CohnReznick LLP, the nation’s 11th largest accounting, tax and advisory firm, has released a study focused on the operating performance of apartment properties financed with low-income housing tax credits. The study, “The Low-Income Housing Tax Credit Program at Year 25: An Expanded Look at Its Performance,” confirms a striking imbalance between the supply and demand of affordable rental housing, revealing a widespread critical shortage of affordable rental housing across the country.
The report examines a variety of performance measures related to occupancy rates, debt coverage, cash flow per-unit, and the incidence of underperforming properties by state, region and Metropolitan Statistical Area. The data provides a basis for assessing a number of issues, including whether affordable housing has been over-built and whether housing credit properties are meeting their financial obligations.
“For those who think that our country has ‘too much housing,’ the fact is that most markets have a shortage of rental housing. When it comes to affordable rental housing, this report confirms that we have a critical shortage not only in our major cities, but across the entire country,” says Fred Copeman, CohnReznick principal and leader of the firm’s Tax Credit Investment Services practice. “There is, in short, no room at the inn.”
The timing of the report is critical as Congress contemplates perceived corporate tax “loopholes,” as well as Congressionally authorized income tax expenditures, such as the Low-Income Housing Tax Credit Program (LIHTC). The CohnReznick report provides data that may be useful in helping Congress and others evaluate whether the housing credit program is meeting its intended objectives in an efficient manner. CohnReznick expects to issue a subsequent report in the first quarter, which analyzes the impact that the Community Reinvestment Act has on the “pricing” of housing tax credits.
The results of the firm’s first housing study, published by one of its legacy firms (Reznick Group) in August 2011, were viewed as surprising in some quarters given the national recession, increased unemployment and the turmoil in certain housing markets. With this new report, the firm builds on its prior study by providing much-anticipated new analysis by regional, state and local markets.
CohnReznick’s August 2011 study was the first comprehensive review of housing credit property performance data since the 2008 economic downturn began, and the new December 2012 study is the first in-depth geographic, state-by-state analysis since then. The lack of current information raised concerns that the investment risk profile of LIHTC properties, a major component of the multifamily housing inventory in the U.S., may have been elevated. The CohnReznick report provides comprehensive, current geographical data that address these concerns with information collected and analyzed about more than 17,000 housing tax credit properties for calendar years 2008-10.
CohnReznick achieved strong industry participation in its efforts to compile operating data for the report resulting in a 95 percent overall response rate. Thirty-eight organizations chose to participate in the study representing a sample size of 17,118 housing credit properties, which is in excess of 70 percent of the housing tax credit properties placed in service since 1986 that are being actively asset-managed by syndicators and/or investors. The sample size represents approximately $73 billion in housing tax credits and approximately $62 billion in equity contribution from investors to finance property development.
CohnReznick’s report is available for review.