2012 LIHTC Market Uncertain

, lihtc market,affordable housing,Sean Carpenter,HUD,housing development"; // -->Sean M Carpenter PlatinumAuthor|  174 Articles

Joined: September 1, 2010Was this article helpful?00BySean M Carpenter

The Low Income Housing Tax Credit (LIHTC) program was initiated in 1986 for the purpose of encouraging private investment in affordable housing projects. Under the program, qualified projects receive federal tax credits that are sold to private investors who use the credits to reduce their annual tax burden. The private investment helps reduce the cost of building affordable housing, allowing the developer to offer a certain number of units at below market rates. At the end of 2010, many Low Income Housing Tax Credit (LIHTC) investors and analysts were projecting growth in the LIHTC market. By the end of 2011, however, those same people were less certain about how the market will fare this year.

U.S. Bancorp Community Development Corp president Beth Stohr estimates that the six banks that invest most heavily in LIHTCs account for about half of all LIHTC investment. None of those six plan to change their investment strategies in 2012, meaning that while they won't reduce their investments, they aren't likely to increase them either. However, the remaining 50 percent of investment comes from smaller banks and other sources whose priorities may shift this year. The result is that analysts expect LIHTC investment dollars in 2012 to be about the same as they were in 2011; no real growth is anticipated.

There is some speculation that smaller firms that invested heavily in the LIHTC market last year may feel the need to step back and assess their investments before moving forward with any more spending. In the current financial climate, banks of all sizes are being scrutinized more closely than they have in a long time, with their investments getting special attention. As a result, even banks with a history of making smart investments with minimal risk are hesitant to expand their portfolios much, if at all.

In addition, the current 9 percent floor for LIHTCs is set to expire in 2013, and the potential return to a floating rate could scare off some investors. Legislation has been introduced to make the 9 percent floor permanent, but it has yet to be reviewed or voted on by the necessary committee. Passage of the bill could make LIHTC investment more attractive, but there's no indication that it will be considered any time soon.

However, the uncertainties don't necessarily equate to an inevitable drop in LIHTC investments for 2012. In general, though firms aren't expressing any interest in increasing the dollar amount they invest in the LIHTC market, very few seem interested in decreasing it either, which means developers can expect to have access to roughly the same amount of money this year as they had in 2011.

While that may not seem like good news to some, given our nation's current economic condition and Congress' hyper-focus on cutting spending, the Department of Housing and Urban Development's (HUD) ability to continue offering LIHTCs, and the financial sector's continued interest in LIHTC investment, are important signs that affordable housing development is considered both necessary and worthwhile.

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Sean M Carpenter

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Carpenter, Sean M.".".4 Jan. 2012EzineArticles.com.26 Jan. 2012 .APA Style Citation:
Carpenter, S. M. (2012, January 4). . Retrieved January 26, 2012, from http://ezinearticles.com/?2012-­LIHTC-­Market-­Uncertain&id=6795670Chicago Style Citation:
Carpenter, Sean M. "." EzineArticles.com. http://ezinearticles.com/?2012-­LIHTC-­Market-­Uncertain&id=6795670EzineArticles.com© 2012 EzineArticles.com
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