The Biden Administration recently announced some big updates related to the implementation of its Housing Supply Action Plan, launching several new regulations that will provide much needed reinforcement and flexibility to the Low-Income Housing Tax Credit (LIHTC) program. These changes will have a significant impact on the creation and preservation of hundreds of thousands of affordable housing units by expanding and strengthening LIHTC.
Here are the top three things you should know about the new regulations and how it affects your plan.
Federal Housing Finance Agency making allowances for each GSE to provide $3 billion in forward commitments per year above and beyond the multifamily purchase cap for Fannie Mae and Freddie Mac’s Forward Commitment Loan programs.
The Forwards provide real estate developers and owners, the ability to lock in their interest rate on a permanent 15-year loan, before they begin construction. This forward rate lock allows real estate developers to more easily secure a construction loan. By establishing a $3 Billion baseline for each GSE to direct toward Forwards, FHFA is allowing the GSEs to increase the supply of affordable housing. Additionally, since FHFA will allow the $3 Billion Forwards allocation to not count against the FHFA annual Lending cap (for 2022 $78 Billion for each GSE, $156 Billion total), each GSE can continue to meet all of its other affordable housing obligations, and not have to prioritize financing other property types over new construction or substantial rehab property types.
Elimination of “the cliff effect” (a scenario in which a small number of units going out of compliance threatens the tax credits for the entire development), and a new allowance for the average income test to be satisfied if at least 40 percent of a building’s units collectively average 60 percent or less of AMGI, where previously it was required to review all low-income units for a rental property when evaluating the average income test.
These updated regs allow the LIHTC program to provide a broader range of families access to federal housing assistance. Income averaging can also help increase economic diversity and develop more inclusive communities. In locales where the tenant base is relatively shallow, such as in rural communities, a broader range of eligible income levels provides more flexibility for initial lease-up as well as more stability for continued occupancy, while allowing the development to reach a broader segment of the population.
IRS has announced extensions to several key Housing Credit program deadlines and additional flexibilities. The IRS had previously provided extensions of the placed in service and other Housing Credit program deadlines; however, with the ongoing delays, disruptions and supply chain shortages, the AHTCC, National Council for State Housing Agencies, and other industry leaders advocated for the IRS to further extend key deadlines so that critically-needed developments could still move forward.
Supply chain issues and economic realities had been putting projects in danger of falling out of compliance with the LIHTC program. This extension will ensure that thousands of affordable units are delivered to families nationally.
“LIHTC began in 1986 under the Reagan Administration and has worked. Since then, LIHTC has financed the development of nearly 3.5 million rental homes across the country and supported over eight million low-income households,” according to Dana Wade, Chief Production Officer FHA Finance. “These changes will allow for greater income diversity in new LIHTC projects where some units can go up to 80% of AMI, as long as All of the LIHTC units in the project Average out to 60% of AMI affordability.”
Interested in learning more? Reach out to one of our affordable housing experts.