Making Affordable Housing Pencil Out

National Apartment Association

September 14, 2022


Everybody wants more affordable housing—these companies make it work.

The need for more affordable housing is a constant refrain in the rental housing industry. The remedies include build-to-rent communities, inclusionary zoning, up-zoning, mixed income housing, ADUs and tinkering with tax credits. Obstacles include “NIMBYism” (residents who advocate against having these projects— “not in my backyard”), land-use policies, politics and the ongoing labor shortage. But there are some firms who have figured out how to make it work. 

How the Money Works 

Rehabbing, re-financing or building new affordable communities all rely on the Low-Income Housing Tax Credit (LIHTC) program, which was created by the Tax Reform Act of 1986. LIHTC is technically administered through the U.S. Treasury Department but gets a big assist from the Department of Housing and Urban Development (HUD) and the state housing finance agencies. Properties funded through the LIHTC program must qualify as affordable for 30 years. Affordability eligibility is calculated using household income as compared to an area’s median income. 

LIHTC comes in two varieties: 4%, and 9% credits. The 9% credits are dispensed through local housing authorities via a highly competitive award process regulated by the housing authorities’ Qualified Allocation Plans. The plans vary by community and may include qualifications like access to public schools, access to public transportation and green building standards. Four percent credits are allocated to projects that receive at least 50% of their fundings through tax exempt bonds. 

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* The information contained herein is for general, informational purposes only and is not intended to constitute an offer to sell or buy any securities or other assets or promise to undertake or solicit business, and may not be relied upon in connection with any offer or sale of securities or other assets.

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