Rental Housing:

Inefficiencies From Combining Moderate Rehabilitation and Tax Credit Subsidies

RCED-90-168: Published: Jun 19, 1990. Publicly Released: Jun 29, 1990.

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Pursuant to a congressional request, GAO provided information on the financial implications of combining subsidies under the Department of Housing and Urban Development's (HUD) Moderate Rehabilitation Program and the Department of the Treasury's Low-Income Housing Tax Credit Program.

GAO found that: (1) developers for the eight projects it reviewed realized cash proceeds that exceeded their costs for acquiring and rehabilitating the properties; (2) the proceeds ranged from about $3,800 to $13,700 per unit and represented 11 to 34 percent of the projects' acquisition and development costs; (3) developers generated the proceeds by selling their ownership interests in the projects along with the related tax credits and combining them with mortgage loans secured by moderate rehabilitation rental subsidies; (4) federal housing resources were used inefficiently on the projects; (5) by combining rehabilitation subsidies and tax credits, developers received more assistance than needed to ensure the projects' financial viability or to compensate them for their limited financial risk; (6) the use of both programs was questionable because the projects were located in areas with ample vacant units; and (7) recent legislative changes prohibited joint use of the programs.

Matter for Congressional Consideration

  1. Status: Closed - Implemented

    Comments: The Low-Income Tax Credit Program was reauthorized for 18 months through December 1993. States are now required to develop tax credit allocation plans to include priorities for targeting the credits. State allocation plans developed in 1991 reflect this requirement and provide a basis for any future evaluation of the extent this alternative action satisfies the recommendation.

    Matter: Congress may wish to consider restricting the use of tax credits generally to areas where vacancy rates are low for suitable units renting at or below the area's fair market rents. Congress could further require that any deviation from this policy by a state credit allocation agency be documented and subject to review by an authorized representative of the federal or state government.


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