Financing the Low-Income Housing Tax Credit

A couple of weeks ago, an act that would strengthen the Low-Income Housing Tax Credit (LIHTC), the Affordable Housing Credit Improvement Act (AHCIA) of 2021 was introduced with co-sponsors in both chambers of Congress.

As MReport reported at the time, the AHCIA could finance an additional two million affordable homes over the next decade by expanding and bolstering the LIHTC, the nation’s primary tool to build and preserve affordable housing.

The Terner Center for Housing Innovation at UC Berkley recently published a paper entitled, "The Complexity of Financing Low-Income Housing Tax Credit Housing in the United States."

The report is part of the Terner Center’s cost of building housing research series, which examines the different cost factors that layer together to create the total costs to build housing, according to TCHI. The series includes an in-depth analysis of the costs of building 9% LIHTC housing in California (the second least affordable place to have a home) and an assessment of trends in hard construction costs in affordable and market-rate developments in California."

As important as the LIHTC has been to building homes, the equity generated from the tax credit is rarely sufficient to close the gap between the costs of development and the payments that would be affordable to
households with low to moderate incomes, according to the authors of the paper, Elizabeth Kneebone and Carolina K. Reid.

"In this brief, we draw on multiple sources of project-level data as well as interviews with dozens of stakeholders across the country to better understand financing complexity across different markets and types of properties and to identify challenges associated with the fragmentation of funding," they write.

The point of the paper is this: Funding complexity, where it exists, adds to administrative costs and can create other inefficiencies that work against the goals of containing costs and stretching subsidies further to house more people. Thus, the research identifies said complexities and offers "promising approaches," according to the authors, to streamlining capital.

The entire paper, and full series, are available at ternercenter.berkeley.edu.