Every year the North Carolina Housing Finance Agency (NCHFA) awards applicants with Low-Income Housing Tax Credits (LIHTC) – the most important resource for creating affordable housing in the United States today. The NCHFA uses federal and state funds to produce affordable housing by partnering with for- and non-profit developers. The Applicants are awarded with tax credits equal to nine percent of the qualified cost of building or rehabilitating a property. Without LIHTC, building affordable housing would not be feasible. In 2015, forty-nine projects in NC were awarded with low-income housing tax credits totaling over $25 million and 3,600 units. This blog post will dive into the LIHTC process specifically diving into the mechanics of the Qualified Allocation Plan (QAP).
How does LIHTC in NC work?
In order to acquire LIHTC through NCHFA, a developer applies for credit by adhering to the QAP. The QAP is used to score applicant submittals. If a developer acquires LIHTC, the credits are then typically syndicated by investors which provides the owner/developer with equity to reduce the amount of debt needed to build the property. Rents are then set at what is considered affordable for households earning sixty percent or less of the area median income. Plus, the units stay affordable for thirty years.
In addition to providing LIHTC, the NCHFA also awards Rental Production Program Loans (RPP). RPP loans provides additional funding for rental developments serving households earning less than sixty percent of the area median income. Applicants who submit a site proposal for low-income housing tax credits may also be eligible for an RPP loan when they apply for LIHTC. These loans are funded by the NC Housing Trust Fund and the HOME program.
What’s in the QAP?
The 2015 QAP outlines the selection criteria for the allocation of low-income housing tax credits. A project can be awarded up to $1.8 million. There are set-asides for allocation which are based on the project’s type, location and tax-exempt status. Rehabilitation projects will receive up to ten percent of available tax credits. New construction projects are allocated most of the credits and are weighted by their geographic region and status as a redevelopment project. Ten percent of the available tax credits will also be set aside for tax-exempt organizations.
The selection criteria outlined in the 2015 QAP broadly includes:
- Neighborhood characteristics
- To receive a maximum score on neighborhood characteristics, the structures within half-a-mile of the site must be well maintained or the site must qualify as a redevelopment project.
- Amenities are broken down into type and driving distance. Types of amenities include groceries, shopping, pharmacies, healthcare, public facilities, and transit stops.
- Site suitability
- A maximum score on site suitability indicates that the site is not surrounded by incompatible uses such as airports, junk yards, jail, or high traffic corridors. In addition, a suitable site should be visible to potential tenants using normal travel patterns.
- Capability of project team
- The NCHFA also scores applicants on the capability of the project team. A capable project team is one that has developed and maintained in compliance one LIHTC project in NC between 2008 and 2014. To receive a maximum score on capability, the applicant must have its principal office in NC.
- Unit mix and project size
- All projects are constrained by a certain unit mix and project size that is dependent on location and type of construction.
The maximum site score is sixty under the 2015 QAP. Out of 148 applications, 144 had perfect scores. Every project that was awarded with low-income housing tax credits had a perfect score, outside of the projects that had tax-exempt bonds. How were the projects selected? Through a set of three tiebreakers. The first tiebreaker is based on the project that is “requesting the least amount of federal tax credits per unit based on the Agency’s [NCHFA] equity needs analysis.” The second tiebreaker ranks projects serving tenant populations with children, or projects with a quarter of the units as three or four bedrooms. The third tiebreaker ranks projects “intended for eventual tenant ownership.”
Low-income housing tax credits play a large role in the development of affordable housing in NC making the QAP a powerful document. The NCHFA revisits the QAP annually to revise the document based on concerns voiced by developers and investors. The NCHFA is currently accepting comments prior to releasing an updated 2016 QAP. To date, there are sixteen comments from developers, investors, and lawyers. The next blog post in this series will dive into those comments and compare them to the 2015 QAP.
Omar Kashef is a second-year graduate student seeking a dual-degree in Public Administration and Information Science and is currently a Fellow with the Development Finance Initiative.