Housing Affordability and LIHTCs National Development Council 1 - - PowerPoint PPT Presentation

▶
housing affordability and lihtcs
SMART_READER_LITE
LIVE PREVIEW

Housing Affordability and LIHTCs National Development Council 1 - - PowerPoint PPT Presentation

Aug 25, 2022 451 likes •694 views

Housing Affordability and LIHTCs National Development Council 1 Why the Public Sector Is Involved in Housing Finance Two types of housing problems Affordability and lack of investment Housing for low/moderate households is weak on

slide-1
SLIDE 1

Housing Affordability and LIHTCs

1

National Development Council

slide-2
SLIDE 2

Why the Public Sector Is Involved in Housing Finance

  • Two types of housing problems
  • Affordability and lack of investment
  • Housing for low/moderate households is weak on

economic benefits

  • Cash Flow, Appreciation and Tax Benefits
  • The private sector generally cannot provide

affordable, decent, safe and sanitary housing for low/moderate households without public assistance

slide-3
SLIDE 3
  • Equity- Profit Maximizers
  • Low/moderate income housing provides marginal ROI
  • Rents lower, vacancy/collection losses higher, little

appreciation

  • Debt- Risk minimizers
  • Debt sized as a function of cash flow or as a percent of

value

  • Lower value or cash flow results = smaller loans

A Fundamental Problem in Affordable Housing Finance

3

slide-4
SLIDE 4
  • Total Project Costs (TPC) are often greater

than a project’s Fair Market Value (FMV) as Completed

  • But...debt and equity are a function of value,

not cost

  • Where TPC > FMV, there’s often a need for

public economic, housing and community development resources to get the project done

A Fundamental Problem in Real Estate Finance

4

slide-5
SLIDE 5
  • A project’s financing gap is defined as the

difference between projected costs (uses) and the debt and equity (sources) it can reasonably attract as follows:

Total Project Costs

  • Bank Loan
  • Equity

= Financing Gap

Defining the “Financing Gap”

5

slide-6
SLIDE 6

Cost-Value Differential Example

6

100 $140,000 $14,000,000 Market Rate and Affordable Rental Development Residential Units Cost/Unit Total Development Costs

  • If same quality is achieved, development costs do

not differ

slide-7
SLIDE 7

Cost-Value Differential Example

7

Operating Income (40% less) 420,000 $ Available for Debt Payments 365,217 $ Maximum Loan Supported 6,627,060 $ Equity Attracted 684,783 $ Other Sources Needed 6,688,157 $ Affordable Operating Income 700,000 $ Available for Debt Payments 583,333 $ Maximum Loan Supported 10,812,974 $ Equity Attracted 2,121,212 $ Other Sources Needed 1,065,814 $ Market Rate

slide-8
SLIDE 8

Cost-Value Differential Example

8

TPC $14,000,000

  • Less Debt

6,627,060 $

  • Less Equity

684,783 $ Gap (surplus) $6,688,157 Affordable

TPC $14,000,000

  • Less Debt

10,812,974 $

  • Less Equity

2,121,212 $ Gap (surplus) $1,065,814 Market Rate

slide-9
SLIDE 9
  • Created in 1986, 2M tax credit units
  • Increases benefits for investing in LIHTC projects
  • Direct, dollar-for-dollar reduction of tax liability
  • Often, investors pay less than $1 for a $1 reduction in tax liability
  • Annual credit for 10 years
  • Project must qualify on three criteria
  • Income/occupancy
  • Rent
  • State approval
  • 9 percent and “4 percent” credits

Low Income Housing Tax Credit - LIHTC

9

slide-10
SLIDE 10

Low-Income Housing Tax Credits (cont.)

  • Income / Occupancy
  • At least 20 percent of the units must be occupied by tenants with

incomes below 50 percent of the median

  • At least 40 percent of the units must be occupied by tenants with

incomes below 60 percent of the median OR

  • Income Averaging
slide-11
SLIDE 11

Low-Income Housing Tax Credits (cont.)

  • Rent restrictions
  • All units receiving LIHTCs have rent restrictions
  • Rent cannot exceed 30 percent of income qualifier (either

50 or 60 percent of median) for the assumed household size

  • Maximum rent includes all utilities, except telephone
slide-12
SLIDE 12

LIHTC Rent Restrictions (cont.)

  • Computation for two-bedroom unit- Lawrence MSA
  • Imputed household size is 2 x 1.5 persons/bedroom = three-

person household

  • Median income for three-person household is $73,800
  • 60 percent of median is .60 x $73,800 = $44,280 or $3,690 per

month

  • Maximum two-bedroom rent is 30 percent of $3,690 per month
  • r $1,107 per month
  • If utility allowance for two-bedroom unit is $75 per month,

maximum contract rent is $1,107 - $75 = $1,032 per month

slide-13
SLIDE 13

Low-Income Housing Tax Credits (cont.)

  • State approval
  • In 2019, each state received $2.75625 in LIHTCs per

resident per year ($3,166,875 million minimum)

  • State agency allocates credits
  • At least 10 percent set aside for non-profits
  • Qualified allocation plan must consider energy efficiency

and historic preservation

slide-14
SLIDE 14

Low-Income Housing Tax Credits (cont.)

  • Kansas QAP- Kansas Housing Resources Corporation (KHRC)
  • ~$7,865,000 of annual tax credits
  • Kansas’ Priority Housing Needs
  • Less than 10,000 in population
  • Preservation of HUD Section 8 or HAP contract or anything from a

PHA

  • Special need populations
  • Gross rent for all units up to 60% that is below fair market rent
  • Second or later phase of a property where there is a current

waiting list

slide-15
SLIDE 15

Low-Income Housing Tax Credits (cont.)

  • Evaluation Rankings:
  • Property Location
  • Housing Needs Characteristics
  • Development Characteristics
  • Applicant/Sponsor Characteristics
  • Tenant Population Characteristics
  • Public Housing, Government Assisted and Conventionally

Financed Waiting Lists

  • Bonus Points
slide-16
SLIDE 16

Low-Income Housing Tax Credits (cont.)

A. Property Location (not to exceed 50 points) Maximum Points Score 1. A property is located in a HUD defined Qualified Census Tract or Difficult Development Area where a concerted community revitalization plan has been established (See Exhibit Q) 10 points

  • 2. A property is located in a county of the State with a

median income greater than the statewide non- metro average. 10 points

  • 3. A property is located in a county with a population
  • f 60,000 or less.

10 points

  • 4. Site locations will be further evaluated for

community support, neighborhood consistency, and site usability, accessibility and marketability. (See Exhibit A for specific criteria). 20 points

slide-17
SLIDE 17

Low-Income Housing Tax Credits (cont.)

C. Development Characteristics (not to exceed 80 points) 1. 2. Highest priority will be given to applications with the lowest percentage of intermediary costs. (These costs may include, but are not limited to, attorney fees, engineering fees, and architect fees). Points awarded on a sliding scale up to 5%

  • f total costs. Points deducted on a sliding scale

beginning with 6% of total costs. Lowest equity gap with points awarded on a sliding scale and separated into new construction and rehab/conversions. 25 points 20 points 3. Development creates single-family housing that is intended for eventual tenant ownership. 10 points 4. Development involves the use of housing as part

  • f a community revitalization plan, including the

adaptive reuse of a building that is eligible for the historical register or is sited in an officially declared historic district or developments that are eligible for a real estate tax exemption based on state statute or local ordinance, or similar equivalent local contributions. 20 points

slide-18
SLIDE 18

Low-Income Housing Tax Credits (cont.)

  • Eligible Improvement costs determine basis
  • Land not included but acquisition is
  • DDAs and QCTs increase basis by 30%

Include Exclude

  • Construction Costs
  • Permits & Fees
  • Construction Financing expenses

(interest, fees, appraisal, inspections)

  • Property Taxes & Insurance
  • Architectural & Engineering
  • Performance Bonds
  • Furnishings
  • Environmental Assessment
  • Developer Fee
  • Contingency (if spent)
  • Development Consulting
  • Permanent Financing Expenses
  • Reserves
  • Marketing
  • Tax Credit Application Fee
  • Syndication Costs (legal, audit,

consultant, etc.)

  • Acquisition
  • Off-site Improvements
  • Costs for Non-Residential
  • Costs for Market-Rate Residential
  • Organizational Expense
  • Any Expense Paid for with Tax-exempt

Bonds

slide-19
SLIDE 19

Value of Credit- Affordable Example

882,000 $ Annual LIHTCs X 10 years 8,820,000 $ Total LIHTCs X $.82 Credit Price 7,232,400 $ Equity Equity $9,800,000 Eligible Basis (70% of TDC) X 1 or 1.3 Basis increase? $9,800,000 Credit Basis X 9% Credit Rate- 9% or 4% $882,000 Maximum Annual LIHTC

TPC 14,000,000 $

  • Less Debt

6,769,862 $

  • Less Equity

7,232,400 $ Gap (surplus) (2,262) $ Revised Sources with LIHTC

slide-20
SLIDE 20

Low-Income Housing Tax Credits (cont.)

  • Example #2– New Construction Project in

QCT

Uses Equity 2,000 $ Land 1,229 $ Annual LIHTCs 10,500 $ Res Construction X 10 1,500 $ not incldued in basis 12,290 $ Total LIHTCs 14,000 $ Total X .93 Credit Price 11,430 $ Equity LIHTCs Sources 10,500 $ Res Construction 6,627 $ Bank Loan X 1.3 11,430 $ Equity 13,650 $ Credit Basis 18,057 $ Total X .09 Credit Rate 1,229 $ Maximum Annual LIHTC

slide-21
SLIDE 21

Closing the Financing Gap

  • Affordable housing faces challenges attracting

capital – debt and equity

  • Amount of capital to a project is a function of the

benefits received by those providers

  • Public financing tools enhance benefits or

reduce risks, resulting in more capital to projects

  • LIHTCs are one of the most effective public tools

to encourage investment into affordable housing

21

slide-22
SLIDE 22

For more information

Jeff Jewell, Director National Development Council New Braunfels, TX (830) 515-9509 jjewell@ndconline.org www.ndconline.org

Atmosphere Studios Salt Lake City, Utah 22