Freddie Mac recently published a study titled Risks and Impacts of Expiring LIHTC Restrictions and the Outcomes of Properties that Exit. Specifically, the study examines what happens to a property after it leaves the Low-Income Housing Tax Credit (LIHTC) program and therefore is no longer subject to the program’s income and affordability restrictions. Understanding these risks helps states evaluate how best to use their limited LIHTC and private activity bond allocations to preserve affordable housing.
The Freddie Mac analysis found that 86.6% of LIHTC properties are still in the program and are thereby still subject to rent restrictions, but an increasing number of properties will be able to exit the program soon. Around 61% of non-programmatic units (units that have left the program) are still affordable at 60% AMI, though conversion to market rate can cause a dramatic increase in rents. LIHTC properties that exit the program, including properties that are not resyndicated, often remain more affordable than conventional market rate properties that never were subsidized.
LIHTC units are both income- and rent-restricted, and usually must remain affordable for 30 years, after which owners are no longer required to keep rents at an affordable level. The conventional market’s inability to support highly affordable units underscores the importance of programs such as LIHTC and private activity bonds.