LIHTC Reform/Expansion Proposed; Opportunity for REITs
In his recently released fiscal 2013 budget, President Obama proposed to reform and expand the low-income housing tax credit (LIHTC). Under the plan, LIHTC projects would be allowed to elect an average-income criterion and permit a 30% basis increase for projects:
- involving preservation, recapitalization and rehabilitation of existing housing;
- demonstrating a serious backlog of capital needs or deferred maintenance;
- involving housing that was previously financed with federal funds or benefitted from LIHTC; and
- due to federal support, subject to a long-term use agreement limiting occupancy to low-income households.
Further, the budget makes LIHTC attractive to REITS by allowing a REIT that receives LIHTCs to designate some of the dividends it distributes as tax-exempt. If this component of the budget is enacted, we envision LIHTC-based projects becoming more attractive to REITs and, accordingly, these REITs becoming more attractive to investors in tandem.