GAO Report on LIHTC Finds Wide Range in Median Construction Costs

The Government Accountability Office (GAO) today released its long-anticipated report on Low Income Housing Tax Credit (LIHTC) development costs.  This is the third GAO report examining the LIHTC, stemming from a request by Senate Judiciary Chairman Chuck Grassley (R-Iowa) to examine the cost-efficiency and effectiveness of the housing tax credit.

Examining projects completed from 2011 to 2015 across 12 allocating agencies, the report found median per-unit cost of construction ranging from about $126,000 in Texas to a high of $326,000 in California.

From this construction cost data, the GAO reached a number of non-surprising conclusions:

• Larger projects (more than 100 units) cost less, consistent with economies of scale;
• Urban projects cost more than non-urban; and
• Senior housing costs less than housing serving other tenants, potentially due to smaller unit sizes.

The GAO study also examined price differences from nonprofit participation, finding that for projects completed using a non-profit set-aside, the per unit cost of these projects was about $15,000 higher.

In general, the report notes that the vast majority of allocating agencies have policies and practices to limit costs, but the report raises as a “known fraud risk” that few agencies guard against misrepresentation of contractor costs.

However, a limited number of allocating agencies have begun implementing controls to address the risk of fraud involving misrepresentation of contractor costs.

The GAO report recommends to Congress that it designate an agency to collect cost-related data from allocating agencies and periodically assess and report on LIHTC development costs.

In addition, the GAO recommends that the IRS:

• Require general contractor cost certifications;
• Encourage allocating agencies to collaborate on standardizing the collection of cost data; and
• Communicate to allocating agencies how to collect information on and review LIHTC syndication expenses, including upper-tier partnership expenses.

The IRS, in an appendix to the GAO report, disagreed with all three recommendations.

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For more information, contact J.P. Delmore at 800-368-5242 x8412.