MAY 10, 2023 • AN ANALYSIS BY DAVID CAPUTO & MARY LE & MATT REIDY
The need for more affordable housing has been headline news for quite some time now, but that need to build or convert space into more affordable housing units is not the only pain point. Despite receiving subsidies, thousands of affordable units are at risk of disappearing every year. The Low-Income Housing Tax Credit (LIHTC) program – first implemented in 1986 but made permanent in the early 1990s – provides tax credits for the construction or rehabilitation of affordable housing.
Developers typically sell these tax credits to investors to raise equity, allowing them to borrow less than otherwise and be able to charge lower rents. Properties under the LIHTC program commit to remaining affordable for 30 years (for most states, while some have extended periods) and are subject to a 15-year compliance period where the tax credits for renovations can be clawed back by the IRS if the property fails to meet the terms. Beyond year 15, enforcement varies and is up to each individual state allocating agency. Within the next five years, 188,000 LIHTC units are expected to expire, and these owners have several options which we discuss below.