• Ohio’s Low-Income Housing Tax Credit (OLIHTC) program gives affordable housing developers additional incentives on top of federal LIHTCs.
  • The new state tax credits are applicable to 4% LIHTC deals and are designed to help fund about 3,500 new affordable rental apartments.
  • The maximum OLIHTC total 10-year credits request is capped at $10 million for Central City and metro/suburban markets and $12.5 million for rural markets.
  • Lument can underwrite the tax-exempt bonds and provide agency financing solutions that pair with the state tax credits.

With Ohio’s Low-Income Housing Tax Credit (OLIHTC) program underway, affordable housing developers have an opportunity to create more rental apartments in the state with a sizable financial incentive.

The new program covers 4% LIHTC deals, providing a roughly 30% subsidy on the construction of properties financed by tax-exempt bonds. The OLIHTC program is exclusively for new affordable housing development and does not cover acquisitions and rehabilitations of existing affordable properties.

The state tax credits, modeled after the federal LIHTC program, are capped at $100 million per year for fiscal years 2024 to 2027. It is estimated they will help fund the creation of about 3,500 new affordable apartments in Ohio. The Midwestern state has been experiencing steady economic and job growth, which increasingly calls for more housing. And according to the Ohio Housing Finance Agency’s (OHFA) “Ohio Housing Needs Assessment” for fiscal year 2024-2025, the number of households severely rent-burdened-burdened is on the rise as the amount of affordable rental housing for the state’s lowest-income residents declines.

The Ohio tax credits allow owners of qualifying affordable developments to claim reductions against state taxable liabilities over a 10-year credit period, according to guidelines published by OHFA. The credits can be sold to investors and syndicators for equity to help build affordable rental housing throughout the state.

OHFA, the allocating entity for the state tax credits, says reservations for the four state fiscal years will run from July 1, 2023, through June 30, 2027.

Here is a look at the opportunities and potential benefits for developers with affordable housing plans in Ohio.

Understanding How Ohio’s LIHTCs Work

The new OLIHTC program is one of several initiatives among states to provide additional tax incentives for affordable housing owners and developers given the growing need for affordable housing. The Ohio state supplement to the federal housing tax credits is one of more than 35 proposed and enacted state LIHTC programs.

OFHA’s initial guidelines for the new state tax credits, signed into law by Gov. Mike DeWine in early July, cover state fiscal year 2024. Guidelines for fiscal years 2025 to 2027 are pending.

In that two-year period, the Ohio state tax credits will be used as gap financing on 4% LIHTC construction proposals that would not pencil out otherwise, according to OHFA.

Since these LIHTCs are worth 2.25 times less than 9% LIHTCs on a congruent basis, OHFA plans to use the state tax credits to further incentivize and increase the feasibility of 4% deals.

The OLIHTCs must be paired with federal LIHTCs, according to the statute. However, projects can have different federal and state LIHTC investors.

It’s important to note that if OHFA does not allocate the full $100 million during a specific fiscal year, the state housing agency will not be able to carry the remaining balance forward.

Highlights of the OLIHTC Program:

  • For the first two state fiscal years (FY 2024 and 2025), OHFA will only award tax credits for 4% LIHTC deals and will not accept applications for 9% deals.
  • The OLIHTC program can only be used for the creation of new housing units—acquisitions and rehabs of existing projects will not be eligible.
  •  The maximum OLIHTC total 10-year credits request is capped at $10 million for Central City and Metro/Suburban markets and $12.5M for rural markets.
  •  Lument estimates that this would net $5.5 million to $6.5 million total equity for Central City and Metro/Suburban markets and $6.88 million to $8.13 million for rural markets.
  • The paid developer fee will be limited to 70% of the total developer fee.
  • The total development costs will be limited to $400,000 per unit and $420 per square foot for Central City and Urban/Suburban markets and $390,000 per unit and $390 per square foot for rural markets.

Developers Must Prepare for First Come, First Served

OHFA is set to begin accepting and reviewing pre-applications for the OLIHTCs on a first-come, first-served basis on December 4, 2023. The deadline for the first month that the state housing agency will accept, prioritize, and review final applications for projects that received pre-application approval is January 16, 2024 at 5 p.m. (EST).

All eligible 4% LIHTC projects must receive a letter of eligibility from OHFA before the state tax credits can be allocated. OHFA is required by law to size the Ohio tax credits in conjunction with federal LIHTCs to “ensure financial feasibility of the proposed project.” All application submissions will need to be made through OHFA’s Multifamily Development File Transfer Site (FTS).

With just a few weeks until OHFA begins accepting pre-applications, eligible housing investors need to begin reviewing their construction proposals and additional financing options.

Learn More About the Ohio Tax Credits

Lument’s team can underwrite the tax-exempt bonds required for the 4% LIHTCs while utilizing its relationships with the agencies and the U.S. Department of Housing and Urban Development (HUD). Fannie Mae and Freddie Mac have several related offerings, including forward rate-locked permanent financing and other agency products that pair with the state tax credits. Affordable housing owners and developers can also apply for HUD Section 221(d)(4) loans, which cover affordable housing construction. As an approved HUD/FHA Multifamily Accelerated Processing (MAP) lender, Lument can help borrowers obtain the best financing terms and pricing.

Contact Lument to find out more about the new OLIHTC program and the availability of related equity and debt offerings for developers.

Nothing in this description is intended to be legal or tax advice. The OLIHTC program has technical standards and requirements that must be met in order to qualify under the program. Developers and borrowers should consult their legal and tax advisors for advice on participating in the OLIHTC program.