7.5.13.4 Demand for LIHTC Projects

A. Provide an estimate of demand, including capture and penetration rates, based on potential incomeeligible residents. An income-eligible resident is one whose income does not exceed the maximum permitted by the affordability restrictions, but who has sufficient minimum income to pay the proposed rent without being excessively rent-burdened. Households are considered "rent-burdened" if they pay more than 30 percent of their household income in gross rent, and "severely rent-burdened" if they pay more than 50 percent. The market study must describe what basis is used for rent-burdened (e.g., 30 percent, or some other percent, but in all cases less than 50 percent.) To make these determinations, consider the following information and guidance:

1. The market study should specify the applicable LIHTC maximum rents, market rents, and impact on achievable rents and project-based subsidy rents.

2. When the proposed rents are set at the LIHTC maximums, the market of income-qualified residents for the restricted units may be comprised of a relatively narrow band of income-eligible renters whose incomes do not exceed the maximum but are sufficiently high to pay the rent without being rentburdened. This can result in problems with the market feasibility of the project. Depending on income and rental market conditions in the area, there may not be a sufficient number of potential renters who meet the income limit and are also able to afford the restricted rent. In many markets, LIHTC project rents need to be set below the maximum permitted.

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Chapter 7 Valuation & Market Analysis 7.5 Content and Format of the Market Study

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3. Some LIHTC projects include additional types of assistance (such as Section 8 rental assistance or various forms of subordinate financing) which further reduce the tenant-paid rents and thus expand the pool of potential income-eligible residents. The market study must identify the estimated number of households who are eligible but are not excessively rent-burdened when paying gross rent (including utilities).

4. The determination of demand and capture/penetration rates should take into consideration:

   • the current and anticipated supply/demand conditions in the overall rental market,

• the potential depth of the market of income-eligible households in comparison to the number of units at the proposed rents, and

• the marketability of the proposed units, taking into account the project's amenities, rents, and location relative to comparable and competitive projects and other available housing options.

B. The Regional Center/Satellite office staff should consult with EMAD in assessing the determination of eligible income band, capture rate, and absorption rate contained in the market study. Projects with insufficient demand for the units at the proposed rents should be rejected.