Rural Designation Uncertainty Could Disrupt Affordable Housing Development in 921 Communities

More than 900 communities are in danger of losing their rural designation if Congress does not pass legislation to extend a “grandfathering” clause that allows previously qualified areas to retain their rural status. The loss of a rural designation would affect future development of low-income housing tax credit (LIHTC) properties and could affect access to loans and other sources of funding for new and existing properties.

“These communities will no longer have access to loan programs,” said Kedrin Simms-Brachman, federal legislative director at the National Association of Home Builders (NAHB). “Those communities would not have access to that source of funding.”

...

LIHTC Developments in Peril
The loss of rural designations would affect LIHTC development in those communities. Section 3004 of the Housing and Economic Recovery Act (HERA) allows developers of 9 percent LIHTC properties in rural areas to use the maximum of either the national nonmetropolitan median income (NNMI) or the area median gross income (AMGI) to determine income limits. Projects financed with tax-exempt bonds are not eligible to use the NNMI. The ability to use the NNMI has helped spur development in rural areas in two ways:

It has increased rent limits to help cover property expenses.
It has increased the number of people who can qualify to live at the properties.

Rural projects often have difficulty finding qualified individuals to occupy their tax credit units, and allowing properties to use a higher income limit increases the percentage of people who can qualify for the project, therefore helping units rent faster and decreasing vacancy loss.