CohnReznick Examines Housing Credit Property Performance

A recent study issued by CohnReznick found Low Income Housing Tax Credit (Housing Credit) properties to be operating better than in any other period during the program’s history.

CohnReznick collected and analyzed data from more than 22,000 Housing Credit properties, 33 Housing Credit syndicators, and two of the nation’s largest institutional investors. The company rated the performance of these properties based on physical occupancy, economic occupancy, debt coverage ratio, and per-unit cash flow. CohnReznick also took into consideration factors such as project age and size, type of tenants, type of credit and type of development, location, availability of subsidy, and level of hard debt.

• Physical occupancy of the Housing Credit properties at the time of the study was 97.9%, the highest it has been since CohnReznick began collecting data. The high physical occupancy rate highlights the powerful demand for affordable housing across the nation. However, the occupancy levels also can present property challenges such as poor design, ineffective management, or deferred maintenance.
• Much like the physical occupancy, the economic occupancy is also booming among Housing Credit properties. Due to the high demand for affordable housing, turnover rates for Housing Credit properties are very low, bringing down the debt service ratios and driving up the cash flow.
• The debt coverage ratio improved between 2008 and 2016. In 2016, far fewer properties were having trouble paying their mortgages, and they had smaller deficits than in 2008.
  Per-unit cash flow also has dramatically increased since 2008, but to put that in perspective, the total sum of positive cash flow per property is less than $55,000 per year.
• CohnReznick found that the cumulative foreclosure rate was well below 1%. This is not surprising because few Housing credit properties suffer from severe underperformance.

Despite the fact that Housing Credit properties are performing well, the demand for affordable housing continues to rise. It is increasingly critical to preserve and expand the Housing Credit program to meet this growing need.