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Breaking Down the Low-Income Housing Tax Credit (LIHTC)

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The Low-Income Housing Tax Credit, or LIHTC, is an important program that helps create affordable housing across the country and, especially, right here in Bellingham.

More than half of the country’s unhoused population live in four states: Washington, California, New York, and Florida. That finding was cited in a 2022 report from The U.S. Department of Housing and Urban Development (HUD), which also stated that roughly 25,000 people in Washington are unhoused.

In a housing crisis this severe, and with statistics like the ones detailed above, it’s clear that affordable housing efforts like the LIHTC are essential. Let’s break down some facts about the LIHTC, including its role in Whatcom County.

About the LIHTC and Who Qualifies

According to HUD, the LIHTC is “the most important resource for creating affordable housing in the United States today.” Their site goes on to explain:

“Created by the Tax Reform Act of 1986, the LIHTC program gives State and local LIHTC-allocating agencies the equivalent of approximately $9 billion in annual budget authority to issue tax credits for the acquisition, rehabilitation, or new construction of rental housing targeted to lower-income households.”

It’s important to note that the LIHTC is meant to incentivize developers to build housing that is intended for low-income households (rather than a direct credit for occupants themselves). The developers can then either use the tax credits that the government provides to create lower-rent options, or they can sell the credits for funds. All in all, the program is meant to be beneficial for both developers and residents.

A range of building types are eligible for the LIHTC, including single-family homes, apartments, and townhouses. State agencies like the Washington State Housing Finance Commission award the credits to developers. To live in these homes, potential tenants need to apply and show that they meet the financial requirements. Then, they are placed on a waiting list before receiving accommodations.

The LIHTC National Outlook

In 2022, a new rule was passed that allows developers more flexibility when using LIHTC. According to an article in Reuters:

“Previously, projects qualifying for the tax credit, which can offset up to 70% of an affordable housing project's costs, needed to make at least 20% of the units available to residents earning 50% of the local area's median income (AMI) or 40% of the units at 60% of AMI.

A Treasury official said the new regulation allows for at least 40% of a project's units to meet an average of 60% of AMI -- allowing more higher-income tenants to mix with lower-income residents.”

This means that even if a low-income resident's income increases a little, they can still stay in their home.

LIHTC In Whatcom County

A March 2023 report from the National Low Income Housing Coalition found that no state in the country has enough affordable rental housing for people with extremely low incomes. For Washington, the Extremely Low Income (ELI) threshold, which is established at 30% of the AMI, means a household earns no more than $35,664.

The report asserts that we need almost 175,000 units of affordable housing available for people earning incomes below the 30% AMI, and more than 220,000 for households earning 50% AMI. Additionally, 75% of extremely low-income Washington households that rent are severely cost burdened.

Cost-burdened households are defined as spending more than 30 percent of their income on housing, and households that spend more than 50 percent of their income on housing are considered severely housing cost burdened.

Those numbers make it clear that when it comes to affordable housing, the state of Washington cannot afford to take risks. The credits associated with the LIHTC program expire after 30 years, which leaves the affordable housing susceptible to being sold or having prices for residents raised substantially. In nearby King County, this leaves the fate of upwards of 2,000 affordable housing units in jeopardy.

Since 2020, only three housing projects in Whatcom County have utilized the LIHTC program: Samish Way Redevelopment (Phase 2), Barkley Family Housing, and a senior housing and childcare center project called Laurel Forest. In 2023, no projects were allocated LIHTC in Whatcom County. In 2022, only one project was given credits.

Affordable housing is desperately needed in our area, and the government needs to work with developers using all available resources to get homes built as quickly as possible. Otherwise, we will be leaving our community’s most vulnerable citizens — low-income families, children, veterans, the elderly — in a precarious, unsettled place for the future.

ABOUT Housing for Bellingham is a community resource that works to explain the fundamental processes and terminology associated with housing related decisions in effort to inform the public. When the people understand land use planning processes and terminology, everyone can make more informed decisions about housing and land use policies in their communities



Contact your Bellingham City Council representative and tell them you support a proactive plan for sustainable growth.

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