In an effort to produce more affordable housing, Arizona leaders have approved a new state housing tax credit.Gov. Doug Ducey recently signed legislation that provides $4 million annually in state credits for four years, which will spur an estimated $160 million worth of investments over the lifetime of the program.

“That will make a significant dent in our housing shortage in Arizona,” says Tom Simplot, director of the Arizona Department of Housing (ADOH).

ADOH leaders says the state credit will piggyback on the federal low-income housing tax credit (LIHTC), specifically working with the 4% LIHTC program.

“What we learned from our research of other state programs is that it’s very impactful and powerful to couple the state credit with the 4% credit,” says Ruby Dhillon-Williams, assistant deputy director of housing and community development. “This will cover at least 45% to 50% of the project cost.”

Officials hope to see an influx of 4% LIHTC deals with the availability of the state credit.

Arizona has not been reaching its bond volume cap, but there’s been a rise in interest in the 4% credit program due to the recent establishment of a 4% minimum rate, notes Dhillon-Williams.

In addition to the state credit, ADOH will offer other resources for 4% LIHTC deals. On July 15, the agency issued a notice of funds availability for $21 million in state and national housing trust funds to layer into deals.

“We’re also in the processing of redesigning our QAP [qualified allocation plan], which we believe will also help stimulate more activity with 4% bonds,” says Simplot.

ADOH leaders are looking to launch the state housing credit program in its 2022 QAP.

“Fortuitously, it is in line with the preparation for the QAP for the next cycle,” Dhillon-Williams says. “It aligns well. There’s a lot of collaboration that needs to happen between now and the issuance of our QAP.”

ADOH officials are getting feedback and working with stakeholders on the various details for the state credit, including how many credits per project should be available.

In Arizona, there’s been one round to allocate 9% credits, and the 4% credit applications have been on a floating basis.

The state housing credit comes at a time when many are struggling to find and afford housing. In Arizona, there are only 26 affordable and available rental homes for every 100 extremely low-income renter household, according to the National Low Income Housing Coalition in its recent “The Gap: A Shortage of Affordable Homes” report. Phoenix is among the metro areas with the most severe shortages of affordable housing for extremely low-income households.

“We hope with the state low-income housing tax credit it will help infuse new capital into the state,” says Simplot. “At the end of the day, it’s about building new units and more affordable housing.”