Intro to the Low-Income Housing Tax Credit

The Low-Income Housing Tax Credit (Housing Credit) stimulates investment in affordable housing in underserved urban and rural communities and in higher cost suburban communities across the nation. It provides low-income families with a safe and decent place to live and, by lessening their rent burdens, frees up additional income that can be spent on other necessities or put into savings for education or homeownership. The Housing Credit is also a vital community and economic development tool, creating jobs and catalyzing redevelopment in struggling communities.

What is the Low-Income Housing Tax Credit?

The Housing Credit is the single most important federal resource available to support the development and rehabilitation of affordable housing – currently financing about 90 percent of all new affordable housing development.

How the credit works:

• Federal tax credits are allocated to state housing finance agencies by a formula based on population.
• Each state agency establishes its affordable housing priorities and developers compete for an award of tax credits based on how well their projects satisfy the state’s housing needs.
• Developers receiving an award use the tax credits to raise equity capital from investors in their developments.
• The tax credits are claimed over a 10-year period but the property must be maintained as affordable housing for a minimum of 30 years.
• Because tax credits can be recaptured for any noncompliance, investors maintain close supervision over the properties to ensure their long-term viability and compliance with IRS and state allocating agency requirements.

Units funded by the Housing Credit must be affordable for people earning no more than 60 percent of the Area Median Income (AMI), although most residents have far lower incomes.

Rent may not exceed 30 percent of the qualifying income.

What are the outcomes?

Helping Communities and People Nationwide
From 2014 to 2018, Section 4 funds have been deployed by 973 CDCs and other non-profit developers. Since the program’s inception, Section 4 has benefited all 50 states plus the District of Columbia and Puerto Rico.

From 2014 to 2018, Section 4 has helped create or preserve more than 39,000 homes and attracted over $7.7 billion in investment for lower-income neighborhoods and communities across the country.

Section 4 has also provided disaster recovery relief and has been used to assist communities impacted by Hurricanes Katrina, Sandy, Harvey, Irma, Maria, Michael, the California wildfires and other federally declared disasters.

Strenghtening Local Non-Profits
A 2011 independent study by Social Compact assessing the effectiveness of Section 4 found that despite severe economic challenges, the median operating budgets for Section 4 assisted CDCs grew over 157 percent between 2001 and 2009. This has resulted in increased potential for revitalization, inspiring further investment in areas in which traditional investors have seen little value.

Proven Results
Evaluations – ranging from the federal government’s U.S. Government Accountability Office and Office of Management and Budget to independent research organizations like the Urban Institute and Social Compact – attest to the effectiveness of the Section 4 model as well as the efficacy of the intermediaries that administer the program.

What has been LISC’s involvement?

Since the initiation of Section 4, LISC has invested Section 4 resources to build the capacity of 1,168 CDCs in 299 cities and rural communities across 48 states, the District of Columbia and Puerto Rico.

LISC Section 4 investments have positively impacted communities as diverse as the Mid South Delta; small urban communities such as Providence, Rhode Island; larger sprawling cities such as Phoenix, Arizona; and urban cores such as the Bay Area in California.

From 2009 to 2018, LISC’s Section 4 investments in both rural and urban areas have leveraged more than $6 billion in direct real estate investments and have assisted in building, renovating, or preserving approximately 33,099 affordable housing units.

LISC has also invested Section 4 money in programs that address critical national challenges. These initiatives support a wide variety of programs such as green building, the development of healthcare and childcare facilities, the strengthening of neighborhood commercial corridors, job creation, and community safety.

Related:

• Low-Income Housing Tax Credits Prove Valuable for NYC
• The Case for Housing Tax Credits
• What Tax Credits Can Do