A decline in low-income housing tax credit (LIHTC) investment activity is expected to continue absent stimulus for the equity market, according to a new survey by Ernst & Young.
The study was done to assist Enterprise Community Partners, Inc., and the Local Initiatives Support Corp. in better understanding the tax credit market and analyzing potential investor responses to certain legislative proposals aimed at stimulating investment activity. Current, former, and potential institutional investors as well as LIHTC syndicators were surveyed.
Survey respondents predict a 2009 equity volume of $4.5 billion absent additional housing credit stimulus legislation, representing a 22.4 percent decline from respondents’ 2008 levels, which itself represented a 14.8 percent drop from 2007.
Tax-exempt bond-financed investments have been hit even harder than those with 9 percent credits, as a majority of the investment decline among respondents from 2007 to 2008 appears to have been associated with bond deals. Respondents indicated a 44.4 percent drop, from $1.58 billion to $876 million, in tax-exempt bond-financed investments from 2007 to 2008.
Looking at different legislative proposals, respondents indicated a preference for having the ability to carry back their housing credits for up to five years instead of one as provided under present law, said the report.
“It was the alternative most likely to increase either the likelihood of their becoming investors, or for current investors, the likelihood that they might increase their current level of investment,” said the study.
The respondents indicated they would invest $5 billion more than they currently plan through 2011 if the five-year carryback proposal is enacted.