Sign On
  • KeyNavigator
    Sign On Form is Loading
  • CIS Online Brokerage CIS Login

The start of 2019 heralds strong potential for the low-income housing tax credit (LIHTC) market despite some uncertainty about interest rates and federal policy. In 2018 tax reform legislation and the subsequent retreat of many big-player insurance companies brought heightened levels of uncertainty and left many stumbling out of the gates1, but deeper public understanding of the tax code and its business implications, coupled with a copious amount of equity flooding the market, helped LIHTC regain its footing.

Key Learning Points in this Article:

  • In 2018 the Low-Income Housing Tax Credit (LIHTC) market stabilized after a period of uncertainty and steep price drops.
  • Equity availability in the market is driving pricing back up and bringing with it greater levels of investor confidence.
  • Many industry players reported that 2018 was one of their strongest years for LIHTC activity.
  • At the start of 2019 the government shutdown, re-opening and threats of another, along with rising interest rates are placing strain on the affordable housing market.
  • Strong corporate performance in 2018 means the private sector will continue to look to the LIHTC program to reduce tax liability.
  • KeyBank is committed to helping communities address the affordable housing shortage through the LIHTC program.

What’s giving everyone the jitters?

Today the market is healthy and stabilized but facing new challenges. According to Affordable Housing Finance, the recent federal government shutdown2 and fears of another continue to cause delays for developers and put stress on at-risk populations. At the same time, incremental rate hikes have many wondering if a market slowdown is nearing. Yet the need for affordable housing is still critical, and in a capital-rich environment, lenders and investors are still committed to this asset class.

Why Low-Income Housing Tax Credits?

Since its inception in 1986, the LIHTC program has been the U.S. government’s primary vehicle for delivering affordable housing solutions to lower-income communities. The program encourages private sector investment in affordable housing by offering valuable tax incentives and benefits to investors. According to a study from New York University’s Furman Center, the program has been quite effective3 in addressing the critical need for affordable housing by leveraging private capital.

Even with the LIHTC program helping to bolster the market, the U.S. affordable housing shortage persists. The National Low Income Housing Coalition has noted the U.S. has a shortage of 7.2 million affordable rental homes available to extremely low income renters4, whose income is at or below the poverty guideline or 30 percent of the area’s median income. In 2019, with the housing market tightening as a whole5 due to fewer new construction starts and homeowners staying in their homes to  maintain their locked-in low mortgage rates, downward pressure will increasingly squeeze low-income housing. Private sector investment will continue to be necessary to help narrow the gap.

What Happened in 2018

Although the corporate tax rate reduction from 35 percent to 21 percent was welcome for many within the corporate sphere, it had a quelling effect on LIHTC investor outlook. For prospective LIHTC investors, reductions in tax liability meant a reduced need to accrue tax credits.

Many investors and lenders spent the first half of the year surveying the field and choosing to remain prudent in their investment decisions, but in the second half, a flood of equity in the market helped bring back stability.

Where did the equity come from? A healthy overall economy fueled corporate profits6 in the second quarter, according to the Wall Street Journal, which thus increased tax liability. Banks invested some of these record profits in LITHC projects to meet the Community Reinvestment Act requirements.

Additionally, the reentry of government-sponsored powerhouses Fannie Mae and Freddie Mac as LIHTC investors softened the initial blow dealt by the big-player insurance agencies that left in anticipation of, or after the new tax code was implemented. The vast amount of equity in the market has helped stabilize demand fundamentals and drive pricing back up from the discount rates they were being sold for in early 2018.

The Impact of Income Averaging

While developers and sponsors of LIHTC developments have historically had to comply with the 60/40 or 20/50 rule for income-based occupancy standards7, the new tax code has brought with it a third elective option to the table: income averaging.

Income averaging allows developers to rent out units to individuals earning 80 percent of the area’s median income (AMI), so long as the AMI of the overall property is no more than 60 percent. While the benefits of this new structure are not yet fully understood, many at last fall’s Affordable Housing Live conference said they are bullish on the opportunity, as the optics make social sense, but the financial impact really comes down to execution and compliance.8

Looking Ahead

Investor confidence and activity in LIHTC developments is back, and we expect another strong year of investment activity. While reduced corporate tax rates initially quelled LIHTC activity, strong corporate profits – and desire to offset the corresponding tax liability – helped stabilize and grow the LIHTC market.

Yet, rising interest rates and increasing construction costs are converging to tighten the housing market overall, including affordable housing. Coupled with the government shutdown fears hampering the work of the U.S. Department of Housing and Urban Development, the LIHTC marketplace will have to weather some strain to continue to fulfill its mission.

At KeyBank Community Development Corporation, our deep experience and understanding of the LIHTC program meets our commitment to providing much-needed affordable housing in the communities in which we live and work to help get deals done. Considering recent changes in government policy and corresponding market changes, we help our clients identify and build strong relationships between syndicators, lenders, developers, and state agencies to ensure the social and financial goals of a LIHTC project are in direct alignment from start to finish.  To discuss your next project, connect with

This piece is not intended to provide specific tax or legal advice. You should consult with your own advisors about your particular situation.

Banking products and services are offered by KeyBank National Association. All credit, loan and leasing products subject to credit approval. is a federally registered service mark of KeyCorp.

KeyBank is Member FDIC.


Mattson-Teig, Beth. LIHTC Market Faces “Mild Turbulence” Ahead. National Real Estate Investor, January 2018.


Affordable Housing Finance. Government Shutdown Puts Most Vulnerable At Risk. January 2019.


NYU Furman Center. The Effects of the Low-Income Housing Tax Credit. May 2017.


National Low Income Housing Coalition. The Gap: A Shortage of Affordable Rental Homes. 2017.


Zandi, Mark. What actions can policymakers take to avert the brewing national housing crisis? Washington Post, January 2019.


Torry, Harriet and Francis, Theo. U.S. Corporate Profits Soared in Second Quarter, Boosted by Tax Cuts and Economic Growth. Wall Street Journal, August 2018.


Office of the Comptroller of the Currency. Low-Income Housing Tax Credits: Affordable Housing Investment Opportunities for Banks. March 2014.


Kimura, Donna. Industry Rides LIHTC Market Changes. Affordable Housing Finance, November 2018.