Low-income housing tax credit (LIHTC) supporters are keeping a close eye on potential accounting and Community Reinvestment Act (CRA) changes that could aid in the development of affordable housing.

On the accounting front, the Financial Accounting Standards Board (FASB) has been weighing a change to the effective yield method, or a ratable amortization method, where the costs as well as the tax credits are reported on the same line of a financial statement.

Many in the affordable housing industry are behind this proposal because it makes the accounting of LIHTC investments clearer. This would then help attract more investment capital to the market.

Approximately 70 organizations recently submitted comments to FASB.

Possible changes to the CRA are also being discussed, including a move to allow banks to invest in a broader region that includes their assessment area, said Fred Copeman, a principal at CohnReznick, where he leads the firm’s Tax Credit Investment Services practice.

He and others discussed the LIHTC equity market at the National Council of State Housing Agencies’ Housing Credit Connect conference in San Francisco.

Under the current system, CRA responsibility is based on where a bank’s money is while state housing agencies allocate LIHTCs based on where the housing needs are, he said. “There’s a mismatch, and that mismatch between the behavior of CRA capital and the way the credits are allocated is what has led to the two-tier pricing structure that we have,” Copeman said.

The proposed changes could help spread some of the capital to other areas.

The CRA pricing differential can be $0.05 to $0.30, depending on the market, added Linda Hill, senior vice president at Alliant Capital.

Looking at the overall LIHTC market, demand for housing credits is greater than a year ago, Hill said.

That’s due largely to higher yields to investors. Darrick Metz, senior vice president at WNC, estimated that yields on multi-investor funds have increased from 6.25 percent to about 7.5 percent in the past year.

With a growing number of aging LIHTC properties around the country, speakers also discussed resyndication and rehab projects.

“Resyndication to us is the value of where the property is today and where it is going to be,” said Jeff Whiting, president and CEO of City Real Estate Advisors. “Investors like new construction (9 percent deals). Investors like acquisition-rehabs that are gut rehabs.”

They become cautious when they see deals that involve a low amount of rehab work. These deals can be done, but it is property specific, Whiting said.

“We typically like to see at least $25,000 per unit in hard costs on a rehab unless we have evidence of improvements that have been done in the past few years that have rendered that unnecessary,” said Marc Schnitzer, president of R4 Capital.

David Leopold, senior vice president and community development executive at Bank of America Merrill Lynch, said that as an investor he likes new construction and gut rehab projects.

“We want to know that the physical needs of a property have been met and the marketability of a property is likely to be maintained over the long term,” he said.

The bank, which invested about $800 million in LIHTCs last year, is less excited about deals that involve only about $12,000 per unit in rehabilitation. “I don’t anticipate we will do many of those,” Leopold said.

Quality sponsors, CRA need, and risk-adjusted yields are the investing priorities for the bank, he said.