September 13, 2023  |  Articles

Low Income Housing Tax Credits: A Successful Form of Affordable Housing Financing


Hawai‘i’s dire need for affordable housing is apparent to many.  Few, however, know of one of the most successful incentives for creating affordable rental housing, the federal Low Income Housing Tax Credit (LIHTC) program, and its state tax credit equivalent.  This practice note provides an introduction to the federal and state LIHTC programs and our firm’s involvement in the formation of affordable housing in Hawai‘i.

Begun in 1986, the federal LIHTC program has contributed to the construction of over 2,000,000 tax credit units throughout the United States, including over 11,100 units built or rehabilitated in Hawai‘i.  Today, the LIHTC program is the largest source of funding for the development of affordable housing projects in the country.

The Internal Revenue Service (IRS), under Internal Revenue Code Section 42, administers the LIHTC program, which provides federal tax credits to developers and owners of projects that contain affordable rental housing units.  The IRS allocates the tax credits originated under the LIHTC program to each state’s designated housing agency based on population.  In 2023, for example, each state housing agency received the greater of $2.75 per capita or the minimum small population state allocation of $3.185 million in tax credits.  The state of Hawai‘i’s 2023 federal tax credit allocation was nearly $4 million, based on a calculation of approximately 1.44 million residents multiplied by $2.75.  State housing agencies award the tax credits to developers based on each state’s Qualified Allocation Plan (QAP), which sets forth how that state’s housing agency evaluates projects for awards of tax credits and monitors compliance with requirements of the LIHTC program.  Developers who are awarded tax credits transfer them to investors to obtain funding to create affordable housing.  Investors use those federal tax credits, which are claimed annually over 10 years, to reduce their tax liability. 

At the state level, the Hawai‘i Housing Finance and Development Corporation (HHFDC) administers the federal and state LIHTC programs.  The Hawai‘i Low Income Housing Tax Credit program, detailed in Hawai‘i Revised Statutes (HRS) section 235-110.8, functions in largely the same manner as the federal LIHTC program and is awarded in accordance with Hawai‘i’s QAP.  The amount of Hawai‘i tax credits awarded to a developer is equal to the amount of federal tax credits awarded, but the Hawai‘i credit is claimed annually over 5 years. 

Complementing its role in administering the LIHTC programs in Hawai‘i and awarding financing for affordable housing projects, HHFDC is also uniquely positioned to assist with the development of affordable housing.  Hawai‘i Revised Statutes Chapter 201H allows HHFDC to, among other things, modify or waive certain development and permitting requirements and fees, as well as facilitate expedited land use and zoning approvals.  These expedited approvals and exemptions for affordable housing projects further incentivize developers to build affordable housing.

Another article, by Cades Schutte’s Keola R. Whittaker, discusses the Emergency Proclamation Relating to Housing (EP), signed by Governor Green on July 17, 2023, which seeks to alleviate the state’s housing shortage by streamlining and expediting the housing development process.  The EP is intended to broadly increase the construction of new housing, with affordable housing projects receiving certain priority.  With this change in the community landscape, our team of skilled professionals here at Cades Schutte LLP continues to be ready to assist clients with their LIHTC and affordable housing, and other, development and financing needs.  We have been privileged to work on the development and lending side of different affordable housing projects, and with nonprofit and for-profit developers.  The breadth of our firm’s experience includes expertise on the LIHTC program, HRS chapter 201H, real estate development, construction loans, and other legal aspects of financing and constructing affordable housing projects.  We look forward to collaborating with you to expand Hawai‘i’s supply of affordable housing.

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