A tax credit is authorized by the IRS and is administered by state housing agencies – it is NOT a subsidy.
Investors, not developers, purchase tax credits. In exchange for the equity (cash) they put into the project, they receive a tax credit which reduces their federal tax liability. Banks and other institutional investors are the typical investors in these developments.
The program shifts the financial risk to the investor if a property is unsuccessful, resulting in private sector discipline. The foreclosure rate has been less than 1% since inception.
Most developments will have both debt and equity in the financing. With high debt levels, higher amounts of rental income is needed to pay off the debt each month. Tax credit financing increases the amount of equity, and lowers the amount of debt. With lower debt, less rental income is needed to pay off the debt, so lower rents can be charged.
The people you come into contact with every day – school teachers, the staff at your local restaurant, the teller at your bank, the cashier at the grocery store, hospitality industry employees, and others who have sufficient resources to pay their rent, have good credit and rental histories, and who pass criminal background checks.
In general, residents must have income at or below 60% of Area Median Income (AMI) which is about $45K for a family of 4. A development could also be a mixed income development allowing some units for income levels over 60% AMI, or providing some units for even lower income families.
Tax credit properties are necessary to create quality, affordable housing. Statistics show that in Arlington, 59% of seniors are cost burdened and 50% of all renters are cost burdened. This means they are spending more than 30% of their income for housing. Unemployment is low, and we have some great employers in Arlington, but as in many parts of the country, housing costs are rising faster than incomes.
Many families moving to new apartment complexes come from the same neighborhood. They are moving from housing that is too expensive, that is over-crowded because they are sharing with others, or are living in substandard housing.
Statistics show:
59% - from within 1 zip code away
30% - not within 1 zip code, but within the metropolitan statistical area
8% - outside of the MSA but within the state
3% - out of state
The process is administered through the State of Texas and is highly competitive. Points are given for the quality of housing, serving the populations in need, having community support, and for efficient use of resources. HTC developments provide substantial amenities and services to their residents at no additional cost. Amenities and services can include afterschool care or programming, tax preparation classes, swimming pools, dog parks, hair salons, and movie theaters.
The entire process can take an entire year, and starts when a developer submits an application to the City of Arlington in early December. All applications are vetted for consistency with City Council’s expectations, and after considerable review, City Council can make a recommendation to support developments that are consistent with the needs of the community. They can opt to support none of the developments, or one or more. The number of applications received will vary from year to year - Arlington had no full applications last year, and 12 in 2019. City Council supported five developments, and four of these made it through the entire process with the State.
If a development receives City Council support, it applies to the State of Texas for tax credits. Staff from the Texas Department of Housing and Community Affairs conducts an extensive underwriting of the project and scores all applications. Only the highest scoring projects in each region are awarded tax credits. Finally, if the project is awarded tax credits, but is not zoned for the anticipated use, the developer must take the project through the re-zoning process. If the re-zoning is ultimately approved by City Council, the project can proceed and results in additional high quality housing in Arlington.