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Legislative Alert: GAO Releases Report on LIHTC Costs

Posted By Administration, Wednesday, September 19, 2018

Yesterday, the Government Accountability Office (GAO) released a study on development costs for low-income housing tax credit (LIHTC) properties. The report features the development costs of LIHTC properties in 10 states between 2011 and 2015 and is the final report in a series the GAO conducted at the request of Senator Charles Grassley (R-IA) on LIHTC. Other reports have covered topics including the federal and state administration of LIHTC and the role of syndicators in the program.

 

The report outlines wide variation in development costs and several cost drivers for LIHTC projects. The report does not compare LIHTC costs and market-rate development costs. The report and GAO recommendations for the LIHTC program instead focus on data collection and the need for collecting more information about costs. The GAO included in their recommendations:

  • Congress should consider designating an agency to collect cost-related LIHTC data and periodically assess and report on LIHTC project development costs.
  • The IRS should require general contractor cost certifications for LIHTC projects to verify consistency with the developer cost certification.
  • The IRS should encourage allocating agencies and other LIHTC stakeholders to collaborate on the development of more standardized cost data.
  • The IRS should communicate to credit allocating agencies how to collect information on and review LIHTC syndication expenses, including upper-tier partnership expenses.

The 10 states examined were Texas, Georgia, Ohio, Arizona, Florida, Washington, Illinois, Pennsylvania, New York, and California. The median per unit costs for new construction projects fell in a wide range from about $126,000 (Texas) to about $326,000 (California). The variance in geographies widened when looking at individual allocating agencies ranging from as little as $104,000 per unit (Georgia) to as much as $606,000 per unit (California). The GAO estimates that:

  •  larger projects (more than 100 units) cost about $85,000 less per unit than smaller projects (fewer than 37 units), consistent with economies of scale;
  • projects in urban areas cost about $13,000 more per unit than projects in nonurban areas;
  • projects for senior tenants—nearly one-third of all projects—cost about $7,000 less per unit than those for other tenants, potentially due to smaller unit sizes.

For over 30 years, LIHTC has been a model public-private partnership program leveraging private sector resources, market forces, and state-level administration. The program has financed approximately 3 million apartments since 1986, providing 6.7 million families with housing they can afford. Without LIHTC, virtually no affordable rental housing development would occur.

 

NALHFA maintains the most important thing Congress can do to improve the LIHTC program is to enact the Affordable Housing Tax Credit Improvement Act (S. 548/H.R. 1661). The expansion and enhancement of the LIHTC program remains one of NALHFA’s top legislative priorities. NALHFA’s government relations team will continue our push on Capitol Hill for the passage of the Affordable Housing Credit Improvement Act and will work with our industry partners as an active member of the ACTION Campaign—the coalition of over 2,200 national, state and local organizations working to expand and strengthen LIHTC.

 

NALHFA Members Take Action:

It is possible that Congress could consider tax legislation in the Lame Duck session after the election, which is the best opportunity to advance key provisions of the Affordable Housing Tax Credit Improvement Act this year. There are 40 bipartisan Senate cosponsors and 170 bipartisan House cosponsors on this legislation, but with increased Congressional support on each bill, it becomes more likely that provisions of the legislation will be incorporated in a year-end tax package. NALHFA members should ask their Members of Congress to encourage Congressional leadership to pass the Affordable Housing Credit Improvement Act or to include the legislation in the next tax package that Congress advances in the 115th Congress.

 

Find your Representative’s contact information here.

Find your Senators’ contact information here.  

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