COVER STORY LIHTC Program on Verge of Major Expansion Growing investor interest coupled with a landmark proposal to significantly increase affordable housing tax credit allocations could reshape the market. Joe Gose I t’s not a stretch to say that affordable hous-ing is getting more attention today than per-haps at any other time in the past. Politicians are pushing for a historic increase in funding and incentives to support the industry. At the same time, widespread civil unrest in reaction to incidents involving police and people of color last year heightened interest in socially driven ESG (environmental, social and governance) and impact investing in affordable and equitable housing for low-income earners. Most importantly, like multifamily assets in general, affordable rental housing proper-ties came through the pandemic relatively un-scathed, say observers. Whereas low-income renters struggled, af-fordable housing landlords and property man-agers tapped into some $46 billion in federal emergency funds to help residents stay in their units and pay for other expenses such as utili-ties, internet service and trash removal. Meanwhile, the average vacancy rate in LIHTC properties, which ended the second quarter flat at 2.5 percent, is expected to remain in its traditional 2 percent to 2.6 percent range for the foreseeable future, according to Moody’s Analytics Reis. As a result, invest-ment interest in the sec-tor continues to grow, says Mecky Adnani, senior vice president of acquisitions for NHP Foundation, a New York City-based nonprofit de -veloper that has invested some $3 billion in pre-serving affordable hous-ing. MECKY ADNANI “I have not seen any NHP Foundation significant shortage of capital to invest in affordable housing,” adds Adnani, who is focused on the Boston, Chicago and Miami markets, among others. “For a vari-ety of reasons, investor demand is still reason-ably high in strong urban markets.” Properties funded by the Low-Income Hous-ing Tax Credit (LIHTC) program stand to gain the most in this environment. As the largest source of federal assistance for affordable housing de-LIHTC syndicator National Equity Fund provided $11.7 million in federal and state LIHTC equity for Energy Square, a $22 million net-zero project in Kingston, N.Y. The project opened in 2020. velopment, the credits incentivize private inves-tors and developers to participate in the space. LIHTC-funded deals provide housing to peo-ple earning 60 percent or less of area median income (AMI). To date the housing tax credits have financed more than 3.5 million affordable units in the U.S. since they were created in 1986, according to the ACTION Campaign, a coali-tion of over 2,400 organizations and businesses focused on increasing the affordable housing supply. But with a shortage of affordable rental units estimated in the millions, lawmakers, develop-ers, investors and others advocating for change are making headway. In September, for example, the Federal Hous-ing Finance Agency announced that Fannie Mae and Freddie Mac could each buy $850 million of low-income housing tax credits annually, a $350 million increase over the previous LIHTC investment cap at each enterprise. Additionally, the $3.5 trillion Build Back Bet -ter Act before Congress would increase LIHTC allocations by nearly $30 billion, or 60 percent, over the next four years. As of mid-October, the bill was before the House of Representatives. But without a material lowering of its price tag, the bill was not expected to gain enough sup-port in the House or Senate. As a result of those and other efforts to boost affordable rental housing in general, the indus-try is on the cusp of seeing its biggest expansion on record, observers say. “LIHTC properties have proven to be high-quality assets through what otherwise could have been a tumultuous market,” says Matthew Reilein, CEO of Chicago-based National Equity Fund, a LIHTC syndica-tion firm that has invest -ed $18.3 billion in afford-able housing deals since MATTHEW REILEIN 1987. National Equity Fund www.REBusinessOnline.com 12 | Northeast Multifamily & Affordable Housing Business | September/October 2021