Several states are seeing a spike in demand for low-income housing tax credits (LIHTCs) this year, with multiple factors likely contributing to the strong interest.
The Colorado Housing and Finance Authority (CHFA) saw a jump in requests in its recently completed first allocation round.
Developers submitted 21 applications, requesting $19.7 million in tax credits. That’s the highest number of applications and the largest amount in requests seen by the state, says Jaime Gomez, CHFA’s director of commercial lending.
The agency had planned to reserve about $3.6 million in the round, so demand outpaced available credits by nearly 6-to-1. On April 1, CHFA reserved $4.2 million in credits to six of the 21 projects. These developments will provide 401 housing units.
The state, which has three allocation rounds, requires developers to submit a letter of intent prior to filing a formal application. CHFA has received 21 letters for the second round, including 14 for projects that competed in the first round, according to Tasha Weaver, manager of the tax credit program. Officials noted that the number of final applicants may change.
The increased demand comes at a time when state housing agencies and others in the LIHTC industry are being impacted by a drop in tax credit pricing, says CHFA’s Gomez. As pricing contracts, developers are seeking a larger amount of credits to make their deals work, he says.
Recent LIHTC prices in Colorado help illustrate what’s happening nationally in the market. In 2007, the average price per dollar of credit was about $0.94. That fell to $0.82 in 2008. This year, the average price has been in the neighborhood of $0.72.
In addition, many banks have tightened their standards for making multifamily housing loans and are lending smaller amounts, says Gomez. That’s leaving larger financing gaps to fill and creating a need for more tax credits.
The New York State Division of Housing and Community Renewal recently received 125 applications for funding, a nearly 20 percent increase from last year, says Commissioner Deborah VanAmerongen. Reservations will be made in June.
Both VanAmerongen and Gomez noted that tax-exempt bond deals with 4 percent tax credits have been tough to finance this year, which may also be contributing to the higher demand for 9 percent LIHTCs.
Some developers may also be thinking that the market conditions will improve later this year or that gap financing will be available through the American Recovery and Reinvestment Act, which included a $2.25 billion Tax Credit Assistance Project to help stalled projects as well as a tax credit exchange provision that allows state housing agencies to swap up to 40 percent of their 2009 volume cap and all of their unused 2008 credits for $0.85 per credit to make grants.
The Indiana Housing and Community Development Authority (IHCDA) is scheduled to make its LIHTC reservations April 23.
The agency received 62 applications this year, a 55 percent increase from last year. The applicants requested $41 million in LIHTCs, 139 percent more than the $17.3 million sought last year.
The jump in interest may be attributed to the state having about $24 million in additional credits for areas that were damaged by flooding and severe storms last year. The disaster credits are on top of Indiana’s $14 million annual LIHTC authority, says Jacob Sipe, IHCDA multifamily manager.
Sipe added that IHCDA plans to have a rolling round of awards for preservation deals this year, starting May 1. About 10 percent of the agency’s 2009 credits is anticipated to be available in the rolling round.