LIHTC and Affordable Housing Feasibility Study

Every low-income housing tax credit allocation requires a comprehensive market study of the housing needs of low-income individuals in the area, prepared at the developer's expense by a disinterested party approved by the allocating agency (IRC Section 42(m)(1)(A)(iii)). The states have turned that sentence into a gate. Texas requires an analyst on the Texas Department of Housing and Community Affairs' qualified market analyst list (10 TAC 11.303). Georgia requires an analyst on the Department of Community Affairs' approved list, in its market study manual format. South Carolina, Virginia, Arkansas, Michigan and Indiana keep approved lists. Iowa and Illinois require membership in the National Council of Housing Market Analysts. North Carolina assigns the analyst itself. California's bond allocation committee requires an independent third party within 180 days of the application deadline. The market study is therefore the state's document, in the state's format, from an analyst the state's rule allows.

The financial feasibility study is the developer's and the lender's document, built on the method of the multifamily feasibility study and, for single-parcel rental product, the build-to-rent feasibility study. It tests the project against the agency's underwriting rules, the permanent lender's coverage floor and the investor's return, and it is the document that decides whether the application is worth filing and the loan worth committing. It states in its first section that it is not the Section 42(m) market study, names the state's analyst requirement, and reconciles its demand and rent conclusions to the market study. MMCG prepares the market study too, confirms the state's analyst rule before scoping, and the engagement letter says which document is which.

The 9 percent credit is allocated competitively from each state's ceiling, which for 2026 is $3.416 per capita or $3,953,600 for the smallest states, a figure that carries the permanent 12 percent increase enacted in the July 2025 federal legislation and corrected in the Internal Revenue Service's revenue procedure that autumn. The 4 percent credit attaches to projects financed with tax-exempt private activity bonds, whose 2026 volume cap is $135 per capita or $397,625,000 per state; for buildings placed in service after December 31, 2025, the share of land and building cost that must be bond-financed fell from 50 percent to 25 percent, provided at least 5 percent is financed with bonds issued after 2025. Both credits are claimed over ten years, the 9 percent and 4 percent rates have statutory floors, and the compliance period is fifteen years with an extended use period of thirty.

Units qualify under one of three set-asides: 20 percent of units at 50 percent of area median income, 40 percent at 60 percent, or income averaging, under which units at up to 80 percent of area median income count so long as the average is 60 percent or below. Eligible basis is increased by up to 30 percent in qualified census tracts and difficult development areas; HUD's 2026 designations took effect January 1, 2026 for allocations made after December 31, 2025. Rent and income limits come from HUD's multifamily tax subsidy project limits, whose fiscal 2026 schedule took effect May 1, 2026 with a 10 percent cap on annual increases and hold-harmless protection for placed-in-service projects. A study that uses last year's limits, or the Section 8 limits in place of the MTSP limits, misstates the rent.

Rents against the limits and against the market. The study sets each unit's maximum gross rent from the MTSP limit for its income tier and bedroom count, deducts the utility allowance from the local housing authority or the agency's schedule, and compares the resulting net rent to the market rent of comparable unrestricted product. Where the 60 percent rent sits within a few percent of the fair market rent, as it does in Lubbock, Texas, where the fiscal 2026 two-bedroom fair market rent is $1,175 and the 60 percent gross rent is about $1,100, the rent advantage is thin and the study tests whether the mix should move toward 30 and 50 percent units under income averaging. Several states require a minimum rent advantage; Georgia's is 10 percent.

Demand and capture. The study builds income-qualified renter demand by tier from the American Community Survey, applies turnover and growth, and reports the capture rate and penetration rate in the agency's own definitions. Texas computes a gross capture rate under 10 TAC 11.302(i); Georgia caps the overall capture rate at 35 percent in the rural pool and 30 percent in the metro pool; Iowa requires justification above 10 percent. The study counts every competing tax credit and assisted property with its income mix and placed-in-service year, and every pipeline award, because an 80-unit award under construction two miles away is the lease-up risk the syndicator will ask about first.

Cost and sources and uses. Total development cost is built line by line and tested against the agency's limits: Texas introduced a per-unit total development cost limit in its 2026 Qualified Allocation Plan; Georgia applies HUD's published limits with a rural uplift of 15 to 30 percent and caps hard cost at 90 percent of as-completed value. The sources side carries the credit equity at a stated price, the permanent loan at the agency's coverage floor, soft funds with their terms, and deferred developer fee within the agency's deferral cap, which in Georgia is 50 percent of the fee payable within fifteen years. National 9 percent equity pricing stood at about $0.81 per credit in May and June 2026 on the Novogradac series, with a regional spread of roughly $0.80 to $0.89 and lower pricing in less populated areas, so the study carries $0.80 as the base case for a secondary West Texas market and $0.75 as the downside, and states the source of each figure.

Permanent debt. The study sizes the loan to the agency's first-year coverage floor and holds that floor across the fifteen-year schedule. Texas requires 1.15x in year one (1.00x where USDA is the lender); Georgia requires 1.20x for new construction; vacancy and collection loss is underwritten at 7.5 percent in Texas and at least 7 percent in Georgia, with 5 percent where every unit carries project-based assistance. The lender rate sheets on October 1, 2026 indicated a 9 percent tax credit forward commitment through Freddie Mac at 90 percent of value, 1.15x and a 35-year amortization at roughly 7.45 to 7.60 percent, HUD 221(d)(4) affordable at 90 percent of cost and 1.11x at roughly 7.15 percent before the 0.25 percent mortgage insurance premium, and bank permanent loans above either. At those rates the loan the coverage floor allows is small, and the study reports the resulting gap in soft funds plainly.

Operating budget. Expenses are built line by line against the agency's floors and its regional database: Georgia requires at least $4,250 per unit in the rural pool and a $300 per unit replacement reserve escalating 3 percent; Texas publishes a regional operating expense database for reference. Property tax is computed under the state's affordable valuation method, which in Texas is the restricted-rent income approach in Tax Code Section 23.21 or the nonprofit exemption in Section 11.1825, and in Georgia the Section 42 rent restriction the assessor must consider under O.C.G.A. Section 48-5-2, and the study shows the tax with and without the exemption because the difference is often the whole coverage margin.

Sensitivities. Equity price at $0.75 and $0.85; the rent-to-fair-market-rent spread; the property tax exemption granted or denied; a lease-up overlap with the pipeline award; expense growth at 3 percent against revenue growth at 2 percent, which is the Georgia convention; and the permanent rate 100 basis points higher. The study reports the first-year coverage and the year-fifteen coverage at each step.

The method is set out in full in MMCG's feasibility study methodology.

Texas's 2026 plan also created a minimum score for all 9 percent applications, a tiebreaker favoring the lowest credit request per low-income unit and an opportunity zone scoring option, and revised the proximity-to-jobs item; its 2027 plan was in formal comment in October 2026 with a board vote expected in November. A site study for a 2027 application is scored on the 2026 rules and flagged for the 2027 changes.

The 9 percent execution carries credit equity over a permanent loan sized to the agency floor, with soft funds from HOME, the Housing Trust Fund, the Federal Home Loan Banks' Affordable Housing Program and local sources filling the gap. The 4 percent execution carries bond financing, with the 25 percent test freeing bond cap that had previously gone to meeting the 50 percent threshold. HUD's 221(d)(4) affordable execution finances construction and a 40-year permanent loan at 90 percent of cost and 1.11x with a 5 percent vacancy factor (Mortgagee Letter 2025-03), and its Middle Income option, created by Mortgagee Letter 2025-02 and updated by Mortgagee Letter 2026-01 of January 22, 2026, extends the 90 percent and 1.11x terms to projects where at least half the units are restricted to 120 percent of area median income under a recorded state or local program of at least ten years. Fannie Mae and Freddie Mac must place at least half of their $88 billion 2026 purchase caps in mission-driven affordable loans, and workforce housing loans with a ten-year restriction are excluded from the caps altogether. USDA Section 538 layers with 4 percent credits in rural areas, where the state agency's coverage floor governs if it is higher than the program's 1.15x; the USDA multifamily feasibility study page covers that execution.

Each execution carries its own vacancy factor, coverage floor and reserve, and the study runs the project under the one proposed and states what changes under the alternatives, because the choice of execution is often the difference between a feasible and an infeasible stack.

An MMCG affordable housing feasibility study runs 80 to 120 pages and includes the program and set-aside analysis, the rent schedule against the MTSP limits and the market, the income-qualified demand with capture and penetration rates in the agency's definitions, the competing tax credit and assisted inventory with the pipeline, the development budget against the agency's cost limits, the sources and uses at a stated equity price, the permanent loan at the agency's coverage floor, the operating budget against the agency's floors with the tax computation under the state's affordable valuation method, the fifteen-year cash flow with coverage by year, the sensitivities and a signed determination. Standard delivery is 9 to 16 business days from engagement and receipt of the project file, with rush delivery available from 5 business days. Engagements start from $4,900, and affordable housing studies are quoted on scope. Payment is 50 percent at engagement and 50 percent at delivery, and revisions required by the lender, the syndicator or the agency are made at no additional cost under MMCG's contractual acceptance commitment.