New Novogradac Mapping Tool Illustrates DDA, QCT Changes for 2017
On Oct. 17, the U.S. Department of Housing and Urban Development (HUD) published a notice designating difficult development areas (DDAs) and qualified census tracts (QCTs) for 2017. Low-income housing tax credit (LIHTC) properties located in these areas are qualified to increase their eligible basis by 30 percent for new construction and rehabilitation costs (known as a boost). This increase allows for a correspondingly larger maximum LIHTC allocation. For this and other reasons, DDAs and QCTs are of great interest to developers.
Novogradac & Company’s geographic information system experts have created a new Novogradac QCT and DDA Mapping Tool depicting the boundaries and year-to-year changes. It is imperative to note that this map is for informational purposes only; official determination of being located in QCT or DDA should be based on HUD’s mapping tool.
The new designations apply to properties either receiving allocations of 9 percent LIHTCs, or using tax-exempt bonds issued (and buildings place in service), on or after Jan. 1, 2017. However, as noted below, there also is a way to preserve a boost which otherwise would expire this calendar year.
In a QCT at least half of the households have incomes less than or equal to 60 percent of area median income (AMI) or a poverty rate of greater than or equal to 25 percent. Also, QCTs may not exceed 20 percent of either any metropolitan statistical area (MSA) or non-MSA part of a state.
DDAs are somewhat more complex. Following the Internal Revenue Code’s legislative history, HUD uses a ratio of fair market rents divided by the maximum income of eligible tenants. The higher quotient is a proxy for greater difficulty of development in terms of construction cost relative to area income.
Another added complication is that, beginning in 2016, DDA designations in metro areas apply to ZIP Code Tabulation Areas (known as a Small DDA or SDDA) instead of county-wide. (It’s important to note SDDAs and ZIP codes do not always have the same boundaries.) HUD revised its policy to provide an incentive to develop LIHTC properties in higher-opportunity areas.
Non-metro area DDAs are still entire counties. Together these designations are limited to 20 percent of the national population, as ranked using the ratio described above and with metropolitan areas ranked separately from non-metropolitan areas.
For more information on SDDAs, see “Important Aspects of the 2016 Difficult Development Areas and Qualified Census Tracts” from the January 2016 Novogradac Journal of Tax Credits.
There are multiple differences in QCT and DDA designations from 2016 to 2017. According to HUD and Novogradac, the year-to-year changes in SDDAs and QCTs (excluding Puerto Rico) are as follows:
Most of these changes are due to evolving demographics. HUD also implemented a minimum population requirement for SDDAs to avoid areas unsuitable for residential development, such as airports. The Novogradac QCT and DDA Mapping Tool illustrates which areas fall into these categories.
The tables below show how many households are in each of the different areas. There are 699,707 fewer households in SDDA areas in 2016 (approximately 0.5 percent of the U.S. total). However, it is important to note that HUD uses population and not households when determining the SDDAs.
Preserving a DDA/QCT Boost
If a developer is working on a potential LIHTC property in a location losing its designation, there still may be a way to preserve the 30 percent boost. HUD describes this approach as extending the effective date. The main requirement is the proposal must have been the subject of a “complete” application, meaning no more than de minimis clarification was required for the allocating agency to make a decision. The agency will decide what counts as a complete application for this purpose. There are additional subsequent deadlines later in the process.
Contact a Novogradac professional for questions about this information, or assistance with other aspects of LIHTC development.