The following resources may used to evaluate a Tax Credit multifamily development. These can be used for existing or new construction properties. These resources include tools in our Research Center, NCHMA White Papers and the U.S. Census Bureau.

Maximum Allowable Rents

Max Allowable Rents Tax Credit projects are structured with maximum allowable rents under the Section 42 program. The rents proposed at a Low-Income Tax Credit development can not exceed the maximum rents established by HUD for each county and metro area in the United States. A good source used to identify maximum allowable rent levels is:
U.S. County Demographics, FMR, HUD and Tax Credit Limits

Anticipated Market Area

The most accurate method of establishing the market area for a multifamily site is to evaluate the market area established by competing Tax Credit developments. That would be the area in which most of the support for a subject site draws most of its support. Additional evaluations should be conducted using established mobility patterns among renters, changes in socioeconomic boundaries and natural and man-made boundaries such as rivers and railroad right-of-ways.

For very preliminary evaluations, a radius of 3.0 to 5.0 miles around the proposed site is acceptable.

NCHMA White Paper - Determining Market Area


Now that the Section 42 Program is over 20 years old, nearly every urban market and most rural markets currently have at least one Tax Credit development or some other government-subsidized project that might impact your development. A source to identify these properties and Section 8 properties is:
DART - Demographic and Apartment Research Tool

Achievable Market Rent

Because of the income limitations placed on tenants of Section 42 properties, Tax Credit properties should offer rents where at least 10% of the proposed rent at a Tax Credit development is below comparable market-rate property. Generally, the greater the proposed rents are below market, the faster the initial absorption of the property, lower turnover rates and higher stabilized occupancy.

NCHMA White Paper - Calculating Market Rent>>

Sources of comparable properties can be identified in area leasing guides and online at:

DART - Demographic and Apartment Research Tool

Comparison and adjustments to rent levels should be made based on unit type, unit size, amenities and age of property. Make sure the comparison is for the collected rent and all discounts to rent have been applied such as one month free.

Demographic Profiles

A key to success of a Tax Credit project is to establish the number of income-qualified households compared to existing Tax Credit units within the market area. Sources of this information include:
DART - Demographic and Apartment Research Tool
U.S. County Demographics, FMR, HUD and Tax Credit Limits
U.S. Census Bureau

Share Of Households Required To Support Tax Credit Projects

Project specific demand is the total number of households in a defined market area that would potentially move into the proposed new or renovated housing units. These households must be of the appropriate age, income, tenure and size for the specific proposed development. The components used to estimate the demand for the specific project are similar to those used to estimate overall market-area demand.

The Tax Credit program will establish the upper household income limit based on the number of persons per households (see sources in Item 1 above for income limits). The minimum income requirement is determined by multiplying the lowest proposed rent at the subject property by the anticipated rent to income ratio (typically between 30% and 45%) the developer or management chooses to qualify prospective tenants. For example, if the lowest gross income is $400 per month, and assuming a rent to income ratio of 40%, the minimum income required to live at the project is $12,000 per year. If the maximum allowable income for a family of four (assuming three-bedrooms are built) is $35,000, the appropriate range is $12,000 to $35,000.

Use demographic sources in Item 4 to help identify the number of income-qualified households. Compare the share of households in the market required to support Tax Exempt bond property. This ratio should be below 10% to 20% of income-qualified households, depending upon other market factors.

Additional analysis should be conducted among all Tax Credit properties and other properties with income restrictions to determine if a saturation of units has occurred.

NCHMA White Paper - Demand and Capture Rate Methodologies