Low Income Tax Credit Housing (LIHTC) AFFORDABLE HOUSING
Why is it good for my town or city? Many areas struggle with a shortage of affordable housing because often developers prefer to build in high demand, high rent areas that provide a greater rate of return. This program assists developers by providing a funding method where the lower rents obtained in a rural or less active urban environment will sustain a conventional mortgage. Without the program many areas of the country would be bypassed, with developers building new housing only in areas offering higher returns. Without the new housing brought into existence by the LIHTC program, low income persons often have little choice but to accept older outdated housing options that are often substandard. Many low-income households; without this program, are often forced financially to relocate to another area creating a housing affordability problem in that area.
Why is it good for the renter?
Stability. Under the LIHTC program, typically, once your household qualifies you remain qualified and do not need to relocate as your household income increases. There are exceptions of course having to do with student status or changes in household composition.
Affordability. The program has rental income limits established by HUD and state agencies that are adopted by the housing developers. Typically, rental rates are capped and housing is provided to those with incomes ranging from 30% to 60% of the median income range in the county or metro area. Ideally if you earn ½ of what is average for your area your rent is going to be ½ of the typical rent in the area.
Quality. New construction, and renovations promoted under the LITC program brings with it many housing features available in new construction. Additionally, under federal and state regulations owners are pledged to ensure that housing quality standards are maintained from beginning to end of the program. Housing inspections and property inspections are conducted on a regular basis to ensure that the housing quality standards are maintained.
Special Needs. There are many special populations of those in need of affordable housing. 55+, 62+, housing for the disabled, housing for veterans and many more just to name a few. While the LHTCH program is not solely intended to provide special needs housing, it does promote equal opportunity housing and promotes housing choices for those that have special needs.
Are there any disadvantages for the renter? Yes. Consider application delays, recertifications and inspections. Like many well intended programs requiring state and federal participation the focus of providing housing to those in need can become mired down in red tape. You can no longer simply sign an affidavit or provide a tax return showing income eligibility as was the case at the beginning of the program in 1987. State agencies have invoked requirements that the owners and managers of tax credit housing obtain third party documentation on all sources of income. So not only do you need to be low income, you are required to prove it. This will involve an application process where you are required to disclose information and answer questions about the income for yourself and other household members. Management will need to obtain the information necessary to send the verifications to your employer, bank, social services, pension department, and others contributing to your household income. In many states negative verifications are even required. This means that owners and managers are required to reach out to state agencies and verify that your household is not receiving child support, unemployment benefits or other benefits that may be considered income. It can be frustrating when your verification ends up sitting on a third party’s desk and is not returned on the same day, week or month. Program requirements usually forbid your taking this paper work to someone and returning it to your apartment manager.
Depending on the state regulations and other funds used in the construction process, income verification does not end at move in. The same income verification process may need repeated annually or any time the household composition changes.
As noted above inspections occur frequently and often at the behest of several participating entities. There will be multiple inspections. If you do not wish to maintain the housing standards of your rental home or are averse to inspections within your apartment, a LIHTC rental may not be right for you.
Is there any exception to the income limits? Sorry generally that is a NO. If the household income or anticipated income exceeds the household limit the owner and manager are required to deny the application. Unless…. Yes, there is one exception. If congress declares that federal disaster relief is needed in a specific area due to a housing crisis the income requirements may be suspended. Think floods, fires, and hurricanes. Suspended income rules however are not always applicable when a development is in its initial lease up stage. Suspended income regulations are often for a finite period of time and a household that is not income qualified may need to vacate when the congressional date mandates.
What about low-income students? This housing program was not intended to be housing for students although many student households are low income. In general, if you are low income and you are a full-time student you can not qualify on your own. There are exceptions in communities that are not age restricted, these are:
· A student receiving assistance under Title IV of the Social Security Act (TANF); or
· A student who was previously in the foster care program; or
· A student enrolled in a job training program receiving assistance under the Job Training Partnership Act or under other Federal, State or local laws; or
· The household is comprised of single parents and their children and such parents are not dependents of another individual and such children are not dependents of another individual other than a parent of such children. In the case of a single parent with children, the legislative history explains that none of the tenants (parent or children) can be a dependent of a third party; or
· The household contains a married couple entitled to file joint tax returns.
· When a community has HUD assistance or HOME funds the student exceptions do not fully apply and “student households” are not accepted.
What is (LIHTC) Low Income Tax Credit Housing? The Low Income Housing Tax Credit (LIHTC or Tax Credit) program was created by the Tax Reform Act of 1986 as an alternate method of funding housing for low- and moderate-income households, and has been in operation since 1987. These tax credits are then used to leverage private capital into new construction or acquisition and rehabilitation of affordable housing. The tax credits are determined by the development costs, and are used by the owner. However, often, because of IRS regulations and program restrictions, the owner of the property will not be able to use all of the tax credits, and therefore, many LIHTC properties are owned by limited partnership groups that are put together by syndicators. In this manner, a variety of companies and private investors participate within the LIHTC program, investing in housing development and receiving credit against their federal tax liability in return.
In brief … Your landlord is still going to have a monthly mortgage, taxes, and operating costs. The tax credits are usually sold before the property opened and those funds were applied to the cost of construction, creating a mortgage that is sustainable by the rents collected. The above is an overview of the program. For those looking for a greater understanding or policies applicable to the LIHTC program in your area we recommend visiting the following:
https://lihtc.huduser.gov/agency_list.htm (a link to your state agency).