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Enacting a Phased-in 50 Percent LIHTC Allocation Increase Could Create More Than 264,000 Affordable Rental Homes
While tax reform is projected to reduce the amount of affordable rental housing production financed by the low-income housing tax credit (LIHTC) by about 235,000 over 10 years, there existed prior to tax reform and still exists today after tax reform, a tremendous unmet need for more production. According to Harvard’s Joint Center on Housing Studies, more than 11 million renter households pay more than 50 percent of their income on rent. According to the National Low Income Housing Coalition, the U.S. has a shortage of more than 7.2 million rental homes that are affordable and available to extremely low-income households. The provision of the Affordable Housing Credit Improvement Act (S. 548) that would have the biggest impact on that need remains the provision to enact a permanent 50 percent allocation increase, phased in at 10 percent annually over 2019-2023.
While the temporary 12.5 percent allocation increase was an important first step, bringing back approximately 28,000 more affordable rental homes over 10 years, it did not fully restore lost production from tax reform, not to mention increase production to help close the gap in unmet need for affordable rental housing.
Incorporating the impact of tax reform and recent data from the National Council of State Housing Agencies (NCSHA), Novogradac estimates that increasing the LIHTC by 50 percent over five years will create more than 264,000 additional affordable rental homes from 2019 through 2028.
About our Assumptions
To derive this estimate, Novogradac assumed that Congress makes the temporary 12.5 percent allocation increase permanent, and applies the annual 10 percent increase for 2019-2023 to that level. Furthermore, using NCSHA historical data on allocations per home and Congressional Budget Office (CBO) projections of inflation, we assumed that the amount of eligible basis per unit increases by inflation. The estimate also incorporates Census projections of population growth and the impact of inflation on annual per-capita and small state minimum allocations.
Impact on states
Here is how these production and economic impact gains break down by state: