High development costs for low-income housing tax credit (LIHTC) projects recently have come under fire around the nation. Housing Finance Online asked readers their views on the topic.
More than half of the survey respondents—56.8%—agreed that they believe the cost of developing LIHTC projects has gotten too high nationwide, while 27% said it is becoming too costly in only certain areas of the country. “Low-income properties are being developed with unnecessary design features that are not required and should not be part of low-income housing. Low-income housing should be basic in design, which allows for long-term use, proper enveloping, and cost effectiveness,” noted one respondent. Other respondents cited Davis-Bacon wages and accounting and legal fees behind the higher costs.
However, 10.8% of respondents said they were unsure. “There is a need to keep up with technology, sustainability, amenities, etc. These things cost money and are a part of the new way of doing business,” said one respondent. And the remaining 5.4% said they disagreed that the cost of developing LIHTC projects has become too high. “The costs are vetted by state agencies, lenders, investors, and developers so they do reflect the market. Many state agencies already limit per unit costs. The tax credit market is competitive, and I think that reins in developers,” noted another respondent.
When asked if a cap should be placed on LIHTC development costs, 51.4% said yes, 27% said no, and 21.6% remained on the fence.
A respondent opposed to a cap stated, “A cap could make some unique deals cost-prohibitive—like preservation deals, developments with special needs and social service components, historic rehabilitation—in some cases, an affordable housing development does not just provide housing, but also stimulates job growth or turns around a blighted community. There is a value to that that may justify a higher per unit cost.”
Another respondent in favor of the cap had a different perspective, “The cap would have to be set regionally, since the costs vary across the country, and just capping the cost will not make suppliers offer products for less. However, we need to find a way to help control costs and spread the benefit of the tax credit.”
More than half of the respondents—54.1%—said they believe cost per square foot would be the most accurate and effective way to measure costs, with 32.4% pointing to cost per unit and 13.5% saying cost per room.
