The nation's biggest affordable housing program is imperiled by the Republicans' move to pass tax reform.
Low-income housing groups and industry groups are already lobbying Congress to preserve the Low-Income Housing Tax Credit, an $8.6 billion-a-year tax break that incentivizes investors to finance low-cost housing.
|'I’m all in favor of taking this whole thing and dumping it out on the table, looking at it and doing massive reform.'|
The credit yields more than 100,000 new low-cost housing units a year, according to the Department of Housing and Urban Development.
The threat to the housing industry and poor renters posed by tax reform is just one example of the countless challenges that President Trump and Congress will have to navigate if they are to be successful in overhauling the tax code, which they say is a priority.
Although lawmakers have shown little outright opposition to the credit, the logic of tax reform suggests it could be on the chopping block, and its advocates are proceeding as if it is. The idea behind the GOP plan is to lower tax rates and to make up the lost revenue by eliminating credits, deductions and other breaks.
Successful tax reform could mean, just by accident, much less capital for affordable housing. "While the Congress is not intending that result, it's the potential effect of tax reform," said Rick Goldstein, the general counsel for the Affordable Housing Tax Credit Coalition, a group of investors, lenders, developers and state agencies that work with the credits.
As it happens, the credit was created by the last tax reform, in 1986. It has put nearly 3 million units on the market, according to HUD. It is a major component of the federal government's efforts on housing affordability. In comparison to the program's nearly $9 billion annual cost, HUD spent nearly $20 billion on housing vouchers in 2016 and just over $10 billion on project housing.
Despite those efforts, finding affordable housing is a big problem for many Americans. More than one-third of renters are "burdened," according to Harvard's Joint Center on Housing Studies, in the sense that they pay more than the recommended 30 percent of income on rent. About one in six pay half their income on rent. Recent HUD secretaries have termed the situation a national "crisis," and it is expected to get worse as the Baby Boom retires and the minority population, comprising disproportionately low-income renters, grows.
"The low-income housing tax credit is the major tool for building affordable rental housing in the U.S.," said Scott Hoekman, senior vice president and chief credit officer at Enterprise Community Investment, an affordable housing group. "If it were eliminated in tax reform, all of the housing that's financed and built using the credit and that's made affordable to families of modest means, that activity would cease, and you would see very little or no affordable housing built."
The logic of tax reform is that individual breaks would no longer be needed. Carve-outs for individual groups would be eliminated, allowing Congress to lower rates and simplify the tax code, boosting economic growth, raising incomes and decreasing poverty. In theory, fewer poor people would need special subsidized housing.
Hoekman, who works to connect investors interested in using the credit with developers, argued that a bigger economy wouldn't replace the lost housing program. The current credit, he said, "incentivizes corporation to do something that they would not be doing otherwise."
Not that critics of the program wouldn't be willing to see it go as part of tax reform.
The credit has helped created a "low-income housing-industrial complex," said Roger Valdez, the director of Smart Growth Seattle, a nonprofit that advocates supply-side housing solutions in Seattle.
The major factor inflating housing prices and rents, Valdez argued, is local restrictions on building, such as land use, zoning and other regulations. Rather than bail out localities by offering subsidies for over-priced housing, the federal government should condition aid on cities demonstrating that they are allowing supply to meet demand, he said.
As for the credit, "I'm all in favor of taking this whole thing and dumping it out on the table, looking at it and doing massive reform," Valdez said.
States and cities most likely would be called upon to make up the difference in funding if the Low-Income Housing Tax Credit is eliminated or reduced, Goldstein said. If the value of the credit were diminished, meaning that less private capital would be available for building units, developers likely would try to attract more financing from the local governments or make the units even cheaper, possibly by leaving out amenities such as recreational spaces.
"Accordingly, tax reform could mean anything from no impact, or just sort of marginal impact, to the development is no longer financially feasible, and everything in between," Goldstein said.
This article has been updated to correct Scott Hoekman's identification and a reference to the Department of Housing and Urban Development.