Freddie Mac Study Finds Use of Housing Tax Credits Difficult in Rural Middle Appalachia

Freddie Mac released a report, Spotlight on Underserved Markets: LIHTC in Rural Middle Appalachia, highlighting the unique characteristics and challenges of providing affordable housing in this high-poverty region. Low population density, a preference for homeownership, and low investor interest make developing unsubsidized rental housing, including Low Income Housing Tax Credit (LIHTC) homes, especially difficult in rural Middle Appalachia.

Middle Appalachia refers to the region on both sides of the Appalachian Mountains stretching across parts of Kentucky, North Carolina, Ohio, Tennessee, Virginia, and West Virginia. The region is home to nearly 5.4 million people, with just 62.3 people per square mile compared to the national average of 90.2 people. Income levels in rural Middle Appalachia are nearly 40% lower than the national average and 20% below the average rural income. Additionally, almost a quarter of the population lives in a persistent poverty county (PPC) in which the poverty rate has exceeded 20% for the past 30 years. The homeownership rate in the region is higher than the national average (73.3% compared to 63.6%), and most renters live in one-unit properties and mobile homes.

Rural Middle Appalachia has approximately 656 properties with an active LIHTC subsidy, supporting 25,235 subsidized homes. Compared to all rural areas across the country, LIHTC units in the region support relatively fewer renter households. Over a quarter of multifamily renter households in Rural Middle Appalachia, however, live in LIHTC-supported homes, 10 percentage points higher than the national average. This higher reliance on LIHTC is because unsubsidized housing is otherwise very difficult to develop and maintain in the region due to high construction costs and low renter incomes.

Since median incomes in rural Middle Appalachia are significantly lower than other parts of the country, the maximum amount property owners can charge for rent is also significantly lower. Tax credit equity is important because development debt is difficult to support with such low incomes and rents; such equity is essentially cost-free, making LIHTC a valuable resource because it can limit the need for debt financing.

Although LIHTC properties support a small percentage of all households in rural Middle Appalachia compared with the nation, they support a relatively high percentage of Middle Appalachian multifamily renters and therefor play an important role in providing affordable rental housing for households who would otherwise be severely housing cost-burdened. But without other federal subsidies, developing affordable housing for families with the lowest incomes using LIHTC and/or other sources of funding is particularly challenging. 

Spotlight on Underserved Markets: LIHTC in Rural Middle Appalachia can be found at: https://bit.ly/2EMNaTr