Low Income Housing Credit: A Sleeper PH Catalyst
[Editor’s Note: This article was originally published as part of the 2019 NAPHN Policy Resource Guide, release at its 2019 conference. Registration for this year’s NAPHN conference, PASSIVE HOUSE 2020, opens March 2.]
One of the more exciting Passive House policy breakthroughs to emerge in the United States over the past few years comes from an obscure source: a tweak to the point-scoring system used to rank applications for Low Income Housing Tax Credits in Pennsylvania. This little policy tweak has sparked a big boom in Passive House development in Pennsylvania that is notable in several ways.
First, the policy requires zero outlay of government capital.
Second, developer participation is entirely voluntary, yet very high.
Third, the same policy tweak could be replicated in all other 49 states to spur a massive uptick in Passive House development nationwide.
Fourth, the policy ensures that the health and energy-saving benefits of Passive House buildings are shared with low-income people.
THE PHFA MODEL
Low Income Housing Tax Credits (LIHTCs) are a key mechanism for funding affordable housing across the U.S. These federal tax credits are administered by each state’s housing credit agency based on a set of decision-making criteria called the QAP (Qualified Allocation Process) that reflects a given state’s priorities for the type of affordable housing it wants to support (location, income-level served, community development goals met, etc.). Every year, affordable housing developers submit project proposals for LIHTC funding that are then scored based on each state’s respective QAP. In competitive programs, only the highest scoring applications receive LIHTCs.
In 2015, after advocacy by Passive House leaders like Tim McDonald (Onion Flats) and Laura Nettleton (Thoughtful Balance), the Pennsylvania Housing Finance Agency (PHFA) made the Passive House-related tweak to its QAP for LIHTCs. It began awarding 10 QAP points (out of 130 total) to LIHTC proposals that incorporated Passive House in project design and construction. Whether to incorporate Passive House is entirely voluntary, but afford- able housing developers in Pennsylvania know that if they can do so in an affordable way that “pencils” for their project that they will have significant competitive advantage in securing LIHTCs for that project.
In a highly competitive environment—just one in four LIHTC proposals to PHFA is successful—the Passive House QAP points are having a big impact. During the first three years of the Passive House policy, 28% of LIHTC proposals were for Passive House projects. Twenty-six Passive House projects were awarded LITHCs during that time, meaning that nearly 900 units of Passive House affordable housing have been built or are underway in Pennsylvania today.
Notably, the Passive House projects don’t seem to be more expensive to build than conventional buildings, likely thanks to the early integrated design process that development teams are compelled to engage in so that their LIHTC proposals can be competitive. According to PHFA data, the construction cost premium for Passive House versus conventional projects was 5.8% in the first year, 1.6% in the second, and minus 3.3% in the third year, suggesting that learning and innovation by project teams may be driving down costs over time.
