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State HFAs supplement and tailor the nationwide minimum requirements and design their own application process.Annual allocations have been indexed to inflation since 2004 and thus increase nominally each year. In 2019, each State HFA received the greater of roughly $2.75 per capita or the minimum small population state allocation of $3,166,875. At the federal level, the HUD establishes nationwide affordability requirements and the IRS calculates each state’s tax credit allocation.
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Ī typical project involves several private and public actors from initial regulation to finished residential property (see Figure 1): The credits are allocated from the Internal Revenue Service (IRS) to Housing Finance Authorities (HFAs) at the state level, which use the minimum affordability requirements detailed by the Department of Housing and Urban Development (HUD) to create their own guidelines (Figure 1). Additionally, developers can sell their credits to investors in exchange for project funding. The LIHTC may be claimed annually over the course of 10 years once the constructed units are put in service (i.e., available for occupancy). The LIHTC offers developers nonrefundable and transferable tax credits to subsidize the construction and rehabilitation of housing developments with strict income limits on eligible tenants and their cost of housing. Today, the LIHTC is the largest source of affordable housing financing in the United States. Since it was created, the LIHTC has subsidized over 47,500 projects and 3.13 million housing units, using an average of $8 billion in forgone revenue to subsidize the costs of building more than 107,000 units across 1,411 projects each year. As part of the Tax Reform Act of 1986, policymakers created the Low-Income Housing Tax Credit (LIHTC) to address the mismatch between housing supply and demand by encouraging developers to build units specifically allocated for residents with incomes below their area median income (AMI).
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The shortage of attractive and affordable housing has been a chronic problem in the United States at least since the beginning of the post-war period. The study concluded that available housing supply is usually built and marketed to higher-income earners above the median income. In fact, a 2019 Harvard University study concluded that over 75 percent of households making under $30,000 are moderately or severely “housing cost burdened,” meaning over 30 percent of their income goes toward housing costs. This shortage-along with the consequent rise in housing prices-is felt most acutely by lower-income workers in search of affordable housing. ĭespite steady capital investment and economic growth following the 2008 financial crisis and housing bubble, a shortfall of new residential housing construction remains. Congress should consider improvements to oversight and administration of the credit, such as recommendations by the Government Accountability Office for improved record keeping, data sharing, and oversight, to strengthen cost assessment and fraud risk management. The LIHTC suffers from fraud and is criticized as an ineffective method of providing affordable housing.Research indicates that LIHTC developers produce “housing units that are an estimated 20 percent more expensive per square foot than average industry estimates.”.According to the Department of Housing and Urban Development, the LIHTC costs the government an average of $8 billion in forgone revenue each year. The LIHTC has subsidized over 3 million housing units since it was established in 1986, the largest source of affordable housing financing.The Low-Income Housing Tax Credit (LIHTC) offers developers nonrefundable and transferable tax credits to subsidize the construction and rehabilitation of housing developments that have strict income limits for eligible tenants and their cost of housing.