Responding to the severe nationwide shortage of affordable housing, the U.S. Department of the Treasury in a December 12 post urged states to close a long-standing provision in the low income housing tax credit (LIHTC) statute known as the qualified contract loophole.
Low income housing tax credit developers agree to 30 years of affordability in exchange for receiving these credits. But the qualified contract loophole lets many owners out of their affordability commitments after just 15 years. The LIHTC gets credit for building about 25% of the nation’s rental housing and costs the federal government about $13 billion a year in tax expenditures.
“Treasury strongly supports efforts undertaken by state allocating agencies to adopt policies that prioritize credits for, or limit credit allocations to, projects for which the owner agrees to waive the qualified contract option,” Treasury says. For state housing finance agencies, which administer the LIHTC, that have barred or discouraged the use of the qualified contract provision in future LIHTC projects, Treasury is urging them to take the next step and disincentivize owners from requesting qualified contracts for LIHTC projects already in service.
LeadingAge supported HUD’s proposed policy earlier in 2024 to limit the use of qualified contracts in LIHTC properties. To date, more than 100,000 affordable homes have been lost to the qualified contract loophole.
