Checks and Balances with Low Income Housing Tax Credits

By Stephen Acree, president and executive director of Rise (formerly RHCDA) and Chris Krehmeyer, president and CEO of Beyond Housing


The great omission in debates about Missouri’s low-income housing tax credit (LIHTC) program is the children, seniors and disabled Missourians that call the units produced home. A family must make almost twice the minimum wage to be able to afford a two-bedroom apartment in Missouri, and it is estimated that Missouri is 133,000 affordable units short of the number necessary to meet existing needs. Sadly, seniors are the fastest-growing segment of ill-housed citizens, causing nearly a third to forgo necessities such as medicine, utilities or food.

A safe, decent home is the foundation for a child’s development. According to Harvard’s Joint Center for Housing Studies, a decent home provides a reliable place to do homework and allows long-term residency in one school district, increasing a child’s chances to excel.

Missouri’s LIHTC program is modeled after the federal program and designed to leverage federal investments. The program provides a 10-year stream of tax credits once projects are 100-percent occupied. This stream of tax credits incentivizes investor groups with large projected tax liabilities to invest up-front cash  into the development, reducing the need for bank loans or other public funding. Since ongoing costs of loans and rental operations are borne by rent payments, investor equity enables significantly lower rents — $288 lower per month according to the Missouri’s Department of Economic Development.


Additionally, since the tax credit awards are made only after a grueling competitive review, and since all LIHTC projects are subject to more stringent standards than are high-quality market rate projects, the final housing product is a major long-term asset to any community — all in addition to providing much-needed housing for citizens.

Most believe that reasonable returns should accompany hard work and risk. The low-income housing tax credit industry is no exception. That investors should receive market-appropriate yields on up-front investments with ongoing risks and long-delayed returns (typically, 13 years with zero return for the first 3 years) is not only proper, but is based on fundamental imperatives that drive our economy. It is misleading to use the 2014 value of an investment, when the actual cost to the state will not be fully realized until at least 2027, and only if the project is 100 percent successful in serving low-income tenants.

Rather than creating opportunities for windfalls, the incentives allow affordable housing developments to compete in local markets in spite of their significantly lower monthly rental incomes. In tax credit developments fees to developers, contractors, architects, etc. are regulated at or below market-established percentages. There are many checks and balances in the system — and we can tell you that Missouri’s tax credit program is the envy of many state housing agencies.

This article originally appeared in the St. Louis Business Journal (March 21, 2014)

Articles in “From the Field” represent the opinions of the author only and do not represent the views of the Community Builders Network of Metro St. Louis or the University of Missouri- St. Louis