Supporting Permanently Affordable Housing

Introduction

The United States faces a permanently affordable housing crisis. While federal programs like the Low-Income Housing Tax Credit (LIHTC) have produced millions of affordable housing units, the long-term affordability of these units is at risk due to built-in time limits on affordability compliance. This report focuses on integrating the concept of permanently affordable housing (PAH) within the LIHTC program, highlighting how states can support and preserve public investment in affordable housing.

What Is Permanently Affordable Housing?

Permanently Affordable Housing (PAH) refers to housing options—both rental and ownership—that are affordable to low- and moderate-income households not only now but in perpetuity. PAH organizations use tools like:

• Community Land Trusts (CLTs)

• Limited Equity Cooperatives

• Long-term Deed-Restricted Housing

In these models, the affordability of homes is preserved across resale transactions. The equity in homeownership is shared between the homeowner and the stewarding organization, ensuring that public subsidies benefit future generations of low-income households.

On the rental side, PAH organizations manage and maintain high-quality, affordable rental units that offer long-term stability. They focus on resident services, sound construction, and responsible property management. These efforts go beyond simply building housing—they create a pathway to residential stability and wealth-building.

The Role of the Low-Income Housing Tax Credit (LIHTC)

Established under the Tax Reform Act of 1986, the LIHTC is the largest federal program for affordable rental housing development. It has financed over 2.2 million rental units across the U.S. The program works by providing federal tax credits to state housing finance agencies (HFAs), which then allocate them to developers through a competitive application process.

Here’s how the process works:

1. Developers receive tax credits.

2. They sell those credits to investors for upfront equity.

3. Investors benefit from 10 years of federal tax credits.

4. The project must remain affordable for at least 15 years.

However, despite a 1989 amendment that encouraged 30-year affordability, many properties face market-rate conversion after 15 years through the Qualified Contract (QC) process. This threatens the long-term supply of affordable units and the original public investment.

Why Focus on Permanence?

The risk of LIHTC-funded units converting to market-rate housing highlights the need for permanent affordability models. Once affordability restrictions expire, especially in strong housing markets, owners often opt to raise rents or sell to market-rate developers.

Integrating PAH principles into the LIHTC program would:

• Preserve affordable housing over multiple generations.

• Extend the reach and impact of limited public subsidies.

• Offer shared-equity homeownership as a sustainable exit strategy after the 15-year compliance period.

The PAH model allows for reevaluation at year 15: whether to maintain the unit as a rental or convert it to ownership while keeping affordability intact.

Challenges for PAH Organizations

Despite the potential, PAH organizations face multiple barriers in accessing and utilizing LIHTC financing:

• Complexity of Tax Credit Deals: These deals require deep knowledge of real estate, tax law, and compliance monitoring.

• Limited Technical Expertise: Many PAH organizations lack capacity to manage development, reporting, and asset oversight.

• Capital Barriers: Smaller nonprofits may struggle to secure funding or partner with experienced developers.

To overcome these, PAH groups can:

• Form partnerships with experienced LIHTC developers.

• Build in-house expertise through training and technical assistance.

• Advocate for state policies that recognize and reward long-term affordability.

State-Level Support: The Role of Qualified Allocation Plans (QAPs)

Each state creates a Qualified Allocation Plan (QAP) to set its affordable housing priorities and guide LIHTC distribution. The QAP is central to encouraging or discouraging PAH through:

1. Threshold Requirements

These establish minimum eligibility standards. States can require permanent affordability, stewardship provisions, or nonprofit ownership as thresholds.

2. Set-Asides

Specific portions of the credit allocation are reserved for projects that meet certain criteria—like being developed by nonprofits or targeting deep affordability.

3. Point-Based Scoring

Projects receive points based on how well they align with the state’s housing goals. Additional points for permanence, shared equity, or long-term affordability can guide developers toward the PAH model.

States that prioritize PAH in their QAPs are better positioned to:

• Protect affordability long after tax credits expire.

• Promote housing equity.

• Encourage sustainable ownership opportunities.

Case Studies and Success Stories

Several community land trusts and nonprofit developers have successfully integrated PAH with LIHTC, including:

• Champlain Housing Trust (Vermont)

• Athens Land Trust (Georgia)

• Thistle Communities (Colorado)

• Women’s Community Revitalization Project (Philadelphia)

These organizations used LIHTC financing to produce permanently affordable homes while supporting low-income families through financial counseling, maintenance, and legal protections.

Recommendations

To support and expand the role of PAH in the LIHTC program, the report recommends the following:

1. Policy Innovation

States should revise QAPs to reward or require long-term affordability and nonprofit ownership.

2. Capacity Building

Technical training and funding must be provided to PAH organizations to improve their competitiveness in LIHTC applications.

3. Public Stewardship

Governments and nonprofits must act as long-term stewards of affordability, especially at critical junctures like year 15.

4. Exit Strategy Reform

Policies should discourage quick opt-outs via the QC process and incentivize conversions to shared equity ownership when rental affordability is no longer viable.

Conclusion

As housing affordability remains a national crisis, the LIHTC program is an invaluable tool—but its full potential is only realized when paired with the principle of permanent affordability. Incorporating permanently affordable housing models within LIHTC-financed developments ensures that public investments benefit not just one generation, but many to come.

By aligning federal incentives with community stewardship and long-term goals, states can transform the affordable housing landscape—offering lasting stability, security, and equity for lower-income families across the U.S.

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