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April 25, 2023
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This is a guest post by Andrew Notarfrancesco, Vice President of JEM Group

For most people, a primary residence is the largest investment they will make over their lifetime. Therefore, it’s no surprise that people will be curious, critical, or even opposed to any type of real estate development in their community which they feel could have an adverse impact on the place they chose to live. This is frequently the case with affordable housing, where the age-old ‘not in my backyard’ stigma often stems from beliefs that low-to-moderate income neighbors could undermine the local quality of life and security.

The Low-Income Housing Tax Credit (LIHTC) is the largest resource supporting the development of affordable rental housing in the United States. The reality is that today’s LIHTC developments, sometimes referred to as workforce housing, adhere to a high-quality model that dismantles perceived threats to property values and adverse quality of life impacts. Better housing policies improve local housing markets, create more homes in high opportunity locations and provide financial relief to families as follows:

1. Construction Quality: Today’s affordable housing doesn’t merely clear the pole vault crossbar of modern building codes – it front flips over it. Right or wrong, LIHTC deals not only exceed code, but they also meet visitability and accessibility standards across all or most of their units. They also achieve ‘green’ efficiency certifications that reduce operating costs, promote resident health and utility cost savings, and reduce environmental impacts.

   Quality finishes and energy efficient appliances increase durability and environmental quality. Green building performance sets forth best practices for new construction techniques, materials, and systems. Aesthetically, LIHTC developments often blend cohesively enhancing community appearance, value, health, and safety.

2. Privatized Long-term Asset Management: Unlike public housing, LIHTC housing is privately owned. In most cases, LIHTC deals are 99% owned by banks, often local banks, or investor/syndicator groups. They infuse equity into LIHTC deals up front which provides most of the needed funding, in exchange for the tax credits that flow for ten years. The Pennsylvania Housing Finance Agency, which administers the federal LIHTC program in Pennsylvania, conducts inspections and reports back to ownership on items which need corrected, or will proceed to file a non-compliance form which threatens the eligibility of the owner to receive the credits.
3. Addressing the Housing Supply Shortage: While housing is the single greatest monthly cost for most families, an ample supply of affordable housing that can meet spikes in demand is important to ensure housing prices remain stable. In the face of rising costs of living for families, affordable housing eases the burden of inflation spells.

A Win for Municipalities and Residents

Diversity in housing is a vital cog to every community. The COVID-19 pandemic highlighted a reminder nationwide that a diverse workforce helps communities function most effectively.

LIHTC housing is in strong demand. It is not unusual for a LIHTC community to receive upwards of 300-900 rental applications. With a large pool of applicants, every resident is motivated to uphold the terms of their lease long-term.

The LIHTC program is not without flaws. It is complex and layered, presenting a variation in total development cost per unit and per square foot as compared to similar-sized “market rate” rental units. However, it is still widely regarded as the “most successful affordable rental housing production program in U.S. history” (NAHB). Since 1986, it has continued to accomplish its critical role as the most important source of funding to leverage tax credits to provide a much-needed source of equity for developers.

Additionally, it creates and helps to sustain jobs. According to the Housing Alliance of Pennsylvania, every $10 million in affordable housing construction generates $19.6 million in total economic impact and supports 110 jobs.

To assist in navigating the process, a team that understands all program requirements and clear lines of responsibility simplifies the process and ensures an aligned plan for success. JEM Group, founded in 2003, is a certified WBE, DBE and SBE in Pennsylvania. As a premier builder in Central PA, JEM has over $50 million in projects serving the multi-unit housing market.

© 2023 McNees Wallace & Nurick LLC
This article is presented with the understanding that the publisher does not render specific legal, accounting or other professional service to the reader. Due to the rapidly changing nature of the law, information contained in this publication may become outdated. Anyone using this material must always research original sources of authority and update this information to ensure accuracy and applicability to specific legal matters. In no event will the authors, the reviewers or the publisher be liable for any damage, whether direct, indirect or consequential, claimed to result from the use of this material.