Tax Reform Plan Spells Disaster for Affordable Housing

Filed in Capitol Hill, Codes and Regulations, Multifamily by on November 9, 2017 1 Comment

matchesThe tax reform plan introduced last week in Congress includes cuts that will have a devastating impact on developers’ ability to construct affordable housing, according to analysis from Novogradac & Company.

While the bill does not address changes to the Low-Income Housing Tax Credit (LIHTC), it does away with private activity bonds. “That would translate to a reduction of as much as two-thirds of the current production of affordable rental housing provided by the LIHTC program,” or a loss of about 788,000 to 881,000 affordable rental homes over 10 years, the analysis, which includes a state-by-state breakdown, found.

“Tax-exempt private activity bonds are responsible for creating approximately 40% of all affordable housing. This silently but very effectively eliminates the 4% low-income housing tax credit, which is only available to properties financed 50% or more by tax-exempt private activity bonds,” said NAHB Multifamily Council Vice Chair Steven Lawson.

In addition, the House Republicans’ tax reform plan cuts the top corporate tax rate from 35% to 20% — reducing the tax loss benefits of LIHTC investments. A 20% rate “would reduce LIHTC equity by about 15%, translating to $1.2 billion or more in loss equity annually, [which] translates into a loss of 85,600 to 93,900 affordable rental homes over 10 years,” the Novogradac analysis found.

Together with other small but significant changes, the tax reform proposal would reduce the number of LIHTC-financed homes by as many as 983,000 or more over 10 years. “Furthermore, given the lower financial feasibility under a lowered corporate rate, the changes would also result in rental homes that would likely serve higher average income levels, provide fewer amenities and/or social services,” the analysis found.

“While the housing industry continues to recover slowly from the Great Recession, housing affordability in both the single and multifamily markets has become a rising challenge in the industry,” NAHB Chairman Granger MacDonald told Congress in August during his testimony on LIHTC’s importance.

“Multifamily housing affordability has reached crisis proportions. The number of renter households [that] spend more than half of their monthly income on rent is at an all-time high of 11.4 million: more than 1 in 4 of all U.S. renters,” he said.

Lawson agreed. “Should this provision survive to be enacted, it would be disastrous for both hard working lower-income families and for the construction jobs that would otherwise have been created. Housing that is affordable for working families is already in extremely short supply, and this would make the problem exponentially worse.”

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  1. ES says:

    Sign the petition below to alert of our elected officials to the tax increase that will be ours if the tax bill is passed as it stands now. Say no to increasing your taxes and pass long to your friends and family!

    https://petitions.whitehouse.gov/petition/keep-state-and-local-tax-deduction-salt-new-tax-bill

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