Home Builder Gross Profit Percentage Exceeds LIHTC Developer Fee Percentages

Published by Michael Novogradac on Wednesday, April 9, 2014 - 12:00am

The release of the National Association of Home Builders’ (NAHB) 2014 Cost of Doing Businesstudy provides an opportunity to re-examine how Low Income Housing Tax Credit (LIHTC) program developer profits compare to profits earned by market rate single family home builders.

According to the NAHB, gross profits for single family home builders averaged 17.4 percent in 2012. This was an increase from the 2010 average of 15.3 percent and 2008 average of 14.4 percent. Gross profit rates have been even higher in the past. In 2006, they averaged 20.8 percent.

LIHTC developers are principally compensated with a development fee. State housing tax credit allocating agencies heavily regulate these fees, imposing rules such as bright line percentage limits of 15 percent of depreciable costs. Furthermore, for many developers only a portion of this fee is paid during construction and lease-up, with a significant portion being deferred, and paid from of cash flow during operations.

While a truer comparison could be made with a more detailed analysis, the above top line numbers demonstrate what low-income housing developers already know, the range of fees for their services are well in line, if not below, those of developers of other types of properties.