LIHTC Properties Have a History of Riding Out a Recession

The COVID-10 crisis is leading to economic uncertainty and it is predicted will result in an economic recession. Yet, according to studies, the low-income housing sector won’t be greatly affected and will recover quicker than other real estate categories.

Skeptical/? Let’s take a look at the historical data.

According to a recent report by Novogradac, a national accounting and consulting firm, occupancy rates and rental income at low-income housing tax credit properties recover quickly after economic downturns. Their survey, containing more than 1000,000 individual properties indicates that the national occupancy rates for two-bedroom LIHTC properties for residents at or below 60 percent of the area median income never dropped below 95 percent from 2009-2019 (the period studied). And starting in 2009 there was a gradual increase through 2019.

Additionally, rent receipts for LHITC two-bedroom apartments were not dramatically affected by the great recession either. In fact, in early 2008 the national rent for those unites increased by at least 1.5% nine times in 12 years.

What does this mean for managers of LIHC properties? It’s a sigh of relief and a hint of optimism rooted in historical data.

Novogradac’s data is echoed by the national nonprofit affordable housing organization Enterprise’s historical data which also shows an increase in median total revenue per unit for every year starting in 2005.

Why is the Great Recession an indicator for LIHTCs?

The reason is simple. History has shown that affordable rental housing becomes more important during a recession and if the Great Recession is an indicator, a majority of LIHTC properties will remain occupied and financially viable. Simply put after the dip there will be growth.

What does this mean and why does this matter?

It means, based on historical data, that low-income tenants living in units in LIHTC properties can retain their affordable housing units at restricted rents during times of economic slowdowns.

But there is still uncertainty playing out in the affordable housing financing space. Specifically, construction financing. Brian Eisendrath, vice chairman and managing director of CBRE, said in a recent webinar that although agencies have had a great deal of appetite and financing of these types of assets. These assets are often rented to tenants that don’t have significant cash reserves. “So, what we’re seeing is the delinquency rates during the Coronavirus and downturns have in general been higher for these assets.”