The Sec. 1602 low-income housing tax credit (LIHTC) exchange program has succeeded in financing stalled affordable housing developments but is no longer needed, according to a new report commissioned by the Housing Advisory Group (HAG) and authored by Novogradac & Co., LLP.

“Starting in 2010 and continuing in 2011, the industry has seen a resurgence in the number of LIHTC investors and the amount of investment,” said the study. “As such, the exchange program should be allowed to phase out because investors have returned to the LIHTC market.”

Created under the American Recovery and Reinvestment Act of 2009, the Sec. 1602 program provided cash grants in lieu of LIHTCs. At the end of 2010, the Treasury Department had authorized $5.7 billion in exchange program funding awards to credit allocating agencies.

Some have called for Sec. 1602 to be extended, but the study makes the case that the LIHTC market has recovered. It also notes that the exchange program lacked the safeguards that have helped make the LIHTC program successful. Notably, the scrutiny and asset management provided by private investors is reduced or lost.

Using various rough estimates, the study also concludes that the exchange is a roughly 3 percent to 13 percent more costly than LIHTCs that sell for $0.75.

The review of the Sec. 1602 program is only one part of the report.

“Low-income Housing Tax Credit: Assessment of Program Performance & Comparison to Other Federal Affordable Rental Housing Subsidies” also highlights the overall performance of LIHTCs.

The 25-year-old program has built a history of low foreclosure rates, high compliance, and a stable investment track record for its investors, according to the study.

“This report demonstrates not only the success of the low-income housing tax credit program, but also the strength of the public/private partnership model that is the foundation of the LIHTC,” said Bob Moss, chairman of HAG, in a statement. “At a time of increased scrutiny of tax incentives, this program stands out as a model of how the tax code can and does accomplish a broad societal goal efficiently.”

The study finds that the tax credit has a better track record than other supply-side affordable rental housing programs. The strong performance is attributed to the involvement of third-party, for-profit partners, the placement of risk on the sponsors and investors instead of the federal government, the delivery of the credit benefits over time, and state and federal oversight.

“The public-private partnership established by the LIHTC program is built on a solid foundation of checks and balances that ensure its stability and success,” said Michael Novogradac, managing partner at the accounting and consulting firm. “Its ability to work seamlessly in tandem with other government housing programs further strengthens the program’s benefits so it’s no wonder that as the LIHTC program celebrates its 25th anniversary this year, it has stood the test of time and remains the cornerstone of the nation’s affordable rental housing industry.”