About the LIHTC Program
Why LIHTC WorksThe Low-Income Housing Tax Credit (LIHTC) program has provided critical financing for more than 2 million rental homes. According to the Affordable Housing Tax Credit Coalition:
The Housing Credit does what Congress intended it to do. Originally enacted as part of the Tax Reform Act of 1986, it generates private capital investment to support the development of new and rehabilitated affordable rental homes for low and very low-income families. The Housing Credit is administered mostly by the States, which allows them to adapt the program to their unique housing needs under broad Federal guidelines.
The Housing Credit is a very effective and efficient use of tax policy. Credits are awarded to developers through a competitive allocation process in each state; applications greatly exceed the volume of available Housing Credits in most states; the Housing Credit leverages other private capital in addition to investor equity; and, the Housing Credit is priced competitively in the market.
The program creates jobs for small business. Architects, plumbers, electricians, carpenters, concrete fabricators, bricklayers, roofers, and other specialties all benefit when a Housing Credit property is being built. Property managers, maintenance workers, service providers and others benefit when the property is occupied.
The private sector takes all the development and marketing risk associated with the Housing Credit, not the government. Strong oversight and accountability enforced by the private sector is a distinguishing feature of the Housing Credit. The private sector faces powerful credit recapture penalties for non-compliance with allowable income and rent levels and other occupancy requirements.
The Housing Credit provides affordable housing solutions. Working-class families, seniors, the homeless, and underserved and rural communities all benefit.
The program addresses the continued need for affordable housing. Housing Credit properties experience an average vacancy rate of 4.2%, compared to 10.6% in the overall rental market; there is a shortage of homes for extremely low-income families; nationwide, just 37 units are available for every 100 extremely low-income families.
The program employs a pay-for-performance policy. There is ongoing risk to the investors. Investors only get to claim and keep the tax credits if affordable housing units are built, leased and maintained as affordable housing throughout the compliance period (15 years). Additionally, there is a 15 year extended use period with many states requiring much longer affordability. There is ongoing risk to the developers. Developers provide guaranties throughout the 15 year compliance period, including operating deficit and tax credit guaranties.
- Foreclosure risk is minimal. Foreclosures have occurred in less than 1% of all Housing Credit properties over the 25 years of the program, outperforming all other classes of real estate.
Advocacy & UrgencyDespite the program's successful history, the 2007-2009 recession and financial crisis sharply reduced investment in the program. To maintain the LIHTC investment market and project pipeline, Congress needs to enact legislation that would increase private investment interest and broaden the investor base.
To advocate for LIHTC legislative proposals, Enterprise helped to establish and lead the Affordable Rental Housing A.C.T.I.O.N. (A Call to Invest in Our Neighborhoods) Campaign, a national grass-roots coalition.
See our LIHTC policy information to learn more.