The Department of the Treasury issues tax credits to the states and requires that the housing built by this program remain affordable for at least 30 years.
In 2009, each state received a maximum of $2.30 for each resident of the state.
2. But the states largely shape what housing gets built.
States control the type of housing, the location and other characteristics to best serve their residents.
State agencies write regulations (called qualified allocation plans or QAPs) describing the selection criteria that governs the competition. Then they review and rate the developers’ applications, decide who best meets the criteria and award the tax credit allocations.
3. Developers get funds toward construction.
State agencies determine the criteria that interested developers must meet to be awarded a tax credit allocation.
Enterprise and other companies, called “fund managers” or “syndicators,” create funds to pool investor capital. Enterprise and other syndicators use these funds to purchase the tax credits from the developer in exchange for an equity stake in the housing development.
With the capital from the investor, developers can limit the money borrowed to fund construction, reducing both the amount of debt and rent levels.
4. Low-income renters get an affordable home.
LIHTC properties must be rented only to families whose income is at or less than 60 percent of the area median income.
Tenants’ rent payments are limited to 30 percent of their income.
5. Investors purchase a 10-year tax credit.
Investors’ equity stake in the housing developments results in competitive yields, and the opportunity to revitalize the communities in which they work and live.