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LIHTC Agencies Respond to Increased Costs
One of the top real estate headlines this year has been the dramatic rise in the cost of lumber and other construction materials. Developments with low-income housing tax credits (LIHTCs) have the added challenge of a limited ability to increase sources, causing many to face difficult or insurmountable gaps. Effectively the same problem occurred in 2017, although then it was due to a rapid reduction in equity investment.
In both instances LIHTC allocating agencies demonstrated an ability and willingness to help. Below are summary descriptions of the responses so far (those known to Novogradac at the time of this writing). The descriptions are not necessarily complete and leave out state-specific nuances, such as the documentation required. Also, some of the deadlines to request assistance have passed.
Developers had the opportunity to request LIHTCs for developments with awards from the 2019 and 2020 rounds. The Arkansas Development Finance Authority (ADFA) is reviewing these on a “case-by-case” basis. Only changes to the hard construction costs are eligible, no other increases are allowed, including general requirements, contractor overhead and contractor profit. The developer fee cannot increase.
Of particular note was ADFA’s statement that the policy “could result in there being no competitive 9% LIHTC round in the year 2022.” Among the 11 awards from 2019, seven asked for more, as did all 10 of those from 2020.
The Department of Community Affairs (DCA) is allowing developers with awards from the 2019 and 2020 rounds to ask for additional LIHTCs. The request may cover only increases in hard construction costs. Developers must describe their attempts to secure more equity, loan amounts, and/or other sources. The developer fee may not increase and the deferred portion cannot decrease.
For each additional $1.00 of LIHTC requested, DCA will reduce the the “Project Team award limitation” by $1.50 in the 2022 round.
The Ohio Housing Finance Agency (OHFA) has set aside Housing Development Loans (HDL) and up to $4 million of LIHTCs. These resources will be available on a “first come, first served basis” to awards from the 2019 and 2020 rounds facing a gap due to increases in hard construction costs. Properties already placed in service are ineligible for LIHTCs, and HDLs are available only for properties that have not yet closed. Developers must describe their attempts to increase equity, loan amounts, and/or other sources. The developer fee may not increase and an additional 10% must be deferred.
Owners may request up to $100,000 in LIHTCs and up to $1 million in HDL funding. For each additional $1.00 of LIHTC awarded, OHFA will reduce the development team’s LIHTC award limit by $1.50 in the 2022 round, or 2023 for those not applying next year. OHFA will consider requests in excess of $100,000, but if approved the development team “must forego their ability to compete” in 2022.
The Pennsylvania Housing Finance Agency (PHFA) dedicated a “significant portion” of its National Housing Trust Fund (NHTF) appropriation to support developments from the 2019 and 2020 LIHTC rounds with a gap due to increased construction costs. PHFA received 41 applications totaling $38 million and is giving priority to applicants that obtain other additional funding.
SC Housing is making LIHTCs available for 2020 awards facing hard construction cost increases. Developers must describe attempts to increase equity, loan amounts, and/or other sources. For each additional $1.00 of LIHTC awarded, SC Housing will reduce the development team’s LIHTC award limit by $1.50, to take effect with the next application submitted by any member.
The Texas Department of Housing and Community Affairs (TDHCA) is making $37,575,662 in NHTF available to developments with a 2020 LIHTC allocation. The minimum request is $500,000 and
$5 million is the maximum. The developer fee may not increase and the deferred portion may not decrease. Construction cannot have started (other than necessary health and safety repairs) and applicants must provide at least 7.5% as match.
Agencies in some states, like Virginia, have not announced a formal policy but rather reached out to developers directly.
The variation between states makes sense; agencies take different approaches to many aspects of administering LIHTCs. While occasionally a source of frustration for some, the ability to respond in ways specifically tailored to local circumstances has been and will be a continuing source of strength for the program.
Anyone facing challenges is welcome to contact a Novogradac professional.