In the ongoing struggle to address the pressing issue of affordable housing in the United States, the Low-Income Housing Tax Credit (LIHTC) program has become a vital tool. Enacted as part of the Tax Reform Act of 1986, the LIHTC program is structured so that a public-private partnership is formed, leveraging the ingenuity and expertise of the private sector with resources from the public sector. The result is the development of thousands of quality affordable rental units aimed at reducing the housing shortage in the US.
The LIHTC program operates by providing tax credits to developers who invest in affordable housing projects. The credits are allocated by state housing agencies based on a rigorous and competitive application process. Once awarded, developers sell the tax credits to investors, usually large financial institutions, generating equity for their projects and offsetting a significant portion of the construction cost. Once built, the development is legally restricted to affordable housing (typically households earning between 30% and 80% AMI) for up to 30 years.
LIHTC properties are appraised differently than market-rate properties, primarily due to unique financing structures and regulatory requirements associated with the LIHTC program. When appraising tax credit developments, appraisers must take into account all rent and income restrictions, along with the impact of any government subsidies on the property’s value. Appraisals for proposed LIHTC developments often include the value of the partnership interest (value of the tax credits) as well as the intangible value of any preferred financing, which many developers use to further reduce the debt structure of the project. These distinctive considerations make the appraisal of LIHTC properties a specialized and nuanced process compared to traditional market-rate properties.
In conclusion, the Low-Income Housing Tax Credit program is one of the country’s best resources in addressing the critical issue of housing availability and affordability in the United States. Through its innovative public-private partnership model, the LIHTC program has not only increased the supply of affordable housing, but has also promoted community development, aided neighborhood revitalization, and encouraged the private sector to engage in meaningful solutions. As the nation continues to grapple with the challenges of housing insecurity, the LIHTC program remains a vital tool in the quest to ensure that all Americans, regardless of income, have access to safe, quality, and affordable housing.