The Use of Tax-Exempt Bonds in Financing Multifamily Rental Housing

Testimony was given on a GAO review of the use of tax-exempt bonds to finance lower income multifamily rental housing. The review was conducted to determine: (1) the cost to the government of the tax-exempt bonds and the percentage of new multifamily rental housing units financed with these bonds; (2) the impact that tax-exempt bonds have on providing housing for lower income persons; (3) the demographic characteristics of the tenants; and (4) the physical characteristics of projects financed with tax-exempt bonds. GAO found that about $10 billion in tax-exempt bonds were issued in 1983 and 1984 to finance multifamily rental housing. GAO estimated that the present value of the revenue loss to the government over the life of the bonds from the tax exemption is about $2 billion. Beneficiaries of the bonds are the bondholders, developers, bond counsels, underwriters, trustees, and local housing agencies. In about a third of the projects visited, low-income or moderate-income tenants paid lower rents than other tenants occupying comparable units. GAO estimated that the program helped finance about 24 percent of all multifamily rental housing starts in 1983-84. About 80 percent of the units financed with tax-exempt bonds are newly constructed units as opposed to rehabilitated units. GAO found that all but two of the projects visited had at least 20 percent low or moderate income occupancy. The tenants in the projects were generally younger, of smaller family size, and with higher income than the general rental population. Recreational facilities at the projects varied, and monthly rents ranged from $195 to $940.