Expanding Affordable Housing: What Biden’s LIHTC Proposal Means for Housing Development Agencies

Low-Income Housing Tax Credits (LIHTCs) have helped create a significant number of affordable housing units (approximately 3 million) in the United States since the program’s inception in 1986. Here, we discuss President Biden’s recently proposed increases in LIHTC funding and how housing development agencies can navigate potential risks and opportunities in light of it.

Biden’s Proposal to Increase LIHTC funding

President Biden’s proposal to increase funding for the LIHTC program is a promising step towards expanding opportunities for affordable housing. With a budget of $175 billion, the proposal would significantly increase funding allocation for the program, potentially leading to a substantial expansion in the supply of affordable housing across the United States.

Key points of the proposal include:

• Investing $28 billion to expand this tax credit
• Increasing per capital allocation per state from $2.75 to $4.88 by 2025
• Reducing the private activity bond financing requirement from 50% to 25%
• Maintaining affordable rent levels by preventing some owners from exiting the program

While it’s true that the increased funding will not be enough to meet current demand for affordable housing, it’s a welcome increase that will expand affordable housing supply. Biden’s proposal is an important step towards addressing the ongoing affordable housing crisis and providing much-needed relief for lower-income households.

The Impact of Biden’s Proposal

Biden’s proposal will increase the number of projects and units created through the LIHTC program. Experts in the field believe that the proposal would include a 10% annual increase in 9% tax credit allocations. In addition to agencies receiving more tax exempt funding by state, even more projects will be financed using this tax credit.

President Biden’s proposal to reduce the private activity bond financing requirement from 50% to 25% has the potential to provide significant benefits for public housing redevelopment projects. By reducing the amount of private activity bond financing required for projects, the proposal would increase the availability of tax-exempt financing for developers and public housing authorities, acting as developer, making it easier for them to access the funds they need to undertake complex redevelopment projects and preserve and create affordable housing.

What does Biden’s LIHTC proposal mean: Insights for a housing finance authority (HFA)

With President Biden’s proposal to increase funding for the LIHTC program, there will be an increase in projects applying for assistance. Here are some tips on how to streamline the process in light of the proposal:

1. Have clear and effective underwriting criteria. Having clear underwriting criteria helps ensure limited resources are used effectively, and that only the most financially viable projects are approved for funding. This will help maximize the number of affordable housing units that can be developed and ensure public funds are used in the most efficient and effective manner possible.
2. Work with experienced professionals. Outsourcing the review of projects leverages the expertise of external professionals like CSG Advisors who specialize in reviewing and underwriting affordable housing projects. These professionals provide an objective, unbiased assessment and ensure projects are reviewed with the highest level of quality and accuracy. Outsourcing can also help to reduce the workload of internal staff, allowing them to focus on other critical tasks, and is a cost-effective solution that eliminates the need to hire additional staff or invest in expensive training programs.

What does Biden’s LIHTC proposal mean: Insights for a public housing authority (PHA)

With President Biden’s proposal, there are additional opportunities for housing authorities to redevelop their assets using this tool. Some helpful hints include:

1. Comprehensive asset repositioning. Optimizing just one single transaction is not enough to achieve agency-wide success. Every project within a PHA’s portfolio has to have sufficient funding. At CSG Advisors, we approach our work with several questions in mind which help us determine the most appropriate strategies for you.
2. Working with experienced professionals. Experienced professionals have the necessary expertise and knowledge to navigate the complex regulatory landscape of affordable housing. They can provide guidance and support throughout the entire process, from the initial feasibility analysis to the final closing of the transaction. Trusted professionals can ensure your agency understands the requirements and deadlines associated with the LIHTC program, as well as the potential opportunities and challenges that may arise. The experts at CSG Advisors can help PHAs efficiently and effectively complete each transaction, leading to a successful outcome.

It’s clear that LIHTC investments offer major benefits in expanding affordable housing in the US. However, the complexities, risks, and challenges of the program can be difficult to understand and successfully navigate.

CSG Advisors has extensive experience in LIHTC funding and can facilitate your decision-making process on everything related to the program – from streamlining applications to redeveloping agency assets. Contact us to help you successfully support affordable housing initiatives and make a positive impact in your communities.

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References

Department of the Treasury – General explanations of the administration’s fiscal year 2024 revenue proposals

FACT SHEET: President Biden’s budget lowers housing costs and expands access to affordable rent and ownership

Urban Institute – The Low-income Housing Tax Credit

Tax Foundation – Expanding Affordable Housing