|
Last year, the program awarded over $460 million worth of tax credits to developers to help underwrite the costs of producing affordable housing, with $50 million going to California alone. These tax credits are not arbitrary. They are based on population. States are given $1.75 worth of tax credit per state resident (with a minimum of $2 million per state) to distribute every year.
Consider the Challenges Before Pursuing
While all this may sound like an opportunity worth pursuing, before you consider operating in the tax credit development arena, understand that you will be facing a different — and much more complex — set of challenges than those you are used to in the market-rate world.
What you need to know up front is that the LIHTC is not a subsidy program like Sec. 8. Nor is it public housing. It’s an IRS program administered by state Housing Finance Agencies (HFAs) to enable developers to build quality housing for working families who cannot afford market-rate rents.
It is also much different than the world of market-rate properties. While owners of market-rate properties strive to set rents as high as possible in order to develop and build apartments without losing money, owners and managers of tax credit properties do not have the option to adjust rents to meet changing circumstances.
First, let’s consider the renters themselves. Many are nurses, teachers, firefighters, police officers or people working in facilities maintenance, retail sales and the like. They simply aren’t paid enough to afford market-rate rental housing. And they cannot find safe, affordable housing. Generally, if they and their families have incomes at or below 60% of their area’s median, they can apply to live in a tax-credit rental unit, depending upon the requirements of their particular locality.
Now let’s look at the amenities in apartment communities. While market-rate properties may provide a swimming pool, exercise rooms or in-unit washers and dryers, in a tax-credit property the residents typically are much more interested in having nearby access to family-supportive services such as daytime child care, job training and computer learning centers.
The residents seek these supportive services in order to improve their skills and become eligible for higher-paying jobs. Once they succeed, they move on to market-rate housing opportunities.
Next Week: Long-Term Commitment Crucial to Success
Robert Greer is President of Michaels Development Company, Inc. in Marlton, NJ, and has 25 years of experience in tax-credit development, both as a director of the Pennsylvania Housing Finance Agency and as a developer. He is the chair of the NAHB Multifamily Housing Credit Group. Greer can be reached at 856-596-3008 or via e-mail. To visit the Michaels Development Company Web site, click here.
| 
The first in a three-part series.
