September 12, 2024
by Roshan Abraham for Next City on Housing Equity
Vermont has successfully extended the affordability of housing financed by Low-Income Housing Tax Credits — and other states can follow suit.
This decade, the U.S. could lose close to 500,000 units of affordable housing. That’s because these units were built in the ‘90s using federal low-income housing tax credits, which require property owners to keep units affordable for 30 years. Once those protections expire, landlords will be legally allowed to charge market rents despite a once-in-a-generation housing crisis.
The Low-Income Housing Tax Credit program, also known as LIHTC, is America’s main engine for financing affordable housing. It’s responsible for one-third of all apartment construction in the country — and while it plays an incredibly important role in the construction of affordable housing, it has long been criticized by housing advocates for failing to guarantee permanent affordability, among other issues.
But the law that created LIHTC also grants powerful flexibility to states and municipalities to determine how the credits will be distributed. These state and local requirements, called Qualified Allocation Plans (QAPs), can be used as incentives to nudge affordable housing developers to impose a deeper level of affordability than the federal government requires, extend the length of affordability, or to enact tenant protections.
One state, Vermont, uses its allocation plan to extend the affordability of LIHTC-financed housing indefinitely. Vermont’s perpetual affordability rule and other actions taken by the state to deter private market speculation have been in place since the early 2000s and have not resulted in fewer applications from developers for federal tax credits. On the contrary, the state has two to three times as much demand as available credits and consistently has a waitlist to apply.
“We’ve had a steady pipeline [of applications], regardless of having perpetual affordability,” says Seth Leonard, managing director of community development for the Vermont Housing Finance Agency, which allocates tax credits to projects in the state. Leonard says that since more states have been using QAPs to extend affordability, developers across the country are getting used to the idea that LIHTC financing comes with restrictions on how much they can charge in rent 30 or even 50 years down the line.
Despite the QAP’s power over the affordable housing purse, and therefore over developers, advocates told Next City/Shelterforce that tenants have historically had little involvement in the QAP process since the Low-Income Housing Tax Credit program began in 1986. Tenant advocates have been trying to learn more about these allocation plans to bend them closer to the needs of tenants in a historic affordable housing crisis.
“These processes are really removed from the people who are living in LIHTC housing…but it doesn’t have to be the case forever,” says Shanti Singh, legislative and communications director for the San Francisco nonprofit Tenants Together. She says that in the past, while doing workshops with tenants on the tax credit, tenants were often “in awe” about how convoluted the program is. But now Singh and Tenants Together are speaking with other organizations to learn more about how tenants can influence their allocation plan in California.
“For us, it’s a newer frontier, for sure, “ Singh says. “I’m definitely drinking from the fire hose a little bit learning about all this.”
States Extending Affordability
In December 2023, the Poverty and Race Research Action Council (PRRAC) released a report finding that two dozen states have extended the minimum affordability period beyond the 30 years required by federal law. In fact, 51% of all properties financed by LIHTC in 2021 will be affordable longer than the federal minimum of 30 years, according to National Council of State Housing Agencies data cited in PRRAC’s report. On average, states mandate or incentivize at least 42 years of affordability.
While only Vermont mandates permanent affordability, other states have created long periods of affordability: Most of Oregon’s tax credit-financed properties must be affordable for at least 60 years. California’s affordability period is a minimum of 55 years. In Massachusetts, Montana and Utah, the minimum is 50 years.
More than three dozen states, including Vermont, have used their allocation plans to deter a loophole in federal law that allows property owners to convert apartments to market rate units after only 15 years rather than 30. This loophole leads to 10,000 units of affordable housing being lost every year.
These extensions aren’t the only way that states are experimenting with their allocation plans to preserve tenant affordability: 32 states require developers to sign a “Right of First Refusal” in exchange for tax credits. This means when tax credit-financed properties go up for sale, they must first be offered to the state or, more often, to a nonprofit or tenant-run entity assigned by the state. This right of first refusal helps keep properties affordable, as states can work with nonprofits to acquire financing to keep rents low. (The Tax Reform Act of 1986 includes a right of first refusal, but its wording is more vague, causing it to be bogged down in lawsuits, according to PRRAC and the National Housing Trust.)
In Vermont, the right of first refusal is used to keep affordable housing off the speculative market, as properties built with tax credits before the state required permanent affordability are still in danger of becoming market-rate.
“Our agency has a long history of being, I’ll say, pretty aggressive with rights of first refusal,” says Leonard of the Vermont Housing Finance Agency. In addition to its allocation plans, he says the agency has also put conditions on rehabilitation or maintenance loans, mandating the state’s right of first refusal if the property goes up for sale. In other cases, property owners return to the state financing authority for more tax credits to rehabilitate the property after the initial affordability period elapses and must agree to any new terms in the state’s allocation plan, including permanent affordability.
Liz Ryan Murray, former project director of Alliance for Housing Justice, a national coalition of housing advocacy organizations, calls Vermont’s permanent affordability requirement “the gold standard” and says the organization is looking to it as a model strategy to curtail the ongoing crisis of expirations.
“As those cycles of expiration come around, it can lead to tremendous instability,” says Murray, who now the director of strategic campaigns at Public Advocates, a member of the Alliance for Housing Justice. “So that is absolutely something that a lot of folks are looking at as a way to stabilize.”
Other Tenant Protections
Qualified Allocation Plans have also been used to enact other hallowed tenant protections that organizers have sought through legislation, suggesting an alternative or even complimentary path. Per the National Housing Trust, 18 states have explicit Good Cause or Just Cause protections — which ban frivolous evictions of people without leases — in their QAPs.
But many of these clauses lack specifics, allowing for evictions in the case of lease violations but without stating what types of violations can legally trigger evictions. Only Mississippi and Washington provide clear examples of violations that could be deemed good cause to evict a tenant, including failure to vacate a unit in need of repair, according to the National Housing Trust. California requires that tenants in tax credit subsidized properties receive a Good Cause lease rider.
“We’re still trying to figure out if [QAP’s are] the right mechanism for us, as opposed to just pursuing legislation,” Singh of Tenants Together says of good cause protections.
Singh says the group is aware that property owners are facing economic hardships and that allocation plans should take that into consideration. But she also sees rent caps as a key way that allocation plans can preserve affordability; she says tenants she works with in tax credit-financed properties sometimes get 20-30% increases in their rents, even while in the program. This is possible because LIHTC’s affordability requirements are calculated based on area median income, which changes depending on how much local residents are earning.
“We don’t want, especially nonprofit, LIHTC developers or landlords to go under. We understand that they can be under a lot of financial stress sometimes,” Singh says. “But we also want to explore how much can we get to permanent affordability, and how much can we get to protection against egregious rent increases.”
In addition, 14 states have explicitly outlined eviction prevention in their allocation plans, though most of these stipulations only pertain to supportive housing. New York City’s plan encourages, but does not mandate, mediation and payment plans as a last-ditch attempt to avoid eviction. Indiana is considered to have the most stringent in terms of eviction protections, requiring developers to adopt the state’s “eviction prevention plan” in order to receive tax credits.
And QAPs can be used to implement rent regulation: In California, a draft allocation plan would impose rent caps to bring affordable housing in line with other housing covered by the state’s rent cap law, which limits lease renewals to 10%. (Tax credit-financed buildings are often exempted from statewide tenant protections, another criticism of the LIHTC program.) A separate bill would also make the allocation plan retroactive, meaning buildings already built would be included. While lawyers have told the Alliance for Housing Justice this retroactive approach would be legal, the group’s director told Next City/Shelterforce they’re not sure if this can be done with all allocation plans.
Taken together, many of these extensions of affordability and tenant protections help weed out for-profit developers from applying for federally financed affordable housing. Historically, nonprofits have shown more interest in keeping properties affordable permanently. That a majority of America’s affordable housing is owned by for-profit companies has long been a criticism of the Low-Income Housing Tax Credit program, which was designed to incentivize private investment.
“I don’t know that stronger good cause eviction protections are going to deter a for-profit developer, but things that really affect the bottom line, I think could,” says Philip Tegeler, executive director of PRRAC.
Tenant Voices
PRRAC and Alliance for Housing Justice want to use allocation plans to invert the free market framework of the tax credit law and accomplish something its Reagan-era architects may not have thought possible.
“The way that we’re approaching this overarchingly is, how can we move the existing funding…closer to a model of a decommodified housing system,” Murray says.
To that end, PRRAC is currently working with the Alliance for Housing Justice to publish a toolkit for organizers and advocates to pressure state housing finance agencies. New allocation plans can take two to three years to draft, depending on the state, PRRAC says, so organizers must be engaged long-term. States typically evaluate their allocation plans annually and have both public comment periods and hearings before new plans are approved.
“We hope that over time, the more we’re able to reach out to folks on the ground, we’ll be able to build a longer term, sustained advocacy effort that we’ll see over years,” says Dave Pringle, director of state and local engagement at PRRAC.
Advocates hope to use a system that can seem intentionally labyrinthine and hostile to outsiders to pursue more ambitious goals.
“I believe very strongly that the government has a responsibility to house its people,” Murray says. “And this is … an extremely complicated, complex way of doing things.”
But the urgency of rapidly expiring affordability across the country makes it much more likely that tenants will have to engage in this less-than-ideal process.
“From an advocacy perspective, we’re starting to look at tools at our disposal that we either didn’t really think about before, [or] in some cases, didn’t even know existed,” Singh says.
Both the recent PRRAC and National Housing Trust reports show that states are using their allocation plans in creative ways to preserve affordable housing. But hundreds of thousands of units may still be lost in the next few years. And the most stringent tenant protections in allocation plans remain vague. Forms of more explicit community control, like community land trusts, appear rarely in allocation plans.
This leaves plenty of room for grassroots organizers to demand more of state agencies that distribute tax credits. Most allocation plans are not designed by elected officials or organizers, but by staff at housing agencies, though they must be signed by the governor or mayor. The process can be very top-down. There are multiple opportunities for public comment on draft allocation plans, with processes differing by state, but tenants may not always be privy to them.
“The QAP is a very weedy policy document that is essentially meant to be understood by developers, because that’s who the target market is,” says Moha Thakur, public policy and mid-Atlantic initiatives manager at the National Housing Trust. Thakur says the QAP is “trying to balance the needs of many stakeholders,” including affordable housing developers, and it’s each housing finance agency’s role to make sure developer and resident needs are addressed.
Tenants Together is aware of comment periods in California’s allocation plan process and has signed onto letters by PRRAC and National Housing Law project calling for stronger protections.
Singh says there is a disconnect between administrators of the tax credit program and residents, and that many tenant organizations don’t have the resources or staff to be fully engaged in the process.
“I think just a lot of tenant organizations on the ground …don’t have legislative directors on staff, or don’t have staff at all,” Singh says.
Leonard, in Vermont, says there are plenty of opportunities to hear from residents and that tenants do come out to testify when Vermont puts out a new allocation plan.
But PRRAC’s Tegeler says that tenants often aren’t engaged in the process. “Normally it’s the for-profit and nonprofit development community who are mainly at the table. They don’t really hear from tenants, tenant organizations, housing advocates. I think that’s what we want to see change.”
This story was co-published in collaboration with Shelterforce, the only independent, non-academic publication covering the worlds of affordable housing, community development and housing justice.
