Year 15 exits of low income housing tax credit properties: homeownership conversion potential of small-scale units in North Carolina

The Low Income Housing Tax Credit (LIHTC) program is a federal subsidy program designed to increase private development of rental housing that is affordable to the low-income population. Since low-income housing produces small cash flows, the government supplies additional benefit in the form of tax credits, a dollar-for-dollar reduction in the amount of taxes owed. Tax credits are also a commodity, since they can be sold or traded, making them a fairly secure source of revenue. As such, the LIHTC program has grown in both popularity and complexity. Currently, developers of a LIHTC project must enter into a legal agreement attached to the property, requiring affordable rents for a duration of 30 years. The development entity must also remain the owner for a minimum of 15 years, else the IRS could revoke some portion of the tax credits awarded to them. Difficulties can arise after 15 years if the development entity wishes to sell the property, since the property remains subject to affordability restrictions regardless of a transfer of ownership. Several options for "exiting" the property exist, but the conditions which influence the exit approach and the preservation of both affordability and structural maintenance of the property remain unclear. This paper looks at all single-family LIHTC properties within the State of North Carolina in an attempt to evaluate the potential of a particular exit strategy: selling the property to the low-income tenant. Owners and tenants of these properties were contacted via a mail survey to solicit their interest in selling or buying, respectively, and to ask for their general feedback and their future plans in relation to their unit. Income qualifications of the tenants were also evaluated to determine their ability to afford a mortgage payment based on their current rents using a mortgage structure based on several products and services offered to first-time homebuyers through the North Carolina Housing Finance Agency (HFA). The results were mixed. A significant number of property owners responded that they were interested in exiting their property, and would consider selling it to their existing tenant or a future tenant. Several questions were raised by owners who were ready to begin that process. Unfortunately, response rates from tenants were extremely low and an overall analysis of tenants' finances indicates that many may be unlikely to obtain a mortgage for an amount as high as their property's tax value.Master of City and Regional Plannin