Cantwell-Hatch Affordable Housing Credit Improvement Act Provides Pathway Forward
In the shadow of looming tax reform, 13 senators joined together in early March to introduce the Affordable Housing Credit Improvement Act, a bill that many affordable housing advocates see as the best way to expand and enhance the federal low-income housing tax credit (LIHTC), starting with a phased-in 50 percent increase in annual allocation. The LIHTC provides the vast majority of America’s affordable rental housing and the momentum with which the bill started–in terms of cosponsors and affiliated supporters–bodes well for progress.
S. 548 was introduced March 7 by Sens. Maria Cantwell, D-Wash., Orrin Hatch, R-Utah, and a bipartisan group of 11 others. A similar bill is expected to be introduced in the House, which would be an encouraging contrast to 2016, when there was only Senate legislation.
The day before introducing the legislation, Cantwell’s office released a report on the affordable housing crisis in America. “Meeting the Challenges of the Growing Affordable Housing Crisis” highlighted the effect of the increase of 9 million renters since 2005, the removal of 13 percent of existing affordable housing inventory, the relatively low rate of rental housing construction and wage stagnation.
“If we do not act to increase the low-income housing tax credit–our best way to build new affordable homes–by 2025, over 15 million American could be spending half their incomes on rent,” Cantwell said in a press release announcing the report. “This is unacceptable.”
The Affordable Housing Credit Improvement Act addresses that issue. In addition to the legislative support, the bill received the support of the ACTION Campaign, a 50-state coalition of more than 2,000 national, state, and local affordable housing organizations, which submitted a letter in support of the legislation to Congress. Similarly, the Bipartisan Policy Center Feb. 22 issued a report again calling for a 50 percent increase in LIHTC allocation, foreshadowing a key provision of the new legislation and a move the group has supported since 2014.
The Affordable Housing Credit Improvement Act of 2017 is a sweeping legislative initiative, both in scope of what it proposes and in the depth of support it garnered at the outset. Cantwell’s office said the legislation would create or preserve approximately 1.3 million affordable rental homes over a decade, an increase of 400,000 over current levels.
What It Does
In the Senate, the legislation’s headline provision is a 50 percent increase in the annual per-capita allocation and small state minimum for the LIHTC. That increase would be phased in over five years, with the per-capita allocation of $2.35 in 2017 gradually increasing to $3.53 in 2022. The small-state minimum, which is $2.71 million this year, would reach $4.065 million in 2022, a cost of $4.1 billion over a 10-year period, according to the Joint Committee on Taxation. That additional investment would lead to a significant increase in the number of low-income housing properties built annually.
The House version wasn’t expected to include the 50 percent increase, but both versions feature several other significant changes to the LIHTC. Among the key items are:
Minimum 4 percent rate. The legislation would establish a minimum 4 percent rate for credits used to finance acquisitions or used in bond-financed developments, allowing developers to build or preserve more affordable homes, or target more very- and extremely low-income households.
Bond boost. Extends the state discretion on the 30 percent basis boost when it’s necessary to make the development financially feasible currently available for 9 percent developments to bond-financed properties. Like the minimum 4 percent, this provision would allow developers to build or preserve more affordable homes, or provide for deeper income targeting.
Income-averaging. Under current law, renters who earn up to 60 percent of the average median income (AMI) are income qualified and the maximum rent is 30 percent of the applicable income limit. The income averaging proposal would allow the 60 percent AMI standard apply to the average of all apartments, with a maximum income qualification of 80 percent of the AMI. That change would allow the rent for higher-income households to offset the reduced rent charged for households that earn 30 percent or 40 percent of the AMI. The income-averaging proposal could help address the shortage for housing affordable and available for the lowest income populated, as noted by the National Low-Income Housing Coalition’s recent report that showed that there were only 35 apartments available and affordable for every 100 extremely low-income families.
Extremely Low-Income basis boost. The bill would allow housing credit agencies to increase the eligible basis of properties by up to 50 percent where 20 percent of the apartments are designated for occupancy by households that are earning 30 percent of the AMI (or the poverty line, if greater) or lower if that’s required for the development to be financially feasible. This provision would particularly help the financial feasibility of developments targeting the lowest income populations.
Repeal QCT population cap. The legislation would remove the aggregate qualified census tract population cap, which would enable properties in more areas to receive the 30 percent basis boost. That boost is often necessary to make the financing pencil out.
Rural income eligibility. The legislation would extend the definition of income limits for rural LIHTC properties under current law for 9 percent developments to those financed by tax-exempt bonds, which would make such bond-financed properties more feasible.
LIHTC student rule. The bill would replace the current student rule with one that makes households that are entirely made up of full-time students under 24 ineligible to reside in a LIHTC unit–with exceptions for married, veteran and disabled students. It would include an exception for those with dependent children or anyone who is income-eligible and can show they are financially independent of their parents and guardians, as well as those aging out of foster care and formerly homeless youths. More students would become eligible for LIHTC properties and greatly simplify compliance, as the rule would be aligned with HUD’s student rule.
Last Year’s Version
Cantwell and Hatch were the original cosponsors of last year’s versions of the legislation.
The first was introduced May 19 and included the high-profile provisions on the phased-in 50 percent expansion, income-averaging and the minimum 4 percent rate. The second came about two months later, July 14. It included the original provisions in the first bill, plus a 30 percent basis boost for bond-financed development, a repeal of the QCT population cap and 15 additional upgrades, including the name change to the Affordable Housing Tax Credit. As mentioned earlier, there was no version introduced in the House.
Changes from Last Year
There are also some differences from the two-step version of the bill that was introduced in 2016.
One provision new to this year’s bill would close a loophole–a “planned” foreclosure–in rules that require a minimum of a 30-year affordability use agreement on LIHTC property. The legislation would grant authority to credit allocating agencies to determine whether a foreclosure was purely designed to extinguish the affordability use agreement and forbid it. That power exists only with the Treasury Department now, which on a practical level is not able to adjudicate such situations. Another new provision would raise the current 20 percent cap on the U.S. Department of Housing and Urban Development-designated difficult development areas (DDA) that are eligible for a 30 percent basis boost. The new cap would be 30 percent, which would allow more affordable housing projects to be built in higher-cost, high-opportunity neighborhoods.
The introduction of the bill during a session of Congress where comprehensive tax reform is one of the top policy priorities remains significant–particularly when the lead Republican cosponsor (Hatch) is the chairman of the Senate Finance Committee, another (Sen. Ron Wyden, D-Ore.) is the ranking member and three of the other cosponsors are members of the committee (Cantwell, Sens. Dean Heller, R-Nev., and Rob Portman, R-Ohio). That gives the bill legislative power going forward, since tax reform legislation is expected to be considered by the Finance Committee before reaching the Senate floor.
In addition, the introduction of the Affordable Housing Credit Improvement Act of 2017–along with the Historic Tax Credit Improvement Act of 2017 and the New Markets Tax Credit Extension Act of 2017–continues a strong tradition of the tax credit community looking to expand and strengthen the credits they support. That the three major pieces of tax credit legislation were introduced with strong legislative support within a 20-day period shows that tax credit supporters aren’t looking to merely survive, but to thrive.
With the introduction of the bill in the Senate and the looming introduction in the House, the Affordable Housing Credit Improvement Act of 2017 now begins the ground offensive in both houses of Congress. Its boosters will first look to gain cosponsors, then push for inclusion in moving tax legislation.
In combination the 2016 versions of the bill wound up with 17 unique cosponsors in the Senate, so the Senate version is already making good inroads. Supporters of the presumptive House version will seek as many cosponsors as possible–with members of the Ways and Means Committee and supporters of the LIHTC minimum rate legislation as the first targets.
With tax reform in the spotlight, the supporters of the Affordable Housing Credit Improvement Act face a tall challenge. But the focus and early energy suggests that they have the momentum to at least make a case for the expansion and improvement of the LIHTC.