7/26/2018 12:07:14 PM
By Jo Ikelheimer
The Low-Income Housing Tax Credit (LIHTC) industry is alive, well, and extremely active these days. That is my #1 takeaway from attending the National Council of State Housing Agency’s (NCSHA) annual Housing Credit Connect (HCC) conference in Chicago in June. The HCC is one of two LIHTC-specific events held by NCSHA every year where NCHM staff attends and actively participates in panel discussions on a wide variety of compliance-related topics. At this year’s event, I spoke on panels dealing with tenant income and assets and professional property management. My NCHM colleague Lisa Vercauteren added her expertise to the panel reviewing the Violence Against Women Act (VAWA) for LIHTC.
Here are a few of the highlights from the conference for those of you who were unable to attend:
LIHTC properties are currently holding steady with 98% occupancy rates on average, which demonstrates the demand for affordable housing and the program’s success in helping to meet that need. Conference leaders described the LIHTC program and the housing it creates as being “part of an important public trust” and they emphasized that all participants needed to be good stewards of that trust. The LIHTC provisions included in the Consolidated Appropriations Act of 2018, passed earlier this year, represent a significant victory for the affordable housing community, but there is always more work to be done to sustain and improve the program’s effectiveness. Consequently, NCSHA committed to having a “laser focus” on helping to get the Affordable Housing Credit Improvement Act passed by Congress in the near future to further strengthen the program.
Hot topics for compliance covered at the conference include 2018 income limits for LIHTC properties, which include increases in Area Median Income (AMI) of 5.74%, on the whole, between 2017 and 2018. For LIHTC, increases in AMI, and thus income limits, translate into increased rent limits, which in turn means that higher rents may be charged to residents.
Some state agencies, however, are now restricting the amount that rents may be raised under these circumstances in their states. For example, Oregon is capping rent increases at 5% for LIHTC after having requests for increases up to 23%. New Jersey also includes a 5% cap in their Qualified Allocation Plan (QAP) for LIHTC, while North Carolina reports that while capping rent increases to $25 annually they also encourage management to increase rents in smaller increments annually when possible rather than waiting to implement large increases all at once. The reasoning behind these caps, of course, is to address the affordability of rents for LIHTC residents – especially those on fixed incomes. Consult with your state agencies regarding any rent increase caps or restrictions before instituting changes in a property’s rent schedule.
As reported in my last HMQ article, the new income averaging provision of the Consolidated Appropriations Act of 2018 is the most significant change for the LIHTC program in quite some time. Naturally, it generated a lot of buzz at the HCC. It was repeatedly noted that although the new provision opens up the program to a wider range of income diversity, it also presents a layer of complexity to meeting and maintaining minimum set-asides for LIHTC properties. It is important to note that with income averaging the minimum set-aside is no longer per project but per unit based on the predetermined designations that must average 60% AMI or less. The only instance in which a qualified low-income project will generate tax credits is when the appropriate average among LIHTC units is achieved. If the targeted average misses the mark, then owners may risk full credit loss for that year and potentially trigger recapture for credits at their property. Thus, it was recommended that owners aim for an average lower than 60% to help provide a cushion and protect against this possible damage to their credits.
Finally, a number of state agencies reported that they are now requiring and scrutinizing Tenant Selection Plans for LIHTC even though they are not technically required or addressed in the Section 42 regulations. NCHM has always recommended having written selection criteria for LIHTC as an industry best practice. This new level of concern from state agencies increases the importance of making sure you know what your state agency’s expectations and are following their requirements accordingly. If you are not sure, reach out to your state agency to inquire about their tenant selection plan policies. Why be caught off guard with a noncompliance finding if it can be proactively avoided?
Overall, it is encouraging that LIHTC continues to evolve into an even better, more effective program and that there are many housing professionals dedicated to making this happen. Annual events such as NCSHA’s Credit Connect Conference serve to reenergize NCHM’s commitment to provide the very best in LIHTC education and to continue to be a partner in meeting the public trust.