What is Section 42 Housing?
Section 42 – Low Income Housing Tax Credit was established to create housing for the “working poor.” This group did not qualify for Section 8, but needed quality housing options. This program subsidizes development and creates privately owned housing to serve households earning between 30-60% of the Area Median Income – intended to serve the working poor. HAND housing falls into this category.
HAND pursues Section 42 (LIHTC) funding for affordable housing because it finances the majority of affordable housing, and produces high quality developments. HAND competes in a very competitive field for these tax credits, and minor differences will make the difference. Please support HAND’s effort to utilize Section 42 in Hamilton County.
What is Section 8 Housing?
Section 8: Rental assistance program designed to assist households with less than 30% of the Area Median Income (Extremely Low Income Households). Tenants pay 30% of their income, and rarely lose their Vouchers. In Hamilton County, the program primarily serves Disabled Senior Citizens. HAND does not have section 8 housing.
Housing Choice Vouchers (aka Section 8) are a mechanism which enables residents to make choices as to where they live, and is intended to de-concentrate poverty. Theoretically, voucher holders should be able to move into places where they can access job training, health care, and/or transportation, but few landlords accept Housing Choice Vouchers. In fact, the group that benefits the most are landlords that provide housing which meet minimal standards, but in turn receive fair market rent afforded by the voucher program. Despite the stigma, Section 8 does a lot of good for millions of people.
How does Section 42 Housing Work?
In 1986, the government invented a new way to produce affordable housing by using tax credits. Section 42 or Low Income Housing Tax Credit (LIHTC) encouraged private investment into housing that served the working poor. These tax credits are allocated according to state priorities, and the developments are owned by private entities. The tax credits allow for lower rents to be charged, because investors are repaid over the life of the project through tax credits. Ultimately, these high quality developments are demanded by the State, monitored by the Investors, and managed by a local organization.
Interested tenants must meet property underwriting criteria and maintain a commitment to property standards. Unacceptable behavior at a tax credit property is not tolerated, and problem tenants may be evicted. Now 29 years old, LIHTC creates approximately 75,000 housing units nationally, and historically has experienced a foreclosure rate of 0.1%. These properties perform because of their upfront investment, commitment by private entities, and quality management.
Contrary to private developers, where most build for a time horizon of 5-10 years, LIHTC developers (such as HAND) are in for the long-term. Therefore, LIHTC properties are built to high standards with numerous green, energy efficient features. The progression of quality housing and investment leads to a higher cost per unit, but it creates a positive economic return to the community.
How is the Federal Tax Money Disbursed for Housing?
Indiana receives an allocation of $1.75 in tax credits per resident, and these credits will spur investments worth more than $130,000,000. Hamilton County has not received an award since 2011, and without the Granary and the Blackhawk Commons, it could miss this investment for another year.