Written by: Jeff Ryan, VP of Development
At every affordable housing conference, policy experts and lobbyists claim bipartisan support to fix the 4% credit. Finally, in 2020, Congress delivered on their pledge!
For any development undertaking, we multiply the costs of construction and development other than land, reserves, and associated costs by a tax credit percentage of 9% or 4%, and multiply that number by 10, since the company has 10 years of tax credits to sell to investors.
However, up until 2020, the 4% credit never actually was 4%. While the 9% rate was fixed in the recession of 2008, the 4% rate continued to fluctuate monthly, primarily dependent on interest rates. For the past 20 years, the so-called 4% credit actually hovered between 3.09% and 3.64%.
In larger deals, that difference can represent hundreds of thousands of dollars in extra costs, which must be paid with a mortgage, deferred developer fees, or local government assistance.
Now that Congress has fixed the rate, the tax credit will always stay at 4%, providing significant stability for developers who invest in housing for underserved populations.