Affordable housing leaders foresee the new income-averaging option catalyzing additional affordable housing development in 2019, according to a survey of industry professionals conducted by Capital One at the National Council of State Housing Agencies (NCSHA) 2018 Conference & Showplace in October.

Laura Bailey
Laura Bailey

Sixty-eight percent of the respondents declared that the income-averaging set-aside for low-income housing tax credit (LIHTC) properties, introduced in the March omnibus spending bill, will spur increased affordable housing development, reported Capital One. This provision was long sought after by affordable housing advocates because the option allows developers the option of serving a wider range of low-income residents.

The spending bill established income averaging as a new set-aside election, allowing LIHTC-qualified units to serve households earning as much as 80% of the area median income (AMI) as long as the average income limit at the property is no more than 60% of the AMI. A project using the income-averaging option must make at least 40% of its units affordable to eligible households. Previously, housing credit units were restricted to households earning no more than 60% of the AMI.

The greater range of units that income-averaging encourages may also induce affordable housing developers to seek locations in low-poverty, racially diverse neighborhoods and thus expand access to opportunity for residents. This outcome resonated with conference attendees. Fifty-three percent named the social impact of income diversity as the primary attraction of income-averaging, according to Capital One.

In follow-up questions, 33% identified lack of clarity about state and local implementation and 32% cited gray areas in the legislation as the greatest impediments to its adoption; 61% expect income averaging to have most impact in urban markets.

“This is the kind of innovation and creative thinking that is going to be necessary if we are to continue making progress addressing the demand for affordable housing,” said Laura Bailey, head of community finance and community affairs at Capital One. “As obstacles are ironed out, I think we will be seeing more of it.”

The affordable housing shortage is particularly acute in the special-needs segment, composed of extremely low-income households with severe cost burdens. For 2019, respondents forecast that development activity would be highest in disability communities (41%) and senior communities (32%). “The emphasis on housing for people with disabilities reflects the growing trend among qualified allocation plans (QAPs) to award points for special-needs units on 9% LIHTCs,” Bailey said. “Now, it will be up to developers to follow through with the services this population requires.”

The survey identified two major obstacles to the development of special-needs housing. Forty-six percent pointed to NIMBYism and 34% to low local awareness of the issue.

Capital One’s survey was conducted at the NCSHA conference in Austin, Texas, on Oct. 15. The survey was developed to gauge the commercial real estate industry’s sentiment on affordable housing, attractive deal types, and challenges heading into 2019. Respondents included lenders and affordable housing leaders from across the country. Percentages are based on 101 responses.