Low Income Housing Tax Credits The Basics What
Low Income Housing Tax Credits The Basics
What are Low Income Housing Tax Credits? • Public Private Partnership Tax Credit I. R. S. Section 42 $ Equity $ Investor Affordable Housing
Arizona LIHTC Projects • 2018 Annual Credit Ceiling $18, 943, 929 • 9% Projects Funded to date: 504 • Bond Projects Funded to date with 4% LIHTC: 82
Why do we do this? • All citizens of Arizona want to live in a good home in a safe neighborhood. • People stuck in low wage jobs or fixed incomes need a decent place to live and still have money left over for other necessary living expenses. • People who pay more than they can afford for housing face: • Eviction and homelessness • Inability to pay for necessary expenses such as food, medical and transportation.
Who lives in LIHTC housing? • Seniors living on Social Security • Arizona has 952, 601 retirees with an average social security benefit of $17, 193 per year. • That equates to $430 per month available to spend on rent and utilities combined.
Who lives in LIHTC housing? • People with Disabilities • SSI Federal Benefit Rate: • $750 + $15 Nutrition Assistance • $230 rent + utilities is affordable • $1, 125 for eligible couples • $338 rent + utilities is affordable.
Who lives in LIHTC housing? • Families • In order to qualify for their housing in Graham County, this family could not earn more than $37, 200 per year, which equates to $928 per month for housing plus utilities. • A two-earner household receiving minimum wage in Maricopa County does not qualify.
How are they affordable? LIHTC developments incur less debt, which allows the Owner to charge lower rents to tenants. Market Rate 9% LIHTC
Rents
Rent & Income Limits Maricopa County - 2018 Rent & Utilities Combined:
How many people are involved? • Developer • Owner • Syndicator • Investor • Lenders • Contractor • Architect/Engineer • Market Analyst • Environmental Professionals • Energy Consultant • CPA • Attorneys • Service Provider • Property Manager • Tenant • Asset Managers • Compliance Monitors
Timeline Seller Owns Land Sold to LP at Equity Closing Placed In Service Compliance Period Construction Extended Use Period
How does the LIHTC work?
Eligible Basis Eligible Costs Ineligible Costs • Construction • Architecture/Engineering • Building Permits • Construction Related Taxes, Insurance, Legal Costs • Environmental Audits • Construction Loan Costs • Developer Fees • Land • Marketing/Lease Up • Non-Construction Taxes, Insurance & Legal • Permanent Loan Costs • Syndication Fees • Organizational Costs • Capitalized Reserves
How are LIHTC calculated?
How much equity does this provide?
Same Calculation with Basis Boost
130% Basis Boost results in lower financing gap:
Effect of Basis Boost: Without the basis boost, many projects are not be feasible.
Cash Flow
Considerations Market Rate Property LIHTC Property • Rents limited only by market • Higher return to investor • More cash flow possible • More marketable • Rents restricted based upon imputed incomes • Limited cash flow • Limited ability to borrow • Lower return to investor • Compliance restricts potential buyer pool
Capitalization Rate Valuation Cap Rates may not vary considerably, but LIHTC projects typically have additional expenses not found in market rate projects.
Questions? Jeanne Redondo Arizona Department of Housing Jeanne. Redondo@azhousing. gov 602 -771 -1031
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