How LIHTC Works
For 25 years, the Housing Industry has maintained low income housing tax credits (LIHTC) as a unique and successful program by bringing market investment discipline to public policy. The relationship among private developers (some of whom are nonprofit organizations), investors and state allocating agencies has created over 2 million affordable housing units nationally.
Perhaps the most significant differentiation of the Housing Credit compared to any other federal tax credit is the complete transfer of risk from the taxpayer to the private sector. Because Housing Credit policies are implemented at the local level by state allocating agencies, the ultimate risk of failure is borne by private investors, not the government.
Unlike what we’ve witnessed in the single-family mortgage markets, rental developments financed with the Housing Credit have remarkably low rates of foreclosure — less than 1% according to a Reznick Group study.
And, in 2012 alone, approximately $650 million of these federal tax credits will have been awarded and will have generated nearly $7 billion of new construction and renovation — providing for about 100,000 affordable rental homes across the United States and making LIHTC one of the most successful and important resources available for creating affordable housing.