Lawmakers, Witnesses at House Ways and Means Committee Hearing Support LIHTC, NHTC, Reconciliation Bill’s Housing Proposals

Published by Peter Lawrence on Wednesday, July 20, 2022 - 12:00am

Many Americans are troubled by high inflation, which affects their ability to cover necessities such as food, housing and fuel. Rising housing costs are a primary driver of inflation, which has now reached rates not seen since the 1980s, according to the recently released Consumer Price Index (CPI) for June 2022, which reported a 9.1% year-over-year increase in inflation.

It is under these conditions that the House Ways and Means Committee hosted a hearing July 13 titled, “Nowhere to Live: Profits, Disinvestment, and the American Housing Crisis.” The hearing intended to share solutions on addressing the nation’s affordable housing crisis through tax incentives like the low-income housing tax credits (LIHTC), historic tax credit (HTC) and the proposed Neighborhood Homes Tax Credit (NHTC). All of these incentives would have seen enhancements, and in the case of NHTC enactment, through previous iterations of the reconciliation bill formerly known as the Build Back Better Act (BBBA) (see overviews of both the September 2021 Committee-reported and November 2021 House-passed versions of the bill).

As the entirety of the housing and community development provisions in that bill are currently in jeopardy with the latest statements of Sen. Joe Manchin, D-West Virginia, the conversations taking place in the House, and the upcoming Senate Finance Committee hearing on the Role of Tax Incentives in Affordable Housing, are significant as the tax-writing committees in Congress are drawing attention to the housing crisis.

In light of the current status of the reconciliation bill, the affordable housing community will likely focus on other legislative vehicles, such as a year-end tax bill, to carry housing proposals, making the attention shown to the LIHTC and NHTC proposals during the hearing particularly noteworthy. A year-end tax bill could not only provide a vehicle for housing proposals not included in whatever form the reconciliation bill takes, but could also include the temporary 12.5% increase in LIHTC allocations enacted in 2018, which expired at the end of 2021 along with roughly two dozen other tax provisions.    

What Caused the Housing Crisis?

Party views were generally in opposition on the causes of the affordable housing crisis. Chairman Richard E. Neal, D-Massachusetts, opened the hearing by stating, “housing is a basic necessity for every American.” He later discussed the tools needed to build a “fairer, more prosperous nation including meaningful access to quality, affordable housing,” which includes the LIHTC and the proposed NHTC.

The LIHTC is the most significant federal investment in supplying affordable rental homes. The NHTC would address low- and middle-income communities’ access to home affordability and the revitalization of disinvested communities. Neal noted that combined, the LIHTC and NHTC proposals in the House-passed version of reconciliation bill could finance nearly 1 million affordable homes, based on Novogradac analysis. Ranking Member Kevin Brady, R-Texas, stated that while he hopes the entire committee can work together to address affordable housing, he and his colleagues have concerns about the reconciliation bill, mainly that it will increase inflation beyond where it presently stands because of too much spending, even with the tax hikes that were included to offset the proposed spending. 

Each of the witnesses–Dr. Elora Lee Raymond, urban planner and assistant professor in the School of City and Regional Planning in the College of Design at Georgia Tech; Dr. Akilah Watkins, president and CEO for the Center for Community Progress; Dr. Christopher Herbert, managing director, Joint Center for Housing Studies of Harvard University; Audra Hamernik, president and CEO of Nevada HAND (and former executive director of the Illinois Housing Development Authority); and, Edward J. Pinto, senior fellow and director of the American Enterprise Institute Housing Center–touched on what they saw as the most troubling aspects of the country’s housing situation, ranging from evictions, displacement and gentrification, disinvestment in underserved communities, and in the case of Pinto, misguided federal policies. Hamernik’s testimony focused on the LIHTC, with her noting, “no other federal program comes close to LIHTC’s production level.” Watkins urged Congress to approve the Neighborhood Homes Investment Act (NHIA, H.R. 2143), which would create the NHTC to close the gap between what single family homes sell for and the costs of acquiring and rehabilitating them by incentivizing the private sector to build and improve affordable homes.

Committee members blamed inflation, supply and demand mismatches, tax incentives, systemic housing issues, institutional real estate investors (who are buying single-family homes to convert to rentals) crowding out households seeking to purchase homes, or the COVID-19 pandemic for the supply gap. Republican members cited inflation as the cause of rising housing costs and higher mortgage rates, though did not acknowledge underlying factors, like housing supply issues, that have contributed to these increases. Chairman Neal led off the questions asking Dr. Herbert if the American Rescue Plan Act (ARPA), which provided $58 billion in housing and small business COVID-19-related assistance, caused inflation and our housing affordability crisis. Dr. Herbert noted the United States was not building enough houses pre-pandemic and the supply deficit was exacerbated by a surge in demand for homes during the pandemic. The emergency government assistance benefited renters and landlords rather than causing inflation and enhanced stability for families; this take is supported by the recently released State of the Nation’s Housing Report that highlighted the role eviction moratoriums and direct assistance to renters through ARPA and the CARES (Coronavirus Aid, Relief, and Economic Security) Act prevented the widespread evictions and foreclosures that were feared as a result of the pandemic. Later, during the hearing, Rep. Mike Kelly, R-Pennsylvania, disagreed that ARPA spending did not cause inflation, stating that the government spent too much money, triggering inflation and adding problems to the lack of housing supply. Rep. Tom Rice, R-South Carolina, also thought ARPA, along with energy policies, and interest rate hikes are hyper-inflationary and people at the lower end of the income spectrum are affected the most. He believes actions currently undertaken by the federal government already address affordable housing issues.

How Can the Nation’s Affordable Housing Supply Gap be Addressed?

Throughout the hearing, the LIHTC, HTC (Neal shared how the use of LIHTCs and HTCs to convert a former school to affordable housing in Massachusetts could serve as an example for other developments across New England), NHTC and the reconciliation bill were the primary solutions offered up to address the affordable housing crisis.

No member or witness participating in the hearing argued for ending existing tax incentives for housing production. Rep. Linda Sanchez, D-California, suggested that building more multifamily units for low-income households, expanding the LIHTC, and leveraging the tax code to drive investments where it is needed the most was the solution. Rep. Suzan DelBene, D-Washington, citing Novogradac analysis, stated that the Affordable Housing Credit Improvement Act of 2021 (AHCIA, HR 2573, S 1136) includes LIHTC proposals that will support the building or preservation of 2 million affordable rental homes, support 3 million jobs, provide $345 billion in wages and business income, and generate $119 billion in tax revenue over the next 10 years. DelBene said, “We cannot afford inaction.”  

Hamernik elaborated on the oversubscription of LIHTCs, which causes steep competition. DelBene was also supported by Hamernik when she explained how lowering the 50% private activity bond financing threshold, a proposal included in President Joe Biden’s Housing Supply Action Plan, can help increase the affordable housing supply. Later during the hearing, Hamernik stated that without the LIHTC, she believes that no investor would be interested in developing affordable housing in Nevada. Mike Thompson, D-California, shared how the LIHTC helped his community in times of natural disasters, specifically wildfires, and addressed the housing shortage in other areas. He asked Hamernik, what else can be done to help regarding the LIHTC and organizations such as hers to be able to build more units. Her response was simply, “We need more tax credits.” To illustrate, she shared that currently, she can only do one 9% development per year, but if more credits were available more developments could get done. She also reiterated that there is no shortage of needs and investors are willing to invest in the LIHTC.

Turning to affordable homeownership, Dr. Watkins stated that his organization is advocating for passage of the bipartisan legislation NHIA, to provide developers the funds needed to address the gap that exists between the costs of creating or renovating owned homes and the sales price of those homes. She urged Congress to approve the bill because it would be a, “huge relief for homeowners that decided to stay in place to make deep investments in their communities for the long haul.”

With the Reconciliation Bill’s Future in Doubt, Can Affordable Housing, Community Development Provisions Make it into Year-end Tax Legislation?

The need for an increase in housing funding as proposed in earlier versions of the reconciliation bill was echoed throughout the hearing. However, Sen. Manchin announced July 14 the only proposals in the pending reconciliation bill he would support advancing in July were healthcare-related. Before considering other proposals in previous iterations of the reconciliation bill, such as clean energy and tax reform, he wanted to wait until mid-August to see the inflation data. Such a position has dampened hopes that any of the major housing, community development, and renewable energy and climate provisions would make it into a much scaled back version of the reconciliation bill.

On the other hand, Biden’s Housing Action Plan shows his administration still considers addressing the housing supply gap a priority, and there are regulatory components that can be implemented by the administration without congressional action. The legislative components of the plan, however, very much depend on action from Congress and, without the reconciliation bill, would need a new legislative vehicle to advance, such as a year-end tax bill. Rising inflation and talk of a possible recession call for immediate action to address rising housing costs. Though recent reports show that housing production has been robust overall, and for rentals, affordability challenges still persist. The discussions held during the Ways & Means Committee hearing, and the upcoming Senate Finance Committee hearing scheduled for July 20, means that Congress’ tax writing committees are highlighting the affordable housing crisis in committee hearings, which will hopefully lead to much needed Congressional action like year-end tax legislation that can carry much needed housing proposals.

To stay up to date on this and other tax credit news, Novogradac has several resources: the Notes from Novogradac blog, the Tax Credit Tuesday podcast and the Novogradac Journal of Tax Credits.