LIHTC projects double in size as program matures

this article is from AFFORDABLE HOUSING FINANCE.

HOUSING POLICY
Growing Up
LIHTC projects double in size as program matures
By Liz Enochs
AFFORDABLE HOUSING FINANCE • JUNE 2007

Developers putting together affordable housing projects are gravitating toward much larger developments now than they tackled in the early days of the low-income housing tax credit (LIHTC) program, data from the Department of Housing and Urban Development (HUD) shows.

In 2004, the average LIHTC project held 84.5 housing units, meaning the size of the typical development has just about doubled from a decade earlier, according to HUD’s national LIHTC database, which the department updated in February with 2004 figures. From 1992 through 1994, the average tax credit-funded project included just 42.3 units.

The National Equity Fund has seen a similar trend on deals it has syndicated, said President and CEO Joe Hagan. “Part of that is because Congress increased the amount of credit authority; that allows states to funnel credits to larger deals,” he said. And because bond-financed projects using 4 percent LIHTCs tend to be larger in size, an increase in those deals over the past four or five years has swelled project sizes, he said.

Another factor bumping up the number of units per development: rising prices for tax credit equity, a trend that began to reverse itself last year. “That allowed for increased projects because you don’t need as much soft money to make them work, so therefore … it’s natural to go with larger projects,” said Hagan. Project sizes may remain steady for a while now that equity prices have softened, he said.

The total number of units placed in service annually has climbed over the past decade. In 2004, 110,457 units were placed in service nationwide. That marked an 8 percent decline from 2003, when a record 119,532 units were placed in service, but was higher than production in any other year, according to HUD’s database.

And as the price investors are willing to pay for LIHTCs declines and expenses increase, production could fall further. More recent figures from the National Council of State Housing Agencies (NCSHA) show that even though the overall amount of LIHTCs increased in 2005, the total number of units those allocations were expected to finance declined 5 percent. Allocations made in 2004 were projected to produce 140,000 low-income apartments, but for 2005 allocations, the number of units financed was projected to fall to 132,449, according to the NCSHA (see HFAs Revamp Programs as Challenges Mount).

Over the decade ending in 2004, close to 1 million LIHTC units in total were opened to qualifying tenants, HUD’s figures show. The share of LIHTC projects using their allocations for new construction has remained steady over the years, at about two-thirds. The remainder of projects tapped LIHTC equity to pay for rehabilitation work.

The HUD data also shows that production of LIHTC units in the suburbs has increased, at the expense of smaller towns and rural areas. Just 13.3 percent of all LIHTC projects were located in non-metro areas in 2004, down from 19.4 percent a decade earlier.

Meanwhile, the suburbs garnered 37.2 percent of all LIHTC projects, up from 30.5 percent on average in the three years ending in 1994. About half the properties funded with tax credits were located in central cities in 2004, roughly the same share as a decade earlier.