FHFA Increases Enterprises’ LIHTC Investment Cap for 2024
Written By: Joel Palmer, Op-Ed Writer
In another move that demonstrates the current administration’s priority to help make housing more affordable, the Federal Housing Finance Agency (FHFA) has increased the investment cap in the Low-Income Housing Tax Credit (LIHTC) market for 2024.
This year, Fannie Mae and Freddie Mac will each be allowed to invest up to $1 billion annually in this market, up from a previous cap of $850 million.
The Low-Income Housing Tax Credit subsidizes the acquisition, construction and rehabilitation of affordable housing for low-income and moderate-income tenants. It was enacted as part of the 1986 Tax Reform Act.
The LIHTC is a federally issued credit that passes through state government housing agencies to private developers of affordable rental housing projects. Most types of rental properties can qualify for the LIHTC. Developers generally sell the credits to private investors or to Fannie and Freddie to obtain funding.
The two enterprises held a large share of the LIHTC market prior to the 2008 financial crisis, but pulled out of the market as both entered government conservatorship. FHFA authorized Fannie and Freddie to re-enter LIHTC investing in 2018. The original cap of $500 million was increased to $850 million in 2021.
“Since restarting their LIHTC investments in 2018, the enterprises have furthered their ability to create and preserve affordable housing, especially in areas that have difficulty attracting investors,” said FHFA Director Sandra L. Thompson. “Today's announcement provides additional stability for investments in this critical segment of the housing market.”
FHFA said in its statement that “Increasing the enterprises’ LIHTC investment cap ensures they continue to play a consistent role in supporting the creation and preservation of affordable housing.”
Fannie reported earlier this year that it’s investment in the LIHTC market since re-entry has been $3.2 billion in net equity in more than 1,000 properties, including 90 located in high-needs rural regions. Fannie has invested in LIHTC properties in 49 of 50 states, as well as Guam, Puerto Rico, the U.S. Virgin Islands, and Washington, D.C.
Freddie Mac said its multifamily business in 2022 made a record of nearly $1 billion in LIHTC equity investments and financed nearly 1,000 affordable rental units.
As part of the increased cap, FHFA said the enterprises will only support projects that remain affordable for the entire 30-year period intended by the program. This will be accomplished by only investing in LIHTC projects that waive the qualified contract provision
In addition, any investments by the enterprises above $500 million in a given year must be in transactions FHFA has identified as having difficulty attracting investors. This increases the amount of investments under the cap that must support housing in Duty to Serve-designated rural areas, preserve affordable housing, support mixed-income housing, provide supportive housing, or meet other affordable housing objectives.
About the Author
As an NAMU® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.
