Low-Income Housing Tax Credit Policies Promoting Supportive Housing & Recommendations for 2018-2019

Housing Tax Credit Policies play a crucial role in addressing the affordable housing crisis in the United States. These policies, particularly the Low-Income Housing Tax Credit (Housing Credit), have been instrumental in incentivizing the development of affordable housing units. This report builds on the assessment of 2016 Qualified Allocation Plan (QAP) policies and examines the strategies Housing Credit agencies have adopted to foster and encourage supportive housing development within QAPs. By highlighting significant national trends and changes made within QAPs, this report aims to provide a comprehensive analysis of the role of federal Housing Credits in financing supportive housing development and addressing the needs of special populations.

The Low-Income Housing Tax Credit (LIHTC) was established as part of the Tax Reform Act of 1986 to address the mismatch between housing supply and demand, particularly for low-income households. Since its inception, the LIHTC has subsidized over 47,500 projects and 3.13 million housing units, making it the largest source of affordable housing financing in the United States. 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.

There are two primary types of LIHTCs: the 4 percent credit and the 9 percent credit. The 4 percent credit is awarded non-competitively through the federal government and does not impact a state Housing Finance Authority’s (HFA) annual allocation. It is typically used for projects already receiving most of their funding through tax-exempt bonds or other government subsidies and for the acquisition, rehabilitation, and conversion of existing structures to affordable housing. The 9 percent credit, on the other hand, is awarded through a competitive allocation process by state HFAs. States develop a Qualified Allocation Plan (QAP), which details the minimum requirements for credit eligibility as well as scoring criteria to compare project applications.

The allocation process for LIHTC credits involves competition among developers due to limited available funding. Developers must apply through their respective state housing finance agencies, which manage the distribution of these credits based on a combination of factors such as need, location, and project quality. To qualify for the LIHTC, projects must commit to renting units to tenants earning less than 60% of their area’s median income for a period of fifteen years. This requirement ensures that these affordable housing units remain accessible to their intended residents for an extended period.

Supportive housing, which combines affordable housing with services to help people who face complex challenges live with stability, autonomy, and dignity, is a proven, cost-effective way to end homelessness. By providing people who are chronically homeless or have other special needs with a way out of expensive emergency public services and back into their own homes and communities, supportive housing not only improves the lives of its residents but also generates significant public savings. Communities across the country have identified expanding the availability of supportive housing as critical to their efforts to end homelessness.

This report highlights significant national trends and changes made within QAPs to foster supportive housing development. These trends include increased emphasis on the integration of supportive services, prioritization of projects that serve extremely low-income households, and the adoption of innovative financing strategies to maximize the impact of Housing Credits. By analyzing these trends, this report aims to provide valuable insights for policymakers, housing developers, and advocates working to address the affordable housing crisis.

Housing Tax Credit Policies, particularly the LIHTC, have been instrumental in financing supportive housing development and addressing the needs of special populations. Through the competitive allocation process and the integration of supportive services, these policies have helped create affordable housing units that improve the lives of residents and generate public savings. As communities across the country continue to grapple with the affordable housing crisis, the ongoing analysis and sharing of information regarding the role of federal Housing Credits remain crucial in informing effective policy decisions.