Customer Support
In today’s market, the term “affordable housing” often feels like an oxymoron. Skyrocketing prices have transformed finding a suitable place to live into a Herculean task for many. However, amid what many experts describe as an “affordable housing crisis,” housing tax credits offer a beacon of hope.
While policy discussions to tackle the crisis are essential, one important avenue that individuals, developers, and communities increasingly leverage is the housing tax credit program. Fueled by the federal Low-Income Housing Tax Credit program (LIHTC), which directs private capital toward the creation of affordable rental housing by incentivizing developers to build and maintain affordable housing units through dollar-for-dollar tax credits, it is a crucial pillar in the fight for attainable living.
Effectively leveraging the LIHTC program (commonly referred to as the tax credit program) can significantly ease immediate pressures, amplifying the overall impact by making more resources available to fund additional low-income housing projects.
However, navigating the tax credit program isn’t all sunshine and rainbows. So, in this blog, we dive into the differences between the tax credit program and conventional housing and what that means for property managers.
Jump to a Section
- How Does LIHTC Compare to Conventional Housing?
- LIHTC vs. Conventional Housing: At a Glance
- What Is HOTMA?
- Federal vs. State Implementation
- Tax Credit Course Offerings in PerformanceHQ
How Does LIHTC Compare to Conventional Housing?
Compared to conventional housing, tax credit properties present unique challenges for property managers in five distinct areas:
1. Operating Costs
While tax credit and conventional housing share similar operational expenses in categories like utilities, repairs, and property taxes, tax credit properties often see higher costs in specific areas.
The tax credit program comes with a mountain of paperwork and complex regulations. Ensuring compliance demands specialized expertise and dedicated administrative hours, pushing operating costs beyond those of conventional apartments. Administrative expenses like compliance fees and resident support services tend to be steeper due to regulations and the unique needs of low-income residents.
“If you incorrectly certify the first grouping of [residents who] move into the building, you can cause your whole financial structure to collapse,” says Milton Pratt, EVP of The Michaels Organization. “It’s going to be catastrophic. If you don’t know how the LIHTC compliance business runs, you better hire somebody who does.”1
Ultimately, responsible management and resident engagement play a crucial role in optimizing costs and ensuring the financial sustainability of these vital affordable housing providers.
2. Turnover Rate
Higher turnover rates are a reality in tax credit housing properties and pose a significant challenge. Between lease expirations and income fluctuations, the “make-ready” costs to prepare a vacant apartment for new residents become a frequent and necessary expense.
These “make-ready” costs — cleaning and sanitation, painting and repairs, pest control, and appliance and HVAC checks — can quickly add up, impacting the overall operational budget of a tax credit property.
Proactive maintenance and streamlined move-out procedures are two simple ideas to help mitigate these costs.
3. Marketing
Big marketing campaigns rarely grace LIHTC properties. Because tax credit housing properties operate with more limited budgets, they tend to rely on more targeted outreach methods:
• Community partnerships
• Word-of-mouth referrals
• Incentivized resident referral programs
While LIHTC properties may not engage in flashy marketing, their focus on targeted outreach, community building, and resident engagement fosters a unique sense of connection and stability within their communities. This organic approach, coupled with guaranteed occupancy rates, often translates to lower marketing costs compared to conventional housing.
4. Competition
LIHTC is a niche with high certainty. While the specialized nature of LIHTC management might initially seem daunting, the National Apartment Association (NAA) paints a different picture.
NAA highlights the reduced competition and greater certainty of return associated with LIHTC as a compelling proposition for property management companies, and those who understand the nuances of LIHTC gain a significant advantage because the demand for affordable housing is great.
5. Compliance
While both types of housing face regulations, LIHTC properties operate under a far more intricate web of compliance requirements. From income verification and rent restrictions to resident selection and annual reporting, a single misstep can trigger hefty fines and jeopardize tax credits.
This reality demands constant due diligence and specialized expertise, often exceeding the demands of conventional housing management. With hefty financial penalties for non-compliance, training to stay abreast of ever-evolving regulations, master complex calculations, and maintain meticulous documentation, to name a few, becomes paramount.
LIHTC vs. Conventional Housing: At a Glance
| Low-Income Housing Tax Credit | Conventional Housing | |
| Operating Costs | Higher due to specialized management, complex compliance, and administrative duties. | Lower due to simpler requirements and operations. |
| Turnover Rate | Higher, leading to more frequent “make-ready” expenses between residents. | Lower, resulting in fewer vacancy-related costs. |
| Marketing | Much smaller, requiring creative and resource-savvy approaches. | Typically larger, allowing for broader reach and resident recruitment. |
| Competition | Less competition due to specialized requirements, offering greater certainty of return. | More competition, requiring strong marketing and differentiation strategies. |
| Compliance | Greater need for specialized training and ongoing compliance due to complex paperwork and regulations. | Less stringent training requirements and compliance needs. |
What Is HOTMA?
When the Housing Opportunities Through Modernization Act (HOTMA) was signed into law in 2016, it amended many aspects of the U.S. Department of Housing and Urban Development’s (HUD) rental assistance programs, including significant changes to income calculation, net family assets, and income reviews. HUD finalized HOTMA rules in 2023 by adding many items that solely affect project-based HUD housing, public housing, and the Housing Choice Voucher program.
Federal vs. State Implementation
Federal versus state implementation of regulations often presents a complex, evolving landscape. While federal deadlines provide a baseline, states retain the ability to implement changes earlier, or even create more stringent requirements. This leads to a patchwork of compliance, where regulated entities must navigate both federal and state timelines.
For example, HUD delayed implementation of HOTMA for its programs, but several states have moved forward with their own HOTMA-related changes, impacting their programs ahead of the federal schedule. This disparity requires careful attention to both national and local mandates.
Stay tuned for ongoing updates, as deadlines are subject to change, and new information is released. The regulatory environment is dynamic, reflecting the sentiment that “people want change, but they don’t want to change,” leading to continuous adjustments and updates.
Learn more about HOTMA rules in a recent webinar I participated in, hosted by Grace Hill.
Tax Credit Course Offerings in PerformanceHQ
Effectively leveraging LIHTC requires acknowledging its distinct demands with dedicated training and expertise. And where conventional methods may not always translate, innovative solutions can pave the way for success.
Investing in compliance not only protects against financial penalties but also ensures these developments fulfill their vital role in providing decent, affordable housing for low-income communities.
Although not without challenges, the housing tax credit offers a critical stopgap in the LIHTC affordable housing crisis. Grace Hill helps address this need with multifamily-specific offerings like their Training and Policy solutions within PerformanceHQ, their all-in-one technology platform.
Grace Hill’s tax credit courses and policies stay updated based on HUD’s HOTMA rules and guidance and instruction from the Internal Revenue Service (IRS). Grace Hill works diligently with industry experts to ensure your team has the knowledge and best practices to ensure compliance.
Ready to conquer the challenges of LIHTC property management? Learn more about the tax credit course and policy offerings from Grace Hill!
