Listen to this articleThe tax credit program with a low income-also known as Lihtc-is still known for the most important resource for the creation of affordable housing in the USA. In Wisconsin alone, we have benefited more than 1,300 Lihtc projects in the past four decades and helped both urban and rural communities.
Although it is a federal program, Lihtc is managed on site by the Wisconsin Housing and Development Authority (Wheda). More than $ 445 million of LihtC tax credits have led to the development and rehabilitation of rental apartment developments for families with low to medium-sorts, seniors and people with special needs. The developments include the state, from section 8 of living space in Milwaukee, to apartments with low incomes in Green Bay to income -based apartments in Madison.
However, they are decisions from Washington, DC that could give Lihtc a boost this year. The Affordable Housing Credit Improvement Act (AHCIA) was introduced both in the house and in the Senate with strong support for party support. In contrast to other legislation in the congress, AHCIA has a great support for cross -party support, with more than 300 senators and representatives supporting the bill, but it has to be bound to other congress laws.
When the AHCIA goes away, this is an enormous opportunity for the municipalities across the country because they have an increasing need for affordable living space. Cities and cities can play a crucial role in facilitating Lihtc transactions. They often offer support from accelerated zoning permits, increased density for affordable living space and financing mechanisms such as tax incremental financing or affordable housing funds. This support helps ensure that affordable housing developments are financially feasible and can go smoothly.
One example is the historic Patterson location in Milwaukee – a renovation of a historical school building through adaptive reuse, which is added to 30 units in the original structure and 18 town houses for a total of 48 units, of which 40 are affordable. The development of Wisconsin Redevelopment, Todd Hutchison and Anderson Webb LLC uses annual Lihtc credits of $ 547,000 as well as historical tax credits, which can be demonstrated how municipalities and public financing instruments can come together to enable effective, affordable living projects.
Places cannot be helped financially, e.g. B. in the support of real estate in compliance with schedules and deadlines, which is of essential importance for the success of Lihtc-financed housing projects.
The LIHTC fits well with historical tax credits and recently worked well with the various energy incentives as part of the law on inflation reduction. Many programs as part of the IRA are currently frozen or checked by the current presidential administration. Further additional incentives include exemptions from property tax, retrofitting environmentally friendly energy and zoning reforms in order to further reduce the development costs and make affordable living space accessible.
Cities can help by accelerating the permits for zoning and increased density for affordable housing companies and offering financing mechanisms such as tax incremental financing or affordable housing funds. However, it is important that cities that need and want to take affordable apartments take both procedural steps and financial steps in order to promote an affordable housing estate.
One example is the “Sidecar Financing” or stacking incentives. In these affordable offers, the construction costs almost always exceed the value of a property and with a large margin, since they calculate rents for residents that earn 30% to 80% of the middle income in the area. Therefore, most of these projects need additional sources in addition to debt and tax credit in order to be financially feasible. The difficult part is timing to display these resources. There may be federal, state, restaurants, the basis or other lenders/scholarships to which the developers apply, and rarely geared.
Local governments can help developers to control these complex financing structures through strategic planning, use various sources of financing and to work with experts in the apartment industry. Local governments can include consultants for planning and analysis, create financing solutions and give guidelines for the use of federal and state programs. In addition, you can examine alternative financing mechanisms, carry out comprehensive financial planning and work with partners of the public private sector – also through public private partnerships.
Despite the complexity of the financing and the temporary interruption of some IRA credits, many in the industry still expect positive developments with Lihtc in the near future. But continue to watch what happens in the congress. In combination with construction trends such as modular buildings, sustainable structure and innovative financing, the adoption of the AHCIA could lead to a promising year for Lihtc and affordable housing companies.
Donald Bernards, director of the real estate group with Baker Tilly, has been active in many aspects of affordable living space since 1999. Don, based in Madison, is familiar with the structuring of affordable living transactions, including tax questions.
Jolena Presti is the managing director of Baker Tilly's development and community consulting practice. Jolena, based in Milwaukee, has more than 25 years of experience in developing and promoting innovative strategies in the areas of living, renovation as well as economic and community solutions for customers across the country.