Senate Finance Committee Chairperson Sen. Ron Wyden, D-Oregon, announced August 18 the Decent, Affordable, Safe Housing for All (DASH) Act, which will be formally introduced in September when the Senate returns from recess. In addition to the bill text, a bill summary and detailed section-by-section summary were released in conjunction with the announcement. The country’s affordable housing and homelessness crises, particularly as they pertain to children, call for a comprehensive, multipronged approach and Wyden has long envisioned the DASH Act being a valuable tool. Novogradac estimates nearly 1.1 million additional affordable rental homes can be financed through enactment of the primary low-income housing tax credit (LIHTC) financing provisions of the DASH Act.

Wyden has been developing the DASH Act for several years. Prior to ascending to chairperson of the Senate Finance Committee, Wyden spoke repeatedly about his desire to introduce the bill if and when he became chair. With Democrats holding the majority in the Senate Wyden has now made good on his promise to introduce the bill he feels will be instrumental in ensuring no child is homeless.   

Many of the provisions of the DASH Act will be familiar to affordable housing advocates as the bill draws on other significant legislation such as H.R.2 (116th Congress), the Moving Forward Act, the $1.5 trillion infrastructure bill passed the House July 2020, S. 4078 (116th), the Emergency Affordable Housing Act of 2020, which essentially served as a Senate companion to the H.R. 2 LIHTC provisions, and the Affordable Housing Credit Improvement Act (AHCIA, H.R. 2573, S. 1136). The AHCIA has been introduced in four consecutive sessions of Congress and the DASH Act draws heavily from the 2021 iteration..

The DASH Act includes a variety of affordable housing proposals that will be covered in a series of Notes from Novogradac posts. This post will focus on the LIHTC provisions of the bill. Subsequent posts will address proposals to enact a middle-income housing tax credit (MIHTC), the Neighborhood Homes Investment Act (NHIA, H.R. 2143, S. 98)/first-time homebuyer tax credit, and a renter tax credit (which is identical to S. 2554, the Renters Tax Credit Act of 2021, introduced July 29 by Wyden and Sen. Sherrod Brown, D-Ohio, and would assist extremely low-income renters) with other housing spending proposals.

Like AHCIA, the DASH Act Would Greatly Expand the LIHTC

The LIHTC is by far the largest source of capital for financing the production and preservation of affordable rental homes and, as such, improvements to the incentive will significantly increase the number of households that can be assisted. The DASH Act includes more than a dozen proposals to enhance the incentive’s reach. A number of provisions were analyzed to determine the additional affordable rental homes that could be financed through enactment:

• Temporarily lower the 50% test to 25%. Lowering the “financed-by” threshold from 50% to 25% for private activity bond (PAB) financed housing for 2021-24 multifamily PAB issuances only and placed in service after Dec. 31, 2021.
• Increase in 9% LIHTC allocations. The 12.5% temporary allocation increase in the 9% LIHTC passed in 2018 and scheduled to expire at the end of this year would be made permanent. There would be two annual 25% increases to the 2021 9% LIHTC allocation – $2.81 per-capita with $3,245,625 small state minimum under current law – an inflation adjustment for 2022, and a 10% increase on that adjusted amount for the extremely low-income (ELI) increase. The DASH Act would increase annual 9% LIHTC allocations to:
  • $3.88 per capita with a $4,462,734 small state minimum for 2021
  • $4.92 per capita with a $5,670,462 small state minimum for 2022
  • Inflation adjustments based on this new baseline for 2023 and thereafter
• ELI boost and set-aside. The DASH Act proposes up to a 50% basis boost for properties that include units specifically for ELI households (those earning the greater of the federal poverty line or 30% of the area median income).  To qualify for the proposed 50% basis boost, at least 20% of the units in the property would be required to be set aside for ELI households and the increased boost is available only for those units set aside for ELI households. Also, not more than 90% of 9% LIHTC allocations could be for buildings that reserve less than 20% of their units for ELI households.
• Additional 30% Basis Boosts. Three provisions would increase the amount of tax credits available to eligible properties:
  • Native American Boost. Native American areas would be designated difficult development areas (DDA). Under current law, a 30% basis boost is allowable for properties financed by 4% LIHTC located in a DDA.        
  • Rural Basis Boost. Rural areas would also be designated as DDAs, thus making properties eligible for a 30% basis boost.
  • Discretionary Boost. The bill would extend the current law discretion LIHTC allocating agencies have to provide a 30% basis boost to properties financed by 9% LIHTC to those financed by PABs using 4% LIHTC.

In addition to these major unit-financing provisions, which are covered in more detail below, the DASH Act would also:

• Extend the period for rehabilitation expenditures. The deadline for rehabilitation expenditures would be extended to 36-months, up from 24-months, for buildings receiving a LIHTC allocation after Dec. 31, 2017 and before Jan. 1, 2023.
• Extend the deadline for basis expenditures. The timeframe for placing a building in service after an allocation of LIHTCs would be extended from two years to three years. The deadline for the so-called “10% test” in which a 9% LIHTC property must incur 10% of its costs during the year in which the tax credits are allocated or within six months within issuance of the carryover allocation, would be extended from one to two years for properties receiving allocations after Dec. 31, 2017 and before Jan. 1, 2023.  
• Qualified contract reform. The use of qualified contracts would be limited by repealing the option for future allocations received or credit allocations determined after Dec. 31, 2021 and changing the formula that determines purchase price on existing properties.  
• Right of first refusal reform. The right of first refusal (ROFR) for nonprofit general partners would be changed to a purchase option for properties receiving LIHTC allocations after Dec. 31, 2021 and would clarify that the right of first refusal for existing LIHTC properties includes the partnership interest and assets related to the property, and that nonprofit general partners could exercise their right of first refusal with or without the approval of the limited partner and in response to any offer, including one by a related party to the general partner.
• Prohibition of local approval and contribution requirements. Qualified allocation plan selection criteria would be prohibited from including local approval and contribution requirements for allocations made after Dec. 31, 2021.
• COVID-19 relief through provision of additional LIHTC award. A 150% adjuster for the first or second taxable year of credit period, with pro rata reduction in subsequent years, would be provided to address issues related to COVID-19. This proposal would apply only to buildings whose first year of the credit period ends on or after July 1, 2020 and before July 1, 2022, and pandemic-related construction or leasing delays have occurred since Jan. 31, 2020.
• Basis boost for providing low-income housing supportive services. A 50% basis boost would be provided for that portion of a building that comprises the area of the property dedicated to the provision of variety on-site supportive services, including health services, coordination of tenant benefits, job training, financial counseling, resident engagement services, or services aimed at helping tenants retain permanent housing and promoting economic self-sufficiency.  
• Study on a new tax credit to facilitate conversion of commercial to residential property. A cost-benefit analysis would be undertaken on the provision of tax incentives to owners of vacant, underutilized commercial properties in exchange for selling to housing finance agencies. The properties would be converted to affordable rental housing for low-income residents, including shelters for the homeless. The study would be required within six months of enactment of the DASH Act.  

Nearly 1.1 Million Affordable Rental Homes Could be Financed

Novogradac analyzed the impact of enacting the primary unit-financing LIHTC provisions of the DASH Act and found that an estimated 1,099,000 additional affordable rental homes could be financed over 10 years if the bill were enacted. Based on research conducted by the National Association of Home Builders, Novogradac estimates those nearly 1.1 million homes could house more than 2,560,000 million low-income people. Through the financing of these additional affordable homes, the DASH Act would go a long way in assisting the millions of low-income households who are cost burdened, cannot find affordable housing, or are experiencing homelessness. 

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About these Estimates

The estimates presented in this discussion are part of Novogradac’s ongoing analysis of rental housing provisions included in proposed legislation to enhance and expand the LIHTC and PAB rental home financing. For each estimate detailed below, several steps were taken to arrive at the additional affordable rental homes projected to be financed. In the case of each set of estimates, certain provisions provide the foundation upon which additional analysis is based. For 9% estimates, the analysis assumes the temporary 12.5% allocation increase expiring at the end of 2021 is made permanent, which is a provision of the DASH Act. Additionally, all of the estimates assume that gap financing is scalable with the increased availability of LIHTC equity and PAB debt. The scalability of gap financing applies more so to 4% LIHTC properties than to the 9% discussions that follow, because the 4% LIHTC is a shallower subsidy than the 9% LIHTC.

DASH Act Provisions Would Support Increased LIHTC, PAB Activity

Temporarily Reduce the Financed-By Threshold

The DASH Act proposes temporarily reducing the PAB “50% test” to 25%. The 50% test refers to the requirement for PABs to finance at least 50% of aggregate basis of affordable housing properties to qualify for the maximum amount of 4% LIHTCs. Novogradac estimates lowering the threshold from 50% to 25% could generate an additional 454,500 affordable rental homes financed by 2021-2024 multifamily PAB issuances over a decade.

The analysis presumes the “freed” bond cap that would result from the reduction in the financed-by threshold would be used for affordable rental housing (as opposed to other allowable PAB uses) and that gap financing was scalable. The AHCIA proposed a permanent reduction of the financed by threshold to 25%, thereby facilitating the financing of nearly 1,500,000 affordable rental homes over a decade.

Previous Novogradac analysis commissioned by the National Council of State Housing Agencies (NCSHA), in both a 2020 report and a 2021 update, analyzed the effects of lowering the threshold test. To estimate the number of rental homes that could be financed, Novogradac developed a pro forma model that establishes national baseline percentages for the sources and uses of financing for PAB financed LIHTC developments. This model is based on NCSHA Annual Factbook data available for 2016, 2017, 2018 and 2019 (the four most recent years available at the time of writing). The model is also informed by the review of final cost certification data from a national sample of PAB-financed developments. The pro forma model has distinct estimates for new construction, substantial rehabilitation and acquisition/rehabilitation developments.

Provide Additional 30% Basis Boosts

Novogradac estimates that nearly 223,000 additional affordable rental homes could be financed over 2022-31 by enacting the DASH Act’s 30% basis boost provisions that primarily affect the 4% LIHTC. As with the AHCIA, the additional basis boost provisions included in the DASH Act would expand upon existing boosts already allowed under current law. Basis boosts allow a LIHTC property to generate more equity, thus increasing a property’s maximum LIHTC allocation. This increase in equity makes new construction or rehabilitation of an existing property more financially feasible. The proposed basis boosts would be effective for buildings placed in service after Dec. 31, 2021.

The three primary boost provisions are:

1. Discretionary boost. The DASH Act would extend the discretion LIHTC allocating agencies have to provide a 30% basis boost to properties financed by 9% LIHTC to those financed by PABs using 4% LIHTC.
2. Rural boost. A basis boost is currently provided for properties located in a DDA. The DASH Act would expand upon this by including all nonmetropolitan counties and rural areas, as defined by section 520 of the Housing Act of 1949, which defines the eligibility of U.S. Department of Agriculture (USDA) rural housing programs, as DDAs. Including all nonmetropolitan areas would result in all 1,971 non-metro counties in the U.S. being eligible for the 30% boost, as opposed to the 355 non-metro counties currently designated as DDAs. Extending the boost eligibility to all rural areas – non-metro counties and areas in metropolitan counties of a rural nature – further increases the number of properties eligible for a basis boost.  
3. Native American boost. Including Native American areas as DDAs, as proposed by the DASH Act, would help to alleviate one of the difficulties specifically related to development in these areas, namely the ability to obtain debt. Because land belonging to reservations cannot be used to collateralize a loan, and also cannot be sold, it is difficult to obtain debt for properties in Native areas. The additional LIHTCs that would result from this particular basis boost would help to address affordable housing needs on tribal lands by reducing the amount of debt a development would need to take on, thus also reducing the risk to the lender.

9% Allocation Increase

Novogradac estimates that increasing the 9% allocation annually by 25% plus inflation in both 2021 and 2022 could finance 298,500 additional affordable rental homes over 2022-31. This estimate excludes units in 9% LIHTC properties receiving the 50% ELI basis boost described below. The DASH Act would increase the annual 9% LIHTC allocation from $2.81 per-capita with $3,245,625 small state minimum under current law, to:

• $3.88 per capita with a $4,462,734 small state minimum in 2021
• $4.92 per capita with a $5,670,462 small state minimum in 2022 and,
• Annual inflation adjustments to the new, higher baseline in 2023 and thereafter.

The DASH Act proposal mirrors the 2021 AHCIA provision and the H.R. 2 (116th)/Moving Forward Act in that a substantial increase in LIHTC allocations would be phased in over two years, compared to the 2019 AHCIA, which would have phased in the 9% allocation increase over five years. Unlike AHCIA, but similar to H.R. 2 (116th), the DASH Act also calls for further 10% increase in 9% allocations, although the 10% increase in H.R. 2 (116th) was applied to not just the population-based allocations, but also carryover, returned, and national pool allocations. The 10% increase in allocations was proposed in the DASH Act to ensure the ELI basis boost does not reduce 9% LIHTC unit financing. In both cases, the estimated additional rental homes financed assumes the temporary 12.5% increase in LIHTC allocation authority enacted in 2018 and expiring at the end of 2021 would be made permanent.

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Provide a 50% Boost for ELI units and Set Aside at least 10% of 9% LIHTC Allocations for Buildings with at Least 20% ELI Units

Novogradac estimates the DASH Act’s 50% ELI basis boost proposal could finance an additional 124,000 affordable rental homes in 4% and 9% LIHTC properties over 2022-2031. This estimate includes ELI units in 9% properties not accounted for under the 9% allocation increase estimate above. The DASH Act states that not more than 90% of 9% LIHTC allocations can be for buildings that reserve less than 20% of their units underwritten for ELI households. ELI households are those earning at or below the greater of 30% of the area median income or the federal poverty line. To qualify for the proposed 50% basis boost, at least 20% of the units in the property would have to be underwritten and set aside for ELI households and the increased boost is available only for those units set aside for ELI households. Both 4% and 9% developments could qualify for this basis boost, but it will be more much more difficult for 4% LIHTC properties to meet the requirement to set-aside at 20% of their units for ELI households given the much shallower subsidy. It should be noted the ELI boost would not increase the amount of 9% LIHTC allocations available in the state, but rather would allow states to provide more 9% allocation from their fixed state ceiling in any one particular property than is possible under current law. States would need to consider competing priorities to address affordable rental housing needs across the state before making allocations to ELI buildings.

Given the deep subsidies required to make rental homes affordable to ELI households, additional tools, such as the targeted 50% basis boost proposed, are needed to make properties financially feasible. The purpose of the 50% ELI basis boost is to reduce hard debt as much as possible to offset for the reduction in income generated by the lower rents charged to the ELI rental homes. Novogradac estimated the number of rental homes that could be financed with the increased equity and lower debt service. In the case of 4% LIHTC properties, the ELI basis boost would likely be used in properties financed under the Rental Assistance Demonstration program, with its focus on preserving public housing properties by leveraging private investment, or other properties located in communities with high area median incomes.

Impact for States

Below are the states that Novogradac projects could gain the largest number of affordable rental homes:

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This table lists Novogradac’s estimates of affordable rental homes, jobs and economic impact break down by state:

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Outlook

Now that the bipartisan infrastructure bill and fiscal year (FY) 2022 budget resolution with reconciliation instructions have passed Congress on Aug. 24, Democrats are one step closer to advancing their housing priorities, and the DASH Act represents Sen. Wyden’s top priorities. An August Notes from Novogradac post detailed the two-track approach the Congress is taking – a bipartisan infrastructure framework that will address “hard” infrastructure improvements such as roads, bridges and highways, and a reconciliation bill that will include “human” infrastructure projects, including community development tax incentives and funding. The forthcoming $3.5 trillion reconciliation bill, the framework for which was provided by Democrats FY 2022 budget resolution, will include provisions to address the country’s affordable housing crisis and is expected to draw from the DASH Act and other legislation introduced in the current Congress. Reconciliation will provide the likely vehicle to carry DASH Act provisions. Because of the Byrd rule – which limits provisions included in reconciliation legislation to those that have a budget impact, among other requirements – not all of housing proposals discussed above will be able to be included in the reconciliation bill, but housing advocates can push for the inclusion of LIHTC and PAB provisions excluded from the reconciliation bill in year-end tax legislation. 

Once introduced, the DASH Act, as well as the other housing legislation discussed, will provide the tools needed to address the country’s affordable housing crisis. With the current administration’s focus on addressing the multitude of challenges facing millions of Americans, the time is now for significant housing legislation.