Brick by Brick
This regional community affairs program is about exploring solutions to complex problems in Southwest Ohio. This podcast is a companion piece to our larger project. Visit https://www.cetconnect.org/BrickbyBrick/ to learn more.
Brick by Brick
The Gov’t Formula to Pay for Affordable Housing
The federal government gives developers the equivalent of $10 billion a year to build low-income housing in the form of a tax credit. Without this government subsidy, known generally as Low-Income Housing Tax Credits (LIHTC), there would be a lot fewer affordable units. There are limitations, including the funding. Is there a better way to do it?
Interview guests: Anthony Orlando, PhD, associate professor of finance, real estate and law at California State Polytechnic University, Pomona; Roger Valdez, director of The Center for Housing and Economics; Ryan Gleason, executive director Ohio Housing Council; Mary Burke Rivers, executive director Over-the-Rhine Community Housing; and Ben Eilerman, director of real estate Over-the-Rhine Community Housing.
Ann Thompson:
Since its inception nearly 40 years ago, the federal low-income housing tax credit or LIHTC has led to the creation of more than three and a half million income restricted rentals.
Dr. Anthony Orlando:
There's a lot of other ways that we can address the housing crisis, but it's hard to imagine that we would be able to give affordable housing units to everybody who needs it if we didn't have this program in place
Ann Thompson:
For Cincinnati's, Over-the-Rhine, Lower Price Hill, Northside, and other neighborhoods, the program has jumpstarted mixed development.
Ben Eilerman:
The low-income housing tax credit program, I think when it works best is it’s really a catalyst for neighborhoods
Ann Thompson:
In Ohio. LIHTC has facilitated the creation and preservation of more than 150,000 units since 1987. It could have been more with increased state tax credits since 2023. There have been applications that would amount to 3,500 units, but funding limitations allowed for the support of only 859
Ryan Gleason:
Proving in some ways our point that there is demand for these and there is capacity to build them. There's not enough money to pay for them.
Ann Thompson:
The largest source of federal assistance for developing affordable rental housing does have critics, accusations include too many strings attached, increased cost and delayed projects. This reformer wants the new Department of Government Efficiency to weigh in.
Roger Valdez:
I will light a candle every night and pray the rosary that some of those people Google Low Income Housing Tax Credits and find some of the things I've written and say, huh, maybe we should look at this.
Ann Thompson:
Today on the pod LIHTC defined, its complicated formula, its effectiveness and how it could be improved. Let's get into it. This is Brick by Brick: Solutions for a thriving community.
Ame Clase:
Brick by Brick is made possible thanks to leading support from AES Ohio Foundation, Greater Cincinnati Foundation and George and Margaret McLane Foundation, with additional support from Laurie F. Johnston, Murray and Agnes Seasongood Good Government Foundation, The Robert & Adelle Schiff Family Foundation, and more. Thank you.
Ann Thompson:
Hello, and welcome to Brick by Brick, where we're highlighting solutions for a thriving community in Southwest Ohio. I'm your host, Ann Thompson. To build low cost housing, developers must make money or at least break even doing it. Over the last three plus decades, their main source of funding has been the federal low-income housing tax credit. The government gives the equivalent of 10 billion a year to states combined, based on population that produces almost 100,000 units a year nationally. The low-income housing tax credit was created in 1986 to encourage private sector development of apartment buildings. Dr. Anthony Orlando is assistant professor of finance real estate and law at the California State Polytechnic University Pomona.
Dr. Anthony Orlando:
When we built public housing in the mid-20th century, that was largely how we built it. We built large buildings that tended to concentrate poverty in neighborhoods, and it created this terrible stigma that then got associated with public housing. We don't do it quite that way anymore. The new buildings that are built through LIHTC are built by private developers with good architecture to make it look like they seamlessly blend into a neighborhood and they're not concentrating poverty in these segregated areas
Ann Thompson:
To get federal tax credits, private developers apply to state housing agencies who oversee it. Ryan Gleason knows all about this competitive process. He's the executive director of the Ohio Housing Council whose goal it is, is to increase the quality and supply of affordable housing.
Ryan Gleason:
They created two different kinds of credits within that program. It's very complicated, but the short version is 9% credit and a 4% credit. The 9% credit will pay for about 70% of a development. The 4% credit will pay for about 35 to 40% of a development.
Ann Thompson:
Ohio also has a state housing tax credit created in 2023. It offers a 4% tax credit that can be paired with the 9% federal tax credit. Ohio developers are cashing in but not before making a heavy initial investment. That doesn't guarantee they will win the tax credits. That cost may be at least $50,000 for the federal credit and for the state credit because details of the project must be already worked out. That's a commitment that could be as high as $1 million. Since 1987, LIHTC credits have built 150,000 low-income units in Ohio last year. Only about two dozen projects were awarded the 9% federal tax credit.
Ryan Gleason:
As money is being reduced for these programs, the competition gets harder and the way they try to spread the money around the state gets more difficult. So what the Ohio Housing Finance Agency does in that qualified allocation plan is puts caps on the number of projects that can be awarded per county, and they group 'em by sizes of county.
Ann Thompson:
If developers are awarded state or federal housing tax credits, they sell them to private investors who get a tax write off. Investors can claim those low-income housing tax credits over a 10 year period Sound complicated? It is. Over-the-Rhine Community Housing Director of Real Estate Ben Eilerman explains the nuances.
Ben Eilerman:
When you may hear in the news read in the paper that a project received $10 million in low-income housing tax credits. That immediately gets diluted by the fact that those tax credits don't come directly to a project.
Ann Thompson:
He says, when they're sold, they become a market good. That is in flux because the value is determined by economic factors and its delivery over 10 years means the value of a dollar today is not the same as a dollar 10 years from now due to this deficit and other factors Over-the-Rhine Community Housing and other developers must combine LIHTC with other types of funding to ensure they have enough money to build low income apartments, and his organization is pretty good at it. By one estimate, it's the biggest user of LIHTC in Cincinnati developing 800 or 900 units over the years, some with partner agencies. Three projects under construction right now are Vandalia Point and Northside and Spaeth and Kelly Hall and Gloria's place in Over-the-Rhine. Ben Eilerman and Over-the-Rhine Community Housing Executive Director Mary Burke Rivers says LIHTC is a catalyst for neighborhoods.
Ben Eilerman:
So I think about our Lower Price Hill Thrives Project, a neighborhood that had seen a lot of disinvestment for many, many years, that project provided an opportunity for new money and new and really quality housing.
Mary Burke Rivers:
The same scenario and Over-the-Rhine like LIHTC was really part of the beginning of all the investments in the neighborhood into the market and the role it has played in preserving historic buildings is really significant.
Ann Thompson:
There had been a complaint filed against the city of Cincinnati saying that it had violated that Civil Rights Act and the Fair Housing Act by steering low income housing to certain neighborhoods into Black neighborhoods that already have a lot of low income housing. Is this a fair criticism?
Mary Burke Rivers:
We don't think so because again, it's a tool that in addition to providing affordable housing, it does often get the market going. So it's been a benefit to, I mean, we can just look at Over-the-Rhine. It's not like a theoretical thing. You can just look here for an example of how LIHTC came in and then right next door was the market development,
Ben Eilerman:
And I would add that the low income housing tax credit program, that name can be very deceptive, and so in the Cincinnati region, a family of four is able to earn over $60,000 in order to live here. I think that that provides really a diversity of incomes in these neighborhoods.
Ann Thompson:
The federal complaint alleges the city of Cincinnati wrongly concentrated low-income housing tax credits in the West End, Avondale, Winton Hills and other Black neighborhoods violating both the Civil Rights Act and the Fair Housing Act. The City told Brick by Brick, it has no comment. Over-the-Rhine Community Housing says its developments happen organically. For example, Lower Price Hill came to it with a proposal and so did Northside. Another deal that it’s working to finance is in Clifton Heights. There are at least two LIHTC projects under construction in Dayton with more than 50 units. They are Grand Place Apartments and Germantown Crossing. Plans for three other new developments are happening in Trotwood where a 2019 tornado wiped out hundreds of units. County Corp is getting the financing together for 194 new apartments affordable to people making up to $56,000 for a family of four.
No matter which developer you talk to, they're going to tell you financing low income apartments is difficult. Brick by Brick’s, Hernz Laguerre Jr. checked in with the developer to see what goes into a LIHTC application, take a listen.
Hernz Laguerre Jr.:
It's a running theme on this program that affordable housing is expensive to make and a big part of the funding needed for affordable housing is even tougher to attain.
Tim Westerich:
LIHTC is the only funding source that we have to fund new affordable housing and renovate existing affordable housing in this country.
Hernz Laguerre Jr.:
That's Tim Westerich, LIHTC expert for development company National Church Residences. Tim has been working in affordable housing for about 15 years. At a ribbon cutting ceremony for downtown Cincinnati's The Barrister that we featured on episode two of Brick by Brick, he talks about what's needed to fund affordable housing.
Tim Westerich:
These projects have always been very difficult to put together. You have to put together multiple sources of funding.
Hernz Laguerre Jr.:
And if you stack these funding sources, LIHTC is the foundation. Can you give me a rough estimate of how many LIHTC applications you've applied for?
Tim Westerich:
Sure. I've applied for one or two every year for about the past 15 years, and I've done them in Ohio, Kentucky and Indiana. And at my last job, actually, I had a job a few years ago, I submitted them in Virginia and Maryland also.
Hernz Laguerre Jr.:
So one or two every 15 years we'll just round 'em and say 30 live tech applications that you've done.
Tim Westerich:
Sure.
Hernz Laguerre Jr.:
Of those 30, roughly how many of them have been approved?
Tim Westerich:
Probably about a third, which is a really good batting average for any LIHTC developer. Roughly a third of the projects that you submit get funded. They score high enough on the state housing finance agency scoring system to be able to get funded, and if you don't get funded, you might be able to submit the next year or sometimes maybe even the third or the fourth opportunity. There's just so many developers that want to get their project funded and you just have to continue to apply and reapply and reapply just because there's such demand on these scarce resources.
Hernz Laguerre Jr.:
But how do you apply to get LIHTC in the first place?
Tim Westerich:
So we go through a pretty intense process starting maybe six months before the application is due. Define land that scores really well,
Hernz Laguerre Jr.:
But what gives an application a passing grade?
Tim Westerich:
So every state does it a little bit differently and the rules change over time, but here the Ohio Housing Finance Agency has a scoring system that's up to 60 points for new construction. They judge you on characteristics having to do with your location, so they incent if you're in a high area of opportunity and they have six different measures that goes into that.
Hernz Laguerre Jr.:
Areas of opportunity are places to have access to grocery stores, available jobs nearby and other things of that nature. I wonder if there are ways to get extra points on this application?
Tim Westerich:
They reward you for having a fitness room for having a high level of accessibility, and then the third is they incent you to use as few of their resources as possible. And that's an important point because there's only so many of these tax credits in the state.
Hernz Laguerre Jr.:
What is the score that you guys normally get on your LIHTC application?
Tim Westerich:
Sure. The highest score in the new construction realm this year that you can get is 60. We'll see what the winner scored last year and make sure we're submitting applications that are higher than that. We wouldn't submit applications if we didn't think they can win, and when we get turned down, it is a shock and it stinks. And the reason we're doing this is because we want to see the supply of affordable housing in Hamilton County increase.
Hernz Laguerre Jr.:
In the summer of 2024, National Church Residences acquired senior housing called Alexandra Apartments. Now stay with me for this next part. When a property doesn't grade well enough to be considered for competitive LIHTC called 9% LIHTC credit, there is a less competitive LIHTC called 4% Litech credit, 9% Litech covers about 70% of project cost, 4%, Litech covers about 30%. Alexandra ended up being funded with the 4%. So what made you look at Alexandra and say, alright, we're not going to do the 9%, we're going to do the 4%?
Tim Westerich:
Yeah, it didn't score well as a 9% project, Ohio rarely hits its limit for the amount of 4% that is subscribed to it. We saw that it scored well for the HUD section 202 program.
Hernz Laguerre Jr.:
The US Department of Housing and Urban Development Section 202 or HUD 202 for short is a program that helps fund affordable housing projects for the elderly.
Tim Westerich:
So we put those two projects, two funding sources together. We also had to use CDBG funds from the city of Cincinnati.
Hernz Laguerre Jr.:
CDBG stands for a community development block grant, which is a federal blog grant program that supports developments that build stronger communities.
Tim Westerich:
We also had to use ARPA from Hamilton County and a couple other sources.
Hernz Laguerre Jr.:
ARPA stands for American Rescue Plan Act that was issued during the Biden administration during COVID to provide funding to many things to support disadvantaged communities,
Tim Westerich:
And that was a particularly complicated project. Then you had the historic tax credits on top of that, which made it even more complicated.
Hernz Laguerre Jr.:
But Tim says the complication is worth it to build a thriving community.
Tim Westerich:
A community has opportunities for people of all incomes to live there. So when you can have a diverse array of housing opportunities for people of all incomes and places for people of all incomes to shop, to go out to entertainment opportunities, to have schools, to have community, to me that's really, really healthy where all the puzzle pieces fit together.
Ann Thompson:
Thanks for that Hernz. I thought you did a really good job explaining it.
Hernz Laguerre Jr.:
Thank you.
Ann Thompson:
Tell me, what did National Church Residences do for the community of Walnut Hills by redeveloping the Alexandra Apartments?
Hernz Laguerre Jr.:
Yeah. I would go as far as to say they saved the lives of 85 elderly and disabled residents because before National Church Residences stepped in, they thought they were going to get displaced. They thought someone was going to go acquire the building and rack up the prices of rent to market rate, and that's something that none of the residents there could have sustained. So yeah, they helped sustain the community. They helped sustain the culture and the people of the community and like Tim said, that wouldn't have been possible if we didn't have LIHTC credits.
Ann Thompson:
Thank you, Hernz. We'll talk to you later in the takeaways.
Hernz Laguerre Jr.:
Yes, ma'am.
Ann Thompson:
Coming up on Brick by Brick, a new study looks at the effect LIHTC developments have on high income neighborhoods.
Dr. Anthony Orlando:
One of the ways that we can help to overcome the legacy of segregation is by promoting more development of LIHTC in high income areas,
Ann Thompson:
And at least one LIHTC critic says, job want for the new administration should be winding down the program. What other solutions are there? That's ahead on Brick by Brick?
Ame Clase:
Brick by Brick is made possible thanks to the generous support of so many, including Diane and Dave Moccia, P & G, The Camden Foundation, The Stephen H. Wilder Foundation, Rosmary & Mark Schlachter, a donation in memory of Frank and Margaret Linhardt, The A. T. Folger Jr. Lowe Simpson Fund and more. Thank you. We couldn't do this work without you.
Mark Lammers:
When we talk about thriving in our neighborhoods, I tend to think about sustainability because any improvements we make, we want them to endure. Right. Hi, my name's Mark Lamers and I'm the executive producer for Brick by Brick. And while our team stays focused on exploring and uncovering the next viable solution to what ails us, we're looking to you to help hold us accountable and keep this thing sustainable. And while a donation does go a long way at CET and Think tv, in this case, we're just asking for a little time and feedback right now. There's a big green button on our website and a link in the podcast show notes to our audience feedback form. We'd be so grateful if you shared your thoughts about the work we're doing so we can keep improving and connecting solution minded neighbors like yourself with the social responses that will move our cities in the right direction. Your feedback also helps us seek funding to keep this effort going. We appreciate your time and can't wait to hear from someone in every neighborhood. Thank you.
Ann Thompson:
Welcome back to Brick by Brick, Dr. Anthony Orlando, who you heard from earlier in this episode, did a study in Florida asking Does the concentration of LIHTC matter?
Dr. Anthony Orlando:
And in high income neighborhoods, you might worry that LIHTC because it's low income housing would drag down rents or somehow impact the market. What we actually find by looking at markets in Florida in this initial study, this is the first study of its kind. We show that building LIHTC lowers market rate rents significantly in low income neighborhoods and has no effect on market rate rents in high income neighborhoods. It's basically the best result you could hope to find.
Ann Thompson:
Orlando focused on the city of Miami and Dade County. He has expanded the research to other cities in Florida and is starting to find similar results for all the good that LIHTC does. There are challenges such as after 30 years, the tax credit that restricted its affordability expires. In some cases, owners may be able to leave the program early and convert their properties into market rate. The National Housing Preservation Database estimates 14,000 LIHTC rental homes in Ohio will expire in the next five years. Some of these will no longer be affordable and others will be competing for new tax credits. Limiting the resources even further. In Dayton, County Corp is developing 27 single family rental homes using LIHTC and Wolf Creek. It also bought 100 LIHTC rentals scattered throughout Dayton. The investor wanted out after 15 years as the properties were falling into disrepair County Corps. Adam Blake told us in our first episode what kind of condition they were in.
Adam Blake:
A couple of the houses had literally burned down. Some of them had systemic water in the house, issues and other issues that impacted the residents health, but they were still paying the rent because they had to.
Ann Thompson:
County Corp is fixing them up because those homes were originally built using low-income housing tax credits, they must remain affordable as rentals for a total of 30 years. Expiring credits is one limitation. The Center for Housing Economics, a nonprofit founded to advocate for more housing and better housing policies, points out other problems with LIHTC. Director Roger Valdez says the government hasn't done a good job of documenting where all those tax credits are going.
Roger Valdez:
When you try to go back and look at the breadth and the depth of expenditures over decades across the country, the data is non-existent.
Ann Thompson:
He also says LIHTC with all its strings attached delays projects and inflates their costs. In California, they can cost as much as $1 million a unit. In Ohio, he cites one development north of Columbus with 70 units costing $20 million. Here's how Valdez says, he would change the system. Number one, create a tax deduction for developers.
Roger Valdez:
For every year that I keep my rents low in those units, I can get a tax deduction, which means I can reduce my tax obligation for how much I'm paying on how much I'm earning. Totally legitimate, I think, and actually creates the, without going through a finance agency or distributing tax credits or RFPs or all the nonsense that we currently do.
Ann Thompson:
Number two, he would create a tax deduction for individual taxpayers. He says, if you’re cost burdened paying more than 30% of your income, in this case $196 too much, you would get money back.
Roger Valdez:
You're paying $196 more than you should. You should be able to get a tax credit for that $196 a month delivered in your paycheck every two weeks.
Ann Thompson:
Two other things, Valdez says, we should deregulate the housing economy. For example, if he builds something and you want to rent it, it should be a deal between the two of you. No zoning. He says that drives up the cost of housing prices. And he puts some hope in Doge, the Department of Government Efficiency to streamline LIHTC. Here's what others are doing. Suburban Boston is redeveloping rundown public housing creating mixed income housing units in the city of Chelsea. One project funded by a state grant consists of 96 affordable public housing units, 40 middle income and 194 market rate apartments. The amenities for everybody include three rooftop decks, two indoor sky lounges, a game room, a golf simulator, dog washing station, and more extras never seen in other public housing developments and just outside Washington, DC and suburban Montgomery County, Maryland, the local government issues 100 million in bonds to help make up the funding gap left by LIHTC.
Essentially, it is a developer subsidy provider, bank and equity investor by only requiring a 5% return on his equity that creates affordability. Luke Blocher told Brick by Brick months ago, he thinks this is a fantastic idea. He's Chief Strategy Officer for the Cincinnati Development Fund. Its mission is to provide innovative real estate financing for projects that strengthen low-income neighborhoods and improve lives. It manages the affordable housing leverage fund in Cincinnati, created in 2022 to increase affordable housing amid limited LIHTC awards. Blocher says the Ohio Agency doling out. LIHTC has changed some formulas making it even more difficult to get the money as he told a Cincinnati council committee.
Luke Blocher:
You can just look at sort of where the awards have gone the last few years. They've gone primarily when they're not in rural areas, they've gone to primarily Columbus and then maybe second place Cleveland. And we're in a sort of distant third place and sometimes even looking like same as Dayton.
Ann Thompson:
The affordable housing leverage fund is made up of Cincinnati and Hamilton County public and private forgivable loans and grants. In a report to that Cincinnati council committee last month, Blocher said from 2022 to 2024, a $74 million investment in 54 projects created or preserved 1800 income restricted units. About a third of the units are finished.
Luke Blocher:
I think we're always starting to see the bear bear the fruits of this, but this project over time really can change the market, change the behavior of the people building the housing in a way that is going to lead to real long-term sustained investment and expanded investment.
Ann Thompson:
The new affordable housing is in 16 Cincinnati neighborhoods. Going forward, one challenge is finding regular sources of funding. The biggest pot over the past two years was covid relief money. Remember, if you want to learn more about LIHTC and housing in general, there are plenty of resources including web articles, video and audio stories and online extras. Go to cetconnect.org and thinktv.org. And while you're there, click on one of our big green buttons to give some feedback or answer our current audience question. We'd really like to hear from you
Guys, my head is spinning. We welcome to the microphone, Emiko Moore.
Emiko Moore:
Hello
Ann Thompson:
And Hernz Laguerre Jr.
Hernz Laguerre Jr.:
Hello. I definitely second what you said about your head spinning. LIHTC isn't the easiest solution to get into.
Ann Thompson:
No, it isn't. And it's time for takeaways.
Something I noticed is the difficulty of being a developer, I mean, this proves that you have to have money and reserve in order to apply for the federal LIHTC credit. You have to be hiring an architect and so on, and it could cost you about $50,000 if you're going to apply for the state tax credit, all the planning has to be done. You could be in for a million. So that's kind of hard for any small developer.
Emiko Moore:
And I think when you're doing all of this, I would hope that the developers would have a plan B that they can fall on if this program doesn't work for them. I do like how LIHTC is one solution that can help developers create well-designed buildings that blended the neighborhood that have both market rate apartments and low income apartments. In a way, it's kind of economic integration of housing that can help benefit everyone. You have more workers who serve the community, who are able to afford to live in the area where they work, and the community benefits with this improved workforce pool potentially. And this is just one tool to help lessen the concentration of poverty in certain neighborhoods that we've seen historically. My only concern is the time limit for the low income apartments of 15 to 30 years. I understand developments help increase all supply, but for these, when the clock strikes midnight and the apartment's no longer affordable, then what happens to these people who are in the low income housing?
Hernz Laguerre Jr.:
Yeah. I share the same fear with you Emiko, because unless the economic status of these folks change, I don't see them being able to afford these market rate housing. And on top of that, will these investors want to continue their investment into these properties in the first place? So yeah, I don't know if it's being talking about enough. It feels like a candidate. They're kicking down the road, but what happens to these people? Where do they live after these low income housing tax credits expire. Another thing that I want to get into is Roger Valdez your conversation with him. I thought it was very interesting. He spoke about the need for transparency in organization and in the Forbes article he speaks about the need for data collection and how data collection can help so that they can manage data on all credit supported housing projects and make data available and easy to use by other agencies and the public. So I thought that was quite interesting.
Ann Thompson:
He's especially critical of HUD in terms of transparency. I'm thinking that maybe it's a state by state and some states are better at it than others. Over the Rhine Community Housing said that Ohio does a good job. You can very easily trace projects. So a little bit more diving into the data. I guess
Hernz Laguerre Jr.:
I would love for Roger Valdez to sit in a room with them to answer their response to that.
Ann Thompson:
For sure. Complicated stuff. Thanks guys.
Hernz Laguerre Jr.:
No problem.
Ann Thompson:
Thank you. Coming up on the next Brick by brick, hundreds of thousands of people face homelessness. Some are veterans, some were previously incarcerated, some are former drug abusers. Communities across the country, including Austin, Texas, are building tiny homes to house them.
Alan Graham:
This is a human issue that requires a human response
Amber Fogarty:
Community First Village is a 51 acre masterplan community that is designed to lift the chronically homeless up off the streets of Austin.
Ann Thompson:
How well is it working? Plus the latest plans for communities of tiny homes here in Greater Cincinnati and Dayton. That's next time on Brick by Brick.
That's our show. If you like what you heard, please rate and review our podcast. It makes it easier to find. We hope you learn something about LIHTC. I know we certainly did, and if you did, please tell your friends and family about it. For Hernz Laguerre Jr. And Emiko Moore, I'm Ann Thompson. We'll be back soon with more solutions. Take care.
Our show is produced, hosted an edited by me, Ann Thompson with reporting and story editing from Hernz Laguerre Jr. and Emiko Moore. Our Executive producer of Mark Lammers. Our show consultant is Gloria Skurski. Gabe Wimberly is our audio engineer and mixer. Zach Kramer runs the lights and cameras. Derrick Smith is our production specialist and Jason Garrison is our production manager. Kellie May heads up our marketing and promotions, along with Mike Shea and Bridgett Dillenburger. Elyssa Stefenson handles the website and Steve Wright is our designer. Bill Dean and Andres Kruza are the engineers for the show and our Chief Content Officer is Colin Scianamblo. Our music is from Universal Production Music. Brick by Brick: Solutions for a Thriving Community is a production of CET and ThinkTV, Southwest Ohio PBS member stations.