U.S. Department of Agriculture (USDA) Rural Housing Service (RHS) Administrator Joaquin Altoro announced amendments to the Section 538 Guaranteed Rural Rental Housing Program (GRRHP) in a Multifamily Stakeholder announcement issued March 20. In the announcement, Administrator Altoro stated that the added flexibilities will allow RHS to prioritize investments in projects that waive their “Qualified Contract” rights. The rule change will allow for Low-Income Housing Tax Credit developments in rural areas to remain affordable to residents during the 30-year period established by the LIHTC program. NLIHC has worked to eliminate the so-called “QC loophole” to ensure that housing provided by LIHTC remains affordable, and RHS’s decision follows a push for reform by national advocates (see Memo, 7/24/2024).
The “Qualified Contract” loophole allows for properties to prematurely end their affordability requirements and results in the loss of approximately 10,000 affordable housing units annually. NLIHC has sent letters to HUD, the Federal Housing Finance Agency, and USDA urging the agencies to promote the preservation of affordable housing developed by the LIHTC program, which remains the primary source of federal funding for the construction and preservation of affordable housing. As a subsidy for housing developers, LIHTC requires developers to maintain affordability for 30 years. However, the “Qualified Contract” (QC) provision in the LIHTC regulation allows developers to waive these affordability requirements after only 15 years. As such, the QC loophole threatens the long-term affordability of housing financed through the LIHTC program. Research from NLIHC and the Public and Affordable Housing Research Corporation (PAHRC) estimates that more than 100,000 LIHTC units have been lost to the QC loophole since 1990. The National Council of State Housing Agencies (2021) offers similar estimates.