State seeks to expand access to key housing tax credit, but funding remains scarce

BY Sunday, June 06, 2021 04:30pm

Proposed changes to the Low Income Housing Tax Credit program administered by the Michigan State Housing Development Authority seek to increase access to the funding tool to communities beyond downtowns and city centers.

The Qualified Allocation Plans that determine how the credits are awarded are typically amended every two years. The funding program is the main tool available for developers in Michigan to create affordable housing developments. The draft changes are expected to be approved this month.


MSHDA delayed the proposed amendment process when the COVID-19 pandemic hit last year, and only had one funding round in 2020 in June instead of its usual two rounds. Developers and housing advocates raised concerns that the single round format would be permanent, though MSHDA expects to return to two funding rounds this year. The first round took place in February and the second is set to take place on Oct. 1, said Chad Benson, acting director of development for MSHDA. 

“That’s still under the draft (Qualified Allocation Plans) we’re working on and that’s what we’re planning for the next funding round,” Benson said.

The proposed changes to the 2022-2023 Qualified Allocation Plans (QAP) will be used to score the first funding round in October this year. Key changes include a focus on incentivizing environmentally friendly building practices and on making the credits more available to rural communities. 

In the past, the QAP had also been split between funding the production of new housing units and the restoration of existing units. The plan is to now shift to focusing on the production of new units, Benson said.

Rural communities

The QAP has used a “walk score” metric to award Low Income Housing Tax Credits (LIHTC), which considers densely populated areas throughout the state, generally downtowns, Benson said. 

The QAP would now rely less on walk score and more on proposed developments’ proximity to critical amenities such as grocery stores or doctors’ offices. 

“If a development is located outside of a city center but is located next to critical amenities, it opens up more opportunities,” Benson said.

Housing North Executive Director Yarrow Brown doesn’t expect the “small changes” in the QAP to make a huge difference for the communities her organization serves, which span 10 counties in the northwest Lower Peninsula.

“MSHDA has a huge task ahead of them to meet the needs of many communities,” Brown said. “In rural communities, we don’t meet a lot of the scoring with walkability and access and proximity to transportation. We really want to see more flexibility, and that’s what we’re pushing for in general.”

Brown at times discourages developers from even applying for LIHTC funding because of the unlikelihood that they’d qualify, she said. 

However, a Traverse City project was recently awarded incentives, and multiple projects in Emmet County are considering applying, she said.

“We have people across all kinds of income levels in all kinds of communities,” Yarrow said. “What we’ve been seeing is while wages have only increased by 6 percent, real estate has increased by 60 percent. There is a huge imbalance and you can barely find a place to purchase for less than $250,000. We at Housing North want to focus on everybody that lives and works in a community year round.”

People who are making 80 to 120 percent of the area median income are still being priced out of the market in northern Michigan, creating a need for the “missing middle” in the housing stock, Yarrow said.

‘Environment of scarcity’

Meanwhile, developers have seen fundamental challenges around the LIHTC process for years.

“For a long time there has been a pretty vocal sentiment from rural areas — particularly from northern Michigan — that Detroit and Grand Rapids were soaking up a disproportionate amount of the resources,” said Matt Hollander, managing principal of Portage-based Hollander Development Corp. “In that sense MSHDA has done things that will help open up access where it’s needed, but those communities still need more affordable housing, too.”

Hollander Development is familiar with the LIHTC application and changes over the years because of the firm’s focus on acquiring, developing and owning affordable and mixed-income housing developments.

“There is no way for it to be perfect because LIHTC is an underfunded resource and is an environment of scarcity,” Hollander said. “Only around 25 percent of projects that apply are likely to get funded, and we don’t have any hard data to say how many projects never even get to the application process because they don’t apply because it’s so competitive.”

Typically those projects that avoid applying are in rural areas, Hollander said.

“Manistee is where we are working on a project currently,” Hollander said. “I think areas like Manistee — smaller farm communities and a lot of the communities that are major tourist communities along the lakeshore — will benefit from the changes.”

While developers welcome more flexibility in qualifications for funding, the program is likely to remain competitive even if more funding is allocated based on housing demand, officials say.

“There is so much need out there that it will still be a very competitive process,” Benson said. “I don’t think we expect there to be any change in that.”

About 40 to 60 applications are submitted in the twice-yearly funding rounds though available funding only supports 16 to 20 projects, Benson said.

“With this round, MSHDA has done a nice job of engaging with a lot of different stakeholders and weighing the pros and cons of the changes,” said Ryan Kilpatrick, executive director of Housing Next. “The primary issue is MSHDA tends to have $10 million in requests for funding for every $1 million they can dole out.”

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