How Governments Promote Affordable Housing through LIHTC

 

A resident of Los Angeles, California, Aaron Marzwell is a real estate developer and leader with extensive experience in residential property investment and development. Aaron Marzwell serves as CEO of APPA Real Estate, which provides affordable housing to low and middle-income workers.

The Low-Income Housing Tax Credit (LIHTC) is an incentive used by state governments to promote the development of affordable housing projects. Affordable housing developers must provide proof that their proposed projects meet certain eligibility requirements. These requirements include allocation of 20 percent of housing units to tenants who earn less than 50 percent of the area median income (AMI), at least 40 percent of the units to tenants who earn up to 60 percent of AMI, and all units to tenants with income less than 80 percent of AMI. These proposals are vetted by state governments.

When a developer's project is LIHCT-approved, the developer is awarded credits that can be sold to private investors in exchange for financial backing. When a private investor obtains an LIHTC, they can reduce their own tax liability after their housing project is put to use, meaning when tenants occupy the property. LIHTC-approved properties are typically townhouses, apartment buildings, and duplexes.

 

Helpful Tips to Address Middle-Income Housing Scarcity in Cities

The founder and CEO of APPA Real Estate, Aaron Marzwell has worked as a real estate developer throughout his career. Under Aaron Marzwell’s supervision, APPA Real Estate focuses on impact investing and co-living, as well as workforce housing, which provides housing at affordable rates for middle-income employees.

In the United States, middle-income workers have been facing scarce affordable housing. Most affordable housing programs aim to provide housing for households that make less than 60 percent of their cities' median income. Middle-income workers, such as firefighters and teachers, typically earn 80-120 percent of their area median income, which makes them ineligible for low-income affordable housing programs.

To provide workforce housing (housing designed for middle-income workers), both state governments and private landlords have to play critical roles. The Urban Land Institute (ULI) has offered a detailed recommendation for some regions of the United States. For example, ULI has recommended creating a dedicated housing trust fund, developing vacant land, rehabilitating underutilized public resources, and nullifying statutes that prevent single-family homeowners from renting out vacant dwelling units on their properties. These strategies can attenuate the scarcity of dwelling units in cities.

How Tax-Exempt PABs Promote Affordable Housing

Aaron Marzwell is an established real estate executive and developer with a proven track record of leading several real estate businesses. He formerly led CIM Group for seven years, during which he oversaw the development of numerous real estate projects. Aaron Marzwell currently leads APPA Real Estate, which emphasizes impact investing and workforce housing, as well as providing housing at affordable rates.

According to the California Statewide Communities Development Authority (CSCDA), many affordable housing projects in the US are capitalized through loans. One category of debt securities primarily used in this capacity is private activity bonds (PABs). PABs allow investors or bond holders to borrow entities their money in favor of municipality-qualified projects with public benefits. PABs are encouraged by the government and issued by financial institutions to private entities that are looking to develop projects that can benefit a region. Affordable rental housing is one of these projects.

In tax-exempt PABs, investors borrow their money from private entities through financial institutions, and the money they gain due to bond interest is not included in their tax statements. In other words, tax-exempt PAB bond holders won’t pay tax for capital gains associated with the service. For this reason, many investors consider PABs as an efficient tax minimization strategy. This means private entities can easily obtain loans for their affordable housing projects.

APPA’s Various Impact Investing Strategies

A California developer from Los Angeles, Aaron Marzell has been the CEO at APPA Real Estate since 2013. In this role, Aaron Marzwell assists with raising funding for the various mixed-use and affordable housing projects with which the company is involved.

In addition to conventional projects, APPA Real Estate is involved with impact investing. This type of investing involves using capital to generate money while at the same time investing in a venture that produces positive environmental or social outcomes.

APPA Real Estate raises funding to complete projects, mostly focused on affordable and mixed-use projects, but also on projects that impact their communities. Its green real estate strategies emphasize improving energy and water efficiency, reducing waste through recycling, not using single-use plastic during construction, and using bottle fillers at these sites.

The firm’s project also emphasizes community sustainability. These projects often include areas where residents can congregate and interact with one another, have some input on the project itself, and serve needs integral to the community’s vitality. The belief is that by incorporating these elements, the projects will build cohesiveness into the culture of the community, an important element in sustainable communities.