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Trump, GOP should expand housing tax credits

For the past 30 years, federal low-income housing tax credits (LIHTC) have been a critical financing mechanism for rehabilitating and developing affordable apartment complexes. Recently, the Federal Housing Finance Agency (FHFA) also signaled that Freddie Mac and Fannie Mae will be allowed to finance low-income apartments in rural areas through the program. The program's continued existence, however, depends on Congress. Matthew Berger, vice president of tax at the National Multifamily Housing Council, spoke with Scotsman Guide News about how the program might fare under the Trump administration and Republican Congress. 

Could you briefly describe what these low-income housing tax credits are?

BergpicThe low-income housing tax credit was a program established in 1986 to help build affordable housing because of the shortage and inability of the private markets to do that on its own without any subsidy whatsoever. Over the last 30  years, the program has helped to build or rehabilitate 3 million affordable units. 

How important is the program in the rehabilitation and development of affordable apartments?

It is absolutely critical. It helps to facilitate the economics of the transaction. You are providing tax credits for development and helping to offset the cost of construction and redevelopment, which makes these developments possible through a wonderful public/private partnership. It is really the nation’s key driver of building new affordable housing.

During the Obama era, how many of these credits have been available to the states?

State allocation is $2.35 cents times the state’s population, and that is adjusted annually for inflation. There is also a state minimum of $2.69 billion in 2016. Those numbers go up with inflation.

So, there is a total volume amount that is distributed each year to each state?

There is. That is exactly how it works, and then the states allocate what they get.

U.S. Department of Housing and Urban Development (HUD) Secretary-nominee Ben Carson mentioned low-income housing tax credits favorably during his Senate confirmation hearing last week. Do you get a sense of how the program will fare during the Donald Trump era?

As you know, Congress is currently looking at tax reform and, as an association, we strongly support retaining and expanding the low-income tax credit as part of any tax-reform effort. So, we hope that the program will be expanded. More than that, though, the low-income housing credit really helps in the 60 percent-of-AMI [area median income]-and-under band. We also see a severe shortage of workforce housing going up to 100 to 120 percent AMI. Notably, Sen. Ron Wyden, D-Oregon, in the last Congress introduced legislation to establish a middle-income housing tax credit to work on that band as well. We are hoping that not only we can retain and expand the low-income housing tax credit, but we can also leverage that successful model to a middle-income housing tax credit.

Fannie Mae and Freddie Mac will be allowed to make equity investments in LIHTC projects in rural areas as a credit against their requirement to provide low-income housing support under the Duty To Serve rules.  Assuming that they re-enter this market for the first time in several years, which both have indicated in letters that they want to do, what will this mean?

It really remains to be seen. Low-income housing investment in rural areas is somewhat limited. The question is, is that due to a lack of demand or due to a lack of investors? If it is due to a lack of investors, this policy could have some benefit, but it really remains to be seen.

Some banking groups, such as the American Bankers Association, didn’t want Fannie and Freddie to be allowed to enter the market for these tax credits. Do you see any downside?

What I am told is that banks, at the moment, have a difficult time in meeting their Community Reinvestment Act (CRA) requirements [which requires banks to meet the credit needs of the communities in which they are chartered]. They buy tax credits as a means of doing that. However, Fannie Mae and Freddie Mac have no CRA requirements. The banks are somewhat concerned that if Fannie and Freddie come into the market, prices for the tax credits could come up. I think that is their concern. However, the Federal Housing Finance Agency has allowed Fannie and Freddie to enter in rural markets, where competition is more limited. There might be fewer investors in those markets that could help mitigate the impact on banks, while helping those rural areas to be served.

Where is there the most need now for affordable housing?

It is in a lot of communities, particularly your urban and suburban communities nationwide: the big cities on the coasts, but also the big inland cities. People are struggling to find housing at price points that they can afford.

And why won’t developers build more units without this tax incentive?

It is very expensive to build housing. Not only are costs high, but there are a lot of regulatory barriers at the state and local levels as well — getting plans approved, zoning, density. It is risky, and there is only a certain amount of rent that somebody making 40 to 60 percent of AMI can afford to pay. The question is, is that rent level able to meet the cost of building and operating that property? Sometimes there is a delta there, and that is exactly what this successful tax credit is designed to bridge. It is a win-win, a public/private partnership. 


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