A recent Washington Post article chronicles how a St. Lous, Missouri couple has partnered with the local chapter of Habitat for Humanity to obtain $18.3 million in New Markets Tax Credits (NMTCs) to build 103 affordable homes across the city. Furthermore, they have used their innovative model to guide nonprofit community development entities (CDEs) in over 30 cities to use almost $500 million in tax credit investments to build over 4,200 affordable homes.
For instance, in Atlanta, Georgia, the use of the couple’s model resulted in $20 million in NMTCs used to renovate 133 homes. In Santa Fe, New Mexico, advocates used NMTCs to turn a blighted mobile home park into 40 homes and 13 condominiums. In addition, the city built 26 homes in Pittsburgh, Pennsylvania, using the NMTC program.
As explained in the article, the NMTC program attracts investors to distressed communities by offering them a 39 percent tax break over seven years. In addition, the CDEs use their investments to make housing affordable by offering down-payment assistance to qualified buyers or a second deferred loan to be paid off only when buyers sell the home. These techniques can result in savings ranging from $30,000 to $100,000 per home, depending on the neighborhood.
Although CDEs doubted that the highly-regulated NMTC program was usable to produce affordable housing, this couple has proved them wrong. They have created a model that others can easily replicate by developing model templates that any nonprofit can use to navigate the NMTC program process from beginning to end. The couple also points out that despite their success, the Community Development Financial Institutions Fund (CDFI) does not actively promote the NMTC program for affordable housing. Part of the scoring matrix for NMTC proposals also depends on a history of past success; as a result, organizations may be reluctant to embark upon a new approach to the NMTC program.
Affordable housing needs are on the rise. The National Low-Income Housing Coalition estimates it would take 6.8 million more rental units to house all low-income families adequately. Moreover, according to a 2021 study by the Urban Institute and Moody’s Analytics, there is less housing for rent and sale than there has been over the last 30 years. As a result, homeownership is becoming farther and farther out of reach, particularly for people of color.
Most federal support for affordable housing comes through the Low-Income Housing Tax Credit (LIHTC). However, only a small portion of those tax credits awarded went toward housing.
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Savage & Associates is an economic development law firm providing sophisticated legal and business advice to clients interested in making significant changes in their communities. We advise developers, investors, nonprofit organizations, entrepreneurs, and anyone looking to effectuate change. Contact our offices by calling 215.880.9441 in Philadelphia or 202.817.3941 in Washington D.C. to discuss your ideas. You can also find Savage & Associates online 24 hours a day, seven days a week, to get more information about the innovative financial tools we can use to make your vision a reality. From New Markets Tax Credits to Historic Tax Credits, we can design the unique transaction best designed to achieve your objectives.