Areli and Eric Perez had been living in a converted garage but knew they needed more space with a baby on the way. The Southern California couple then moved into Areli 's parents' home, where they and their belongings were crammed into one bedroom. During this time, they had learned about Vista del Cielo, a 50-unit low-income housing tax credit (LIHTC) family development under construction by nonprofit developer National Community Renaissance, in Montclair, Calif.

The couple expressed interest in the property and came in multiple times to see where they were on the waiting list—which was in the hundreds, leaving them discouraged. But they finally got the call to come in and apply for a brand-new unit.

The couple and their daughter, Melanie, who turned 1 in April, have now been in their new two-bedroom home for more than three months. “We are very glad to have this opportunity since we were desperate for a home,” Areli says.

Areli is ecstatic with her family's new home. “Everything is new and clean. And Melanie has her own bedroom,” she says.

Adjacent to Vista del Cielo is National CORE's San Marino Senior Apartments, which had its grand opening in March 2010. The 85-unit affordable development for seniors 62 and older was fi- nanced through a combination of LIHTCs and Sec. 202 funding, and revitalized a blighted parking lot and retail structure.

One of the residents who has been living there for a little over a year is 71-yearold Lueida Lowe. Her family felt that after she lost her husband and with her various medical problems, it would be better to have her closer to them instead of in her old place in Duarte, about 20 miles away.

Formerly a nurse, Lowe now spends her time making new friends and even taking a computer class.

“I'll give the San Marino Apartments and the staff an A+ because they are truly wonderful. [The staff is] kind, considerate, and if you have something wrong in your apartment, they'll come to fix it the same day,” she says. “Everything is a blessing for me."

Another senior, 75-year-old Robert Valdez, also calls a LIHTC development home because of a move to be closer to his family. With all three of his children in Southern California, he decided to move back from Utah, where he had retired from the recreational vehicle industry.

He has been living at developer Highridge Costa Housing Partners' 104- unit Seasons Senior Villas community in Chino, Calif., since December 2003.

With his Social Security and the little bit of pension he receives, he's able to make ends meet because of the reasonable rent. He also enjoys the walkable location since the development is close to a senior center, a library, a park, a couple of markets, and a bus terminal.

Shan© Wesley is a single mother of two daughters, ages 4 and 7. She had been living in Texas and working as a preschool teacher but moved back to her native California when her mother and family were going through some difficulties.

She had trouble finding a job and had moved in with her mother and four younger siblings. “I came out to help but then became a burden,” Wesley says.

She got a job at Jack in the Box and had learned about the construction of Oakwood Apartments in Moreno Valley, Calif. In November 2010, Wesley and her daughters were some of the first residents to move in to the 240-unit LIHTC community, co-developed by Highridge Costa Housing Partners and Sacramento-based nonprofit Housing Alternatives, Inc.

She says the affordability of her twobedroom apartment has been a blessing. “Being a single mom with two girls, it gives you stability and lets you get grounded."

These residents are just a few examples of the types of housing and the people served by the LIHTC program nationwide over the course of its 25-year history.

Enacted under President Ronald Reagan's Tax Reform Act of 1986, the LIHTC program is widely considered the nation's most successful housing program.

This program has created more than 2.4 million units since its inception and generates about 120,000 more affordable homes each year, according to the National Council of State Housing Agencies (NCSHA). The housing created by the LIHTC targets America's households who earn no more than 60 percent of the area median income and serves diverse populations from families and seniors to formerly homeless, youths aging out of foster care, and farmworkers.

The program's history

One of the main goals for Congress during the tax reform debates in 1986 was to end tax shelters, in particular ones related to real estate, including affordable housing, where people were investing to get write-offs and not for economic investment. According to Richard Goldstein, a partner at law firm Nixon Peabody, LLP, when you did the math with the higher income brackets, people were buying tax shelters entirely to get the losses.

Since there was a history of providing tax incentives for low-income housing, Congress wanted to continue that so they replaced the system of tax losses with tax credits.

Unlike Sec. 8 and other federal subsidy programs, it was to be administered by states and regulated by the Internal Revenue Service (IRS), not the Department of Housing and Urban Development (HUD), and each state had to figure out what to require and how to choose the projects.

Bart Harvey, who retired as chairman and CEO of Enterprise Community Partners, Inc., in 2008, says if you would have told him at the beginning that the program would see its 25th anniversary and be flourishing on top of that, it would have been news to him.

The program had a rocky start and had to be renewed several times during the late 1980s and early 1990s. It was looked at by Congress with a critical eye of ending it altogether. “It looked like over the first 10 years that it was a very tenuous tax credit that may go away,” Harvey says. “What occurred instead was a viable program backed up by multiple investigations by Congress that attested to its effectiveness."

Even after the program became permanent in 1993, it wasn't without challenges. A testament to the program's resilience is how it has been able to withstand some difficult real estate periods, including the recent Great Recession where the tax credit market suffered from the departure of major financial investors, including Fannie Mae and Freddie Mac. That was a troubling period with difficult pricing, not enough equity in the market, and challenging yields.

“Yet we weathered that period of time with help on the ability to take almost half of those credits and being able to convert them into dollars at the state level [with the American Recovery and Reinvestment Act's Tax Credit Exchange Program,]” says Harvey. “And now the market is back with very aggressive pricing in specific locations, yet it still will need to be tweaked to get back to a national model with the pullout of Fannie Mae and Freddie Mac."

Why the program works

“The remarkable thing about the credit at a quarter of a century old is that it has far outsurvived other housing programs in terms of viability and consistency,” says Orlando Cabrera, CEO of National CORE.

Goldstein agrees. He says prior to the enactment of the LIHTC program, you had the “rule of sevens,” where most affordable housing programs, including the Sec. 8 program in the 1970s, lasted about seven years during the active phase of new production.

Industry leaders point to the program's publicprivate partnership, the accountability the partners are held to, and the economic motivation for all of the partners to do the right thing as the main reasons for its success.

Both sides of the public-private partnership strive for the common goal of creating affordable housing, says Ronne Thielen, managing director at Centerline Capital Group. Because of the LIHTC's complexity, a team of professionals from all different facets kept coming back and became dedicated to the program.

“We're a niche group that came up from a cottage industry to a professional team,” says Thielen, who has been involved with the tax credit from the beginning as deputy director for program and policy development at the NCSHA from 1985 to 1989.

Another industry leader well versed in the LIHTC program, Bobby Rozen, points to the collaboration and accountability of the partners involved in a deal.

“You have a lot of different eyes looking at and underwriting each deal, from the housing finance agency (HFA), to the developer, to the equity investor, to the provider of debt,” says Rozen, a partner at Washington Council Ernst & Young and former legislative counsel to Sen. George Mitchell. “The program has a lot of different players making sure there is proper underwriting so that the property performs."

He adds that the great demand for affordable housing across the country and the affordability crisis also have contributed to keeping the program healthy. In addition, the statutory and regulatory requirements of the program—particularly the way the state HFAs develop their qualified allocation plans to meet their states' housing needs—has had a very positive effect on the program. “I think the stakeholders have been responsible stewards of the program,” says Rozen.

Michael Costa, president and CEO of Highridge Costa Housing Partners, points to the one-time LIHTC investment as well as the program's affordability requirements as the main reasons he believes it has been so successful.

“You're not going back to the federal government each year for subsidy,” Costa says.

Instead, developers receive a one-time tax credit allocation spread over 10 years, and national and regional banks, insurance companies, and other corporations invest in the LIHTCs to provide private capital to support the development or rehabilitation of affordable housing.

Investors take the development and marketing risk associated with the housing credit, not the government.

Investors only get to claim and keep the tax credit if affordable housing units are built, leased, and maintained as affordable housing throughout a 15-year compliance period. Additionally, there is a 15-year extended-use period, with many states requiring much longer affordability.

“You knew what was being allocated. If there were any hiccups, costs went up, rents went up and down, the federal government never had to make another payment,” he says. “And they got 30 to 55 years [of low-income housing] instead of just 15."

Looking to the future

“I hope we'll see another 25 years of the program," says Cabrera, who also has served as executive director of the Florida Housing Finance Corp. and as assistant secretary at HUD. “It has worked superbly and promises to work superbly."

Thielen agrees and reminds that this housing produces more than just a roof, it's also about the social services and a healthy atmosphere for the residents. “I don't know what could be more efficient than this program,” she says.

Sen. Olympia J. Snowe (R-Maine), who has been a supporter of the LIHTC program since its inception, also wants to see the program continue, saying, “It is vital we ensure access to this critical resource across the board for all our citizens wherever they may reside across our great state and nation."

The major challenges going forward will be tax reform and the possibility that the tax code will be drastically overhauled. And given the nation's defi- cit, congressional scrutiny is being focused on every program, whether it's a tax expenditure like the LIHTC or a spending program.

“There's this idea floating around about reducing the number of special provisions, credits, and deductions,” Goldstein says. “We just have to make sure the credit doesn't get swept up with that."

He points to the importance of continued industry education efforts for Congress and the legislators' aides about the success of the LIHTC program.

“Everyone needs to do their bit so that policymakers know what the product of this cooperation and outstanding performance truly is and why it's important,” Cabrera says.

The Tax Credit

Throughout the Years


The low-income housing tax credit program, Sec. 42 of the Internal Revenue Code, enacted for three years as part of the Tax Reform Act of 1986

November 1988

Housing tax credit authority extended one year


A task force, headed by Sen. George Mitchell (D-Maine) and Sen. John Danforth (R-Mo.), issued a report on the LIHTC program with recommendations to require states to have specific written allocation plans that were subject to a public hearing process and to require that tax credit properties serve low-income families for 30 years; in Revenue Reconciliation Act, tax credit authority extended one year

November 1990

Housing tax credit authority extended one year October 1992

Housing tax credit authority lapses

August 1993

In Revenue Reconciliation Act, housing tax credit authority made “permanent," and additional program changes made

Fall 1995

House Ways and Means Chairman Bill Archer proposes new expiration date for LIHTC authority; National Council of State Housing Agencies mobilizes to keep it permanent; bill containing sunset clause vetoed by President Clinton

March 1997

Government Accountability Office releases favorable report on LIHTC program

December 2000

Housing tax credit caps increased and indexed for inflation


The Bush administration's plan to eliminate taxes on corporate stock dividends, a serious threat to the program, is defeated


Congress turns to the housing tax credit to help rebuild the Gulf Coast following Hurricane Katrina

July 2008

President Bush signs the Housing and Economic Recovery Act of 2008, which increases the LIHTC credit ceiling for 2008 and 2009 by $0.20 and provides permanent alternative minimum tax relief for housing credits

February 2009

President Obama signs the $787 billion American Recovery and Reinvestment Act of 2009, which allows state housing finance agencies to exchange a portion of their tax credit authority— up to 40 percent of their 2009 credits and 100 percent of their unused 2008 credits and returned credits—for Treasury grants equal to 85 percent of the 10-year credit amount; also gives the Department of Housing and Urban Development $2.25 billion in Tax Credit Assistance Program funds to be allocated to state agencies for aid to projects receiving tax credit allocations in 2007, 2008, and 2009