Freddie Mac: LIHTC Leads to Lower Rents, Less Volatility

Apartments built through the Low-Income Housing Tax Credit program have significantly lower monthly rents and also see less rental price volatility, reported Freddie Mac Multifamily, McLean, Va.

Freddie Mac Multifamily Vice President of Research and Modeling Steve Guggenmos studied nine counties across the United States and found the average LIHTC-restricted rent was 38 percent lower than the average market-rate rent. Averaged across the surveyed markets, a renter in a market-rate two-bedroom unit spent $7,500 more per year than a renter in a similar LIHTC property. In higher cost areas, this difference totaled more than $22,000.

“In a given year, renters living in LIHTC and other rent-restricted properties can save thousands–even tens of thousands–of dollars in rent,” Guggenmos said. “While rent growth in restricted properties has been measured and predictable, market-rate rents have grown quickly and unevenly because rental housing demand exceeds supply.”

Guggenmos noted the report also illustrates the hardship faced by families that qualify for rent-restricted properties but cannot find a unit due to supply shortages. “[That is] a reality that can cost an already-struggling family substantial sums of money,” he said.

Freddie Mac concluded that between 2012 and 2017 market-rate rent increases ranged from 1.6 percent to 7.9 percent annually and averaged 5 percent annually. Annual rent spikes exceeding 7 percent took place in more than three-quarters of markets studied.

During the same period, rents restricted by LIHTC programs saw “stable and measured” growth, the report said. Changes ranged from -0.7 percent to 3.2 percent annually and averaged 0.9 percent per year. The greatest annual rent spike was less than 5.5 percent.

“Renters in units with restricted rents enjoy significant benefits over their counterparts in market-rate housing, many of whom qualify for restricted rents but due to the lack of available supply are unable to benefit,” the report said. “For those households that qualified for but were unable to move into rent-restricted housing, the substantial market-rate rent increases since 2012 are causing serious financial hardship.”

While LIHTC-restricted rentals will likely remain much more affordable than market-rate rentals, Freddie Mac said formulas that determine LIHTC rents suggest price increases in the coming two years.