By Juliette Rihl | Arizona Republic
Photo © Decca Builders, Inc.
Like all housing built under the federal Low-Income Housing Tax Credit program, Marana Apartments was meant to remain affordable for at least 30 years. While most LIHTC complexes meet that requirement, federal law allows some properties subsidized by the tax credit program to be converted to market-rate housing in half that time.
In Arizona, this has meant the premature loss of thousands of affordable housing units.
As the country grapples with an affordable housing crisis, the “qualified contract” provision, which allows properties to exit the LIHTC program early, is quietly draining Arizona and other states of what was supposed to be long-term, government-subsidized affordable housing. Many affordable housing advocates say the provision is being used in unintended ways and has become a loophole for LIHTC property owners to exploit.
The Arizona Republic spent five months investigating the qualified contract provision by analyzing government data and apartment records and interviewing more than 50 people, including affordable housing experts, property owners and residents living in affected properties in the Phoenix, Tucson and Yuma areas. The reporting found:
- Since 2010, 70 Arizona properties have gone through the qualified contract process, costing the state more than 5,700 LIHTC housing units, according to Arizona Department of Housing records.
- The Arizona Department of Housing implemented a policy in 2010 that makes it nearly impossible to use the qualified contract provision for properties that received the tax credits that year or later. But it doesn’t apply to properties that sought low-income housing tax credits before 2010, meaning the state could potentially lose up to 10,000 more LIHTC units in the next several years.
- Many of the property owners using the qualified contract process are investors that profit from raising rents at the expense of low-income tenants. Apartment owners are not required by law to tell tenants when a property is going through the process and will likely be converted to market rate, leaving some residents unaware that they could soon be pushed out.
- Some property owners that use the qualified contract process are affordable housing nonprofits that say they would have liked to keep the properties affordable but simply couldn’t afford the upkeep of the aging buildings.
- Nationwide, more than 100,000 affordable units have likely been lost via the qualified contract process since 1990, according to National Low Income Housing Coalition estimates. Multiple attempts by federal lawmakers in recent years to repeal the qualified contract provision have failed.
Most of the more than 600 properties financed with low-income housing tax credits in Arizona have not gone through the qualified contract process. Yet affordable housing experts and advocates say the process undermines the LIHTC program, which the U.S. Department of Housing and Urban Development calls “the most important resource for creating affordable housing in the United States today.”
While the qualified contract process is perfectly legal, losing thousands of affordable units because of it is a “waste of federal money,” said Robert Rozen, a national affordable housing expert and policy consultant who was the lead U.S. Senate staffer working on the LIHTC program when the qualified contract provision was created in 1989.
“It’s an abuse of the program,” Rozen said.
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