News Briefs: Another Kind of Credit Crisis

Published July 2009 Vol. 13 Issue 6

The Colorado Housing and Finance Authority saw another increase in the demand for tax credits this year. CHFA has a total of $11.1 million in tax credits to disperse among developers for low-income housing projects. During the first round alone, developers submitted 21 applications requesting $19.7 million.

Congress created the Low Income Housing Tax Credit program in 1986. Its purpose is to encourage the construction and rehabilitation of low-income rental housing by providing a federal income tax credit as an incentive. Developers sell these tax credits to investors. When determining which applicants receive tax credits, CHFA gives preference to projects serving those with the lowest income and projects obligated to serve qualified tenants for the longest period of time.

Over the past three years, the tax credit market has seen a dramatic drop in prices. Due to the recession, fewer investors have federal tax liabilities they need to offset with tax credits. This causes the price of tax credits to drop, making it more difficult for developers to sell tax credits to investors. As pricing drops, more developers are seeking larger credits to make their projects work. Tax credit investments are an integral part of financing for many housing developments for the homeless under Denver’s Road Home.

Tax credits are currently getting between 65 and 72 cents on the dollar, compared to 80 to 90 cents on the dollar two years ago and between 90 cents and $1.00 per credit in fall of 2006.

—Sarah Harvey