HUD Uses Small Area Fair Market Rents to Determine 2016 Difficult Development Areas

On November 24, HUD published in the Federal Register its annual list of Difficult Development Areas (DDAs) and Qualified Census Tracts (QCTs), which are used in the Low Income Housing Tax Credit (LIHTC) program. For the first time, HUD used Small Area Fair Market Rents (SAFMRs) to establish the 2016 DDAs. SAFMRs are calculated for ZIP codes or portions of ZIP codes. LIHTC properties developed in DDAs or QCTs receive a 30% “basis boost,” enhancing the equity in a project.

Each year HUD designates areas as DDAs and QCTs. DDAs are defined as areas with high construction, land, and utility costs relative to the Area Median Gross Income (AMGI). QCTs are census tracts where at least 50% of the households have incomes less than 60% of AMGI or where the poverty rate is at least 25%.

Another new feature of the DDAs in 2016 is the use of “HUD Metro FMR Areas” (HMFAs). The new HMFAs are modified Metropolitan Statistical Areas (MSAs) that account for substantial differences in rents within Fair Market Rent (FMR) areas under definitions used in prior years.

The effective date for using the new DDAs and QCTs will be July 1, 2016 rather than January 1, 2016. HUD is also extending from 365 days to 730 days the period for which the 2016 DDAs and QCTs remain in effect for projects located in areas that subsequently lose their DDA or QCT designations but for which applications are submitted in 2016.

The November 24 Federal Register notice is at http://www.gpo.gov/fdsys/pkg/FR-2015-11-24/pdf/2015-29953.pdf. The 2016 lists of DDAs and QCTs are at http://www.huduser.gov/portal/datasets/qct.html

More information about the Low Income Housing Tax Credit program is on page 5-32 of NLIHC’s 2015 Advocates’ Guide, http://nlihc.org/sites/default/files/Sec5.10_LIHTC_2015.pdf