In Demand: Allocation Ratios Show Strong Interest in LIHTCs

Published by Michael Novogradac on Monday, March 3, 2014 - 12:00am

Every year, Novogradac & Company surveys state housing and bond allocation agencies and collects information about each state’s low-income housing tax credit (LIHTC) allocation authority and application deadlines. Analysis of this data reveals, among other things, high demand for LIHTCs.

To assess demand, we compared the ratio of LIHTCs requested to the amount of LIHTCs allocated in 2013, as reported by state LIHTC allocating agencies. A high ratio indicates a market where demand is high.

It is important to keep in mind that the demand/supply ratio is more directly related to whether an applicant believes they have a chance to receive a tax credit award, rather than true supply and demand. A state with high demand for LIHTCs may not have a high ratio simply because potential applicants are discouraged from applying in the first place because of the high level of competition. This will become very evident later on.

Another major factor is application readiness criteria. The more stringent the readiness criteria and the greater the cost to submit an application, and the less oversubscription there will be. In short, if the cost to apply is high and the chances of an allocation award are low, there are fewer applications. If the cost to apply is low, then you still will see more applications.  There is a shadow inventory of possible developments that would emerge if costs to apply were low enough or chances of succeeding were high enough.


Blog Chart States with Highest LIHTC Demand to Supply Ratios in 2013


While the survey results aren’t comprehensive, they do include a significant majority of states. Some may be surprised to see that large states such as Texas and California were not among the states with the largest demand to supply ratios. This does not mean demand is weak in those states. In 2013, Texas and California each reported demand outpaced supply 2:1.

In fact, our survey indicates demand for LIHTC still remains very high across the board. The lowest ratio in our 2013 survey was reported in Nevada, where LIHTC demand exceeded supply 1.47 to 1.

In addition to absolute demand levels, changes in demand over time provide insight as well. Many states experienced dramatic changes in demand.


Blog Chart States with Largest Demand to Supply Ratio Increases from 2012 to 2013


Demand wanes in some states, as well.


Blog Chart States with Largest Demand to Supply Ratio Declines from 2012 to 2013


The top five increases were in states that started with relatively lower demand/supply ratios, while the top five largest declines were in states with relatively higher demand/supply ratios. This suggests that a very competitive round one year discourages applicants the next year, while a relatively less competitive round one year spurs on more applications next year.

To learn more about the state of the LIHTC market, join us at the Novogradac Affordable Housing Tax Credit Conference in New Orleans on May 15-14.