Former LIHTC Properties Remain Affordable, Freddie Mac Multifamily Research Finds

Rhea-AI Summary

Freddie Mac has released a white paper indicating that multifamily properties exiting the Low-Income Housing Tax Credit (LIHTC) program still generally maintain lower rents compared to broader market levels. Analyzing 133 former LIHTC properties across various markets, the study revealed an average rent decrease of 12%, with Dallas properties showing rents 27% lower than the market comparables. The research aims to highlight risks and the severity of potential affordability loss in the housing market.

Positive

• Multifamily properties that exited LIHTC still serve low- and middle-income renters.
• A significant number of LIHTC properties are retained by nonprofits, supporting ongoing affordability.

Negative

• Concerns remain about the loss of affordable units for the lowest-income renters.
• The average rent decline of 12% indicates ongoing affordability challenges in the housing market.

Properties that Benefit from Federal Tax Subsidies Rarely Increase Rents Significantly After Exiting Program

MCLEAN, Va., July 11, 2022 (GLOBE NEWSWIRE) -- Multifamily properties that exit the Low-Income Housing Tax Credit (LIHTC) program generally continue to rent at levels lower than those charged in the broader market and serve as a valuable source of workforce housing, Freddie Mac (OTCQB: FMCC) Multifamily’s new white paper finds. Researchers discovered that average rents remained materially lower than market comparables in a sample of 133 former LIHTC properties across seven markets. Rents were lower by an average of 12%, but differences varied widely across the cities that were studied. Former LIHTC properties in Dallas offered rents nearly 27% below market, but rents in Phoenix were just 3% below market.

“A fear has been that LIHTC properties would simply jack up rents to the top of the market at the expiration of their rent and income restrictions, generally about 30 years, but that’s not usually the case,” said Steve Guggenmos, vice president of Research & Modeling for Freddie Mac Multifamily. “Any loss of units affordable to the lowest income renters is concerning, but there is some consolation in that LIHTC properties typically continue to serve low- and middle-income renters.”

Freddie Mac looked broadly at property-level LIHTC data compiled by HUD and the National Housing Preservation Database. Researchers identified 40,296 multifamily properties in the entire history of the LIHTC program. Of these, 34,975 were identified as programmatic, which means that they currently restrict rents based on local income in accordance with LIHTC requirements. The remaining 5,321 properties are identified as non-programmatic, or properties that have exited the LIHTC program and are no longer monitored for compliance and are therefore no longer believed to have LIHTC restricted rents.

Freddie Mac also found that properties are more likely to remain in the LIHTC program when they are owned by a nonprofit or were placed in service after 1990 when Congress extended the LIHTC use period from 15 to 30 years.

The research, which fulfills commitments under Freddie Mac’s Duty to Serve and Equitable Housing Finance Plans, is intended to paint a picture of the risk that currently exists in the market and the potential severity of affordability loss.

Freddie Mac Multifamily is the nation's multifamily housing finance leader. Historically, more than 90% of the eligible rental units we fund are affordable to families with low-to-moderate incomes earning up to 120% of area median income.  

Freddie Mac makes home possible for millions of families and individuals by providing mortgage capital to lenders. Since our creation by Congress in 1970, we've made housing more accessible and affordable for homebuyers and renters in communities nationwide. We are building a better housing finance system for homebuyers, renters, lenders and taxpayers. Learn more at FreddieMac.com, Twitter @FreddieMac and Freddie Mac's blog FreddieMac.com/blog.

MEDIA CONTACT: Mike Morosi
(703) 918-5851
Michael_Morosi@FreddieMac.com
Erin Mancini
(703) 903-1530
Erin_Mancini@FreddieMac.com

FAQ

What did Freddie Mac's report find about multifamily properties exiting the LIHTC program?

The report found that multifamily properties exiting the LIHTC program continue to charge rents that are, on average, 12% lower than market rates.

How much lower are rents for former LIHTC properties in Dallas?

In Dallas, former LIHTC properties offered rents nearly 27% below market rates.

Is there a concern about affordability loss among LIHTC properties?

Yes, the report highlights concerns about the loss of units affordable to the lowest-income renters.

What percentage of rental units funded by Freddie Mac are affordable?

Historically, more than 90% of the eligible rental units funded by Freddie Mac are affordable to families earning up to 120% of area median income.

What is the significance of Freddie Mac's research on LIHTC properties?

The research is significant as it fulfills commitments under Freddie Mac’s Duty to Serve and Equitable Housing Finance Plans, revealing market risks and affordability challenges.