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LIHTC as a Potent Resource, Comfortable Straitjacket, and Set of Blinders

Note: This primer on LIHTC was prepared by instructor David Smith to answer the perennial question of how LIHTC fits into our programs on affordable housing, offered annually on campus and online.

The Low Income Housing Tax Credit (LIHTC, pronounced lie-teck) is a home-grown and completely parochial affordable housing resource that, for just short of 40 years, has been the sole large-scale Federal resource for ‘affordable housing’ (as defined in US statutes). Today it arises in over 95% of all ‘affordable housing’ production or preservation, and in transactions where it is used, it will represent 40% to 85% of the capital stack.  LIHTC’s dominance has been the main reason state housing finance agencies (HFAs) have grown so large and important, and as a result it’s eaten up most of the industry’s headspace. 

Even so, in today’s US, LIHTC by itself is insufficient to make a deal viable.  

Fierce competition for the resource (in most states, fewer than one third of applications win awards) has allowed state HFAs to add non-housing frills into their Qualified Allocation Plans (QAPs).  To win, therefore, a developer must promise things that do not pay for themselves.  That post-LIHTC gap has to be filled with other resources, especially soft financing, most of which come from non-Federal sources.    In short, winning a LIHTC award may make the deal inevitable but doesn’t make it viable, so the developer goes around, hat in hand, raising other non-Federal resources, from anybody it can, in the manner I teach about in class (photos from the 2024 session below).  

Meanwhile, LIHTC is rigid and its definition of ‘affordable housing’ is much too narrow.  It excludes:

  • (a) households above 80% of AMI (who are a considerable portion of the American renter population),
  • (b) anything to do with affordable home ownership (including condos or co-ops),
  • (c) most cost-saving measures (e.g. not having to pay prevailing wage).  

QAPs and competition add obstacles and costs to larger properties, mixed-income or mixed-use properties, and disincentivizes small-scale developers or virtually anyone new to this ecosystem who wants to innovate do something with affordable housing without being part of an existing (and increasingly large) platform of the incumbents’ club.

Our program, offered online and on campus, is designed to help individuals find and enter the vast non-LIHTC open spaces in the US affordable housing development ecosystem.