Pathway Lending does its part in helping low income families

For some time, the lack of affordable housing has been a major problem affecting low-income families in rural areas of the U.S and the Low Income Housing Tax Credit (LIHTC) program has often been utilized to deliver high-quality, affordable housing in these communities. At Pathway Lending, our Low Income Multifamily Housing Loan Program has served a number of communities in partnership with private investors using the LIHTCs. Through this collaborative effort, we’ve invested almost $24 million to retain and renovate approximately 700 affordable housing units in Tennessee.

The 2017 Tax Cuts and Jobs Act (TCJA) poses risks for the Low Income Housing Tax Credit (LIHTC), which provides tax credits to private investors to fund affordable housing construction and preservation.

So what does this update to the LIHTC program mean for the future of affordable rental units in rural areas of Tennessee?

The Issue at Hand

Rural areas in the United States are frequently overlooked when it comes to new real estate development. That, combined with the loss of federally assisted housing, is creating a growing crisis for rural communities. In these communities, high-quality rental housing is often in short supply with only one in four rural housing units for rent. Among these rentals, cheaper rent often means poorer quality. Typically, these rental properties are older, over-crowded, and struggle with maintenance and capital improvement needs.  Many privately owned rental properties are paying off federal loans from agencies like the Department of Agriculture and leaving the program, allowing rents to rise and potentially displacing residents.

The Low-Income Housing Tax Credit (LIHTC) program is the longest-running federal program for building new affordable rental housing units and preserving older units built under other federal housing assistance programs. Based on new analysis of the National Housing Preservation Database, LIHTC has produced or preserved roughly 2.3 million unique units of affordable housing for eligible low-income households since 1987.

Programs like LIHTC are designed to help refinance, renovate, and retain affordable rental housing for low-income families, a continued need in many rural communities in Tennessee. For 51 rural counties, LIHTC investments have financed 12 percent or more of all county rental units. For these “high-share” counties scattered across 21 states mostly concentrated in the South, LIHTC has significantly expanded housing opportunity.

Whether it is older adults on fixed incomes desiring to age in place, disabled veterans, young entrepreneurs, tribal members, migrant farmworkers, or resort hospitality–sector workers, all rural Americans deserve safe and affordable housing – and LIHTC is a tool that makes these developments feasible.

The Future of LIHTC

The LIHTC provides an incentive for private, profit-motivated entities to develop affordable housing. Structuring a development project to use the tax credit is complex, but may well be worthwhile. What’s important to realize when discussing LIHTC allocated properties, is that many would not be financially feasible without the allocation of these tax credits. Moreover, location plays a role in the tax credit allocation process, with developments in HUD-designated low-income census tracts or difficult development areas eligible to earn higher amounts of tax credits in recognition that project feasibility is especially hard to achieve in these areas.

Unfortunately, the LIHTC program is vulnerable to market downturns and changes in the tax code because it provides financing to developers through a federal income tax credit to private investors. The TCJA slashed the corporate tax rate to 21 percent, decreasing financial incentives for corporations—the largest LIHTC investors—to make equity investments in tax credits. Historically, LIHTC has performed poorly when investment interest wanes, and industry sources have estimated that LIHTC production could decline by 235,000 units over the next 10 years.

A temporary increase in the amount of available LIHTC credits in the March 2018 omnibus appropriations bill—12.5 percent for the next four years—might help more projects access financing, but the ability of any funded project to raise the full equity investment needed is uncertain.

As rents rise and incomes stagnate, changes in the LIHTC program’s production could have serious consequences for communities dependent on it for their supply of affordable rentals.

The Pathway Lending Effect

At Pathway Lending, our primary objective for our Low-Income Multifamily Housing Loan Program is to create safe, decent, and affordable multifamily rental communities throughout Tennessee. We provide long-term, permanent financing for the acquisition, development, rehabilitation, and refinance of affordable multi-family housing in the state. All developments eligible for financing through our Low-Income Multi-Family Housing Loan Program must be awarded Low-Income Housing Tax Credits by the Tennessee Housing Development Agency and include family, elderly and special needs housing communities.  We see this as an essential tool for maintaining safe and affordable rental housing in low-income communities across the state.

At Pathway Lending, we pride ourselves on being an impacts-driven organization who will take the time to understand our clients’ developments and craft a solution that helps them and the community move forward.

One of our most recent housing loan clients is First Cumberland Properties. Owners Phil Owen and Robert Trent’s mission was to provide working families with extraordinary housing. As of 2018, First Cumberland Properties has retained or renovated nearly 400 affordable housing units. For their East Nashville property, a 195 unit property named Berkshire Apartments, the owners used their Pathway Lending loan to buy out their partners on their property and refinance the debt.

**Learn more about how we work with developers on our Low-Income Multi-Family Housing Loan Program page.