Building affordable housing involves a competitive gov’t formula. Is there a better way?
The federal government gives developers the equivalent of $10 billion a year to build low-income housing in the form of a tax credit. Without this government subsidy, there may be a lot fewer affordable units. There are limitations, including the funding. Is there a better way to do it?
The low-income housing shortage
According to some estimates, there’s a national shortage of 7 million affordable and available rental homes, for renters with extremely low incomes. In Ohio, for every 100 renters in this category, there are only 40 units.
Here’s an interactive map of the same thing.
In Cincinnati there’s a gap of 50,000 units, according to the National Low Income Housing Coalition. For Dayton, it’s about 18,000.
How do we build more affordable housing?
Low-income housing tax credit
For almost 40 years developers have been using the federal low-income housing tax credit (LIHTC) to help fund affordable housing. Between 1987 and 2022, it led to the creation of over 3.5 million affordability-restricted rentals. That’s almost 100,000 a year. In Ohio, LIHTC has spurred the development of 150,000 affordable units.
What is it and how does it work?
LIHTC, as its name suggests, is a federal tax credit, administered by the IRS and overseen, in Ohio, by The Ohio Housing Finance Agency.
Developers, through an extremely competitive process, can apply for the 4-percent or 9-percent LIHTC. The 9-percent credit will pay for about 70-percent of a development. The 4-percent credit will pay for about 35 to 40-percent of a development. In 2024, The State of Ohio only awarded the 9-percent credit to 24 projects.
By the time developers apply, they must have a significant part of their project planned, in many cases, spending up to $50,000.
If they are successful in getting the tax credit, they sell the credits to investors. They can claim them over a ten-year period. LIHTC generally benefits investors in two ways:
- General tax savings earned by any rental property owner.
- Specific tax credits generated through LIHTC can be used to offset federal income tax liability.
This video explains the process in Indiana, which is similar.
In Ohio, the project must remain affordable for 30 years.
One challenge is the money today isn’t worth the same as it will be ten years from now. Due to this deficit and other factors, developers must combine LIHTC with other types of funding to ensure they have enough money to build low-income apartments.
Over the Rhine Community Housing (OTRCH) is the biggest user of LIHTC in Cincinnati, according to some accounts, developing 800-900 units over the years, some with partner agencies. Ben Eilerman is director of real estate. He says, “When you may hear in the news, read in the paper that a project received 10-million dollars in low-income housing tax credits, that immediately gets diluted by the fact that those tax credits don’t come directly to the project.”
Cincinnati and its use of LIHTC
Over the Rhine Community Housing has three projects under construction. They are Vandalia Point in Northside and Spaeth and Kelly Hall and Gloria’s Place in Over-the-Rhine. Eilerman says LIHTC is a catalyst for neighborhoods.
“So, I think about our Lower Price Hill Thrives Project, a neighborhood that had seen a lot of disinvestments for many, many years. That project provided an opportunity for new money and new and really quality housing.”
Lower Price Hill Thrives involved rehabbing ten existing historic buildings, for affordable apartments.
Here’s video of the ribbon cutting in 2022:
Credit: CitiCable
Executive Director Mary Burke Rivers echoed the catalyst idea. “The same scenario in Over-the-Rhine. The LIHTC was really part of the beginning of all the investments in the neighborhood into the market and the role it has played in preserving historic buildings is really significant.”
Eilerman says preparing the application to receive a LIHTC award, particularly the 9-percent one, is incredibly difficult. It can take anywhere from a few months to a few years.
Both Eilerman and Burke Rivers say their developments happen organically. For example, the Lower Price Hill neighborhood came to OTRCH. Northside had a development plan for Vandalia Point and “One of our more current deals that we’re working to get financed is in Clifton Heights.”
They reject claims OHRCH, and others are steering affordable housing into low-income Black neighborhoods that already have a lot of it.
A federal complaint alleges the City of Cincinnati wrongly concentrated low-income housing tax credits in the West End, Avondale, Winton Hills, and other Black neighborhoods, violating both the civil rights act and the fair housing act. The city tells Brick by Brick it has no comment.
Other low-income housing under construction or renovation in Cincinnati using LIHTC, includes Lincoln & Gilbert Family II, (Developer-Pennrose) and Marquette Manor (Developer-Cincinnati Metropolitan Housing Authority).
Greater Dayton and its use of LIHTC
LIHTC projects under construction in Dayton, with 50 or more units, include Grand Place Apartments (Developer-National Church Residences) and Germantown Crossing (Developer-Greater Dayton Premier Management)
Plans for three other new developments are happening is in Trotwood, where a 2019 tornado wiped out hundreds of units, CountyCorp is getting the financing together for 194 new apartments, affordable to people making up to 56-thousand dollars for a family of four.
CountyCorp is also preparing to build 27 single family affordable rental homes in Wolf Creek, and it’s renovating 100 Dayton scattered site low-cost rentals which could remain affordable for several decades more.
The benefits
Dr. Anthony Orlando, associate professor of finance, real estate and law at California State Polytechnic University, Pomona explains in the mid-20th century we built public housing with large buildings that “tended to concentrate poverty.” He says, “We don’t do it quite that way anymore. The new buildings that are built through LIHTC are built by private developers with good architecture to make it look like they seamlessly blend into a neighborhood and they’re not concentrating poverty in these segregated areas.”
Dr. Anthony Orlando did a study asking, Does the concentration of LIHTC matter?
He and fellow researchers found building LIHTC lowers market rents significantly in low-income neighborhoods and it has no effect on market rate rents in high-income neighborhoods.
Orlando focused on the City of Miami, Florida and Dade County. He has expanded the research to other cities in Florida and is starting to find similar results.
LIHTC has helped create 3.5 million income-restricted units nationally and about 150,000 in Ohio since the program’s creation. Some of the housing is integrated.
Examples in Massachusetts and Maryland
Suburban Boston is redeveloping rundown public housing, creating mixed-income housing units. In the City of Chelsea, as reported by Masslive.com, one project funded by a state grant, consists of 96 affordable public housing units, 40-middle income, and 194-market rate apartments. The amenities for everybody include three rooftop decks, two indoor sky lounges, a game room, a golf simulator, dog washing station and more, extras never seen in other public housing developments.
Just outside Washington D.C. in suburban Montgomery County, Maryland the local government issues 100 million in bonds to help make up the funding gap left by LIHTC. Essentially, it is a developer, subsidy provider, bank, and equity investor. By only requiring a 5-percent return on its equity, that creates affordability.
Luke Blocher told Brick by Brick months ago he thinks this is a fantastic idea. He’s Chief Strategy Officer for the Cincinnati Development Fund. (CDF) Its mission is to provide innovative real estate financing for projects that strengthen low-income neighborhoods and improve lives.
Cincinnati’s Affordable Housing Leverage Fund
CDF manages the Affordable Housing Leverage Fund in Cincinnati, created in 2022 to increase affordable housing amid limited LIHTC awards. Blocher says the Ohio agency doling out LIHTC has changed some formulas making it even more difficult to get the money.
Blocher came before a Cincinnati Council committee in January to give an update. He told members, “You can just look at where the awards have gone the last few years. They’ve gone primarily, when they’re not in rural areas, they’ve gone to primarily Columbus and maybe Cleveland and we’re in sort of this distant third place, sometimes looking the same as Dayton.”
CDF is looking for ways to supplement LIHTC funded projects or come up with money for developers who can’t get the tax credit.
The Affordable Housing Leverage Fund is made up of Cincinnati and Hamilton County public and private forgivable loans and grants. From 2022 to 2024:
- a 74-million-dollar investment in 54 projects created or preserved 18-hundred income restricted units.
- About a third of the units are finished.
Blocher says, “I think we’re already starting to bear fruits from this but this project over time can change the market, change the behavior of the people building the housing over time in a way that’s going to lead toward long-term sustained investment and expanded investment.”
The new affordable housing is in 16 Cincinnati neighborhoods. Going forward, one challenge is finding regular sources of funding. The biggest share of funds over the past two years was COVID relief money.
Limitations
Lack of funding is the main problem with LIHTC. There isn’t enough money to go around. Ohio chose just 24 projects to receive the 9-percent federal tax credit in 2024. The state has its own 4-percent tax credit that can be paired with the 9-percent federal tax credit. Since 2023, there have been applications that would amount to 3,500 units, for the state credit but funding limitations allowed for the support of only 859.
Another problem is these income-restricted units only have to remain affordable for 30 years in Ohio and in some cases less. The National Housing Preservation database estimates that about 14,000 rentals will expire in five years. What happens to these units and if developers need to renovate them and apply for more tax credits, that will limit the pool even further.
Developers don’t want to lose money. Application requirements involve spending thousands of dollars to plan the project before they are awarded the tax credit. And in most cases, don’t get it.
The Center for Housing Economics, a nonprofit founded to advocate for more housing and better housing policies, has a problem with LIHTC. Director Roger Valdez says LIHTC is “the biggest boondoggle the country’s seen.” Because of strings attached, he says units are more expensive and take longer to build. And he says the government hasn’t done a good job of documenting where all those tax credits are going.
Here’s how Valdez says he would change the system:
- Create a tax deduction for developers. For every year they keep their rents low in those units, they get a tax deduction.
- Create a tax deduction for individual taxpayers. Cost-burdened renters (paying more than 30-percent of their income) could get money back.
- Deregulate the housing economy. No Zoning. He says it drives up cost and housing prices.
Looking ahead
It’s unclear if the new Department of Government Efficiency will look at LIHTC. Roger Valdez wants it to and wrote this article in Forbes.
The Ohio Housing Council and other nonprofit housing advocates formed the Home Matters to Ohio Platform.
Among other things, it wants the following:
- The number of credits available through the Ohio Low Income Housing Tax Credit Program (OLIHTC) increased to $500 million annually and the program expanded through FY2031.
- The Ohio Housing Trust Fund (OHTF), the primary source of state funding for homelessness and affordable housing services, safeguarded. The money coming in isn’t enough.
- A Housing Infrastructure Program enacted. This could include the design, construction, building, repair, etc…to advance projects that support housing development, preservation or rehabilitations.
The Executive Director of the Ohio Housing Council Ryan Gleason is hopeful. He told Brick by Brick, the affordable housing community is motivated to solve this housing gap. ”They’re as united as they’ve ever been on trying to convince the legislature of the need and the ability of this group to meet the need.”
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Ann Thompson – Host, Producer
Over the last thirty years in Cincinnati, Ann Thompson has brought a wealth of knowledge and expertise to her reporting. She has reported and anchored for WVXU, WKRC, WCKY, WHIO-TV and Metro Networks and freelanced for NPR, CBS and ABC Radio. Her work has been recognized by the Associated Press and she has won awards from the Association of Women in Communications and the Alliance for Women in Media. She is a former News Director and Operations Manager. Ann has reported from India, Japan, South Korea, Germany and Belgium as part of fellowships. Ann thinks of the Brick by Brick project as “journalism for good.” She serves as host and producer. Ann lives in Anderson Township with her husband Scott. They have two boys. Jake graduated from the Air Force Academy in 2022 and Kurt attends West Point.
