshold requirements.
The report concludes that while the existing requirements and incentives tend to favor extended affordability and homeownership opportunities, there are still ways in which these policies can be improved in state QAPs. The authors suggest that stakeholders should educate state HFAs during the QAP revision processes about the benefits of extended affordability requirements and rental unit conversions. In addition, they suggest that states should encourage the participation of more organizations that are exclusively committed to maintaining affordability of the current housing stock and should promote partnerships between these organizations and private developers.