by Jill Cromartie
Managing Director
Simple Asset Management
What is Deeper Targeting?
The Low-Income Housing Tax Credit (LIHTC) program has historically centered on 60% Area Median Income (AMI) as the benchmark for affordability. “Deeper targeting” refers to a deliberate commitment to serve households at significantly lower income levels—typically 30% or 40% AMI. These set-asides are not incidental; they are policy choices intended to reach the most vulnerable populations.
Is Deeper Targeting Required Under Section 42?
Section 42 requires allocating agencies to prioritize applications that serve lower-income households. However, it stops short of prescribing how deeper targeting must be implemented. In practice, these commitments are driven by state Qualified Allocation Plans (QAPs) and ultimately memorialized in restrictive covenants.
In other words, deeper targeting is not federally mandated in structure—but once committed, it becomes binding.
The Operational Reality of Deeper Targeting
Deeper targeting advances mission—but it also introduces structural financial strain.
Lower AMI designations translate directly into lower rents. Over time, this creates a widening gap between revenue and expenses, particularly as operating costs continue to rise. By Year 15, many properties with significant deeper targeting commitments are no longer marginally constrained—they are financially unstable.
At that point, the issue is no longer theoretical. Properties begin to:
operate at or below breakeven
defer maintenance
experience unit loss or deterioration
face heightened risk of default or foreclosure
This is not a failure of intent—it is a misalignment between long-term operating realities and early-stage policy incentives.
The Role—and Limits—of Project-Based Vouchers
Developers often rely on Project-Based Vouchers (PBVs) to offset the revenue loss associated with deeper targeting. When available, PBVs can stabilize operations by:
capping tenant rent contributions at ~30% of income
providing higher payment standards to owners
But PBVs are not guaranteed. Many properties either lack sufficient voucher coverage or lose alignment over time. When that happens, the original financial assumptions begin to break down.
Post Year 15: The Critical Question
When a property becomes financially unsustainable, a difficult but necessary question emerges:
Can deeper targeting commitments be modified?
The answer depends entirely on the property’s regulatory framework—specifically, the restrictive covenants and whether deeper targeting requirements extend beyond the initial compliance period into the extended use period.
This is a legal question, but also a policy and ethical one, with real consequences for residents and communities.
Practical Pathways Forward
Before considering any change to deeper targeting commitments, owners should exhaust all available stabilization strategies:
Engage the local Public Housing Authority to explore PBV availability.
Consult the Housing Finance Agency (HFA) regarding operating subsidies or relief programs.
Conduct a detailed review of restrictive covenants to understand the duration and flexibility of AMI commitments.
Only after these avenues are explored should structural changes be considered.
Adjusting AMIs: Proceed with Care
If your HFA allows you to adjust the deeper targeting levels, it must be done deliberately and responsibly.
Raising AMI levels can improve revenue—but it also risks economic displacement. Abrupt changes can undermine the very mission the property was created to serve.
A more balanced approach is to:
increase AMI levels only upon unit turnover
preserve affordability for existing residents
gradually restore financial viability
This approach does not eliminate the tradeoff—but it manages it with integrity.
Conclusion: Aligning Mission with Sustainability
Deeper targeting remains essential to addressing the housing needs of extremely low-income households. But without long-term operating alignment, these commitments can inadvertently destabilize the very assets intended to serve them.
Sustainable affordability requires more than initial scoring incentives—it demands ongoing coordination between owners, HFAs, and housing authorities.
At Year 15 and beyond, success is not defined solely by how deeply a property targets income—but by whether it can continue to serve residents without compromising its financial and physical viability.
Jill Cromartie, Managing Director of Simple Asset Management. This is a consulting firm that offers asset management, relocation, LIHTC application and development management services.
Disclaimer
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This article was originally published in the June 2026 edition of The Credential, part of NAHB’s Housing Credit Certified Professional (HCCP) program.