Since 2024, things have shifted for the Low-Income Housing Tax Credit program, once thought of as a stable force that has delivered more than 130,000 affordable units since 2018. Now, the program is being strained by multiple forces.
Inflation, supply chain delays, and labor shortages have pressured the finances and timelines for projects of the LIHTC program, according to CREDaily.
LIHTC has helped fund millions of affordable rental homes across the nation for decades and it has served families, veterans, seniors, and others in need.
In 2024, however, things shifted. Citing CohnReznick’s latest report, CREDaily looked at how those factors have impacted LIHTC.
Construction Delays, Cost Overruns Hit Projects
CREDaily said that projects that closed between 2019 and 2022 faced the biggest challenges, with many experiencing construction delays and cost overruns. Investors had to wait longer for returns tied to tax credits, CREDaily said.
Only a portion of the portfolio had stabilized by the end of 2024 and roughly 31% of projects were still in pre-stabilization, CREDaily said. Another 30% were in lease-up, and more than 15% were still under construction, the report said.
Those delays drove the number of early-stage projects to unusually high levels, CREDaily reported.
Even among completed properties, profits are shrinking, the report said. Physical occupancy averaged 97% and debt coverage stood at 1.46, but more than a quarter of stabilized properties still reported operating losses, the report said.
CohnReznick’s report found that costs for insurance, payroll, taxes, and maintenance all have risen sharply. Expenses were up by 10.3% for watch-list properties — well above the average — and stabilized assets saw nearly 7% increases, the report said.
Those increases reflect broader national trends, the report said, as affordable housing costs continue going up in U.S. cities, outpacing rent growth and squeezed margins.
Record Number of Properties Hit the ‘Watch List’
CREDaily reported that a record 16.9% of LIHTC properties landed on the watch list in 2024.
Watch list properties are those developments that have been flagged by state agencies or investors for underperformance, increased risk, or potential noncompliance with program rules.
CREDaily said that most properties dropped into the “C” rating group, which signals the need for closer oversight. Just 2.5% were labeled as higher risk (“D” or “F”), which was in in line with past years, the report said.
Almost a quarter of all projects failed to break even, the report said. And, CohnReznick found a sharp rise in debt-servicing problems, particularly among newer deals hit hardest by the pandemic’s aftershocks.
CREDaily said this matters because LIHTC long has been a dependable public-private model for delivering affordable housing. Built-in protections such as timing adjustors and reserves help absorb short-term challenges, it said.
Those buffers faced serious tests in 2024, said the report, which showed a clear shift. Rising costs and longer development timelines are changing what investors and developers can expect, CREDaily said.
While the outlook for LIHTC remains solid, CREDaily noted that the pressure is real. It said that as economic challenges linger on, stakeholders may need to revisit underwriting assumptions and build stronger cushions into future deals.
