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Volume 1, Issue 3, 2001   Federal Reserve Bank of Dallas

Survey of Low-Income Housing Tax Credit Properties

In 1987, states began offering federally authorized tax credits to investors to encourage the development of low-income rental housing—with the stipulation that the rents remain "affordable" for at least 15 years. Now—as that 15-year mark looms—a Dallas Fed survey of Low-Income Housing Tax Credit (LIHTC) properties located in Texas has found that 76 percent of the property owners plan to keep their housing affordable for low-income families, but many are in need of repair.

The LIHTC program, passed by Congress in 1986, has been the single largest federal initiative aimed at stimulating the production of affordable, multifamily rental housing. In Texas alone, the program has been responsible for creating more than 89,000 new or rehabilitated affordable units.

Annually, each state receives $1.25 per capita in federal LIHTCs to allocate to affordable housing developments. [1] The Texas Department of Housing and Community Affairs (TDHCA) awards tax credits to qualifying developments. The tax credits are then sold to investors to raise equity capital for the development. Investors can purchase LIHTCs directly from an affordable housing development that has received a tax credit allocation or through a syndicated fund that invests in multiple developments. Banks have been important purchasers of LIHTCs, which generally qualify for CRA investment credit.

LIHTC properties must meet affordability guidelines for a minimum of 15 years or investors are subject to significant federal tax recapture penalties. In 1990, Congress changed the law to require properties receiving LIHTCs to remain affordable for 30 years. However, the recapture penalty only applies to the first 15 years.

For the more than 10,000 affordable housing units awarded tax credits during 1987–89, the 15-year affordability period will begin to expire in 2002. When these properties were developed, there was little competition for the tax credits. So developers had few incentives to agree to extend the affordability period beyond 15 years. And because the program was new in 1987, investors did not require property owners to adhere to strict property maintenance requirements. Also, there were few syndicated tax credit investment funds to help set industry standards.

To gain insight into the current condition and future affordability of properties that received tax credits during 1987–89, the Federal Reserve Bank of Dallas surveyed the owners of 248 multifamily developments—representing 8,385 units [2]. The survey, conducted during the fall 2000, was designed to:

  • Assess the number of properties and units that will remain affordable beyond 15 years;
  • Determine if there are agreements with other funding sources to keep the properties affordable for more than 15 years;
  • Determine the number and disposition of properties that will not remain affordable;
  • Gather data on the condition of the properties and the adequacy of reserves for repair and maintenance.

Survey Results

The Dallas Fed received a response from 131 properties—53 percent of those surveyed. These properties represent 5,290 units or 51 percent of the multifamily LIHTC units, placed in service between 1987 and 1989. Fifty-five percent of the properties are located in urban areas with more than 100,000 population, and 45 percent are located in rural Texas.

For-profit corporations own 94 percent of the properties and 6 percent have joint for-profit and nonprofit ownership. No properties are owned solely by nonprofit organizations. Seventy-two percent had occupancy rates of more than 95 percent, and 84 percent reported average occupancy rates of more than 90 percent.

The renter mix shown in Table 1 illustrates the important role LIHTC properties have in serving very low-income people. More than 91 percent of the units are rented to people at 60 percent of the median income or less. Additionally, more than 70 percent of the properties accept Section 8 vouchers.

Table 1
Renter Mix Based on Median Income
Percent of median income Percent of renters
50% or less 68
51%–60% 23
61%–80% 6
81%–100% 1
101%–120% 0
Over 120% 0
Income not identified 2

Future Affordability

Of the 76 percent of owners who plan to keep their properties affordable beyond 15 years, a Section 8 or Farmers Home Administration (FMHA) contract was the most frequently cited reason for doing so (Table 2). However, 55 percent of these properties have extended affordability agreements of only one year or less. Seventeen percent have land-use restrictions, which generally carry extended affordability requirements of 15 to 30 years.

Table 2
Properties with Extended Affordability Agreements
Type of agreement Number of properties Percent of properties* Percent required to remain affordable 1 year or less beyond 15 years Percent required to remain affordable 1 year or more beyond 15 years
Section 8 Contract/ FMHA

87 66% 55% 45%
Real estate tax abatement 7 5% 29% 71%
Land-use restriction 22 17% 100%
Regulatory agreement 13 10% 38% 62%
Subordinate mortgage covenant 9 7% 22% 78%
*Percentage is based on total number of respondents. Total is more than 100 percent because respondents identified more than one reason for remaining affordable.

Properties Not Remaining Affordable

The owners of 24 percent of the properties do not plan to keep their properties affordable after the 15-year affordability period expires. Most of these property owners plan to sell. The properties that will not remain affordable represent about 19 percent of the units surveyed, of which 72 percent are located in urban areas and 28 percent in rural. If the percentage not remaining affordable is applied to the total units placed in service from 1987 to 1989, Texas may lose almost 2,600 units of affordable housing during the next few years.

These losses will likely affect specific communities more than the state as a whole. For example, McKinney, a fast-growing town north of Dallas, may lose 168 of its 873 affordable housing units, or 19 percent. According to Leonard McGowan, director of the McKinney Housing Authority, there is already a shortage of affordable housing and they have no plans to absorb displaced renters.

For some small communities the problem is even more significant. Up to 100 percent of the LIHTC properties in some areas may not remain affordable. One developer owns properties in Centerville, Coolidge, Crosby, Fairfield, Johnson City, LaMarque, Lytle, Midlothian and Red Oak. On the survey, he indicated that he does not plan to keep them affordable; in fact, he is planning to sell them.

In other communities, however, the effect will not be as great. Temple may lose 64 units of its LIHTC housing. But according to Hal Rose, the director of the Temple Housing Authority, the community will be able to find affordable housing for these renters.

Properties for Sale

The owners of 33 properties—25 percent of those surveyed—plan to sell. Of those, only five indicated their properties would remain affordable. However, almost half of the owners who intend to sell indicated an interest in selling to a nonprofit organization.

Property Conditions

After 15 years, the LIHTC properties are aging and may need repair. TDHCA inspects the properties to ensure they meet local health, safety and building codes. If a property does not meet local code, the owner is notified. And if the property remains out of compliance, the owner can be cited, possibly triggering a recapture of tax credits by the IRS.

The owners of 28 percent of the properties that will remain affordable indicated on the survey that their properties needed moderate to substantial repair (Table 3). Of the 28 properties needing moderate or substantial repairs, only three have adequate money reserved to do the repairs.

Table 3
Rehabilitation Needs of Properties Remaining Affordable

Rehabilitation needs Number of properties Percent of properties remaining affordable* Percent with adequate money reserved for repairs
None 37 37% 100%
Minor 30 30% 76%
Moderate 23 23% 14%
Substantial 5 5% 0
*Percentage is based on the 100 properties that plan to remain affordable. The total is less than 100 percent because not all respondents answered this question.

Of the for-sale properties, 64 percent need moderate repairs and none need substantial repairs.

Preserving LIHTC Properties

The 2000 Texas Consolidated Plan prepared by TDHCA stated that more than 80 percent of Texas communities reported having affordable housing needs that are outpacing supply. The loss of any existing LIHTC units beginning in 2002 will only add to this already serious problem.

Community leaders, nonprofit organizations, financial institutions and others concerned about meeting local affordable housing needs can find out when the required affordability period will expire on LIHTC properties in their community from the TDHCA web site Off-site page. The web site is organized by city. It includes property addresses and the date properties were put in service. Additional ownership information on properties can be obtained by calling TDHCA at (512) 475-3340.


  1. In 2001, each state will receive a $1.50 per capita in federal LIHTC allocation; in 2002, they will receive $1.75; and beginning in 2003, the LIHTC allocation will be indexed for inflation.
  2. The list of property owners was obtained from TDHCA. Single-family units that received tax credits were not included in the survey.

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e-Perspectives, Volume 1, Issue 3, 2001

Federal Reserve Bank of Dallas Off-site page
Community Development Office Send an e-mail
P.O. Box 655906, Dallas, Texas 75265-5906
Gloria Vasquez Brown Send an e-mail
Vice President
    Nancy C. Vickrey
Assistant Vice President and
Community Development Officer
Jackie Hoyer Send an e-mail
Houston Branch
Senior Community Development Advisor
    Veronica Garza
Community Development Specialist
Toby Cook
Community Development Specialist
    Diana Garza
Community Development Specialist
The views expressed are the authors' and should not be attributed to the Federal Reserve Bank of Dallas or the Federal Reserve System. Articles may be reprinted on the condition that the source is credited and a copy is provided to the Community Development Office.

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