HUD Study: Nearly 50 percent of LIHTC Units Serve Extremely Low-Income Households

Published by Michael Novogradac on Thursday, January 22, 2015 - 12:00am

The U.S. Department of Housing and Urban Development (HUD) recently released a report, “Understanding Whom the LIHTC Program Serves: Tenants in LIHTC Units as of December 31, 2012”, about low-income housing tax credit (LIHTC) tenant demographics. As explained below, the HUD data set is incomplete.  Missing data aside, the report contains many interesting statistics on LIHTC tenant demographics. When comparing to area median gross income (AMGI), 46 percent of LIHTC tenants reported incomes 30 percent or less of the AMGI. In turn, nearly half of LIHTC tenants fall into the extremely low-income (ELI) renter category as defined by HUD. Among the 26 states reporting data on ELI households, 18 states reported more than 40 percent of their LIHTC properties serving ELI households.  An additional 47 percent of households reported incomes between 31 and 60 percent of AMGI. This demonstrates the wide swath of the low-income distribution that LIHTC properties serve, almost equally distributed between extremely, very and low-income renters.

Regarding income, the report found that the median household income for all states surveyed was $17,000. However, there was significant variation across states, with a median income below $10,000 for Kentucky, Puerto Rico and the state of Washington, and a median income exceeding $20,000 in Florida, Guam, Hawaii, Maryland, Virginia and Wyoming.

Rent Burden

The report also examines the rent burden imposed on LIHTC tenants. Sixty percent of LIHTC tenants surveyed spent 30 percent or less of their income on rent, the range that HUD considers affordable. However, approximately 39 percent of those surveyed reported rent burdens above 30 percent of their income. Nearly 20 percent of those above the affordable rent cutoff paid between 30.1 and 40 percent of their income, and 10 percent paid above 50 percent of their incomes, placing them in the extremely burdened category.

Furthermore, the report confirms the strong property performance of LIHTC properties demonstrated by other LIHTC reports, reporting only a 5 percent vacancy rate.  Given that there is a natural turnover rate of all apartments–LIHTC-financed and market-rate–meaning there is always  a certain percentage of apartments vacant, this low vacancy rate among LIHTC properties demonstrates the strong demand for LIHTC housing.

HERA Requirement

The Housing and Economic Recovery Act’s (HERA’s) requirement that state LIHTC allocating agencies collect data on various demographic variables made this report possible. Overall, 60 LIHTC allocating agencies collected and organized data from all active LIHTC properties within their boundaries, a difficult task since pre-HERA states were only responsible for collecting data necessary for Section 42 compliance. Although Congress authorized funding to supply HUD with resources for this expanded effort, it never actually made an appropriation.

Therefore, the data reported do not capture all LIHTC properties in service.  As a measure of overall incompleteness, the report found a discrepancy of approximately 10,000 properties when comparing the HUD placed in service (PIS) database to the new data. Specifically, the report found that the 2012 PIS database contained data on 34,807 active properties, while the new HERA data reported on only 24,008 properties. Although New York City, Chicago, Washington D.C., and the state of New Mexico were the only areas that did not report on any properties, most states were unable to report on all properties listed in the PIS database as active in their boundaries. The report found that only 59 percent of properties in PIS database matched the HERA data reported by states.

The problems of non-reporting and missing data are due to differing compliance requirements and practices across states. Some possible reasons for missing data are relaxed reporting requirements after the 15-year compliance period, difficulties arising from states having only hard-copy income certifications for many tenants  and because HERA permitted state agencies to forgo annual recertification if a property contained 100 percent income restricted units.

Furman Center Study

This HUD report builds upon a similar effort led by NYU’s Furman Center, released in October 2012. In its report, “What Can We Learn about the Low-Income Housing Tax Credit Program by Looking at the Tenants?”, the Furman Center analyzed the new HERA data, but had access to a smaller, but still nationally representative sample than the HUD study. Unlike the HUD study, the Furman Center’s work provides some context for the demographic data collected by HUD, comparing LIHTC tenants to the regular population. It should be noted that the HUD report was issued by HUD’s Office of Policy Development and Research, which is headed by Assistant Secretary Kathy O’Reagan, and the main author of the NYU report was also Professor O’Reagan.

For example, compared with all renters in the United States, rents paid by LIHTC tenants are significantly less burdensome, according to the Furman Center Report. Of all U.S. renters with incomes below 30 percent of area median income (AMI), 77 percent were rent burdened, 63 percent of these severely. In contrast, among surveyed LIHTC tenants making less than 30 percent of AMI, 50.7 percent were rent-burdened, with 30.6 percent being severe. Similarly, of all U.S. renters with incomes between 31 and 50 percent of AMI, 37 percent have extreme rent burdens, compared to just 11.7 percent for LIHTC tenants. Clearly the LIHTC program is improving the affordability of rents, but a gap still exists for many low-income renters.

HUD rental assistance combined with LIHTC’s reduced rents is one way to address this gap in affordability. HUD’s report indicated that 36 percent of those LIHTC tenants received monthly rental assistance. However, among states providing data, 31.5 percent of properties in did not report on this variable, which means it could be significantly higher with complete data. Even with limited data, it is possible to estimate that 70 percent of surveyed tenants with incomes below 30 percent AMI received rental assistance. This indicates that HUD rental assistance is remedying some of the gap in affordability for ELI renters at LIHTC properties.

HUD expects to update this report on a regular basis, and we can expect that the percentage of non-reporting properties will decrease over time. One of the most interesting observations from the report is that LIHTC properties are helping to improve rent affordability for low-income renters and HUD rental assistance is an effective complement to the LIHTC.  Given that the LIHTC finances an affordable housing inventory that is below-market and rent-restricted generally for at least 30 years, HUD rental assistance can make that already affordable apartment accessible to even lower-income tenants.  Without the LIHTC, voucher holders often find it difficult to find apartments, especially in high housing cost markets.