WASHINGTON — Banks and other investors in low-income housing tax credits have enjoyed strong returns over the past few years due to the high demand for affordable apartments, rising occupancy rates and low interest rates.

But the strong demand for those tax credits is also whittling down the investment returns as their riskiness declines, according to a new report by the New York-based accounting firm CohnReznick.

After-tax returns on such investments averaged 7% over the past few years but have fallen to 5% today.

"There is enormous demand for affordable housing all across the country," said Fred Copeman, principal and leader of CohnReznick's tax credit investment services practice.

There are currently 2.8 million affordable housing units funded by the housing tax credit program, which provides capital for the construction and rehabilitation of multifamily properties for low-income people.

Banks are the source of 85% to 90% of all capital financing for the projects. "Banks are the lifeblood of housing credit finance," Copeman said.

A provision in the budget bill signed late last year is expected to boost the program further on the margins. (See related story.)

But it has already proved to be a good source for Community Reinvestment Act credit for banks. The sale of low-income housing tax credits raised $12.5 billion in capital in 2014, according to CohnReznick.

Existing eligible properties are basically full with a 97.5% occupancy rate. Normally, there is a gap of several percentage points between the occupancy rate and percent of tenants actually paying their rent on time.  But that gap has narrowed to 96 basis points in 2014, according to the CohnReznick report. That is "unparalleled" for multifamily housing, Copeman said.

"That really shows us how much demand there is for these units," he said.

It also shows how safe these investments are for banks, and why some of the returns have fallen.

CohnReznick surveyed more than 20,000 apartment properties across the country representing $83 billion in housing tax credits during 2013 and 2014 for its report on the 30th anniversary of the housing tax credit program.

Copeman said tenants don’t want to take the risk of being evicted because it would be very hard to find comparable affordable units, so they are paying their rent.

"They may be struggling, but they are paying their rent," he said.

But rent hikes cannot exceed the growth in area median income. If wages go up 1% a year, then rents can go up only 1%. That is contributing to a squeeze on future rental income growth since the gap between occupancy rates and paying tenants is so narrow.

Over the last five years, rising occupancy rates increased rental income. "But today, the apartments are full and everybody is paying their rent," Copeman said.

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