The downward spiral: cash flow issues in low income housing tax credit properties


For the past twenty-five years the Low Income Housing Tax Credit (LIHTC) has been the primary source of federally subsidized affordable rental housing production in the United States. The program is market-oriented in financing and operations. Tax incentives are used to attract private investment to projects, and competed projects are expected to be self-sufficient. Although there are rent limits and tenant income restrictions, LIHTC projects often compete against the open market for tenants. This market based structure, combined with several other financing provisions places extraordinary strain on projects to maintain sufficient cash flow levels. A 2004 report indicated an increasing number of projects were unable to do so. This report finds that a large number of LIHTC projects do experience cash flow problems of some magnitude. A common method of addressing cash shortfalls is to draw upon funds budgeted for routine repairs and maintenance to support other operating needs. This report finds that the strategy simply leads to declining property conditions and lower occupancy and rents. The low occupancy and rent levels drag down revenue, which exacerbates cash flow problems, beginning a downward spiral of physical and financial conditions at the property.Master of City and Regional Plannin

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