Affordable Housing Financing Stack in Michigan and Ohio: The Complete Developer Guide

Affordable housing development in Michigan and Ohio is a capital stacking exercise. No single program — not even the Low Income Housing Tax Credit, the primary federal equity driver — provides enough financing for a project on its own. The developers who consistently close affordable housing deals in Detroit, Cleveland, Columbus, Grand Rapids, and Cincinnati do so because they understand which programs combine with LIHTC, how those programs are sequenced, and how to present a complete capital stack to each program administrator.

The maximum Michigan affordable housing stack — MSHDA LIHTC 9% credits + Michigan Historic Tax Credit (25%) + Federal Historic Tax Credit (20%) + Michigan Brownfield TIF + HUD HOME + CDBG — can fund 75–85% of total project costs on the right project. The maximum Ohio affordable housing stack — OHFA LIHTC 9% credits + Ohio Historic Tax Credit (25%) + Federal HTC (20%) + Ohio Brownfield Remediation Program + HUD HOME + CDBG — can achieve similar coverage.

This guide covers how the affordable housing capital stack works in Michigan and Ohio — which programs are available, how they interact, the sequencing required to access each, and the key structuring issues that make or break affordable housing transactions.

LIHTC: The Foundation of the Affordable Housing Stack

The Low Income Housing Tax Credit (LIHTC) is the federal government's primary affordable housing equity program. The Internal Revenue Service allocates tax credits to state housing finance agencies (MSHDA in Michigan, OHFA in Ohio) based on state population. State agencies then allocate credits to developers through competitive scoring rounds. Two credit types: 9% credits provide approximately $1 of credit per $1 of eligible housing credit basis, generating substantial equity (typically $0.85–$0.95 per credit dollar). 9% credits are competitive and oversubscribed — Michigan and Ohio both have more qualified applications than available credit annually. 4% credits apply to projects financed with tax-exempt private activity bonds, generating approximately $0.40 in credits per eligible dollar. 4% credits are not competitively scored — any qualifying project using sufficient bond financing receives the credit — but the bond volume cap creates its own constraint. LIHTC equity: LIHTC investors (typically banks and insurance companies) pay $0.85–$0.97 per credit dollar in exchange for the 10-year credit stream. On a $10 million credit award (9% scenario), the investor pays $8.5–$9.7 million in equity. This equity replaces conventional debt and developer equity, dramatically improving project feasibility in markets where rents are too low to support market-rate development economics. Compliance: LIHTC units must remain affordable (rent and income restricted) for 30 years. Violation of compliance triggers credit recapture.

Stacking Historic Tax Credits with LIHTC: Basis Management

Historic Tax Credits and LIHTC are the most powerful combination in affordable housing finance — and the most technically complex. Both programs apply to the same construction costs, which creates basis interaction issues. How they interact: The Federal HTC provides a credit equal to 20% of QREs. QREs reduce the eligible basis for LIHTC (because the same costs cannot generate both HTC and LIHTC credits without basis adjustment). Basis adjustment required: The eligible basis for LIHTC is reduced dollar-for-dollar by the amount of federal HTC claimed. This is the 'basis reduction' — federal law requires it to prevent double-counting. Practical effect: On a $10 million rehabilitation with $8 million in QREs: Federal HTC generates $1.6 million in credits (20% × $8M QREs). LIHTC eligible basis is reduced by $1.6 million (the amount of federal HTC). Remaining LIHTC eligible basis: $8M - $1.6M = $6.4M. At a 9% credit rate, reduced LIHTC credits: approximately $576,000 per year for 10 years = $5.76M in total credits. The combined total — $1.6M HTC + $5.76M LIHTC = $7.36M — exceeds what LIHTC alone would generate on the $8M rehabilitation without basis reduction, even after the adjustment. State historic credits do not require federal basis reduction: Ohio HTC (25%) and Michigan HTC (25%) do not reduce the federal LIHTC eligible basis. They generate additional state tax credit equity on top of the LIHTC/federal HTC stack. This is why the MI HTC + federal HTC + MSHDA LIHTC combination is so powerful: the state HTC adds 25 cents per QRE dollar without reducing the federal credit stack.

MSHDA Programs: Michigan's Affordable Housing Toolkit

Michigan State Housing Development Authority (MSHDA) administers multiple programs that affordable housing developers use alongside LIHTC. MSHDA LIHTC Qualified Allocation Plan (QAP): MSHDA scores 9% LIHTC applications annually. Michigan's QAP scores projects on: location (proximity to transit, services, employment), project type (preservation vs. new construction), developer experience, community support, energy efficiency, and serving special needs populations. Detroit and other priority Michigan markets receive geographic preferences in most QAP cycles. MSHDA HOME Program: Michigan's HUD HOME allocation is deployed through MSHDA as a gap financing source for affordable housing. HOME funds can provide: direct loans to developers (below-market rate), grants for specific project costs, and rental assistance for extremely low-income tenants. MSHDA Housing and Community Development Fund (HCDF): A below-market-rate loan program for projects combining affordability with community development goals. HCDF loans typically run 0–3% interest with 30-40 year amortization. Mortgage Revenue Bonds: MSHDA issues tax-exempt bonds that generate 4% LIHTC eligibility. MSHDA bonds + 4% LIHTC + state HTC + HOME is the standard structure for non-competitive affordable housing deals in Michigan. Gap analysis: Most Michigan affordable housing deals have a financing gap between LIHTC equity + debt and total development costs. MSHDA requires developers to document this gap and justify the need for additional HOME or HCDF funding.

OHFA Programs: Ohio's Affordable Housing Toolkit

Ohio Housing Finance Agency (OHFA) administers Ohio's affordable housing financing programs. OHFA LIHTC QAP: Ohio's annual 9% LIHTC scoring criteria include: housing needs documentation (vacancy rates, income levels), location and opportunity factors (school quality, transit access, employment proximity), developer experience and capacity, community support, energy efficiency, and serving populations with special needs. OHFA regularly adjusts QAP priorities — the most recent cycles have emphasized opportunity areas (low-poverty census tracts with strong schools and employment) and preservation of existing affordable housing. Ohio Affordable Housing Trust Fund: State-funded trust fund providing grants and below-market loans for affordable housing development. Available to OHFA QAP applications as gap financing. OHFA Ohio 811 Project Rental Assistance: Project-based rental assistance for extremely low-income tenants with disabilities — often used in mixed-income developments to serve the lowest-income population. HOME Investment Partnerships: Ohio's HUD HOME allocation is deployed through OHFA and local HOME participating jurisdictions. Columbus, Cleveland, and Cincinnati administer their own HOME programs as entitlement cities. Ohio Housing Finance Agency bonds: OHFA issues tax-exempt bonds generating 4% LIHTC eligibility, similar to MSHDA. Ohio Brownfield Remediation + OHFA LIHTC: Projects on brownfield sites can access Ohio Brownfield Remediation Program funding for cleanup costs separate from OHFA programs — a powerful combination for redeveloping contaminated affordable housing sites.

The Maximum Affordable Housing Stack: How to Combine Every Program

Michigan maximum affordable housing stack (historic brownfield site): MSHDA LIHTC 9% credits + Michigan HTC (25%) + Federal HTC (20%, with basis adjustment) + Michigan Brownfield TIF (site costs) + MSHDA HOME (gap financing) + HUD CDBG (project-specific costs) + MSHDA HCDF (below-market loan). Total incentive coverage: 75–85% of total development costs. Ohio maximum affordable housing stack (historic brownfield site): OHFA LIHTC 9% credits + Ohio HTC (25%) + Federal HTC (20%, with basis adjustment) + Ohio Brownfield Remediation Program (site cleanup) + OHFA HOME (gap) + HUD CDBG (project-specific) + Ohio Housing Trust Fund (gap). Total incentive coverage: 75–85% of total development costs. Sequencing the stack: 9% LIHTC must come first — the QAP application is the cornerstone around which the rest of the stack is assembled. After receiving a LIHTC reservation, the developer has typically 6–12 months to close financing. Historic certifications (Part 1 and Part 2) must be in progress before LIHTC application submission. Brownfield plan approval should be secured before LIHTC application for brownfield sites. HOME and CDBG applications can typically be submitted after LIHTC reservation is in hand — having LIHTC reserved demonstrates project viability to HOME and CDBG administrators. The key coordination: Each program has its own underwriting, compliance, and closing requirements. The developer must manage multiple simultaneous timelines and ensure that all sources close simultaneously at the construction financing close. Transaction attorneys with affordable housing experience are essential.