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Comparing the Competition for 9% LIHTCs and Private Activity Bonds

Published by Mark Shelburne on Wednesday, March 2, 2022 - 12:00AM

Since the 1990s, demand for the 9% low-income housing tax credit (LIHTC) has substantially exceeded the supply. The affordable housing community understands there will be competition. By contrast, until recently, nearly all states had enough tax-exempt private activity bonds (PABs) for every eligible affordable rental housing proposal. Systems and mindsets reflected what was nearly an entitlement to the resource.

New Reality for PABs

For better or worse, the demand for PABs is rapidly growing. Interest in using PABs increased dramatically over the last few years, particularly after Congress enacted the 4% LIHTC minimum rate.

Shifting from abundance to scarcity creates challenges for administrators, developers and other stakeholders. While this transition can be difficult, the eventual end result should be very familiar: housing agencies allocating among competing developments. Again, they have done the same with 9% LIHTCs for decades.


An early step in addressing the new reality for PABs is understanding how it contrasts with 9% LIHTCs. The following chart compares the relevant considerations. (Note the competition is for PABs, not the associated 4% LIHTCs.)

1) form of resource

9% LIHTCs Private Activity Bonds
the ability to claim a fixed amount of credit against federal income tax liability over 10 years debt for which the interest payments are tax-exempt, plus 4% LIHTCs when used for affordable rental housing

2) authorized uses

9% LIHTCs Private Activity Bonds
affordable rental housing many possibilities, including
  • affordable rental housing
  • first time homebuyers
  • solid waste disposal
  • student loans
  • intercity rail
  • green building
  • broadband infrastructure

3) amount available to a jurisdiction in calendar year 2022

9% LIHTCs Private Activity Bonds
$2.60 per capita (technically $26 over 10 years) or the small state minimum, plus any amounts unused from the previous year and/or returned, less any forward commitments $110 per capita or the small state minimum, plus any carryforward from the previous three years

4) when the amount changes during a year

9% LIHTCs Private Activity Bonds
based on a schedule published in the qualified allocation plan (QAP) depends on when the activities awarded are able to close, or not

5) who tracks the availability

9% LIHTCs Private Activity Bonds
the LIHTC allocating agency varies by state, often it is an agency responsible for budget or commerce

6) determining the amount available at a point in time

9% LIHTCs Private Activity Bonds
through knowing the annual amount and QAP schedule (other than unusual events, which are rarely significant) very difficult or impossible to ascertain in most states, other than for the state administrators (and possibly a few outside experts)

7) location of the rules for distribution

9% LIHTCs Private Activity Bonds
the QAP and related documentation varies by state for both the
  • allocation between authorized uses, and
  • proposed developments within a use;
in some states the rules do not exist for one or both

8) party responsible for making allocations among uses and within a use

9% LIHTCs Private Activity Bonds
the LIHTC allocating agency, pursuant to the QAP varies by state, often is a committee of high-level elected and/or appointed officials; the state housing agency may decide the

9) federal controls or limits on the allocation criteria

9% LIHTCs Private Activity Bonds
Internal Revenue Code Section 42(m)(1) requires QAPs include 10 selection criteria and give a preference to certain applications none for the allocation among either the different authorized uses or proposed developments within a use

10) state controls or limits on the allocation criteria

9% LIHTCs Private Activity Bonds
varies by state, some have statutes mandating certain processes and/or outcomes same

11) parties functionally necessary to make awards

9% LIHTCs Private Activity Bonds
allocating agency, developer, equity investor, lender, locality, and various professionals (e.g., accountants, attorneys, architects) same as 9% LIHTCs, plus
  • the PABs may be administered by a different agency,
  • a jurisdiction must agree to issue the bonds, and
  • additional professionals

12) role of local government

9% LIHTCs Private Activity Bonds
land use controls (zoning) and potentially a lender same as 9% LIHTCs, plus one could be the bond issuer

13) how the competition works

9% LIHTCs Private Activity Bonds
developers submit applications by a deadline and the agency determines awards varies by state; many are currently working it out

14) current status

9% LIHTCs Private Activity Bonds
application to award ratios range from 3:1 to 10:1 varies by state; some agencies stopped accepting applications because of having committed the amount available for affordable rental

One bottom line of the above is it being challenging at best to calculate the existing demand/supply ratio, let alone what it will be in the future. One tool is a map produced by Novogradac and Tiber Hudson that estimates the current ratios. 

Blog Graphic: Volume Cap Scarcity

Click to Enlarge



Everyone involved should be patient with agencies administering PABs for housing as they work out how to implement the changed circumstance. Clarity regarding what’s available and sophistication of rules for distribution will evolve over time.

At the same time, there’s no reason to accept as a given any awards to activities other than affordable rental housing. Those with the ability to do so should challenge such decisions; resource allocation is inherently political and thus subject to influence.

Once a development team is ready and able to apply for PABs, it should take the necessary steps to prepare the submission. At this or any other stage of the process, please contact a Novogradac professional for assistance. To learn more about how to use PABs, Novogradac has two events that may be of interest: the Novogradac 2022 Affordable Housing Conference and the Novogradac Financing LIHTC Properties With Private Activity Bonds Webinar

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