With a shortage of affordable rental housing in Tennessee, the Tennessee Housing Development Agency (THDA) is issuing a new study on the state’s largest scale solution.
The report takes an in-depth look at the 28-year history of the Low Income Housing Tax Credit (LIHTC) in Tennessee, as well as areas of greatest opportunity in the near future.
“National trends are driving more people into the rental market, which is driving up the cost of rent, and we’re already facing an alarming shortage of affordable rental housing as it is,” said THDA Executive Director Ralph Perrey. “It’s never been more important for investors, developers, and policy makers to understand what the Low Income Housing Tax Credit is and how it can be used to spur construction of affordable rental units across the state.”
Introduced in 1987, the Low Income Housing Tax Credit is a federal program to incentivize the private sector to build and maintain affordable rental housing. In exchange for meeting the conditions of the program, developers receive a federal tax credit spread out over ten years. The tax credits themselves can be sold to investors to provide dollars-in-hand for construction. Without the LIHTC, most of these construction projects would not be financially feasible, meaning little to no new rental housing would be built in a price range affordable to low income households. THDA manages the program in Tennessee and allocates federal tax credits to qualifying projects according to state and federal priorities.
“Investment dollars are being poured back into the residential construction industry right now, which is good news, but developers in the rental sector are primarily focused on upscale properties,” said Perrey. “We need to make it as attractive as possible for developers to invest in affordable rental housing so people of low income aren’t overlooked and left behind. Our goal is a healthy balance of rental properties for low, middle, and high income families within our communities.”
From 1987 through 2013, investors and developers have been allotted $2,480,072,525 for LIHTC construction projects in Tennessee. The statewide average vacancy rate in LIHTC rental units was 7.9 percent for the three-year period 2011 to 2013, compared to 8.8 percent nationwide for all rental properties for all income levels, indicating these properties are desirable to tenants.
Looking ahead, THDA sees opportunities to prioritize projects in areas that are both in a Qualified Census Tract (QCT) and part of a Community Revitalization Plan (CRP). Cities use CRPs to generate new job opportunities and economic revitalization in low income neighborhoods. In addition, with Congress increasing the nationwide cap on Rental Assistance Demonstration (RAD) projects from 60,000 units to 180,000 units, THDA anticipates a surge in LIHTC applications once additional RAD funding becomes available in Tennessee.
To help connect Tennessee families with rental housing in their price range in their area, THDA operates the TNHousingSearch.org website, where property owners can list vacancies for free.
To date, 940 properties have qualified for the LIHTC program in Tennessee, representing just over 46,000 rental units. The total tax credits available for projects in Tennessee is determined by the IRS on an annual basis, and applications in Tennessee always exceed demand.
The THDA administers Tennessee’s LIHTC program and allocates the tax credits to qualifying developers/awardees according to priorities set by its board of directors.
Source: The Tennessee Housing Development Agency