The need for affordable housing is acute across the country. President Biden recently highlighted the situation in his State of the Union address.
For developers and investors, low-income housing presents an opportunity. Public-private partnerships offer a chance to benefit from affordable housing projects.
Learn more about public-private partnerships and how they can make low-income housing finance easier for your project.
What Is a Public-Private Partnership?
Public-private partnerships are a collaboration between a government agency and private-sector companies or investors. They’re commonly called PPPs, 3Ps, or P3s. They serve to finance, build, and operate projects like low-income housing.
Private partnerships with government agencies can help a project reach completion sooner. They bring stakeholders with diverse strengths and skills together. This helps promote better outcomes.
Low-Income Housing Tax Credit
One common element in public partnerships is the low-income housing tax credit. This credit is the most significant way the federal government promotes the development of affordable housing. It provides an incentive for private funders and developers to build low-income housing.
The IRS administers the tax credit program, but housing finance agencies oversee it at the state and local levels. Developers can earn a tax credit by constructing or renovating affordable rental housing. The developer usually sells the tax credits to investors as an incentive to invest.
The amount of the credit depends on the details of the project. New construction or significant rehabilitation results in a larger credit. Projects that plan for more affordable housing units are generally eligible for a larger credit as well.
The low-income housing tax credit is non-refundable. The investors that benefit most are corporations with enough income tax liability to fully use the credit.
Public-Private Partnerships at the Local Level
Public-private partnerships for low-income housing most often involve local governments. Cities offer incentives to encourage developers to complete these types of projects. Examples include:
- Reducing the cost of buying city-owned property for a low-income housing project
- Using state and federal grants to improve infrastructure for the development
- Allowing city staff to help developers complete the necessary applications
When the total cost of the project is lower, the risk is lower. Investors are more likely to participate.
Reasons to Invest in Affordable Housing
You have several good reasons to develop affordable housing. Low-income housing typically has very low vacancy rates. Demand is strong in all economic conditions.
Landlords have consistent income if they participate in Section 8. Under Section 8, HUD will cover the difference between the subsidized rental rate and what the tenant can pay. Even if a resident loses their job, the federal government pays their rent.
Tax credits like the low-income housing tax credit can reduce costs. You can benefit from these credits for many years.
Finally, affordable housing builds community. It promotes the public good. This improves the reputations of the developer and investors.
Getting Started With Low-Income Housing Finance
Affordable housing benefits investors, developers, and communities. Public-private partnerships offer more options for low-income housing finance.
Affordable housing finance can be complex. ISC Financial Corporation has the expertise to help you successfully fund your project. Our unique approach to real estate finance is based on our broad experience and industry relationships.
Contact ISC Financial Corporation today to start discussing your low-income housing finance solution.