Return to LIHTC Market Intended to Boost Capital for Affordable Rental Housing, Support Underserved Markets
The Federal Housing Finance Agency (FHFA) announced that Fannie Mae and Freddie Mac will be allowed limited re-entry into the Low Income Housing Tax Credit (LIHTC) market as equity investors, effective immediately.
The LIHTC, established in the Tax Reform Act of 1986, is the primary government program used to address the shortage of affordable rental housing. The investments are designed to preserve affordable housing, support mixed-income housing, provide supportive housing, or meet other affordable housing objectives.
The LIHTC program has built nearly 3 million apartment units, housing about 6.7 million low-income families and currently finances the construction and rehabilitation of almost all subsidized housing in the U.S. Approximately 90,000 apartment units are built each year using LIHTC.
“This decision demonstrates our commitment to supporting affordable rental housing in a controlled and thoughtful manner intended to stabilize the market and not to compete with private investors. Most of the Enterprises’ investments will be used to facilitate transactions that support underserved markets and complement our Duty to Serve (DTS) priorities,” said FHFA director Mel Watt.
Fannie Mae and Freddie Mac will each be subject to an annual investment limit of $500 million, less than a 5% market share for each. Within this funding cap, any investments above $300 million in a given year are required to be in areas that have been identified by FHFA as markets that have difficulty attracting investors.
“The LIHTC program has long been the most effective tool at driving the increased housing supply for low- and very low-income families,” said Jeff Hayward, executive vice president of Fannie Mae’s multifamily business. “Fannie Mae’s re-entry into this critical market will provide a reliable source of capital needed for affordable housing in diverse economic cycles and markets.” Fannie Mae is unique in its mission and history, and well positioned to provide immediate and ongoing impact in the affordable multifamily market through LIHTC. Our goal is to support the preservation and production of affordable rental housing when and where those needs are not being adequately met.
David Brickman, executive vice president and head of Freddie Mac multifamily, said, “Few programs are as mutually beneficial as LIHTC. It incentivizes private investment in affordable housing, delivers much-needed cash equity to owners of affordable properties and, most importantly, encourages the development and preservation of critical affordable housing in underserved areas throughout the country.”