Risk and Impact of LIHTC Properties Exiting the Program: Examining the Risks of Expiring LIHTC Restrictions and the Outcomes of Properties that Exit

As market rents rise rapidly across the country, rental affordability has become particularly important especially in preserving affordable housing already in place. More affordable units are needed in the market, so any loss of existing units is problematic. Some market participants are concerned that units supported by Low-Income Housing Tax Credits (LIHTC) may transition from having restricted, affordable rents to levels that are too expensive for low- and even moderate-income households to afford.

In this paper, we examine the LIHTC program, which has been the federal government’s primary vehicle for incentivizing affordable housing development since the program’s inception in 1986. We look at the factors that are correlated with properties leaving the program and examine what happens to units once they are no longer subject to LIHTC affordability restrictions. Understanding these risks can help states consider how to best use their limited LIHTC and private activity bond allocations to help preserve affordable housing. Given the intricacies of the program, disparate and incomplete data, and the inherent unpredictability of future housing market conditions, evaluating the level of risk is an inexact science. However, our goal is not to estimate the number of exiting properties but to instead paint a picture of the general risk that currently exists in the market, and the potential severity of affordability loss.

A key finding from our research is that LIHTC properties that exit the program often remain more affordable than conventional market rate properties that were never subsidized, even if they are not resyndicated. Our research finds that while most properties that exited the LIHTC program have increased rents above the maximum level of allowed rent in the program, the increases are generally modest. In this way, formerly LIHTC properties commonly transition to workforce housing, remaining affordable to tenants that earn below the area median income.

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