Community Reinvestment Act: Challenges in Quantifying Its Effect on Low-Income Housing Tax Credit Investment

GAO-12-869R Published: Aug 28, 2012. Publicly Released: Sep 27, 2012.
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What GAO Found

Why GAO Did This Study

The Low-Income Housing Tax Credit (LIHTC), which is estimated to cost $6.5 billion in forgone revenue in fiscal year 2012, is the largest federal program for financing affordable rental housing. This program is jointly administered by the Internal Revenue Service (IRS), within the Department of the Treasury, and state housing finance agencies (HFA). HFAs competitively award LIHTCs to owners of qualified rental housing projects that reserve all or a portion of their units for low-income tenants. Developers typically attempt to obtain funding for their projects by attracting third-party investors that are willing to contribute equity to the projects, and the project investors can then claim the LIHTCs. This process of providing LIHTCs in exchange for equity is generally referred to as "selling" the tax credits. Banks invest in LIHTC projects in part to meet regulatory tests under the Community Reinvestment Act (CRA), which encourages depository institutions to meet the credit needs of communities where they operate, consistent with safe and sound banking operations. Housing and banking industry experts cite concerns about the impact of CRA on bank investors' demand for LIHTCs in urban areas compared to rural areas. Based on congressional request, our objective was to determine, to the extent data allow, how CRA and other factors influence the market for LIHTCs, including investors' equity contributions.

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