Since returning to the low-income housing tax credit (LIHTC) market in 2018, Fannie Mae has invested more than $1.8 billion to help support the creation and preservation of about 600 affordable multifamily properties totaling more than 43,000 units in 46 states and the District of Columbia. But that’s only the beginning.
In September 2021, the Federal Housing Finance Agency (FHFA) increased Fannie Mae’s investment cap in LIHTC projects from $500 million to $850 million per year. The money will be used to further support housing projects that are targeted toward low-income and underserved populations, including people experiencing homelessness and residents in rural areas. Fannie Mae’s Dana Brown spoke with Scotsman Guide about the agency’s involvement in LIHTC and its future plans to help deal with low-income housing issues across the country.
How is LIHTC helping to make affordable housing more available?
LIHTC investments have proven to be an effective way to create affordable housing during the past 30 years. The program finances the construction and preservation of most of the subsidized housing in the country. Its success is really based on the way it is structured and the alignment of incentives among various stakeholders. Those stakeholders include each state’s affordable-housing developers and investors such as Fannie Mae.
The program offers a capital subsidy or tax credit to developers for building specific projects that provide a certain number of affordable-housing units and supportive services. The developer promises the investors tax credits for an equity contribution. This is the critical point about it being a capital subsidy. The fact that the return on equity for the investors is in the form of tax benefits and not cash allows the property to be built with a smaller debt burden, which allows for a more affordable rental structure.
If you were in a neighborhood, and there was an affordable-housing construction project on one side of the street and a market-rate construction deal on the other side of the street, you would not be able to tell the difference between the two.
What is Fannie Mae’s role in this sector?
We seek to make investments and support the market where the needs are not otherwise being adequately met. That refers to both geographically and the types of projects being developed. We are in markets and deals that other investors may not be targeting.
For example, we work in rural areas and help support housing projects that are involved with Native American tribes. We also support housing projects that are targeted at those who are formerly homeless, victims of domestic violence and seniors.
How will the agency’s expanded support for the LIHTC program impact the low-income sector?
We view FHFA increasing the Fannie Mae cap for this program from $500 million to $850 million a year as a very positive development. I think it also reflects well on the success Fannie Mae has had in this sector. The increase is giving us the ability to make a greater impact in other areas.
We are even looking into how we can use the housing program to improve racial equity in communities. One of the ways we would do this is by helping minority developers receive funding and access to types of resources and capital that they might not have had access to otherwise.
What is the message you’d like to get across to the commercial real estate community?
This is a very successful program that has a great track record as a low-risk investment. LIHTC has proven very popular across the country, with annual tax-credit allocations being consistently oversubscribed.
A wonderful aspect of LIHTC is that it helps create high-quality affordable housing. And when we say high quality, we’re talking about both new construction and rehab deals. If you were in a neighborhood, and there was an affordable-housing construction project on one side of the street and a market-rate construction deal on the other side of the street, you would not be able to tell the difference between the two. ●