Colorado will soon launch a tax credit program to help support affordable housing for the “missing middle.”
Believed to be the first of its kind in the nation, the middle-income housing tax credit (MIHTC) will help finance the development or preservation of rental housing for households with incomes between 80% and 120% of the area median income (AMI) or up to 140% of the AMI in designated rural resort counties in the state.
The Colorado Housing and Finance Authority (CHFA) is working on establishing an allocation plan for the pilot program, which will go into effect next year after being recently approved by state lawmakers and signed into law by Gov. Jared Polis.
The MIHTC seeks to build on the success of the federal low-income housing tax credit (LIHTC) and Colorado’s state affordable housing tax credit programs (AHTC), which serve residents with incomes up to 80% of the AMI.
It is also based on the recent success of CHFA’s Middle-Income Access Program (MIAP), which was created in 2017 following strong community feedback about the need for more housing options affordable to middle-income households. The MIAP program offers mezzanine debt financing to help finance middle-income rental housing development. The MIHTC program will help residents with incomes above LIHTC and AHTC limits but who are still cost burdened when paying for market-rate housing.
“We know that there are many households in Colorado, both in rural resort as well as metro areas, that earn too much and are overqualified for more common subsidized housing and federally tax credit-supported housing, but they are not able to easily enter the market,” says Kathryn Grosscup, housing tax credit manager at CHFA. “They are still cost burdened.”In more than half of Colorado’s counties, a two-person household with each person working a 40-hour minimum wage paying job is defined as middle-income, with incomes above 80% of the AMI, notes Grosscup.
The hope is that the MIHTC program will help address the equity challenges faced by these households.
The five-year pilot will allow CHFA to award $5 million annually in 2025 and 2026. The program then increases to $10 million in the following three years of the program. Developments supported with MIHTC will have a minimum 15-year affordability period.
“It is an opportunity in Colorado that is unprecedented,” Grosscup says.
Just as with the LIHTC program, the housing will be built with investor dollars before any tax credits are issued, and the risk of tax credit recapture incentivizes developers and their investors to manage the housing appropriately over the 15-year compliance period—which are important protections for the state, adds Ruth Kelso Sorrell, counsel at the Polsinelli law firm, who assisted in drafting the new credit.
“The program allows allocations of tax credits to both for-profit and nonprofit affordable housing developers as well as governmental and quasi-governmental entities, opening the pool of potential applicants to support the stressed housing market,” she says.
The MIHTC program is one of several housing-related bills recently approved by state lawmakers. They also passed laws to significantly increase the state AHTC program starting this year and continuing through 2031 and established a new transit-oriented communities credit that aims to support affordable housing development proximate to transit.
CHFA has seen interest in providing housing options for middle-income households. To date, it has closed 10 deals under MIAP to provide approximately $31.2 million in mezzanine loans to help finance more than 1,000 middle-income rental units, with additional deals in the pipeline. The MIHTC program will support middle-income rental developments to strengthen housing opportunity along the housing continuum.
