Each year, the Texas Department of Housing and Community Affairs (TDHCA) updates the set of rules that guide the Low Income Housing Tax Credit (LIHTC) program, the largest affordable rental housing program in the US. The annual update process consists of roundtables, workgroups, and multiple rounds of drafts released for official and unofficial public comment. The program rules, including scoring criteria for tax credit applications, are detailed in a document called the Qualified Allocation Plan (QAP).
The 2023 QAP development process began in spring and the Preliminary Draft for the 2023 QAP was published on July 6, 2022. One of the more notable changes in the Preliminary Draft is a proposal to award points to developments with units affordable to households with incomes at or below 100% or 120% of the area median family income (AMFI). This new scoring item was not discussed in roundtable discussions. Any change to the QAP that does not directly improve outcomes for low-income residents, such as the proposed provision, should be thoroughly explained by the TDHCA. As the provision was included in the Preliminary Draft and not discussed in the roundtables, the department has not explained what purpose this addition serves or what outcomes for low-income families it might lead to.
Research shows that such an addition does not match the reality of housing need. The National Low Income Housing Coalition’s annual Gap Report breaks down the need for housing units across the country at different levels of affordability. The 2022 Gap Report, like prior reports, shows that the shortage of housing is most severe at the lowest household income levels. In Texas, there are just 29 affordable and available homes per 100 renter households at or below 30% AMFI and 51 homes per 100 households at or below 50% AMFI. There is no shortage of units affordable and available to households at or below 80% or 100% AMFI, let alone 120% AMFI.
Affordable and Available Rental Units per 100 Households (Texas)
| Household Income | Texas | Austin MSA | Dallas MSA | Houston MSA | San Antonio MSA |
|---|---|---|---|---|---|
| At or below 30% AMFI | 29 | 22 | 20 | 19 | 31 |
| At or below 50% AMFI | 51 | 49 | 49 | 47 | 46 |
| At or below 80% AMFI | 100 | 102 | 99 | 101 | 98 |
| At or below 100% AMFI | 107 | 106 | 107 | 108 | 106 |
Applicants to TDHCA’s LIHTC program can receive up to 13 points for restricting the rent levels of tenants to serve tenants at 30% AMFI (2022 QAP §11.9(c)(2)). Typical (non Supportive Housing) developments can get 11 points for 10% of low income units at 30% AMFI or 7 points for 5% of low income units at 30% AMFI. Because the LIHTC program is incredibly competitive, developers may not be willing to sacrifice the points for 30% AMFI units to get points for 100%/120% AMFI units. While this addition will not necessarily lead to fewer units for the lowest-income residents, it provides an incentive for 100%/120% AMI units that has the same weight as extra 30% units and is not in line with existing housing needs and program goals.
The LIHTC program is not the appropriate program to fund housing for middle-income households. Housing stress for middle-income households is worst in expensive metro areas with regulatory barriers to new development. Local governments can address regulatory barriers by changing rules for development and land use to target housing needs for middle-income households instead of diverting public funds that are already spread thin. Just one in four households eligible for HUD’s Housing Choice Voucher Program (generally households at or below 50% AMFI) receive any type of federal rental assistance. LIHTC awards should drive the creation of low income units and should not award points to units that could be addressed by market-rate private development.
The proposed QAP language does not align with the TDHCA’s mission. The purpose of the TDHCA is to “provide for the housing needs of individuals and families of low, very low, and extremely low income and families of moderate income.” State statute defines “low, very low, and extremely low” as incomes at or below 80%, 60%, and 30% AMFI respectively. Moderate income households are defined as households who are not low income, but “determined by the board to require assistance” based on income, household size, housing costs, ability to compete in the private market, and “standards established for various federal programs determining eligibility based on income”. As the Gap Report makes clear, households at or below 100% and 120% AMFI are not those most in need of assistance and do not qualify as moderate income under statute.
The proposed QAP language does not align with the purpose of the LIHTC program. The purpose of the LIHTC program is to build low-income housing units for households at or below 50% or 60% AMFI. Even with the income averaging option, tenants in restricted units cannot have an income greater than 80% AMFI. TDHCA further incentivizes 30% AMFI units by providing points for set-asides in addition to the required 50% or 60% AMFI units, a practice explicitly encouraged by the IRS. There is no mention of moderate income, or any income level above 80% AMFI, in Internal Revenue Code (IRC) §42.
A QAP is defined in IRC as a plan that sets forth selection criteria and “gives preference in allocating housing credit dollar amounts among selected projects to…projects serving the lowest income tenants,” and the selection criteria in a QAP must include “housing need characteristics.” Households with incomes at or below 100% and 120% AMFI are not “the lowest income tenants,” and as shown in the Gap Report, they are not the groups with the most housing need.
Using the LIHTC program to incentivize development of housing affordable to households at 100% or 120% AMFI does not align with the national or state reality of housing need and does not align with the program’s or TDHCA’s purpose. It is not appropriate for TDHCA to use the QAP to incentivize 100% and 120% AMFI housing without clearly explaining how this will improve affordability and other outcomes for the low-income families that the program is intended to serve.
This proposed provision of points simply must not be allowed to be in the QAP.
Update 8/4/22: Information added regarding possible outcomes of proposed changes to the number of 30% AMFI units produced, and the need for TDHCA to clarify the impact of the proposed changes on low-income families.
Agreed 100%! that this proposed rental assistance plan is not the appropriate venue to address middle income household rental assistances. And to prevent allocation skew toward the middle income levels where it is least needed, all language allowing help to middle income households must be deleted from the proposal.