Highlights of Busy 2015 in Affordable Housing

Published by Michael Novogradac on Wednesday, January 6, 2016 - 12:00am

As we start a new year, it’s a good time to consider the one we’ve just left. This allows us a chance not only to reflect on successes and challenges, but also to consider what those milestones mean for the months ahead.

From key U.S. Department of Housing and Urban Development (HUD) and Internal Revenue Service (IRS) guidance to tax extender legislation, here are significant developments in the affordable rental housing world in 2015, listed chronologically:

Jan. 12: HUD releases new guidance regarding tenant protections for households when owners use both HUD-assistance such as project-based Section 8, Section 236, Section 202 and low-income housing tax credit (LIHTC) financing.

Jan. 20: HUD releases “Understanding Whom the LIHTC Program Serves: Tenants in LIHTC Units as of December 31, 2012,” a compilation of demographic and economic data about the tenants of housing built or rehabilitated with LIHTCs. A key finding is that LIHTC properties help improve rent affordability for low-income renters and HUD Rental assistance is an effective complement to the LIHTC.

Jan. 30: HUD publishes a Federal Register notice establishing interim regulations that will govern the Housing Trust Fund (HTF) and the formula that will determine how HTF funds are distributed among eligible grantees. The 2015 allocation is expected to be distributed to states during the first half of 2016.

March 6: HUD releases income limits for fiscal year (FY) 2015, which are used to determine income eligibility for HUD’s assisted housing programs, including public housing, Section 8, Section 202 and Section 811.

March 24: HUD issues new proposed rule to implement protections included in the Violence Against Women Reauthorization Act of 2013 (VAWA 2013). The rule would amend HUD regulations to fully protect against housing discrimination all residents who are survivors of domestic and dating violence, stalking and sexual assault, regardless of sex, gender identity, sexual orientation or age.

March 26: The IRS releases a Chief Counsel Advice memorandum stating that when an increase in a tenant’s income in a LIHTC property leads to the conclusion that the tenant’s lease not be renewed, but that move conflicts with requirements of local, state or other federal program, the owner is required to continue the tenancy if the tenant satisfied the income requirements at the outset. That gives property owners and managers some relief from a 2007 memorandum that indicated otherwise.

June 15: HUD releases new guidance for public housing authorities (PHAs) and affordable rental housing property owners and managers participating in HUD’s Rental Assistance Demonstration (RAD) program.

June 25: The U.S. Supreme Court issues its decision in the case Inclusive Community Properties Inc. vs. Texas Department of Community Affairs. The 5-4 decision allows complaints to be made under the Fair Housing Act based on “disparate impact,” which is when a policy that appears to be neutral has a discriminatory effect on a protected class. While the decision is clear, it is yet not discernable how the specifics will apply to affordable rental housing.

July 8: HUD announces a final rule on affirmatively furthering fair housing. The final rule clarifies existing fair housing obligations for HUD program participants to incorporate into their planning processes. The rule included some new aspects, but upheld a fundamental concept of the Fair Housing Act.

July 24: A report by the U.S. Government Accountability Office (GAO) says that Congress should consider designating HUD as a joint administrator with the IRS of the LIHTC program. The GAO report suggests HUD should be given responsibility for regular monitoring of housing finance agencies and of analyzing the effectiveness of the program. The report wasn’t without critics: Left unaddressed were such items as congressional intent, the provision of resources to HUD to carry it out and a large volume of evidence of the LIHTC program’s success.

Aug. 7: The IRS releases an update of its audit technique guide (ATG) for the LIHTC program. The ATG provides guidance for IRS examiners to audit owners of LIHTC properties.

Aug. 19: The Federal Housing Finance Agency (FHFA) adopts a final rule on Fannie Mae and Freddie Mac goals for single-family and multifamily housing for 2015 through 2017. The final rule sets identical benchmarks for both government-sponsored enterprises in all categories and establishes goals for the first time for rental units available to low-income families in small properties (five to 50 units).

Sept. 3: HUD releases FY 2016 proposed fair market rents to determine payment standards for the Housing choice Voucher (HCV) program, initial renewal rents for some expiring project-based Section 8 contracts and initial rents for housing assistance payment contracts in the Moderate Rehabilitation Single Room Occupancy (SRO) program.

Nov. 24: HUD publishes in the Federal Register a notice designating difficult development areas (DDAs) and qualified census tracts (QCTs) for 2016 for purposes of the LIHTC. It also announces a delay in the effective date from Jan. 1, 2016, until July 1, 2016, due to changes in small-area DDAs, which are ZIP code-based areas inside metropolitan areas, rather than counties. The delayed effective date extends access to increased LIHTC equity for developments in areas losing DDA status, while the shift to small area DDAs opens up the opportunity to increased LIHTC equity for many communities that never have been designated.

Dec. 9: The Joint Center for Housing Studies of Harvard University releases “America’s Rental Housing: Expanding Options for Diverse and Growing Demand,” which finds that between 2005 and mid-2015, the number of renter households in the U.S. increased by 9 million, the largest gain in any 10-year period on record.

Dec. 18: Congress and President Barack Obama end months of negotiations with an agreement on the $1.1 trillion Consolidated Appropriations Act of 2016 which includes the tax-extending, $680 billion, Protecting Americans From Tax Hikes (PATH) Act of 2015. The bills include tax provisions to permanently extend the minimum 9 percent LIHTC applicable percentage for federally unsubsidized developments. The legislation also provides five-year extensions for the new markets tax credit (NMTC) and the renewable energy investment tax credit (ITC) and production tax credit (PTC). The bills’ spending provisions include some significant funding decisions for HUD.

Implications for 2016 and Beyond

Taken together, these discrete actions and decisions add up to 2015 being a year of successes for affordable rental housing. Two milestones highlighted above stand out as particular victories for supporters of affordable rental housing. Primary among them was the permanent extension of the 9 percent LIHTC minimum rate, which, in addition to taming year-over-year uncertainty about the amount of available credit for federally unsubsidized LIHTC developments at 9 percent, may foretell the beginning of long talked-about comprehensive tax reform.

In addition, and of equal importance to affordable rental housing advocates, is the U.S.Supreme Court’s decision that lawsuits can be brought under the Fair Housing Act if a law or practice has a disparate impact, or discriminatory effect, even if the law or practice was not enacted with the intent to discriminate against any group. This ruling has been applauded by both fair housing advocates and the federal government. One concern for 2016 and beyond is the impact this decision will have on state allocating agencies, developers and others involved in providing and preserving affordable rental housing. As we wrote in October, it is very difficult and expensive to bring a lawsuit and to prove disparate impact, so it is as yet unclear what short-term effects the ruling will have.