The nation's affordable housing faces a threat.

The most effective means of financing the nation's affordable rental housing is at risk, and now is the time to act to ensure that hard-working families aren't forced to settle for dilapidated buildings and undesirable neighborhoods.

That financing vehicle is the federal Low Income Housing Tax Credit (LIHTC), which gives hard-working families with low incomes access to simple but attractive and modern housing in quality neighborhoods.

The LIHTC - commonly known as "Section 42" for its section in the Internal Revenue Code - is an unprecedented model for resolution of a social problem with minimal government involvement, providing ongoing incentives for corporations and private investors to help finance affordable housing development through a federal tax credit.

LIHTC Stands on Results

Today, the LIHTC accounts for nearly every new apartment created for low-income renters. Since its inception in 1986, LIHTC investments have helped finance more than 900,000 new and rehabilitated apartments.

The program's influence extends far beyond the benefits to low-income families. The National Affordable Housing Board estimates every 1,000 units of multi-family housing generate approximately 900 person-years of labor, $25.9 million in wages, $9.4 million in federal taxes and $6.4 million in state and local taxes and fees.

Over its lifetime, the program is estimated to have leveraged more than $12 billion in private investments into approximately 90,000 jobs, $3.1 billion in wages and $1.5 billion in taxes nationwide.

Section 42 also is attractive to lenders, who often are wary of highly leveraged developments. Investors provide extra initial capital during the financing process, mitigating lender risk and reducing debt burdens.

Finally, the benefits of the LIHTC are locked in for the long term. Affordable housing units maintain that designation for 15 to 30 years, preventing their conversion to market-rate apartments or condominiums and shielding families from being priced out of the rental market. Across the board, the positive impact of the LIHTC is undeniable.

Demand for Homing Remains High

Demand for this program has never been greater. A recent Department of Housing and Urban Development study found that despite steady economic expansion, acute housing needs persist. "Worst-case" housing needs - in which renter households earn below 50 percent of area median income, receive no federal subsidies and pay more than half their income for rent and utilities - reached an all-time high of 5.3 million in 1993.

Misconceptions in Congress Create a Challenge

As strong as the case for LIHTC may be, the program's long-term existence is threatened by federal lawmakers. Narrowly escaping the recent round of congressional budget cuts, the LIHTC program faces a new hurdle in the form of a Congressional study viewed as an attempt to characterize the LIHTC as a government handout.

Why do critics continue to peck away at a program that is so obviously effective? Because a good portion of tax-credit financing investors are companies and institutions, some argue the LIHTC represents a form of corporate welfare. However, unlike business entertainment or depreciation deductions, tax-credit investments don't subsidize corporations for expenditures they may incur anyway.

In fact, companies frequently consider investments in tax-credit financing to be a community outreach project. Since Congress gave the tax credit permanent status in 1993, corporations have more than quadrupled their investments in low-income housing, investing more than $1 billion from 1993 through 1995. The LIHTC simply provides real estate investors a measure of incentive to build clean, affordable places for low-income families and seniors to establish a strong foundation as working contributors to their communities.

Further bolstering the popularity of the program is nearly universal neighborhood support for these properties. Aesthetically, it is nearly impossible to distinguish housing built through federal tax credits from attractive market-rate apartment complexes.

All this makes the potential fallout resulting from elimination, even instability, of the LIHTC program even more tragic and far-reaching. Families would be forced either to pay higher rents than they can afford or to live in substandard housing. Additionally, community job growth could be stunted and incentive for private sector investment in housing solutions would be discouraged.

Call for Action in Support of LIHTC

A two-pronged approach is needed to ensure the long-term survival of the LIHTC: First, focus on continuing public education, shoring up support from investors who can testify to the program's success and its win-win result for investors, tenants and the government.

Second, businesses and investors should take an active role in solidifying congressional support for the LIHTC. The House Ways and Means Committee will start its arduous process toward a fiscal-year 1997 budget early next year. A clear message from Section 42 participants early in the budget process will go a long way toward keeping the LIHTC on the books.

Though the tax-credit program remains in the balance, it still represents a valuable investment opportunity. With affordable housing still in acutely short supply, now is not the time for investors to abandon ship. Washington needs to see continued activity on the investment front as a demonstration of private commitment to the program. The investors who make the program the success it is are in the best position to encourage leaders to keep on the books a program that makes good sense.