As described in § 42 (h) (6), all LIHTC properties to which loans were granted after 1989 must have an Extended User Agreement (EUA). The agreement is concluded by the taxpayer and the Housing Credit Agency (HCA) and has a minimum duration of 30 years (15 years after the end of the 15-year settlement period). The researchers also suggested what might happen to the LIHTC properties that were added to the program after 1994 and won`t reach year 15 until after 2009. Overall, they found that the roughly 1.5 million properties that reach year 15 between 2010 and 2024 are even less likely to be converted to market-oriented apartments than those that reached year 15 earlier. The situation changes at the end of the 30-year affordability regulations. By 2020, when the first of the 30-year-old LIHTC properties still participating in the program will be eligible for market price conversions, the authors expect more properties to be repositioned or no longer rented out as market-standard apartments. However, they point out that HFAs, the federal government, and affordable housing advocates can help guide the future of these developments, for example by offering additional 9% tax credits. They suggest that HFAs receive as affordable developments that are most likely to be converted to market-oriented housing because of their favorable location, as well as developments that have been supportive housing for people with disabilities or chronically homeless. An EEE can only be terminated before the end of the extended use period for two reasons: the EEA must contain provisions that protect low-income residents from eviction or termination of the tenancy for any reason other than good for the entire extended use period. In addition, for a period of three years after the end of the EEA, the rental of low-income residents cannot be terminated without a valid reason and their rent cannot be increased beyond the LIHTC`s authorised rent limit. In the event of non-compliance, no credit note shall be allowed for a building covered by the Convention until the tax year in which the EUA applies. In short, the IRS will ensure that an EEE exists, is properly designed and registered. The Service does not enforce the provisions contained in the Agreement.
Developers are eligible for LIHTC by agreeing to rent housing to low-income individuals and charge rents that do not exceed a certain amount. Most tax credit promoters choose the option where tenants must have an income below 60% of median income (AMI) and rents must not exceed 18% (30% of 60%) of the AMI. From 1986 to 1989, federal law required proponents to maintain these affordability provisions for at least 15 years. However, starting in 1990, new LIHTC properties were needed to maintain affordability for 30 years. During the first 15 years, called the initial compliance period, owners must maintain affordability. The second 15 years are called extended useful lives, during which owners can leave the LIHTC program through a relief process. Once the 15-year affordability period expires, LIHTC owners who apply for and receive regulatory relief from the program will be able to convert their properties into units that meet market standards. Some states require longer affordability restrictions, and some LIHTC developments have local funding that comes with longer use restrictions. It is important to note that the provisions of the Code on credit recovery do not apply, as non-compliance related to a EUA does not result in a reduction of the qualified base. Launched in 1986, the Low-Income Housing Tax Credit (LHTC) program uses tax credits to encourage private developers to create affordable housing. Typically, developers sell these tax credits to investors to raise equity for their construction or redevelopment projects.
This allows them to take out fewer loans than they would otherwise have, charging lower rents. Given that the main purpose of § 42 is to promote housing for low-income people and § 42 (h) and (i) aims to promote such housing beyond the performance period, the EEA meets the requirements of § 42 even if a tenant has a right of first refusal to purchase low-income housing at the end of the performance period. Of the 11,290 properties in the study, the researchers found that in 2009, 3,699 (about 32 percent) were no longer monitored by government HFAs, meaning they could charge higher rents. Despite the lack of affordability restrictions, the researchers found that „the vast majority“ of these properties are still affordable. Some are owned by mission-driven businesses (non-profit or even for-profit owners committed to long-term affordable housing) and others are subject to other affordability mandates. Other properties simply remain affordable by default; In year 15, the restricted rents for LIHTC units are the same as the market rents for similar units in similar locations. To further examine properties that are no longer monitored by HFAs, the researchers looked at the rents of 100 properties of 20 units or more in low-poverty areas. They found that about half (49%) had rents under the LIHTC restriction, and another 9% had rents below 105% of the liHTC rent. LIHTC = Low Income Housing Tax Credit; RHS = Rural Housing Service.
Notes: The projects used for the analysis contain only datasets containing annual data that have been commissioned. Some columns do not give 100% due to rounding. Source: What happens to low-income tax-credited properties in Year 15 and beyond? and HUD`s national LIHTC database. If it is established that a EUA was not in force at the beginning of a tax year, no contractual penalty shall be imposed if the EUA is entered in the accounts within one year of the date of determination. From 1987 to 2009, about 2.2 million units were developed via LIHTC. In the first 20 years of the program, LIHTC properties accounted for nearly one-third of all newly constructed apartment buildings. Therefore, the future of the 400,000 housing units that have reached the year 15 by 2009 has a significant impact on the supply of affordable housing (see Table 1 below). A recent report from the Department of Housing and Urban Development commissioned by Abt Associates, What Happens to Low-Income Housing Tax Credit Properties at Year 15 and Beyond?, found that most of these properties remain affordable in the period immediately following the first 15 years. The research focused on LIHTC real estate, which was included in the tax credit program between 1987 and 1994.