The Internal Revenue Service has prepared new guidance that will help developers utilize the “average-income” option in the low-income housing tax credit (LIHTC) program.
The regulations, which will take effect upon publication in the Federal Register, addresses several issues that have thwarted the use of the set-aside option.
First, it eliminates the “cliff effect,” in which a small number of units out of compliance can threaten recapture of the credits for not meeting the minimum set-aside, reports the Affordable Housing Tax Credit Coalition (AHTCC). Now, the revised rules “limit the impact of one unit’s noncompliance on the ability of a project to satisfy the average-income test.”
“The guidance released today will have an immediate impact, allowing stalled affordable housing developments to move forward at a time when rents are skyrocketing,” says AHTCC CEO Emily Cadik. “We thank the Biden administration for taking these important steps, and for committing to work with Congress to act to further increase affordable housing supply.”
In its summary of the federal actions, AHTCC notes that the final regulations will also “allow for the average-income test to be satisfied if at least 40% of a building’s units collectively average 60% or less of the area median gross income; “it is no longer necessary to consider all low-income units in a project for residential rental property when determining whether the average income test is met.”
“The positive outcome for the affordable housing industry was due to the concerted and coordinated efforts of industry advocates and our champions within Congress and the administration,” says David Gasson, partner at MG Housing Strategies. “On the average-income test, Treasury and the IRS heard from Congress on their original intent, and the industry demonstrated the need for revising the regulations if the intent was to produce more housing.”
In another move, the Biden administration announced it is extending several deadlines for placed-in-service (PIS) rules for LIHTC projects. While the IRS had approved an earlier extension of program deadlines, industry advocates sought to further key deadlines because of the ongoing disruptions and supply chain issues.
Administration leaders said they are also enabling more affordable housing developments with State and Local Fiscal Recovery Funds under the American Rescue Plan.
“Even though the sorely needed average-income test guidance was delayed a week, we ended up getting a two-for-one deal,” says Bob Moss, partner at MG Housing Strategies. “The inclusion of PIS extensions was next on the industry’s wish list, and we are extremely thankful to the administration for the added time. It was a win-win day today.”
In announcing its progress in implementing its Housing Supply Action Plan, the White House reported on several other steps, including the launch of a $30 million Thriving Communities Program by the Department of Transportation and the Department of Housing and Urban Development to help communities plan transformative infrastructure projects.
“Today, we saw significant progress on the administration’s Housing Supply Action Plan that will remove barriers to financing and developing affordable housing,” says Matt Josephs, AHTCC board president and senior vice president for the Local Initiatives Support Corp. “We applaud the Biden administration for taking into account feedback from affordable housing practitioners to improve our delivery system and enable us to provide more homes for those in need.”
“We’re grateful that the White House is taking steps to strengthen the housing credit, the most important policy lever we can pull to build and preserve more affordable housing in America,” says Lori Chatman, president of Enterprise Community Partners’ Capital Division. “Taken together, these steps couldn’t come at a more crucial time, as millions are feeling the strains of rising housing costs, even with a slowdown in inflation. Now the ball is in Congress’ court. A bipartisan coalition in the Congress stands willing to broaden and strengthen the housing credit. Enterprise looks forward to seeing these provisions finally cross the finish line, which will help finance more affordable homes at a time when Americans need them the most.”
The National Multifamily Housing Council and National Apartment Association also applauded the announcement.
“We are encouraged that the Biden administration recognizes that the federal government can play a meaningful role in helping to create badly needed housing and is taking action,” said the associations in a statement. “In fact, according to research by Hoyt Advisory Services, the U.S. needs to produce 4.3 million more apartments by 2035 to keep up with demand. That supply gap is a primary contributor to the nation’s housing affordability crisis.”
