What is the role of private investors in LIHTC developments?

The role of private investors in Low-Income Housing Tax Credit (LIHTC) developments primarily involves providing capital in exchange for tax credits. This financial mechanism is fundamental to the LIHTC program. Investors, typically large financial institutions or corporations, contribute equity to the development projects. In return, they receive tax credits that can offset their federal tax liability over a period of ten years. This arrangement is crucial because it provides the necessary funding for developers to build or rehabilitate affordable housing, making it financially feasible.

By investing in these projects, private investors help to incentivize the construction and preservation of affordable housing in areas where it may not be otherwise funded, thus playing a vital role in addressing housing needs. Their investment not only fosters the development of affordable units but also ensures compliance with the program's requirements, thereby furthering their investment return through tax benefits.