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Low-Income Housing Tax Credit

Enterprise Point of Contact:

Emily Cadik
Senior Policy Analyst
Last Updated: February 6, 2014

Issue Background: Low-Income Housing Tax Credit

The Low-Income Housing Tax Credit (Housing Credit) is the nation’s largest and most successful affordable rental housing production program. Since its creation in the Tax Reform Act of 1986, the Housing Credit has leveraged nearly $100 billion in private investment capital, providing critical financing for the development of more than 2.6 million affordable rental homes for low-income families. The program supports 95,000 jobs annually and finances virtually all affordable rental housing.

The Housing Credit is the fundamental housing resource used to transform communities. According to Harvard University’s Joint Center for Housing Studies, there are only 6.9 million rental homes affordable and available to 11.8 million extremely low-income renters, representing an unmet need of 4.9 million affordable homes. The Housing Credit helps to close this gap by producing or preserving almost 100,000 affordable homes per year for low-income working families and people with special needs (veterans, the elderly, the disabled, and the homeless) in urban, suburban, and rural communities throughout the country. The program also addresses the needs of those who are acutely underserved, such as farmworkers and Native Americans.

The Housing Credit is a premier example of public-private partnerships. After incorporating public comment and participation, state agencies develop Qualified Allocation Plans (QAP) that aim to address the particular affordable housing priorities of the state and determine the kinds and locations of affordable apartments to be built. Because private investors can only claim credits after projects are completed, meet all federal requirements and are occupied by income-eligible tenants at affordable rents, the Housing Credit benefits from private-sector discipline. This “pay-for-performance” model has led to very effective management of affordable apartments and an extraordinarily low level of foreclosure—a rate of 0.62 percent over the Housing Credit’s entire history, according to the accounting firm CohnReznick

Current Policy State

The Housing Credit is at risk. There is strong bipartisan support in Congress and the Obama Administration for pursuing tax reform that lowers corporate tax rates. As the Housing Credit is one of the largest corporate tax expenditures, it is vulnerable to being eliminated or substantially cut to help pay for the lowered rates. 

In addition to the threat from tax reform, there are specific policy issues affecting the Housing Credit. The Housing and Economic Recovery Act of 2008 (HERA) enacted a temporary provision which created a fixed floor rate for new construction and substantial rehab Housing Credits (also known as 9 percent Housing Credits) at no less than 9 percent - the amount originally envisioned when the program was created. This provision has simplified state administration of the program and removed the financial uncertainty and risk associated with underwriting Housing Credit-financed properties using a “floating rate” system.

The minimum 9 percent rate was extended for Housing Credit allocations made through the end of 2013 in the American Taxpayer Relief Act of 2012, but it has since expired. It must now be extended on a long-term basis in order to maintain financial feasibility and administrative predictability for Housing Credit projects in 2014 and beyond. On August 1, 2013, Senator Maria Cantwell (D-WA) introduced bipartisan legislation (S. 1442) to enact minimum Housing Credit rates. Bipartisan bills were also introduced in both the House and Senate during the 112th Congress to permanently extend the 9 percent floor, and received extensive bipartisan support (H.R. 3661 and S. 1989; see also the Enterprise bill summaries).

Legislative Priorities

As Congress considers proposals for tax reform and deficit reduction, Enterprise is committed to protecting the Housing Credit and preserving it as a permanent provision in the U.S. tax code. As the Housing Credit is one of the largest corporate tax expenditures, it is vulnerable to being eliminated or substantially cut to help reduce corporate tax rates. Defending it will require a targeted advocacy effort that focuses on educating key members of Congress about the impacts of the Housing Credit in their communities.
 
Along with the National Council of State Housing Agencies, Enterprise helps to lead the A Call to Invest In Our Neighborhoods (ACTION) Campaign – a broad grass-roots coalition of nearly 650 national, state, and local organizations committed to protecting, preserving and improving the Housing Credit. Beyond its work to protect the Housing Credit in tax reform, the campaign has also advocated to make permanent a minimum Housing Credit rate to maintain the amount of private equity capital that goes into each Housing Credit project, as well as establish a similar minimum for acquisition credits. The campaign was successful in extending the minimum rate for projects allocated through the end of 2013 and will continue to work in the 113th Congress to further extend this provision.

Enterprise Resources

Testimony and Public Comment

Advocacy Materials and Other Resources
  • Sign up to receive updates about the campaign, the Housing Credit and tax reform
  • Learn more about the threats facing the Housing Credit and our campaign proposals
  • Read the latest news pertaining to the Housing Credit
  • Access our advocacy toolkit, including:
  • Fact sheets, background and talking points
  • Housing Credit data and reports
  • Sample letters to Congress
  • Sample op-ed and letter to the editor
  • Housing Credit property event guidelines
  • State and district fact sheets showing the impact of the Housing Credit in all 50 states and all 435 congressional districts
  • Tips on contacting members of Congress