September 19, 2018

GAO Releases Report on Housing Credit Development Costs

Yesterday the Government Accountability Office (GAO) released a report on Low-Income Housing Tax Credit (Housing Credit) development costs, which analyzes total development costs in Housing Credit properties across 12 allocating agencies between 2011 and 2015. This report is the last in a series of studies GAO has conducted on the Housing Credit program in recent years, completed at the request of Senator Charles Grassley (R-IA).

Overall, the report found wide variation in development costs, resulting from the variety of geographies in the states it surveyed and other property and tenant characteristics of the housing included in GAO’s data set. The report also illustrates state agencies’ comprehensive and consistent efforts to ensure reasonable development costs in Housing Credit properties.

GAO offers several recommendations to IRS and Congress regarding cost-certification practices, data collection and treatment of syndication fees, all of which it says would improve development cost assessment. These recommendations include: 

  1. Congress should consider designating a federal agency to maintain and analyze Housing Credit cost data.
  2. The IRS should require general contractor cost certifications for Housing Credit projects to verify consistency with developer cost certifications.
  3. The IRS should encourage more standardization of cost data.
  4. The IRS and Treasury Department should communicate to state Housing Credit allocating agencies how to collect information on and review Housing Credit syndication expenses, including upper-tier partnership expenses. 

See the National Council of State Housing Agencies' (NCSHA) full response to the GAO report for more information.

Earlier this month, a report from Abt Associates with analysis from NCSHA found that Housing Credit development costs, on average, are roughly the same as development costs for typical multifamily apartments, despite the additional federal requirements that Housing Credit developments are subject to. The Abt Associates report is a powerful testament to the Housing Credit’s success as a cost-effective program for delivering affordable rental housing. Citing an inability to collect market-rate data, GAO report does not compare Housing Credit development costs to market-rate development costs. See NCSHA’s side-by-side comparison of the GAO report and the Abt Associates study for more information.

With a more than 30-year track-record as a successful public-private partnership, the Housing Credit is our nation’s most productive tool for developing and preserving affordable rental housing. Although the Housing Credit has created more than 3 million affordable homes during that period, more than 11 million households still spend more than 50 percent of their income on rent, leaving too little for other necessities like transportation, medical care and healthy foods.

Enterprise has been leading efforts to lower the costs of developing and preserving affordable housing. We recently published a white paper, Proven Local Strategies For Expanding the Supply of Affordable Homes and Addressing Cost Challenges, which draws on the successes of some of the country’s most expensive areas to offer options to communities working to address the scarcity of affordable homes and the rising cost of development. And our Bending the Cost Curve series, launched five years ago, continues to introduce and disseminate methods for reducing costs, such as the use of public lands, streamlining financing methods and sharing best practices. Enterprise also co-chairs the ACTION Campaign, a national grassroots organization of more than 2,200 organizations and businesses advocating in support of the Housing Credit. We remain committed to working with a broad array of federal, state and local partners to reduce costs so that we’re able to serve even more people in need.

Enterprise believes that the most important thing Congress could do to strengthen the Housing Credit would be to enact the Affordable Housing Credit Improvement Act (S. 548), bipartisan legislation that would expand the Housing Credit, streamline program administration, and improve our ability to use this critical resource to preserve at-risk affordable housing and help vulnerable populations.

Stay tuned to the Enterprise blog for more information about the Housing Credit, and sign up for our newsletters to stay up to date on affordable housing and community development news. 

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