housing subsidies 3 Flashcards
(32 cards)
When was Project-based Section 8 (PBS8) created?
Project-based Section 8 was created in 1974.
What does Project-based Section 8 provide?
Project-based Section 8 provides subsidies for both the construction/rehabilitation of housing and direct rental subsidies to tenants.
What were the benefits for developers under PBS8?
Developers could take advantage of accelerated depreciation allowances under PBS8.
Why did Congress switch from PBS8 to long-term contracts?
PBS8 was too expensive, so Congress switched to subsidizing existing projects through long-term contracts.
How does Project-based Section 8 operate in terms of rent rules?
Similar to public housing, tenants in PBS8 pay 30% of their income towards rent.
Who owns and operates PBS8 developments?
PBS8 developments are owned and operated by private landlords/developers, which is different from Public Housing and Housing Choice Vouchers (HCV).
How does PBS8 affect developers financially?
Developers receive a long-term rental contract, which pays the difference between tenant rents and the market rent for the development.
How is tenant selection done in PBS8?
Tenant selection is done by the property manager but features similar income restrictions to public housing.
What other funding sources support PBS8 developments?
Many PBS8 contracts support developments with Section 202 funding for the elderly and Section 811 for the disabled.
What is the Low-Income Housing Tax Credit (LIHTC)?
The Low-Income Housing Tax Credit (LIHTC) was created as part of the Tax Reform Act of 1986 (TRA86).
Why is LIHTC important?
LIHTC is the largest (and arguably only) supply-side affordable housing production program funded by the federal government.
How does the LIHTC differ from other housing programs?
Unlike other programs, LIHTC focuses on helping developers by offering tax credits for new construction or rehabilitation of low-income housing.
How is the LIHTC credit used by developers?
Developers use the LIHTC to reduce their taxable liability for 10 years.
What is the significance of syndicating LIHTC credits?
LIHTC credits are often syndicated to commercial banks, which can use them to fulfill Community Reinvestment Act (CRA) requirements, in exchange for equity in the project.
Who can benefit from the LIHTC?
LIHTC can support either new construction or substantial rehabilitation of a building, with a 9% credit for new construction and a 4% credit for substantial rehabilitation.
Who manages the LIHTC program?
The LIHTC program is technically managed by the Treasury Department.
Who develops LIHTC housing?
Developers of LIHTC projects are a mix of for-profit and non-profit entities.
What types of tenants are selected for LIHTC housing?
LIHTC housing can be built for families with children, seniors, the disabled, or those who have been recently homeless.
How are LIHTC rent rules different from other programs?
LIHTC rents are flat and are not determined by tenant income, but by 30% of 60% of the Area Median Income (AMI).
How is the rent calculated for a 2-person household in LIHTC housing?
For a 2-person household in Chicago, with 60% of AMI being $42,780, the LIHTC rent is $1,069 (calculated as $42,780 * 0.3 / 12).
Why do LIHTC rents tend to be higher than other programs?
LIHTC rents are higher because they do not ‘tax’ rising incomes and are set at 30% of 60% of the AMI.
What is one implication of the higher LIHTC rents?
LIHTC tends to serve households that are near the top of the allowable income range for the development, often excluding the lowest-income households.
Why is LIHTC politically popular?
Banks like the credits because they are profitable and help banks meet CRA requirements.
What is a drawback of the LIHTC program according to economists?
Economists generally do not like LIHTC due to its complexity, potential leakage, and inefficiency compared to cash grants.
