It was reported in the June 2011 issue of AFFORDABLE HOUSING FINANCE that 45 states are including preservation incentives in their qualified allocation plans. Some states are dedicating substantial portions of their low-income housing tax credit (LIHTC) allocations to preserving existing aff ordable housing projects. A few states are even off ering a 30 percent basis boost for preservation developments. Clearly, there is a strong trend by state housing finance agencies (HFAs) to commit substantial financial resources for this cause.

On the surface this initiative may seem sensible. The number of properties reaching Year 15 is growing, and there is a risk that aff ordable housing stock could be reduced unless developers are off ered incentives to keep their properties in the Sec. 42 program. But there is another perspective. In many rural communities, the only apartments developed in years have been LIHTC projects. A number of these communities have a growing manufacturing base, and others are working hard to attract new industry. They are desperate for workforce housing as many of their citizens earn too much to qualify to live in a LIHTC property.

An example is Dodge City, Kan., a community with a 2010 population of 27,340. Two of the largest employers in the region are Cargill Meat Solutions and National Beef, employing more than 5,400 people in stateof- the-art meatpacking plants. Department of Housing and Urban Development income standards call for two- and three-person families to not exceed $25,600 and $29,040, respectively. Yet, if one family member works for a beef plant and another family member works part-time to make ends meet, together they exceed these income limits though they may not even earn 100 percent of the area median income (AMI). No developer can build a new conventional apartment complex to accommodate citizens earning more than 60 percent of the AMI because the rents required exceed their ability to pay.

Rather than continue to preserve LIHTC properties in communities such as Dodge City, it makes more sense to allow Year 15 properties to convert to market-rate. Doing so would help fill the void for workforce housing that is becoming a greater problem in smaller markets. Then the state HFA can allocate LIHTCs for new projects to replace those that exit the program. Will rents increase on those former LIHTC projects? Most likely, but the market won’t allow for excessive increases. The real benefit to the property owner and the community is the expansion of the pool of renters as a result of eliminating the income restrictions. To clarify, Dodge City is a hypothetical example and not representative of a specific issue with the Kansas Housing Resources Corp.

State HFAs should consider refining their preservation strategies and incentives to help meet the workforce housing needs of smaller rural communities. All Year 15 projects don’t need to remain in the Sec. 42 program, especially if they can be repositioned to meet the workforce housing needs of a community. There’s simply no other feasible way to create such housing than to recycle LIHTC properties for this purpose.

R. Lee Harris, CRE, CPM, is president and CEO of Cohen-Esrey Real Estate Services, LLC, a Kansas City-based commercial real estate organization that has managed more than 58,000 multifamily units since 1969. He can be reached at