Difficult Development Area Changes in 2015

Published by James R. Kroger on Monday, December 1, 2014
Journal thumb December 2014

In October, the U.S. Department of Housing and Urban Development (HUD) released the 2015 metropolitan and non metropolitan difficult development area (DDA) designations. HUD added nine metropolitan areas, but dropped 19 areas for 2015. The list also added 114 nonmetropolitan areas, but dropped 88 DDAs for 2015.

DDA is a designation for areas that have a relatively large gap between fair market rents (FMRs) and low-income rents. Affordable multifamily rental housing properties that are developed in these areas get an additional 30 percent boost in their eligible basis for determining low-income housing tax credits (LIHTCs) under Internal Revenue Code Section 42, which generally translates to an additional 30 percent in LIHTC. Each year, HUD publishes a list of DDA designations in metropolitan and nonmetropolitan areas by county level.

Considerations for Areas Gaining DDA Designation in 2015
According to the Oct. 3, 2014, Federal Register, the 2015 lists of DDAs are effective as follows:

  • For tax credit properties with allocations of credit after Dec. 31, 2014, or
  • For tax credit properties with tax-exempt bonds, with bonds issued after Dec. 31, 2014, and the building(s) is placed in service after Dec. 31, 2014.

Therefore, a tax credit development might qualify for the 30 percent boost, even if it is located in a county that isn’t a DDA in 2014, but will be a DDA in 2015, if the development gets a LIHTC allocation in 2015 rather than 2014. Similarly, a tax-exempt bond development might qualify for the 30-percent boost, even if it is located in a county that isn’t a DDA in 2014, but will be a DDA in 2015, if the bonds are issued and the building(s) is placed in service after Dec. 31, 2014.

Considerations for Areas Losing DDA Designation in 2015
According to the Oct. 3 Federal Register notice, the 2014 lists of DDAs are still effective as follows:

  1. For tax credit properties with allocations of credit before Jan. 1, 2015, or
  • For tax credit properties that receive an allocation of credit no later than the end of the 365-day period after the applicant submits a complete application to the LIHTC-allocating agency and the submission is made before Jan. 1, 2015.
  1. For tax credit properties with tax-exempt bonds, with bonds issued before Jan. 1, 2015, and the building(s) is placed in service before Jan. 1, 2015, or
  • For tax credit properties with tax-exempt bonds, with bonds issued or the building(s) is placed in service no later than the end of the 365-day period after the applicant submits a complete application to the bond-issuing agency and the submissions is made before Jan. 1, 2015, provided that both the issuance of the bonds and the placement in service of the building occur after the application is submitted.

According to HUD, a “complete application” means that no more than de minimis clarification of the application is required for the agency to make a decision about the allocation of credits or issuance of bonds requested in the application.

Small Area Difficult Development Areas
Also mentioned in the Oct. 3 Federal Register notice, HUD reiterated the fact that the 2015 metropolitan DDA designations are the last designations before the change to Small Area Difficult Development Area (SADDA) designations in 2016, as previously mentioned in Nov. 18, 2013, Federal Register notice.

In the Nov. 18 notice, HUD announced it will change DDA designations for metropolitan areas beginning in 2016. At that time, new DDA designations will be determined on a ZIP-code basis instead of the current county basis. HUD estimates that more than 200 metro areas will have at least one ZIP code designated as an SADDA. This is compared to about 35 to 40 metro areas that are typically designated entirely as DDAs. This new change in designation will only apply to metropolitan areas; nonmetropolitan areas will not be affected. HUD created a mapping tool that uses 2012 information and shows the hypothetical SADDAs in major metropolitan areas. The HUD SADDA mapping tool can be found online atwww.huduser.org/sadda/sadda.html.

These hypothetical SADDAs are based on ZIP Code Tabulation Areas (ZCTA), whereby a two-bedroom small area FMR (SAFMR) is divided by a four-person very-low-income (VLI) limit for the given ZIP code. The SAFMRs are based on the 40th percentile gross rent paid by recent movers to live in a two-bedroom apartment. The VLI limits are based on metropolitan area income limits. The ZIP codes considered to be SADDAs are those with the highest ratios cumulative to 20 percent of the 2010 population of all metropolitan ZCTAs.

More information regarding DDAs can be found online at www.novoco.com/low_income_housing/facts_figures/qcts_ddas.php.