WASHINGTON, DC-During the recession, low-income housing project development and financing—like all commercial real estate projects—went into hibernation. The demand was certainly there for these assets, but the Treasury Department’s tax credit program that funds many of these projects was just not being used that much, in large part because firms did not have robust profits to offset with the credits.

With the recession over all of that is changing, just in time to face another, perhaps fatal challenge: Congress and its army of budget-busters.

The fear in the low-income housing community is palatable that this tax credit program will be severely scaled back or even completely eliminated, Amy Dosen, vice president and equity sales manager at Key Community Development Corp., in Cleveland, tells GlobeSt.com. “Because it’s an expenditure, everyone I have talked to feels there’s a good chance it’ll be impacted,” she says.

Such a move would be short-sighted, Dosen adds, as low-income multifamily housing is among the better-performing asset classes. “Default rates are extremely low, even lower in some cases than market-rate multifamily.”

Cutbacks wouldn’t affect deals in the pipeline now, she says, but would impact transactions from 2013 on. Adding insult to injury, low-income housing tax credit investments are showing clear signs of strength right now. “The market has definitely come back,” Dosen says.

One example is Merritt Community Capital Corp.’s Multi-Investor Fund XIV. At $73 million, it is the largest Low-Income Housing Tax Credit fund closing in the Oakland, CA company’s 23-year history. This fund exceeded last year's fund by $15 million.

The LIHTC market’s growing strength is also evident on a deal-by-deal basis, such as the individual transactions that Key Community Development underwrites. Dosen points to a recent transaction in Vermont that entailed the acquisition and rehabilitation of 11 apartment buildings.

Partners in the project, called City Neighborhood Housing LP, included Housing Vermont and Champlain Housing Trust. There were capital sources from at least seven supporting community agencies, Dosen explains. In addition, Historic Tax Credits were used. However, without the tax credit equity portion of the deal, which came to $3.5 million, it never would have gotten off the ground.

“Close to 37% of the financing came from this source, illustrating that it’s a key part of the capital stack,” she says. “This equity enables the general partners to charge affordable rents.”