A guide to affordable housing and the Low Income Housing Tax Credit.

1. A Guide to LIHTC

2. 28
2.6
95,000
100
The tax credit program was
established 28 years ago.
Over 2.6 million developments
financed.
Creates over 95,000 jobs annually.
Almost $100 billion in equity capital
raised to date.

3. A Guide to LIHTC
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CONTENTS
Low Income Housing Tax Credits
The history of the tax credit and how the process works.
Proven Track Record
A look at the success of LIHTCs.
The Need for Affordable Housing
Read about the growing need for affordable housing in our communities.
More than Housing
The LIHTC program and its effects on the economy.
Supporting the Credit
Ways that you can help support and preserve the LIHTC program.

4. Low Income Housing Tax Credits
A Brief History
Twenty-eight years ago, Congress passed (and
the President signed) the Tax Reform Act of 1986.
Among many other things, the Act created the
Low Income Housing Tax Credit (Housing Credit)
program, whose purpose was to spur private
investment in affordable housing throughout
the country. This program is one of the most
successful affordable housing initiatives ever
launched by the federal government. The Housing
Credit (also referred to as “Section 42” – its IRC
code section) provides a dollar-for-dollar credit
against a taxpayer’s federal income tax liability. It
stimulates the bulk of all affordable rental housing
developed in the U.S. today. The program is a
highly effective public-private partnership that
harnesses the discipline of the marketplace
to efficiently build safe, decent and affordable
housing.
“...one of the most successful affordable housing Above: Housing Credits are very attractive to banks,
insurance companies and corporations with
taxable income. As stated, the credits provide
a dollar-for-dollar reduction in federal income
tax liability, providing an efficient and socially
responsible means for taxpayers to reduce their
effective tax rate. And for financial institutions,
investment in Housing Credits can be an effective
way to satisfy Community Reinvestment Act
requirements.
Over the past few decades the Housing Credit
has become an extremely important tool for
developing affordable housing. The program
has helped finance more than 2.6 million quality
affordable housing units, leveraging almost $100
billion in private capital.
So How Does It Work?
Each State receives a fixed amount of Housing
Credits from the U.S. Treasury Department based
on its population. For 2014, the Housing Credit
amount is equal to a State’s population multiplied
by $2.30 (with each State receiving a minimum
of $2,635,000 in credits). In addition, properties
financed in substantial part with the proceeds of
President Reagan signing the Tax Reform Bill in October of 1986 during a ceremony
at the White House.
tax-exempt bonds are eligible for Housing Credits, the amount of
which is not subject to the above formula.
Each State has a Housing Finance Agency (“HFA”) that
administers the Housing Credit program. Credits are generally
awarded to affordable housing developers by the HFAs on a
competitive basis though an application and allocation process.
The HFAs are permitted to identify and prioritize their State’s
unique housing needs and goals and have wide discretion in
determining which developers receive Housing Credit awards
(these priorities and goals are embodied in a “Qualified Allocation
Plan” or “QAP”). Once a QAP is issued, developers apply to the
HFAs for credits. HFAs review and score the applications and
award Housing Credits to those developments that best meet
the needs of the particular State. It’s a great example of local
control over a national resource.
The amount of the Housing Credit available to a property is based
on a variety of factors, including (i) actual cost of construction,
(ii) number of units in a development that will be rented to low-income
tenants, and (iii) the amount of credits necessary to make
the property financially feasible. HFAs conduct a rigorous review
of each application to ensure that developments only receive
enough Housing Credits to make them both financially feasible
and affordable.
In addition to any prerequisites set forth in a QAP, a property
must also satisfy one of the following federal requirements:
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5. • At least 20% of the units in the development need
are both rent restricted and occupied by individuals
whose income is 50% or less of the area median gross
income (AMI).
• At least 40% of the units in the development are
both rent restricted and occupied by individuals whose
income is 60% or less of the AMI.
A unit is “rent restricted” if the rent charged to the tenant
is not more the 30% of the income limit applicable to the
unit (generally the 60% AMI or 50% AMI limit referenced
above).
Section 42 also requires that Housing Credit properties
remain income-restricted and rent-restricted for an initial
15-year “Compliance Period” plus a subsequent 15-
year “extended use” period. HFAs may impose lengthier
affordability periods if they desire.
While the HFAs are busy reviewing applications and
awarding Housing Credits, Midwest Housing creates
and capitalizes investment funds (“Investment Funds”)
comprised of institutional investors. When developers
receive credit awards, the Investment Fund will partner
with them to provide equity capital to their properties. In
exchange for the equity investment, the Investment Fund
(and ultimately the investors) receives the Housing Credits
awarded to the underlying property (the credits flow for a
period ten years). Investors thus earn a market rate of
return on their investment. And, as a result of receiving
the equity investment to pay for construction costs,
properties need less debt, thereby allowing property
owners to charge lower rents while still developing a
financially viable property.
Left: Congresswoman
Lynn Jenkins and John
Wiechmann, President
of MHEG, discussing
affordable housing at
the Heritage Estates
Ribbon Cutting on May
30, 2013 in Neodesha,
Kansas.
FUND STRUCTURE
Midwest Housing
Equity Group
Fund sponsor
Fund Investors
Banks, insurance
companies, corporations
Investment Fund
(Limited Partnership)
- Owned 99.99% by the Fund Investors
- Owned .01% by MHEG
Housing Finance
Agency
Awards housing credits
Property
Developer
General Partner
- Owned 100% by the Operating
Partnership LP/LLC
initiatives ever launched by the federal government.”
A Guide to the LIHTC l 3
Operating Partnership
- Owned 99.99% by the Investment Fund
- Owned .01% by the Developer/General
Partner

6. Proven Track Record
The Housing Credit is “widely regarded as the most successful housing production and preservation program in the
nation’s history,” stated a 2010 report issued by Harvard’s Joint Center for Housing Studies. In fact, according to a
study of the program recently issued by the accounting firm CohnReznick, the annualized foreclosure rate for Housing
Credits properties is only 0.65%, far below the rate for the overall multifamily rental housing asset class. That success
is the result of numerous aspect of the Housing Credit program:
• Housing Credits are awarded only to those developments that best meet the housing needs of the State. Only the
strongest applications receive credits. This competitive process encourages developers to design financially viable
properties that offer a safe, decent and affordable place to live combined with practical amenities such as computer
labs and free credit counseling classes.
• Housing Credits are subject to recapture for 15 years. Recapture is most frequently triggered by foreclosure or
the failure to maintain the rent-restrictions and income-restrictions applicable to the units. Midwest Housing and
the Investment Funds obviously want to avoid any recapture of the Housing Credits. Each Housing Credit property
is carefully monitored by Midwest Housing to ensure it complies with the affordability restrictions. Each property is
also backstopped by property-level and Fund-level reserves, providing a strong safety net in the event of unforeseen
market changes.
• This public-private partnership structure, and the corresponding involvement of investors and Midwest Housing,
results in the imposition of private-sector discipline that is absent from many other federal housing production
programs.
The Housing Credit is an incredibly valuable tool. It creates safe, decent and affordable homes. The properties it
finances revitalize the neighborhoods in which they are located. It creates jobs and opportunities for our state and local
communities. And it’s all privately built, operated and managed.
Greystone Homes in Des Moines, Iowa offers 26 single family rental
homes for the Sherman Hills/Drake neighborhood.
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7. $10B
$8B
$6B
$4B
$2B
$4.8 billion
$5.7 billion
$6.7 billion
$8.2 billion
$6.9 billion
$3.6 billion
$7.3 billion
2004 2005 2006 2007 2008 2009 2010
$8 billion
$9.3 billion
$10 billion*
2011 2012 2013
NET
INVESTMENT
IN LIHTC
In the last 10 years over $70.5
billion has been invested into
LIHTC developments.
Midwest Housing Equity Group
began syndicating in 1993 with
the release of our first fund, NAHF
1993, L.P., a $4.75 million fund
with a total of eight investors.
Since then MHEG has released a
total of 41 funds raising over $1
billion in equity capital through
the investment of almost 120
banks, insurance companies and
corporations.
Source: Affordable Housing Finance
*Estimated
Woodson Park Apartments provides 52 rental units for
seniors in the El Reno, Oklahoma community.
A Guide to the LIHTC l 5

8. The Need for Affordable Housing
According to “The State of the Nation’s Housing 2013” by Harvard’s Joint
Center for Housing Studies the simple fact is, “that low-income renters far
outnumber the supply of low-cost units.” Unfortunately the shortage is greatest
among the extremely low-income renters, those earning up to 30 percent of
area median income. Both competition from higher-income renters and poor
housing quality limit the supply of low-cost decent rental housing.
In 2011, there were 6.8 million affordable rental homes available for over 12.1
million extremely low-income renters.1 This is an astonishing shortage of 5.3
million units. Over 46 percent of all renters in the U.S. pay more than 30 percent
of their income on housing, and over 25 percent of all renters are severely rent
burdened, meaning they pay over 50 percent of their income in rent.
As the need for affordable housing grows, the supply continues to shrink. The
Joint Center for Housing Studies also states that the affordability gap widens
each year as low-cost units are removed from the housing stock. Even after
taking into account LIHTC’s success at creating affordable housing units, the
demand is outpacing production.
In addition, there is a significant need for workforce housing in many communities
- housing neccessary for business to grow. According to the Center for Housing
Policy, many employers report that a lack of affordable housing makes it more
difficult to recruit and retain employees. In addition to workforce housing, our
aging population is causing the demand for independent senior housing to
increase sharply. Continued production of affordable housing via the tax credit
program is instrumental to addressing these issues.
Over 25 percent of all renters are paying over
50 percent of their income in rent.
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DEMAND VS.
SUPPLY
• For every 100 extremely low-income
renter households, there
are only 30 rental units affordable
and available to them. For every
100 renters with incomes below 50
percent of the area median income,
there are only 57 units avaialble.1
• Between 1997 and 2007, the
number of units with real rents under
$400, including utilities - about what
a household earning the full-time
minimum wage could afford at 30
percent of income - fell by 244,000
to 6.6 million.2
• The Government Accountability
Office estimates that mortgage
restrictions and rental assistance
contracts on more than 1 million
subsidized units expired in 2013.
1 “The State of the Nation’s Housing 2013,” Joint
Center for Housing Studies of Harvard University
2 “The State of the Nation’s Housing 2010,” Joint
Center for Housing Studies of Harvard University

9. Creating Jobs
The LIHTC does more than provide affordable housing, it also generates millions of jobs for Americans and helps
stimulate the economy. During the construction process, the program creates jobs for architects, carpenters, electricians,
plumbers and roofers to name a few. Once the property is completed, it requires property managers, leasing agents,
maintenance workers and other service providers to operate the property. In addition, the now leasing residents help
support local businesses and jobs by spending their income.
According to the National Association of Home Builders, they estimate on average that building a 100 unit property
provides the following in one year:
• $7.9 million in local income
• $827,000 in taxes and other revenue for local governments
• 122 local jobs
They also estimate on average the recurring impacts of that a 100 unit property provides annually:
• $2.4 million in local income
• $441,000 in taxes and other revenue for local governments
• 30 local jobs
Source: “The Local Economic Impact of Typical Housing Tax Credit Developments” National Association of Home Builders (March 2010)
Types of jobs created during and after the
construction of a 100 unit multifamily LIHTC
property.
100%
80%
60%
40%
20%
Jobs Created Directly
and Indirectly by
New Construction
Jobs Supported
by Spending Locally
Earned Wages
Jobs Supported by
Households Occupying
New Homes
Source: “The Local Economic Impact of Typical Housing Tax Credit
Developments” National Association of Home Builders (2010)
Construction
Wholesale & Retail Trade
Business & Professional Services
Restaurants & Bars
Health, Education & Social Services
Local Government
Other
More than Housing
Left: Reese Estates provides 15 single family rental
homes for the community of Waverly, Nebraska.
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10. Supporting the Credit
The LIHTC program is the primary resource for
the development of affordable rental housing
nationwide; without the credit there would be
virtually no production of affordable housing. And
with the need greater now than ever, the program
needs your support. With our nation’s growing fiscal
challenges, Congress is considering tax reform that
would reduce or possibly eliminate corporate tax
expenditures, such as the LIHTC program.
One challenge that needs to be addressed is the
floating credit rate. Historically, the Internal Revenue
Service has calculated the 70 percent and 30 percent
present value credits for newly constructed and
Kansas Governor Sam Brownback attends City View at St. Margaret’s Ribbon
existing properties based on medium and long-term
Cutting in Kansas City, Kansas on December 19, 2013.
interest rates. When applied to LIHTC investments,
this floating rate system creates uncertainty and financial complexity. The Housing and Economic Recovery Act of 2008
(HERA) provided for a 9 percent fixed floor rate for newly constructed and substantially rehabilitated properties that
received an allocation of tax credits on or before 12/31/13. Permanently locking the 70 percent tax credit percentage
at 9 percent, as well as providing a minimum 4 percent rate for acquiring existing properties, will provide stability in the
affordable housing industry and make affordable housing development more financially feasible.
It is important to stay in contact and communicate with your Congressional delegations. We must continue to educate
our elected officials on the value of the LIHTC program, ensuring that it is preserved if and when tax reform takes place.
One very effective communication method is to invite Senators, Representatives and other government officials to
attend and participate in groundbreakings, ribbon cuttings and open houses of LIHTC developments. These events do
make a difference and allow members of Congress to see the quality of our developments and to meet the residents
whose lives are improved.
Another great way to support the credit is to join the A.C.T.I.O.N. coalition. Their website (www.rentalhousing.org) is an
excellent source of advocacy information, which includes LIHTC talking points, background information of the credit,
state-specific fact sheets, sample letters to send to members of Congress, guidelines on getting delegates to attend
groundbreakings and open houses and many other tools.
Above: Congressman Lee Terry attends the ribbon cutting for Cypress Pointe in Omaha, Nebraska
on August 16, 2013.
Right: Senator Tom Harkin speaks with Senator Jack Hatch and Ryan Galloway of Hatch
Development Group at the Des Moines Greystone Homes Groundbreaking on August 23, 2013
in Des Moines, Iowa.
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