New Developments: Telling Our Story
By Thom Amdur
3 min read
There are many reasons why the Low Income Housing Tax Credit (LIHTC) and the Historic Tax Credit (HTC) have endured politically and produced or preserved so many affordable units and historic structures. They are bipartisan programs and are built on pay-for-success principals. While both are federal programs, there is local oversight by the housing finance agencies and State Historic Preservation Offices, respectively. They blend well with other resources (including each other) and are not victim to the vagaries of the federal appropriations process. Perhaps, most importantly, a professional industry has grown along with the programs, developing and enforcing standards and best practices that help ensure its success.
In an era where federal deficits are ballooning, trust in government programs and institutions is at an all-time-low and the need for housing at an all-time-high, we have an obligation to be good stewards of government resources and the assets they produced. Fortunately, we have a great story to tell – through industry standards, like National Council of State Housing Agencies’ (NCHSA) Recommended Practices, Affordable Housing Investors Councils’ Operating Subsidy Review Guidelines and Risk Rating Guidelines, NCHMA’s Model Content Standards for Market Analysis and more, we do a thorough job at self-policing. Numerous checks and balances that are baked into the LIHTC allocation, underwriting and compliance processes, including Project Capital Needs Assessments, subsidy layer reviews, cost certifications, guarantees and more, are designed to ensure that projects are not over-subsidized on the front-end and that the affordable units are delivered and leased up to qualified residents.
Taken together, the results are encouraging – year-in and year-out the LIHTC has the lowest rate of foreclosure of any commercial real estate asset class. A recent study, Variations in Development Costs for LIHTC Projects, commissioned by NCHSA and conducted by Abt Associates, demonstrates that housing credit financed apartments on average cost roughly the same to develop as typical conventional apartments, even though LIHTC properties must, by law, meet many requirements that conventional apartments buildings do not. The report also examined development cost growth in housing credit properties through multiple methodologies and data suggests that LIHTC Total Development Cost (TDC) actually grew less than conventional TDC (based on Fannie Mae data) or at roughly the same average rate as overall apartment development costs (based on the RS Means Historical Cost Index).
Still, this fall the tax credit development community faces a sort of moment of truth. At a time when the lack of affordable housing as a national issue of concern has never been higher, on September 10, House Ways & Means Committee Chairman Kevin Brady (R-TX) introduced a three-bill package dubbed “Tax Reform 2.0.” Though we are still recovering from the reduction in the value of the LIHTC and HTC resulting from “Tax Reform 1.0,” there are no provisions to relieve this by enhancing the LIHTC or Historic Credit in the first iteration of 2.0.
As we go to work to secure additional legislative enhancements this fall or winter, we are faced with a potential distraction: the release of the third of a series of reports from the Government Accountability Office (GAO) focused on the cost of developing affordable housing. Anticipating the report’s release, I feel a little bit like a student waiting to find out the grade for an exam scored on a bell-curve. Knowing that GAO’s analysis is based largely on a sample of high cost states, there is concern that results will skew high and not present the complete picture. Fortunately, we have substantial data and great practices that will enable us to fill in the rest of the story.
