Qualified allocation plan

What Is Qualified Allocation Plan?

A Qualified Allocation Plan (QAP) is a document developed by state housing finance agencies that outlines the criteria and priorities for allocating federal Low-Income Housing Tax Credits (LIHTC) within their state. As a core component of affordable housing policy, the QAP ensures that these federal tax credits are distributed competitively to real estate development projects that best meet the state's specific affordable housing needs. The QAP is a critical tool for states to guide investment in the creation and preservation of affordable housing units for low-income individuals and families.

History and Origin

The concept of the Qualified Allocation Plan is deeply rooted in the history of the Low-Income Housing Tax Credit (LIHTC) program. The LIHTC program itself was established by Section 42 of the Tax Reform Act of 1986 under President Ronald Reagan, marking a pivotal shift in how the federal government incentivized affordable housing development³⁸, ³⁹. Prior to this, federal investment in public housing had declined, and the LIHTC aimed to bridge this gap by encouraging the private sector to develop and maintain affordable rental housing³⁷.

As part of this legislation, Congress mandated that each state housing agency receiving LIHTC allocations must develop a Qualified Allocation Plan. This requirement, codified at 26 U.S. Code § 42(m), was designed to allow states flexibility in tailoring the federal program to their unique local conditions and housing priorities, while adhering to broad federal standards.³⁵, ³⁶ Since its inception, the LIHTC program, guided by the annual QAP process, has become the largest source of new affordable rental housing in the United States, facilitating the development of millions of housing units.³⁴ For more details on the program's origins, the Tax Policy Center provides an overview of the LIHTC's history and workings.
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Key Takeaways

• A Qualified Allocation Plan (QAP) sets the rules and priorities for how states distribute federal Low-Income Housing Tax Credits (LIHTC).
• QAPs are mandated by federal law to ensure competitive and needs-based allocation of affordable housing funding.
• They often prioritize projects serving the lowest-income tenants, those with long-term affordability commitments, and developments in specific geographic areas like Qualified Census Tracts.
• The QAP process involves public review and comment, allowing stakeholders to influence state affordable housing priorities.
• Effective QAPs are crucial for leveraging private capital to address housing shortages for low-income households.

Interpreting the Qualified Allocation Plan

Interpreting a Qualified Allocation Plan requires understanding a state's specific affordable housing goals and how it intends to achieve them through the allocation of LIHTC. Each QAP defines a scoring system and criteria that developers must meet to be competitive for these crucial tax credits. Typically, QAPs award points for projects that serve households with the lowest Area Median Income (AMI), offer longer periods of affordability beyond the federal minimums, or are located in designated "difficult development areas" or "qualified census tracts" that need community revitalization.³⁰, ³¹, ³²

The plan also sets forth threshold requirements that projects must meet simply to be considered, such as minimum percentages of units reserved for low-income tenants and rent restrictions.²⁸, ²⁹ Understanding the QAP's weighting of various criteria, such as energy efficiency or proximity to public services, allows developers to design projects that align with state priorities and maximize their chances of securing an allocation. The QAP acts as a transparent guide for participants in the affordable housing ecosystem, from developers to advocates, by setting out the state's strategic approach to addressing its housing needs.²⁶, ²⁷

Hypothetical Example

Imagine "Green Valley Developments," a hypothetical real estate firm, wants to build an affordable apartment complex in a state. They consult the state's Qualified Allocation Plan to understand the criteria for receiving Low-Income Housing Tax Credits.

The QAP states that projects receive higher scores for:

• Committing to a 30-year affordability period, exceeding the typical 15-year minimum.
• Reserving 50% of units for tenants earning 30% or less of the Area Median Income (AMI), rather than the standard 40% at 60% AMI.
• Incorporating specific green building standards and energy-efficient appliances.
• Being located in a "Qualified Census Tract" designated for revitalization.

Green Valley designs their project, "Harmony Place," to meet these criteria. They propose a 30-year affordability commitment, allocate 55% of units to the lowest income tier, plan for solar panels and high-efficiency HVAC systems, and select a site within a Qualified Census Tract. By aligning their project with the specific priorities outlined in the Qualified Allocation Plan, Green Valley Developments significantly increases its chances of receiving the competitive tax credit allocation needed to finance Harmony Place and provide much-needed affordable housing. This strategic alignment demonstrates the QAP's influence on real estate development decisions.

Practical Applications

The Qualified Allocation Plan is instrumental in the practical application of the Low-Income Housing Tax Credit (LIHTC) program across the United States. State housing finance agencies use the QAP to evaluate and select projects for federal tax credit awards, making it a cornerstone of affordable housing production.²⁴, ²⁵

Its practical applications include:

• Guiding Development: Developers use the QAP to design projects that are competitive for funding, aligning their plans with state-specific goals for tenant income levels, geographic location, and building features.²³
• Prioritizing Needs: QAPs allow states to prioritize various needs, such as housing for seniors, individuals with special needs, or families, as well as focusing development in specific rural or urban areas.²¹, ²²
• Ensuring Compliance: The QAP sets forth the long-term compliance requirements that LIHTC projects must adhere to, including rent restrictions and tenant income limits, typically for a minimum of 30 years.¹⁹, ²⁰
• Leveraging Funding: By outlining selection criteria, the QAP encourages developers to secure additional financing, such as private investment or other state subsidies, demonstrating the project's financial viability.¹⁸

The National Council of State Housing Agencies (NCSHA), which represents the state agencies administering the LIHTC program, provides recommended practices for QAP administration, highlighting its vital role in creating and maintaining affordable housing nationwide.
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Limitations and Criticisms

Despite its critical role in fostering affordable housing, the Qualified Allocation Plan process and the broader LIHTC program face several limitations and criticisms. One significant concern is that QAPs, by detailing specific mandates and point systems, can lead to increased development costs for LIHTC projects compared to market-rate developments.¹⁶ These plans may micromanage aspects of construction, from light fixtures to energy sources, potentially driving up expenses.¹⁵ This added bureaucracy and detailed requirements can also prolong the financing assembly process, making LIHTC projects take longer to develop than traditional projects.¹⁴

Another criticism revolves around the balance between affordability and development feasibility. While QAPs aim to serve the lowest-income populations, the prescriptive nature of the plans can sometimes make it challenging to develop projects in high-cost or desirable areas, potentially limiting the program's reach to those most in need of affordable housing.¹³ Critics also argue that the complex financing structures, often involving multiple layers of government subsidies, introduce inefficiencies and high transaction costs, which may not always result in the most cost-effective provision of affordable housing.¹² The Cato Institute has published commentary on these issues, citing how QAPs can increase construction and financing costs.
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Qualified Allocation Plan vs. Low-Income Housing Tax Credit

The Qualified Allocation Plan (QAP) and the Low-Income Housing Tax Credit (LIHTC) are intrinsically linked but serve distinct functions within the broader affordable housing ecosystem. The LIHTC is the federal program itself, providing dollar-for-dollar reductions in federal income tax for investors in qualified affordable rental housing projects. It is the incentive, the financial mechanism, and a form of private equity used to fund the construction or rehabilitation of affordable units.⁹, ¹⁰

In contrast, the Qualified Allocation Plan is the state-level document that governs how those federal LIHTC dollars are distributed. While the LIHTC sets the broad federal parameters and incentives, the QAP defines the specific criteria, priorities, and scoring system that a state's housing finance agencies use to select which affordable housing projects receive the limited allocation of tax credits each year.⁷, ⁸ Essentially, the LIHTC is the federal resource, and the QAP is the state's strategic roadmap for allocating that resource to best meet its unique housing needs. Without a QAP, the competitive allocation of LIHTC would not occur, making the plan a vital intermediary in the affordable housing funding process.

FAQs

What is the primary purpose of a Qualified Allocation Plan?

The primary purpose of a Qualified Allocation Plan (QAP) is to establish clear, transparent criteria and priorities for state housing agencies to award federal Low-Income Housing Tax Credits (LIHTC) to developers. This ensures that the limited federal tax credits are allocated to projects that best address the state's specific affordable housing needs and serve the intended low-income populations.

Who creates and approves the Qualified Allocation Plan?

Each state's designated housing finance agency (HFA) is responsible for creating and annually reviewing its Qualified Allocation Plan. The QAP typically undergoes a public comment period before final approval, allowing various stakeholders, including developers, advocates, and the public, to provide input on the allocation criteria.⁵, ⁶

How does a QAP impact developers of affordable housing?

A QAP significantly impacts developers by dictating the rules of engagement for securing LIHTC. Developers must design their projects to align with the QAP's scoring criteria and preferences, which might include specific tenant income levels, sustainability features, or location considerations, to increase their chances of receiving the valuable tax credits needed to finance their real estate development.⁴

Can a Qualified Allocation Plan change?

Yes, Qualified Allocation Plans are typically reviewed and revised annually by state housing finance agencies.³ This allows states to adapt their allocation priorities to changing market conditions, evolving housing needs, or new federal guidelines, ensuring the QAP remains a relevant tool for addressing affordable housing challenges.

What are "set-asides" in a QAP?

"Set-asides" in a QAP refer to specific percentages or dollar amounts of a state's annual LIHTC allocation that are reserved for particular types of projects, populations, or geographic areas.¹, ² For example, a QAP might have a set-aside for projects serving seniors, rural developments, or developments led by non-profit organizations, ensuring that specific needs or groups are adequately addressed.