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Biden-Harris Administration’s Proposed 2025 Budget to Include Several Housing Proposals that Combined Could Finance As Many As 2 Million Affordable Homes

Published by Dirk Wallace and Peter Lawrence on Thursday, March 7, 2024 - 8:55AM

The Biden-Harris Administration today released a fact sheet highlighting mandatory housing proposals in their forthcoming fiscal year (FY) 2025 budget request and referenced in President Joe Biden’s State of the Union address before Congress, which if enacted, would help address the nation’s growing deficit of affordable homes and other key housing challenges. 

While the fact sheet is only a preview of what the administration’s full FY 2025 budget proposal— which is expected to be released on March 11—will include, even this initial look reveals a number of promising affordable housing proposals that, taken together, could finance as many as 2 million homes and possibly more.

Several of the housing proposals the administration will propose are updates or renewals of provisions that have been included in previous budget requests. Some are new this year. All face an uncertain future in Congress, but represent serious proposals aimed a critical national need confronting the administration and Congress, and their inclusion the budget request illustrates the administration’s priorities to address that need. 

This initial review addresses only a handful of provisions previewed in today’s fact sheet. A more detailed Notes from Novogradac post will be published next week detailing the costs and expected impacts of the full slate of provisions included in the FY 2025 budget proposal—including proposals related to community development and renewable energy incentives. It’s also worth noting that projections and estimates provided here are initial and subject to change as the proposals themselves are considered and negotiated by lawmakers. 

LIHTC Provisions, Updated and Adjusted

In its FY 2025 budget request, the Biden Administration again plans to propose enhancements to the low-income housing tax credit (LIHTC) and tax-exempt private activity bonds that were proposed in last year’s budget request, and similar to proposals in the Affordable Housing Credit Improvement Act (AHCIA, S. 1557, H.R. 3238). 

Specifically, the administration is expected to propose that Congress:

1. Increase 9% LIHTC allocations to:

  1. $4.37 per capita and $5,039,154 for small states in 2025 (which is a more than 50% increase from the current law amount for 2024),
  2. $4.99 per capita and $5,754,271 for small states in 2026 (a further 14% increase from the proposed 2025 amounts), and
  3. Adjust the 2026 amounts for inflation for 2027 and subsequent years.

2. Lower the private activity bond (PAB) financing threshold from 50% to 25% for buildings placed in service in taxable years beginning after Dec. 31, 2024,

[Note that the tax legislation currently pending in the Senate, the Tax Relief for American Workers and Families Act, H.R. 7024, includes a provision that would lower the threshold to 30% instead of 25% for 2024 and 2025 only.] 

3. Repeal the qualified contract provision for requests submitted to LIHTC allocating agencies after Dec. 31, 2024, and reform purchase price to the fair market value, taking into consideration the non-low-income and low-income portions of the building, and

4. Replace the “first right of refusal” safe harbor with a purchase option safe harbor for agreements entered into, or amended, after the date of enactment.

Similar to the FY 2024 Greenbook but unlike the FY 2023 Greenbook, there is no proposal to provide a discretionary basis boost for private activity bond (PAB) financed properties up to 130% as needed for financial feasibility to finance newly constructed homes or a substantial rehabilitation that adds a net increase in the amount of affordable homes in areas of opportunity.

Neighborhood Homes Tax Credit (NHTC) Proposal Renewed

In addition to these important LIHTC and private activity bond provisions, the administration will again propose the establishment of a Neighborhood Homes Tax Credit. This potential new tax incentive would be meant to cover the gap between construction cost and sales price for rehabilitated or newly built single-family homes in distressed communities. 

First signaled in the administration’s Housing Supply Action Plan, the FY 2024 Greenbook included a proposal to establish a NHTC to help finance affordable owner-occupied single family homes in distressed communities, as envisioned by the Neighborhood Homes Investment Act (NHIA, S. 657, H.R. 3940). 

Renewed in this year’s budget plan, the proposal would provide $6 per capita or $8 million for small states starting in 2025 and adjusted annually thereafter, which were the amounts as outlined in NHIA for the 117th Congress (H.R. 2143/S. 98). When NHIA was reintroduced in this Congress, the amounts were increased to $7 per capita or $9 million for small states to reflect the additional costs of development over the past two years. 

New Provisions Show Promise

In addition to these tax incentive provisions that already have widespread support from a wide range of affordable housing and community development stakeholders, the administration also previewed today several new proposals designed to support and incentivize the development and rehabilitation of affordable rental homes. 

Specifically, the administration proposes:

1. The Innovation Fund for Housing Expansion, a new $20 billion multifamily financing initiative:

a. This new fund would support the construction of affordable multifamily rental units; incentivize local actions to remove unnecessary barriers to housing development; pilot innovative models to increase the production of affordable and workforce rental housing; and spur the construction of new starter homes for middle-class families. 

2. Increasing the Federal Home Loan Banks’ (FHLB) Affordable Housing Program (AHP) contributions from at least 10% to 20% annual net income

a. The AHP is a long-standing program that supports the purchase, construction or rehabilitation of owner-occupied and affordable rental housing. From 1990 to 2022, the FHLBanks have awarded approximately $6 billion in AHP funding to over 19,400 projects supporting over 786,000 homes. This proposal would double the minimum annual AHP contributions, which the U.S. Office of Management and Budget estimates would generate an additional $3.8 billion in AHP funding over 2025-34.

What These Provisions Could mean Over 10 Years

Novogradac has previously estimated the number of homes that could be financed by proposals similar to those that are slated for the 2025 budget proposal. There are a number of factors and data sources that contribute to those estimates and, as the market changes and conditions shift, Novogradac continually adjusts its projections. 

For example, the Novogradac estimates included here incorporate key economic changes in rental housing development, most notably changes in interest rates and the availability/cost of debt, development cost increases, among others, that have changed our predictions from those made in May 2023 about the effect of the major unit financing provisions of the Affordable Housing Credit Improvement Act (AHCIA, S. 1557, H.R. 3238).  In particular, Novogradac’s January 2024 estimate of lowering the private activity bond (PAB) financing threshold from 50% to 25% over 2024-33 is 1.06 million affordable rental homes as compared to its May 2023 estimate of 1.39 million over 2023-32.  

On a related note, the cost of single-family development has led the Neighborhood Homes coalition to recommend to NHIA sponsors to change the bill from $6 per capita and $8 million minimum for small states to $7 per capita and $9 million minimum to be able to maintain the goal of 500,000 homes financed over 10 years.

With those examples in mind, the following are Novogradac’s estimates of the number of affordable rental homes that could be financed-either for construction or preservation-if these provisions of the administration’s FY 2025 budget proposal are enacted. 

Tax proposals: 

1. Lowering the PAB financing threshold from 50% to 25%

Given the pending tax bill (the Tax Relief for American Families and Workers Act of 2024, H.R. 7024), which overlaps with the FY 2025 budget proposal, Novogradac provided two estimates: one assuming the tax bill is enacted and other if it is not.

  • If the H.R. 7024 is enacted: 969,000 affordable rental homes constructed or preserved over 2025-34

The first year (2025) of this estimate calculated the additional homes financed assuming the financing threshold went from 30% to 25% and for the subsequent nine years, from 50% to 25%.

  • If the H.R. 7024 is NOT enacted: 1,063,000 affordable rental homes constructed or preserved over 2025-34

The second estimate assumes current law as the status quo and calculates the additional homes financed by lowering the 50% test to 25% from 2025 – 2034.

2.  Increase in 9% allocations: 248,000 affordable rental homes constructed or preserved over 2025-34

3.  Neighborhood Homes Tax Credit: 430,000 owner-occupied homes constructed or preserved over 2025-34

These tax proposals assume that necessary gap financing is available along with tax credit equity and debt made available by the tax proposals to finance the additional homes constructed or preserved. If the affordable housing resources in other FY 2025 proposals were enacted, there would be more than enough gap financing resources available. Combining the three estimates above, Novogradac estimates an additional 1.73 million affordable homes would be constructed or preserved over 2025-34.

Previous mandatory spending proposals:

4.  $7.5 billion in public housing recapitalization funding: 115,000 public housing homes preserved

  • The U.S. Department of Housing and Urban Development (HUD) and outside experts have estimated the backlog in public housing capital needs to be in the tens of billions of dollars. As a downpayment on these needs, the FY 2025 budget requests $7.5 billion. Novogradac based its unit financing estimate on the average capital subsidy per unit in public housing recapitalization from HUD data

5.  $7.5 billion in new section 8 Project-Based Rental Assistance (PBRA) contract funding

  • As operating assistance, PBRA funding would not provide capital funding to create new and rehabilitate existing housing, but it would enable homes financed with other resources to be more deeply income targeted. Indeed, when it proposed the new PBRA contract funding previously, HUD expressed its intent to hold a competition for the new PBRA funding and applicants that would pair LIHTC financing with the new PBRA funding would have a competitive advantage.

New mandatory proposals in 2025: 

6.  Increase in AHP funding: 249,000 rental and 44,000 owner-occupied homes constructed, preserved or assisted over 2025-34

  • Novogradac’s estimate for this proposal is based on  an estimate from the U.S. Office of Management and Budget of how much FHLB net income is likely over 2025-34, and the historical amount of AHP funding per-unit for rental and owner-occupied homes. AHP funding used to finance rental housing is almost completely used as gap financing, and so all 249,000 homes in the should not be considered a net addition to the number of homes financed. Also, most AHP funds used for owner-occupied homes historically are used for homebuyer assistance, rather than new construction or home rehabilitation, but the 44,000 AHP owner-occupied home financing estimate includes all three options.

7.  $20 billion multifamily financing initiative – 498,000 affordable rental homes constructed or preserved over 2025-34. 

  • This proposed new funding source has several eligible uses as described above, but for purposes of producing a unit financing estimate Novogradac assumed all of it would be used as gap financing and the homes would need additional subsidy or financing to be constructed or preserved. Like the AHP estimate, all 498,000 homes in the estimate should not be considered a net addition to the number of homes financed. That said, there is potential for the funding will incentivize local and state regulatory changes that could make it easier to build affordable rental housing.

While total of the unit financing estimates of these new proposals should not be considered a net addition, if all of these proposals were enacted, it is likely that the total net addition would be at least 2 million homes over 2025-34.

Blog Graphic: Estimated Number of Homes that Could be Financed over 2025-34 by Selected Biden-Harris Administration FY 2025 Budget Proposals


Next Steps

Any administrations’ budget proposals are almost never, if ever, enacted precisely as proposed. Moreover, there could be any number of additional supply-side provisions advanced that could augment the projections described above. 

As such, it is important to remember that the estimates of potential outcomes posited here are a starting point. There is a long road ahead once these proposals are officially released next week. 

But the bottom line for now is this: The Biden-Harris Administration is looking at a lot of possible solutions for the deep need for affordable housing in the United States, and the ideas it is suggesting hold a considerable amount of potential. 

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