As a result of the price drop, LIHTC syndicators and affordable housing developers re-structured transactions to maintain economic yields for investors and to promote continued liquidity in the space. Additionally, the more recent run-up in acquisition, construction and renovation costs has made formerly feasible transactions more challenging and reduced the number of units a tax credit allocation could support.
The drop in LIHTC equity prices also meant that Affordable developers faced more competition for the 9% LIHTC, pushing them toward the 4% LIHTC. At the same time, the GSEs expanded their platforms to allow for greater use of debt private placements, leading to further expansion of 4% bond executions.
Between the first quarter of 2017 and the first quarter of 2018, the share of new mortgages on LIHTC properties utilizing the 4% tax credit surged from 22% to 52%. The tax credit became more attractive after the December 2020 passage of the Consolidated Appropriations and Recovery Act, which established a minimum credit floor. Through second-quarter 2021, the share of LIHTC mortgages utilizing the tax credit remained elevated at 40%.
Despite the slowdown in new units placed in service utilizing LIHTC, the dollar volume of newly issued LIHTC mortgages covered under insurance from the U.S. Department of Housing and Urban Development (HUD) has been accelerating. According to a Chandan Economics analysis of HUD’s Insured Multifamily Mortgages Database, the dollar volume of newly HUD-insured LIHTC mortgages grew substantially post-Great Recession (Chart 5). The volume grew from a quarterly average of $254.7 million in 2011 to $862.0 billion in 2020, an impressive 14.5% compound annual growth rate.4