Two Studies mean good news for LIHTC

Development costs for properties financed through the Low-Income Housing Tax Credit (LIHTC) program are generally no more or no less expensive than market rate projects. That’s the conclusion of two recent studies, one by the Government Accountability Office (GAO) and the other by the National Council of State Housing Agencies (NCSHA).

“Low-Income Housing Tax Credit: Improved Data and Oversight Would Strengthen Cost Assessment and Fraud Risk Management” measured development costs of LIHTC properties in 10 states between 2011 and 2015. The GAO report (the fourth and final in a series of GAO studies on the Housing Credit program) found that the median total development cost per unit in its survey was $204,000 – with significant variation depending on the area of the project. The least and most expensive projects ranged from as little as $104,000 per unit (Georgia) to as much as $606,000 per unit (California), for example.

The NCSHA’s study, conducted by Abt Associates, was a larger survey of Housing Credit construction costs. “Variation in Development Costs for LIHTC Projects,” analyzed a multiyear database of 160,000 homes in all 50 states that used the LIHTC program during 2011-2016. The study shows that although there is a small minority of outlier costs among the developments, the median development cost was $164,757, adjusted for inflation. The report also concludes that land, labor, and materials are the primary factors driving development costs and not state agency administration.

In its report, the GAO recommends some changes in the administration of the Housing Credit program: standardization of development cost data collection between housing finance agencies, a central federal agency to collect that data, more thorough general contractor cost certification requirements, and collection of additional information on syndication fees.

While these recommendations don’t necessarily strengthen the Housing Credit, everyone welcomes the opportunity to work with Congress and the IRS to strengthen and improve the program. Already, state housing finance agencies have begun to collect more cost data (as the NCSHA-commissioned report shows). In addition, last December NCSHA released new Recommended Practices for state agencies which included a recommendation consistent with the GAO recommendation that states institute more thorough cost certifications than required by the IRS.

With these studies showing a general parity in Housing Credit and market-rate development costs, those in the affordable housing industry are glad to have answered what was once a looming question.

“These reports corroborate what we’ve believed all along: LIHTC units are not extraordinarily expensive,” said Bill Shanahan, president of NNEHIF. “Now we can move on and have a meaningful discussion about costs.”

2018_Q3_LIHTC