Freddie Mac Analysis Finds Housing Tax Credits in Indian Areas Insufficient to Meet the Need

Freddie Mac released a report, Spotlight on Underserved Markets: LIHTC in Indian Areas, highlighting the specific housing needs of American Indian and Alaska Natives (AIANs) and the role of the Low Income Housing Tax Credit (LIHTC) in Indian Areas. High poverty rates and poor housing conditions indicate an immense need for investment in affordable housing in Native American communities. Currently, LIHTC subsidies support a high percentage of tribal rental homes, but demand for LIHTC far exceeds the available funding and serving those with the lowest incomes is particularly challenging.

Indian Areas can be defined in a variety of ways. The Freddie Mac report uses federally designated AIAN areas and areas combined with Indian Areas recognized under the Federal Housing Finance Agency’s “Duty to Serve” affordable housing program. Focusing only on federally recognized tribes that fit their specifications, the authors estimate the population living on reservations in Indian Areas is between 788,000 and 2.2 million.

In 2016, the median AIAN income was about 31% less than the national average. More than one in four Native Americans lives below the poverty line. Additionally, the Native American unemployment rate is 12%, more than double the national average. According to the National American Indian Housing Council, housing conditions on Indian reservations are so inadequate they are comparable to third-world countries, often lacking basic utilities and access to rudimentary sanitation.

On reservations, 32.7% of households rent their homes, with 22.9% of these households renting in multifamily buildings, compared with 36.4% and 42.6%, respectively, for the country as a whole. Indian Areas contain an estimated 2,151 properties with an active LIHTC subsidy, supporting 84,400 subsidized units. In areas where at least half the population is AIAN, LIHTC supports 46.8% of all renter households.

LIHTC properties in Indian Areas are normally unable to support hard debt (debt for which monthly or annual payments are required) and must rely entirely on equity, soft subordinate debt (e.g. loans with below-market interest rates or flexible repayment terms) and housing grants. Household incomes in these areas are generally too low for property owners to charge enough rent to support debt.

LIHTC properties in Indian Areas are also small, with the majority containing fewer than 50 units. Larger properties would lead to lower per-unit costs, but the low incomes and sparse populations in these areas make large properties extremely difficult build and operate. While AIAN households making well below 60% of area median incomes (AMIs) struggle to find safe, affordable housing, those making closer to 60% AMI or just above this level struggle as well, since the lack of affordable housing is present across all incomes in Indian Areas. For all of these reasons, developers in Indian Areas depend heavily on the equity provided by LIHTCs to offer rental housing of any kind.

Many tribes have found success in developing and sustaining quality affordable housing through LIHTC, due to their strong leadership, management stability, and LIHTC expertise. The report finds that LIHTC is important for providing safe and affordable rental housing to tribal members who would otherwise have difficulty finding sufficient housing but that LIHTC funding is insufficient to meet the need and that developing and operating rental housing in Indian Areas for those with the lowest incomes is especially difficult.

Spotlight on Underserved Markets: LIHTC in Indian Areas can be found at: https://bit.ly/2qaMNbj