Rental Housing:

Costs and Benefits of Financing With Tax-Exempt Bonds

RCED-86-2: Published: Feb 10, 1986. Publicly Released: Feb 10, 1986.

Additional Materials:

Contact:

John H. Luke
(202) 275-6111
contact@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

Pursuant to a congressional request, GAO reviewed the use of tax-exempt bonds in financing the construction and rehabilitation of multifamily rental housing, specifically: (1) how much the program costs the federal government; (2) whether projects financed with tax-exempt bonds are complying with occupancy requirements for low- and moderate-income households; and (3) who benefits from the program and how.

GAO noted that: (1) in 1980, Congress added a requirement that 20 percent of the units in each bond-financed rental project be targeted for occupancy by low- or moderate-income households; (2) growing amounts of tax revenue are being lost because of the increased use of tax-exempt bonds to finance rental housing construction; and (3) the use of bonds increased as interest rates increased. GAO found that: (1) the present value cost from the issuance of $10 billion in bonds in 1983 and 1984 totalled about $2.3 billion; (2) in the projects it visited, at least 20 percent of the units were occupied by low- or moderate-income tenants, but the income levels of these tenants normally exceeded the national average renter income; (3) some housing authorities did require an adjustment for household size; (4) 12 of 48 projects would not have met the 20-percent requirement if qualifying incomes had been adjusted to reflect household size; and (5) the median income figure used to determine eligibility was the median income of all households, including renters and homeowners. GAO also found that: (1) rents for some households were reduced either to comply with local laws or to attract enough tenants to meet the 20-percent requirement; (2) all renters would benefit from the program if market rents fall because of an increase in the supply of rental housing; and (3) although 25 percent of the new rental housing in 1983 and 1984 was financed with tax-exempt bonds, bond-financed units built since 1975 represent only 2 percent of the total rental housing supply.

Recommendation for Executive Action

  1. Status: Closed - Implemented

    Comments: The Department of the Treasury issued regulations in November 1985.

    Recommendation: The Secretary of the Treasury should amend the implementing regulations of the Internal Revenue Code (IRC) to require that an adjustment be made for household size when identifying a household's income as low or moderate.

    Agency Affected: Department of the Treasury

 

Explore the full database of GAO's Open Recommendations »

Jan 25, 2021

Dec 16, 2020

Dec 15, 2020

Dec 8, 2020

Aug 13, 2020

Jul 29, 2020

Jul 27, 2020

Jun 26, 2020

Apr 30, 2020

Mar 17, 2020

Looking for more? Browse all our products here