Innovative Ideas for Revitalizing the LIHTC Market

Given the adverse impact of the current economic conditions on homeownership, the development of rental housing is becoming increasingly important, not only to provide homes for families, but also to help stabilize neighborhoods. The Federal Reserve System, because of its interest in maintaining economic stability, has long had an interest in the Low Income Housing Tax Credit (LIHTC) program, a major source of capital for the development of rental housing. The Fed’s Community Affairs function is particularly focused on stability and opportunity in low-income communities. This includes sustaining the production of affordable rental units during the economic downturn. To that end, the Board of Governors’ and the Federal Reserve Bank of St. Louis’ Community Affairs functions have commissioned a series of short articles by practitioners and experts to highlight their ideas for bolstering the LIHTC program. This publication presents six ideas to strengthen the LIHTC market. John Wuest reviews the St. Louis Equity Fund’s strategies to continue developing LIHTC projects despite the market downturn. Buzz Roberts of the Local Initiatives Support Corp. (LISC) suggests ways the Community Reinvestment Act could be altered to attract increased investment in LIHTCs by financial institutions. Joseph Flatley of the Massachusetts Housing Investment Corp. proposes restoring the market for LIHTC projects through federal co-investment in the tax credit. Ian Galloway of the Federal Reserve Bank of San Francisco builds a case for using innovative ways to expand the LIHTC investor pool to individual investors. Shekar Narasimhan of Beekman Advisors offers a secondary market solution to bring additional investors into the market. Finally, Debra Schwartz of the MacArthur Foundation highlights a promising model for an “enhanced” structure for a LIHTC fund that would provide equity for high quality projects.