Statewide Demand for Affordable Housing Tax Credits Outstrips Federal Allocation
MADISON, WI – Statewide demand for housing tax credits among developers seeking to build more affordable rental housing for workers, families and seniors continues to outstrip the federal allocation for Wisconsin.
For the 2020 tax credit award cycle, the Wisconsin Housing and Economic Development Authority (WHEDA) has received applications from 46 developers seeking $35.9 million in federal 9% affordable housing tax credits to build some 2,209 rental units. Based on Wisconsin’s population, WHEDA received approximately $16 million in federal 9% housing tax credits for the 2019 award cycle. WHEDA does not anticipate a significant increase in that amount for the 2020 award cycle.
WHEDA has been the sole administrator for federal affordable housing tax credits in Wisconsin since the program began in 1986. The program does not provide housing subsidies. Rather, it provides tax incentives through the Internal Revenue Code that encourage developers to create qualified affordable housing.
In exchange for receiving the tax credits, developers agree to reserve a portion of their housing units for low- and moderate-income households for at least 30 years. Remaining units are rented at market rates. The developers then sell the credits to private investors to obtain funding. Once the housing project is available to tenants, investors can claim the tax credit as a dollar-for-dollar reduction of federal income taxes owed over a 10-year period.
“Many factors are contributing to Wisconsin’s shortage of affordable housing in our rural and urban communities and the financing gap is one piece of the puzzle,” said Joaquín Altoro, WHEDA CEO. “Through our multifamily loan products, WHEDA typically provides additional financing to help tax credit developments get to market. Often, the tax credit benefit is not sufficient to cover construction and operational costs based on the affordable rents received. We are continually working with our partners on innovative approaches and products to address this financing gap.”
In 2019, funding requests also exceeded the $16 million allocation through the federal low-income housing tax credit program when 54 applicants sought $39.2 million to create 2,624 units. Ultimately, WHEDA awarded $19.8 million in federal 9% tax credits to help advance 1,666 affordable housing units. This award represented the $16 million allocated to Wisconsin for the 2019 cycle as well as returned credits from prior years.
Developments that receive affordable housing tax credits go through a competitive application process administered by WHEDA. Tax credit developments must meet high design and operating standards. Criteria include strong management, excellent development quality, demonstrated market need, provision of services and amenities, proximity to economic opportunities, proper local zoning and permits and service to households at various income levels. The 2020 applications will be reviewed and scored in spring.
For more than 45 years, WHEDA has worked to provide low-cost financing for housing and small business development in Wisconsin. Since 1972, WHEDA has financed more than 75,000 affordable rental units, helped more than 133,000 families purchase a home and provided more than 29,000 small business and agricultural loan guarantees. WHEDA is a self-supporting public corporation that receives no tax dollars for its operations. For more information on WHEDA programs, visit wheda.com or call 800-334-6873.