Low Income Housing Tax Credits in the USA Vic O Brien Development Director GreenSquare Group Study supported by
Context of the research Low Income Housing Tax Credits in the USA Study supported by
Context of the research HCA grant reduced to c. 25k per unit Pressure on HA asset cover HA production limited UK housing crisis/ low house production
Solutions? Can a way be found of developing without recourse to asset cover? How do we fund affordable housing in the context of reducing grant and s106 opportunities?
The USA approach Alternative funding systems using equity investment and tax credits Not much UK information on this form of funding Winston Churchill Memorial Trust
The Study Low Income Housing Tax Credits in the USA Study supported by
The Study How does US system work? Are their elements of the US funding system we could apply in the UK? Visited 60 contacts in Boston, Washington DC, New York North Carolina and New Haven
Low Income Housing System Structure Developers Syndicators Investors State Housing Finance Agencies US Department of Homes and Urban Development Lobbyist, advisors and trade bodies Inland Revenue Service (IRS)
Funding structure - project Investor A Investor B Investor C 99.99% Upper Tier Limited Liability Company (LLC) 99.99% 0.1% Syndicator (General Partner) Lower Tier (Development Project) Limited Liability Company(LLC) 0.1% Developer(General Partner)
Funding market FUND FUND FUND Upper Tier Syndicator Syndicator Syndicator Syndicator Lower Tier
State HFAs Prepare Qualified Allocation Plans Quality requirements Cap allocations per scheme Allocate tax credits Manage programme Organise compliance
State support Grant as loans (Groans) Free and discounted land Section 8 Linkage
Rents Average Median Income Maximum income 60%, 50%, 40% of AMI Housing costs = 30% of Income Issue of Extremely Low Income (ELI)
Quality Larger floor areas Apartments High quality finishes Property manager and residents lounge
Compliance State compliance assessments Syndicator Investor Operator Breaches reported to IRS = Tax Credit reduction Failure rate very low at less than 0.7%
Developers Neighbourhood Development Corporations Larger non-profit developers Private developers
How the system works Low Income Housing Tax Credits in the USA Study supported by
How the system works Tax Credits reduction in tax $1 for $1 Congress distributes LIHTC to each state on per head basis HFAs create QAP and call for bids Tax Credits allocated to winning bids Developers build project and lets Investor claims Tax Credits from IRS
Community Re-investment Act Response to red lining Banks rated on community banking performance Banks need high CRA rating LIHTC way of supporting CRA rating
Pricing of LIHTC LIHTCs are priced through competition under QAPs Price in urban coastal areas is high and low in central continental areas Market crash and corporate investors The role of Freddie Mac and Fannie Mae
Issues Inefficient Taxable income required for 10 years Affordable housing not permanent Focus on assets rather than customer service Housing industry fragmented and with limited assets
UK LIHTC LIHTC creates equity investment in affordable housing no requirement to service LIHTC investment from rent Creates first loss funding so no pressure on HA asset bases
UK LIHTC Improve on USA system Minimise inefficiency Permanent LIHTC affordable homes Aggregate how funds are raised Channel through HCA? Further research on the net tax revenue impact required
Recommendations Low Income Housing Tax Credits in the USA Study supported by
Recommendations Assessment of LIHTC in the UK Review of how HCA could support a UK LIHTC system NDCs could we create a UK version? Learning: large apartment blocks of affordable housing in US
Recommendations Set up first loss investment funds to support affordable housing development Create market for tradable equity and debt in HAs Promote and invest in Community Development Funding Institutions
The Panel Low Income Housing Tax Credits in the USA Study supported by
Vic O Brien Development Director GreenSquare Group Stuart Ropke Assistant Director Policy and Research National Housing Federation Gavin Smart Director of Policy and Practice Chartered Institute of Housing Piers Williamson Chief Executive The Housing Finance Corporation
Study supported by