The U.S. Government Accountability Office (GAO) released a report analyzing variations in development costs for Low Income Housing Tax Credit (LIHTC) projects, recommending policy solutions to increase efficiency and affordability. The GAO found wide variability in cost-related data and vulnerability to fraud for the program.
Based on LIHTC projects completed between 2011 and 2015 across 12 allocating agencies, the GAO found that the median per-unit cost was $204,000, with the least expensive project costing $104,000 per unit and the most expensive project costing $606,000 per unit. Larger projects, consisting of more than 100 units, cost about $85,000 less per unit on average than smaller projects; projects in urban areas cost about $13,000 more than ones in nonurban areas; and, projects for senior tenants cost about $7,000 less than those for other tenants.
One major concern the GAO found when analyzing LIHTC projects was the lack of additional measures used to manage development costs. Only 5 of the 12 LIHTC allocating agencies require detailed contractor certifications upon project completion to help protect against fraud involving misrepresentation of contractor costs. The IRS, the agency responsible for LIHTC oversight, does not require such controls. Additionally, the IRS does not require agencies to collect and report development-cost data that would enable program-wide assessments of these costs. As a result, the GAO found inconsistencies among agencies regarding what cost-related data to collect, how to maintain these data, and how to define related variables.
In order to standardize data, prevent fraud, reduce high development costs, and promote the open evaluation of cost drivers and cost-management practices, the GAO recommends a number of policy solutions. Congress should consider designating an agency to collect and maintain cost data for LIHTC projects across all allocating agencies. The GAO also urges the IRS to require general contractor cost certifications for LIHTC projects to ensure these are consistent with the developer cost certification. They also recommend the IRS’s commissioner of the Small Business/Self-Employed Division encourage agencies to collaborate in order to standardize cost data. Lastly, the report calls for the IRS to communicate to credit-allocating agencies how to collect information on and review LIHTC syndication expenses.
Abt Associates also released a report analyzing variations in LIHTC development costs for over 2,500 projects placed into service between 2011 and 2016 and found the median per-unit total development cost to be $164,757. The Abt report found that location, project and unit size, and project type all strongly affected development costs. NLIHC’s summary of the Abt report can be found here.
Read the full GAO report at: https://bit.ly/2PQ5RWZ
Read the full Abt Associates study on LIHTC development costs at: https://bit.ly/2O59wQp