With direct government subsidies for affordable housing evaporating, the importance of tax-based programs has correspondingly grown. Predictably, developers of affordable housing have recently found access to financing through those programs tightening.

The two mainstays of the tax-incentive approach to housing production, the Low Income Housing Tax Credit (LIHTC) and tax-exempt bond financing, are both subject to caps intended to limit the losses to the federal treasury. Just a few years ago limitations on those techniques were not serious constraints on housing production in New York City. Local developers could acquire LIHTCs from an underutilized national pool, while the city’s massive housing program was financed directly through its capital budget. But as developers elsewhere in the state and country become more adroit at utilizing the tax credits and the city approaches its constitutional debt ceiling, the limitations on tax-incentive financing have begun to bite.

To read more about tax credits and about the 1996 HUD appropriations bill, click here (pdf).