LIHTC Affordable Housing Construction: The Low-Income Housing Tax Credit Program Driving US Affordable Housing

Low-Income Housing Tax Credit (LIHTC) program substantial federal program driving US affordable housing development. Created 1986 under Section 42 of Internal Revenue Code. 9% credits (competitive, new construction/substantial rehab) and 4% credits (with tax-exempt bonds, less competitive) support different project types. Substantial program — substantial portion of affordable housing built through LIHTC. Specific compliance and construction requirements. Understanding LIHTC helps construction firms serve affordable housing developers.

This post covers LIHTC affordable housing construction.

LIHTC Structure

LIHTC structure specific:

LIHTC structure specific. 9% credits competitive with ~70% subsidy of qualifying basis (substantial financial benefit). 4% credits paired with tax-exempt bonds at ~30% subsidy. Allocated by state housing finance agencies (HFAs) competitively (9%) or non-competitively (4%). 10-year credit period for credits claimed. 30-year compliance period (15 initial plus 15 extended typically). Specific income and rent restrictions throughout compliance. Substantial financing layer — substantial portion of project capital.

9% vs 4% Credits

9% vs 4% credits distinct:

9% vs 4% credits distinct programs. 9% competitive through state QAP (Qualified Allocation Plan) for new construction or substantial rehabilitation. 4% bond-financed less competitive (often available when bonds available). 9% deeper subsidy supporting more affordability or harder-to-finance projects. 4% with bonds substantial financing combination. Different competitive dynamics — 9% substantial competition; 4% sometimes oversubscribed for bond cap. Different project types favor each. Specific to deal structure.

QAP and Allocation

QAP governs allocation:

QAP (Qualified Allocation Plan) governs LIHTC allocation. Qualified Allocation Plan per state setting priorities. Specific scoring criteria including affordability, sustainability, location, special needs. Geographic distribution typical (rural, urban, suburban allocations). Specific priorities including preservation of existing affordable, special needs (seniors, homeless), permanent supportive housing. Annual allocation per state based on population. Substantial competition for 9% credits. Specific to state.

Construction Requirements

Construction requirements specific:

Construction requirements specific to LIHTC. Davis-Bacon prevailing wage when federally funded portions (substantial in many deals). Specific design standards per state QAP — minimum unit sizes, amenities. Energy efficiency requirements (Energy Star, ASHRAE 90.1+, sometimes higher). Accessibility per Section 504 federal accessibility (substantial), UFAS (Uniform Federal Accessibility Standards). Specific unit counts and types per allocation. Inspection requirements during construction. Specific to allocation terms.

Compliance Period

Compliance period substantial:

Compliance period substantial throughout. 15-year initial compliance period when credits claimed and substantial penalties for noncompliance. 15-year extended use period with affordability restrictions. Income and rent restrictions throughout (substantial below-market rents). Tenant income certification at move-in and annually. Annual reporting to state HFA. Substantial recordkeeping requirements. Specific to allocation terms.

Combined Financing

Substantial financing combinations:

Substantial financing combinations in LIHTC deals. LIHTC equity from investor purchasing credits (substantial portion of capital). Tax-exempt bonds in 4% deals (substantial debt). Soft funding from HOME, CDBG, state funds (subordinate, low-interest, deferred). Conventional debt from banks. Federal Historic Tax Credits sometimes when historic. Substantial complexity — 5-10+ funding sources typical. Specific to deal structure.

Bottom Line

LIHTC affordable housing construction substantial federal program. Structure with 9% (competitive) and 4% (bond-financed) credits. QAP governs allocation. Construction requirements specific including Davis-Bacon, design standards, energy, accessibility. Compliance period 30 years total. Combined financing substantial complexity. For construction firms, LIHTC substantial market for affordable housing. Quality experienced firms substantially differentiate. Worth substantial expertise development.