The low-income housing tax credit (LIHTC) program has seen plenty of drama during its 25 years. It has faced market turmoil, political scrutiny, and increasing pressure to produce affordable housing as other resources are cut.

The nation's most successful housing program has proven to be one of its most durable.

Even so, the LIHTC faces a number of questions in the year ahead.

What will Congress do?

When AFFORDABLE HOUSING FINANCE surveyed developers at the beginning of the year, we found that their biggest concern is the loss of state and local resources. Forty-five percent of the respondents picked diminishing local funds as their biggest worry. Next, cited by 21 percent, was the possible elimination or changes to the LIHTC program by federal lawmakers.

The 112th Congress, with more than 100 new members this year, is under pressure to rein in government spending and cut programs. There's a fear that the LIHTC will be seen only as a tax expenditure and get lumped in with some of Congress' budget-slashing and tax reform efforts.

In its favor, the LIHTC has had good bipartisan backing over the years, and the affordable housing industry has been able to rally advocates to the program's defense in the past. Drumming up support remains critical.

Should the LIHTC serve higher-income residents?

The Obama administration is already moving in this direction. It has proposed allowing properties to serve households whose average income is no greater than 60 percent of the area median income (AMI) and with no individual household above 80 percent of the AMI. This would be an option to the current cap that restricts each LIHTC apartment to residents earning no more than 60 percent of the AMI.

The move seeks to allow greater income mixing at the project level, creating opportunities for higher-earning families. It would also help align LIHTCs with other federal housing programs that define low income at 80 percent.

Some housing advocates may fear that the plan expands the program to higherincome families when the poorest need the most help. However, supporters point out that lower-income units would have to be included for a development to meet the 60 percent average.

The plan has received positive reaction from several industry leaders and organizations.

How volatile will the market be?

Investor demand dropped significantly in 2008 and 2009 amid the nation's larger financial crisis. The LIHTC market began to improve in 2010, and that momentum has carried into this year. Pricing has rebounded around the country, with some recent deals in California reportedly fetching $1 per dollar of credit. Pricing has gone up because there's more investor equity in the market, which means buyers are competing for prime deals and offering high prices. On the other side of the equation, yields to investors have dropped to about 7 percent or 8 percent. If yields fall too much, it could reduce the appetite of some new economic investors who were drawn to the market by recent double-digit returns. That could trigger prices to fall again.

Although the entry of new economic investors has helped the overall market, large banks remain the biggest and most experienced players. They invest in LIHTCs not only for the economic returns but to help meet their Community Reinvestment Act (CRA) obligations. This benefits developers in the key CRA markets like New York City but not those in the rural and smaller communities.

With pricing and yields still moving, one can expect some volatility this year.

Trends to watch will be how far yields drop and how LIHTC returns compare with other investment vehicles.