LIHTCs Are Flush With Cash and on the Mend

If you’ve noticed some sprucing up in Low Income Housing Tax Credit Market properties lately, there is good reason for that.

Rental income for LIHTCs spiked last year, as it did in 2018, which prompted increased spending on operating expenses, “in many cases likely allowing LIHTC properties to catch up on previously deferred expenditures,” according to a newly released report by Novogradac.

Income in 2019 rose by 8.5% in 2019, following in the footsteps of 2018, when rental income went up by 4.1%. After years of lean budgets, brought about by the Great Recession, property owners appear to have taken advantage of their full coffers. Operating expenses skyrocketed by 6.8% last year, posting their largest increase in a decade, Novogradac revealed.

The 2019 increase was driven by higher management fees, which spiked by 14.9% over 2018 and the 12.7% rise in repairs and maintenance expenses. All other expenses grew at 4%.

The large increases of management fees and repairs/maintenance expenses likely are the result of stifled expenses in prior years. Generally speaking, from 2010 to 2019, LIHTC properties’ operating expenses jumped by a compounded annual rate of 3%, Novogradac noted.

The two positive years shouldn’t just be viewed in isolation, said H. Blair Kincer, a partner in Novogradac’s metro Washington, D.C., office. “Novogradac’s data shows the increase in expenses in 2019 for repairs and maintenance and in management fees both followed significant increases in the previous year, which could indicate a longer-term trend in those categories after several years of larger than average growth.”

And those weren’t the only signs of LIHTCs’ good health last year, he added. “The other major area of expense growth in 2019 was property insurance, which increased by double-digit percentages of 13.3% and 10.2% in each of the past two years, perhaps reflecting higher property values and the impact of natural disasters.”

The 2020 report uses data from over 1,500 properties that provide more than 160,000 individual apartment rental units. Novogradac’s annual research often supports existing ideas on affordable housing but it also tracks new information, noted Michael J. Novogradac, managing partner in the firm’s San Francisco office.

“Each year this report confirms much of the conventional industry wisdom about affordable housing expenses, such as larger LIHTC properties–those with more units–have lower per-unit expenses than smaller properties, due to economies of scale,” he said. “But the findings also help identify shifts in trends over time.”