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New DHCD Guidance Addresses Impact of LIHTC Pricing on the Delivery of Affordable Housing Projects

Wednesday, March 8, 2017
Agency Asks Developers with DHCD Pipeline Projects to Evaluate Further Financing Needs

(Washington, DC) – DC’s Department of Housing and Community Development (DHCD) issued guidance today to affordable housing developers on how it will help mitigate the impact of Low Income Housing Tax Credits (LIHTC) market changes on upcoming projects. In an uncertain tax and economic policy climate, demand for the credits has fallen nationwide, and DHCD is monitoring the situation to assess if, as a result, borrowers and developers in the District are experiencing financing gaps that could delay the delivery of affordable housing projects in the agency’s pipeline. DHCD will develop an action plan based upon the responses that will help keep those projects on track. 

Providing more gap financing from the District’s $100 million Housing Production Trust Fund (HPTF) may be part of that plan, said DHCD Director Polly Donaldson.

“Nationally, the Bowser administration stands alone in the amount of affordable housing investments it is making through local funding sources such as the Housing Production Trust Fund,” said Donaldson. “The fund not only allows us to produce and preserve more affordable housing in the District, but also helps us find solutions to funding gaps caused by changes in the market and federal policies."

“As we monitor the current federal policy environment, we are already seeing turmoil in the LIHTC market and the funding for some projects is coming up short,” Donaldson added. “So we are soliciting information from developers in our pipeline on whether they are experiencing lost LIHTC equity. Our plan is to help stabilize the District’s real estate housing market by, as necessary, providing developers with more gap financing from the Housing Production Trust Fund. This will ensure that projects stay on track to deliver needed affordable housing in our city.” 

The federal LIHTC program, created in 1986, is used to finance the construction and rehabilitation of low-income affordable rental housing by offering an investor a reduction in its federal tax liability in exchange for financing needed affordable housing.

In recent years, LIHTC pricing for projects in the District was routinely over $1.05 per dollar of credit through November 2016. However, by December 2016 borrowers were reporting 10 percent to 15 percent reductions in LIHTC pricing. The drop in price per dollar of credit lowers the equity raised through the sale of tax credits and creates a financing gap.

DHCD sent guidance and a request for information to developers and borrowers with projects currently in the DHCD Development Finance Division (DFD) underwriting pipeline that include 4% or 9% tax credit equity as a funding source. They have until March 28, 2017 to provide information about how the market change has affected their projects and to outline a plan for addressing the funding gap, which may include a request to DHCD for additional funding from the HPTF.

Questions about DHCD’s guidance on fluctuating LIHTC pricing can be directed to [email protected].

Unprecedented Action

The LIHTC is one of several federal and local funding sources that the District uses to produce and preserve affordable housing. A significant local tool is the HPTF; Mayor Muriel Bowser has committed $100 million annually to the fund each year of her administration and will include that figure in her upcoming FY 2018 budget proposal. In October, Mayor Bowser celebrated the unprecedented investment of over $100 million from the HPTF for FY 2016. The $106.3 million supports 19 projects that will produce or preserve more than 1,200 affordable housing units in the District. And in the five months of FY 2017, $50 million in HPTF funding already is allocated to projects that will produce and preserve affordable housing across four Wards.

The mayor’s $100 million commitment to the HPTF is more than any city per capita in the country. A report issued by Center for Community Change shows that the District’s $100 million fund more than tripled the next highest fund amount for a U.S. city. Compared to states, DC’s trust fund is the country’s second largest.

Since January 2015, the Bowser Administration has produced and preserved over 3,100 units of affordable housing units in the District with more to come. More than 3,700 affordable housing units—capable of housing more than 9,250 District residents—are in the development pipeline.

For more information, visit: dhcd.dc.gov.