The Impact of Housing Tax Credits

May 17, 2017

By Adam G. Kirk, special to Business in Savannah

On May 25, Georgia multifamily residential developers will apply to the Georgia Department of Community Affairs (DCA) in a yearly bid for allocations of low-income Housing Tax Credits available under Section 42 of the Internal Revenue Code and Georgia state law. Applications will detail key features of a proposed project and its anticipated fulfillment of housing priorities established by DCA under the DCA’s Qualified Allocation Plan. After reviewing and scoring applications, DCA will award allocations of Housing Tax Credits in the fall, and successful developers will commence projects in 2018. DCA will publish a list of proposed projects and applicants this summer.

Housing Tax Credits were enacted by Congress in 1986 and by the Georgia General Assembly in 2000. Practically speaking, the programs give project owners credits against federal and state corporate income tax representing a percentage of the owner’s investment in the project for a period of ten years from the date of project completion. Under federal tax rules, Housing Tax Credits may be allocated to investors in the project. Thus, the anticipated receipt of credits over ten years enables project owners to attract institutional investors—banks, large corporations, insurance companies—to make significant investments of capital into the project. As a result, Housing Tax Credits have become a vital tool for private developers and public authorities and have fostered many public-private partnerships in housing.

In exchange for the credits, a project owner agrees to reserve a threshold of units within the project for persons with low income and to restrict rents in such units within the project to a specified percentage of area median income as determined by the Department of Housing and Urban Development. The project owner also agrees to comply with commitments made in his or her application for Housing Tax Credits—such as commitments to maintain units for elderly persons, provide supportive services to residents, specially adapt units for handicapped persons, or employ environmental best practices. These agreements are recorded as deed restrictions on the project having a term of thirty years, and therefore pass from seller to buyer when a project is sold. DCA monitors owner compliance, and an owner’s failure to comply with these agreements could result in forfeiture (or recapture) of the Housing Tax Credits.

The inducement of private project investment through tax credits coupled with restrictions directs capital towards rent reduced housing projects that further the policy objectives of DCA as articulated in the Qualified Allocation Plan. In turn, DCA monitoring of project compliance with owner commitments and the possibility of tax credit recapture create significant incentives for investors to ensure that owners abide by project restrictions. For these reasons, Housing Tax Credits have emerged as the nation’s primary program for the production of affordable rental housing.

Locally, significant investments in Housing Tax Credits can be seen in projects throughout the city, where they have had real impact—Savannah Gardens on Pennsylvania Avenue, a public private partnership sponsored by CHSA, the City of Savannah’s nonprofit housing arm, has seen a 62% decrease in Part 1 crime; the Savannah Housing Authority’s redevelopment of Fellwood Homes on West Bay Street and Hitch Village on East Broad Street is transforming entire neighborhoods in vital corridors of the city; and National Church Residences’ rehabilitation of Sister’s Court on 37th Street and Telfair Arms on Park Avenue is preserving historic structures and affordable housing for elderly persons in the Victorian District.

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