Is the Low-Income Housing Tax Credit Program Affecting Renting?

The affordable housing shortage is spreading. No longer confined to major cities with historically large numbers of renters, it is growing across the country.

Despite efforts to maximize the effect of low-income housing development tax incentives, the continuous imbalance between supply and demand of affordable rental housing options of recent years has reached “critical shortage” levels.

Findings from a study conducted by CohnReznick LLP, one of the nation’s largest tax and business advisory firms that specializes in Fortune 1000 market analytics, show the popular belief that there is “too much housing” available in the U.S. is not supported by data.

Titled “The Low Income Housing Tax Credit Program at Year 25: An Expanded Look at Performance” (www.cohnreznick.com), the December 2012 CohnReznick study analyzes state-by-state housing data between 2008 and 2010 when the foreclosure and overall economic crisis reached its peak.

It focuses on the operating performance of apartment buildings financed through LIHTC.

The study is based on information from 38 active organizations (syndicators and investors) managing over 17,000 multifamily properties, which represent over 70% of the LIHTC properties placed in service since 1986.

Performance evaluation is based on occupancy rates, debt coverage, cash flow for unit, “and the incidence of underperforming properties” by state, region and metropolitan statistical area.

This sample size represents roughly $73 billion in LHITC credits and $62 billion in equity contribution from investors that specialize in property development financing.

The analysis focused on whether affordable housing has been overbuilt and whether LHITC properties meet their financial obligations as required by the law.

The study once again confirms that the nation’s shortage of affordable housing persists and raises new concerns: Not only has the shortage of affordable rental housing reached an unprecedented, critical level, it also is a widespread issue across the country.

Data show the shortage is present everywhere, according to CohnReznick principal Fred Copeman, who leads the firm’s tax credit investment services practice. “There is, in short, no room at the inn.”

For years there has been a data-supported consensus that “most markets have a shortage of rental housing,” he explains. The new data indicate the shortage is now critical and widespread.

Analysts find the issue is vital to the housing market and timely as Congress reviews potential loopholes in the corporate tax structure and income tax expenditures authorized by legislation.

Such legislation reviews include concerns whether LIHTC “is meeting its intended objectives,” or whether it is operated in an efficient manner.

Another CohnReznick study scheduled to come out in the first quarter of 2013 will analyze the impact of the Community Reinvestment Act on the pricing of housing tax credits through LIHTC.