Covering the cost of historic preservation in affordable housing: exploring the adequacy of the Historic Rehabilitation Tax Credit to cover the increased development cost of adaptive reuse projects for affordable housing
Creators: name: Schalmo, Barbara Elwood
Publisher: name: The University of North Carolina at Chapel Hill University Libraries
Year: 2008

description: The adaptive reuse of historic buildings is promoted by preservation advocates as a financially successful and socially viable approach to meeting the need for affordable housing. However, as compared to other affordable rental housing production strategies like new construction, adaptive reuse is generally riskier and more complicated to develop. This complexity translates into greater overall project expense that ultimately must be either passed on to the tenant in the form of rent or covered by some sort of development subsidy. As with new construction or acquisition and rehab affordable housing projects, adaptive reuse projects do have available to them a number of sources for debt and equity financing. These sources are structured in such a way as to cover much of the cost of development so that this burden does not need to be passed on to residents, thereby promoting affordability. Developers of affordable housing can access such equity through the Low Income Housing Tax Credit program, which is considered the most influential program in encouraging the production of affordable housing. Additionally, developers of adaptive reuse affordable housing projects have available to them an added layer of equity financing through the Historic Rehabilitation Tax Credit, which has been the main financial driver behind historic preservation of income-producing properties. It is this extra layer of subsidy available to adaptive reuse projects that is the subject of this study. The following research question is explored in this study: Does the subsidy provided by the Historic Rehabilitation Tax Credit program sufficiently cover the increased development costs associated with adaptive reuse projects developed for affordable housing? The study introduces the research question through a comprehensive literature review and then progresses to an analysis of the research question through a multiple-case study. The comparative case study pairs four adaptive reuse projects with four related new construction properties and compares development cost with tax credit equity at the per square foot level. All projects are located in North Carolina and were developed between 2000 and 2004. The comparative case study findings are assessed, followed by a discussion of interpretations and implications. After the data analysis section, the paper progresses into a discussion of the main provisions set forth in the Community Restoration and Revitalization Act, a piece of pending federal legislation that aims to remedy the disincentives of combining the two tax credit programs for affordable housing production. The paper then moves to a consideration of the potential impacts of the changes proposed in this legislation on the number and financial feasibility of adaptive reuse projects utilized for affordable housing production. Finally, the paper closes with a discussion of implications from the study as a whole and conclusions as related to adaptive reuse as a strategy for affordable housing production. Limitations and suggestions for future research are addressed in the final section of this study.