A deceptively quiet-looking Dallas City Hall. Photo by Kelsey Shoemaker.

Housing

To Reach Its Affordable Housing Goals, Dallas Will Need More Developments Built On Tax Credits

Dallas has underutilized federal subsidies in recent years. Will it change under the city’s new housing policy?

Last month, the U.S. Government Accountability Office released a study on Low-Income Housing Tax Credits, or LIHTC (pronounced lye-tech), a program built to spur development of affordable housing that will play a key role in Dallas’ attempts to claw its way out of a unit shortage. The highlights are not particularly shocking: projects of 100 LIHTC units or more cost $85,000 less per unit than projects of 37 units or less—the economies of scale at work. Projects in urban areas are about $13,000 more expensive than the ones in non-urban areas. It’s a lot cheaper to develop here in Texas, where the median developmental cost per unit was about $126,000, than in, say, New York ($264,000) or California ($326,000).

The study does get more granular, and there’s plenty to dive into here, if you’re into that sort of thing. Maureen Milligan, Dallas’ assistant director of the Department of Housing and Neighborhood Revitalization, says the data could give staff context for the cost of projects brought before it in the future. But for our purposes, there’s reason to take a step back and consider more generally how housing tax credits will factor into the city’s plans moving forward.

The LIHTC program offers serious upside both for the city and for developers. Developers, if they can fight through hefty competition, receive a 9 percent tax credit on their project. These are the developments that cities need to amp up their affordable housing supply. Every year, each state receives at least $3.1 million from the federal government to dole out to developers for these 9 percenters. In Texas, cities are broken into regions, and the state only issues so much money to each region. This means that all North Texas cities are competing with each other. The 9 percent projects are thought to be more transformative for a neighborhood. But developers can also apply for 4 percent credits, which are not competitive but are usually used more for rehabilitation and smaller improvements.

Meanwhile, the city gets to play a role in determining which projects move forward by passing resolutions of support that are considered by the state agency tasked with approval. “It’s a means that we can help facilitate the creation of affordable housing without spending our own housing monies on it,” says Bill Hall, former CEO of the Dallas Area Habitat for Humanity and chair of the city’s new Housing Policy Taskforce.

Yet in recent years, the city of Dallas has largely underutilized this road to affordable housing. During 2017 and 2018, just three Dallas developments have benefited from these federal subsidies. During the last five years, just 11 of them. That compares to five-year totals of 47 in Austin, 41 in El Paso, 36 in Houston, 26 in San Antonio, and 23 in Fort Worth.

Keep in mind that those projects contain dozens or even hundreds of individual units. So, where Austin has added 7,165 units via housing tax credits during the last five years, Dallas has added 1,393. All those numbers are based on a quick analysis of housing tax credit inventory data housed on the web site of the Texas Department of Housing and Community Affairs (TDHCA), the aforementioned approval agency.

Under its new comprehensive housing policy, the city of Dallas seeks to spur developers to pursue here the tax credit projects they’ve shied away from. The policy encourages applications in two main ways, says Milligan. The first is to lay out a self-scoring application for LIHTC projects that seek the city’s support, so that staff can then conduct a comprehensive and impartial evaluation. The city’s transparent scoring process could be key. “We believe this application aligns with input we have received repeatedly from developers—that a key factor in where they choose to develop is the level of clarity and transparency in a City’s regulatory and legislative decisions,” Milligan wrote in an email after we’d talked housing over the phone.

The other? The taskforce on which Milligan sits and Hall chairs, created under the housing policy. One of its committees is called the Neighborhood Quality of Life committee. One of that committee’s jobs is to analyze and influence the state’s quality allocation plan, a yearly guideline that outlines the judging criteria for individual projects.

For Dallas, there does appear to be a recent move away from LIHTC. Or it’s at least losing out on projects to other cities within our region. Since the program came into existence in the late 1980s, Dallas has seen 138 projects go up within its borders, totaling 21,151 units. Only Houston’s 39,036 units over 232 projects tops either number, according to the TDHCA data. Councilman Scott Griggs, who represents North Oak Cliff, says part of the recent dip can be attributed to the fact the City Council didn’t put an emphasis on approving projects during the development of the housing policy.

Under that new policy, passed in May, Dallas has a goal to add 20,000 affordable housing units. The city wants to add about 6,000 of those next year, and it will need tax credits to get there. “I don’t know what percentage LIHTC will be of that, but it will probably be a good percentage,” says Hall.

The process could start earlier than expected, as city staff have already asked for LIHTC applications and briefed the City Council’s Economic Development & Housing committee that they’d like to change the housing policy. The change would allow earlier approval for developers who need to know whether they’ll earn city support prior to February, the deadline established in the housing policy.

But there are concerns from taskforce members and others—including Griggs—that the city would make such a hasty change to the policy to accommodate what amounts to just three, 4 percent applications, including one particularly noisy out-of-state developer (Denver-based Steele Properties). A 4 percent application approved now could jeopardize a 9 percent application in February. The state penalizes 9 percent projects that are within a three mile radius of a 4 percenter.

“Projects run into conflicts with each other,” says Griggs.

A special meeting of that committee will take place on Oct. 22 to consider staff recommendations, and the City Council could consider the change to the housing policy as well as the prospective projects at its Oct. 24 meeting. Of course, if the housing policy doesn’t get changed, the individual projects become moot. Griggs says he thinks the Council is “closely divided” on the issue.

Consistent with the broader goals laid out in the new housing policy, the trick will not only be to encourage development but to encourage it in areas that will allow low-income residents the greatest opportunities for success. That means the identified reinvestment zones and other “higher opportunity areas,” as Hall calls them.

“Until we have housing opportunities throughout the city, close to where jobs are and close to where different schools are and greater opportunities of all means, we’re not going to be a strong city,” he says.

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