Low-Income Housing Tax Credit - Overview

Overview

The United States Tax Reform Act of 1986 (TRA86) adversely affected many investment incentives for rental housing while leaving incentives for home ownership. Since low-income people are more likely to live in rental housing than in owner-occupied housing, this would have decreased the new supply of housing accessible to them. The Low Income Housing Tax Credit (LIHTC) was hastily added to TRA86 to provide some balance and encourage investment in multifamily housing for those in need of affordable rental housing options. Over the subsequent 20 years, it has become an extremely effective tool for developing affordable rental housing. The LIHTC program has helped meet a critical affordable housing shortage by stimulating the production or rehabilitation of nearly 2.4 million affordable homes since 1986. Through development activity, the LIHTC creates and supports approximately 95,000 jobs annually - the majority of which are small business sector jobs.

Almost all new affordable multifamily construction from 2000 through the present has received a subsidy under the program. In 2010, the President's Economic Recovery Advisory Board (PERAB) estimated that the LIHTC program would cost the federal government $61 billion in lost tax revenue revenue from participating corporations from 2008-2017. The annual allocations under the program increased significantly in 2001 when Congress increased the state allocations by 40%.

A majority of tax credit projects also receive subsidies from other government sources. These additional subsidies, which can include development grants and loans at below-market interest rates from local and state governments, can account for a third of total capital subsidies. A large number of low-income tenants also receive rental assistance in the form of tenant-based housing vouchers or project-based certificates from the U.S. Department of Housing and Urban Development (HUD) Section 8 program or project based Rental Assistance in USDA, Rural Housing Service Section 515 Rural Rental Housing communities. Though common, these are not necessarily present in a project that benefits from the LIHTC.