LIHTC, NHTC, MIHTC Extolled as Necessary Tools to Address Affordable Housing Supply Gap During Senate Finance Hearing, Wyden Reintroduces DASH Act
In a show of bipartisan support, members of the Senate Finance Committee called for immediate action to address the country’s ever growing affordable housing crisis during a March 7 hearing.
During the hearing titled, Tax Policy’s Role in Increasing Affordable Housing Supply for Working Families, senators and witnesses discussed the ways in which the federal government has used tax policy to address the nation’s housing problems, and provided recommendations on how current policies could be improved and enhanced. In preparation for the hearing, the Joint Committee on Taxation released a report on March 3 titled Present Law And Background Relating To Residential Real Estate that provides general background on the tax provisions related to residential—both rental and owner-occupied—housing.
Both Chair Ron Wyden, D-Oregon, and Ranking Member Mike Crapo, R-Idaho, referenced the history this particular committee has on addressing significant issues in a bipartisan manner and they agree the next big problem to tackle is housing affordability issues. Though the Senate Finance Committee held a similar hearing in July 2022, and several other housing related hearings were convened in the House and Senate in 2022, throughout the hearing it was acknowledged that Congress has taken little action on this issue. The fact that affordability issues are creeping up the income ladder—the lack of workforce housing and increasing cost burdens among middle-income households—the continued struggles of low-income households, stubbornly high inflation, and the affects housing supply and affordability issues has on the economy were all held up as proof that legislators cannot wait to act on housing.
Several Bills Address Affordable Housing
A number of housing bills, both forthcoming and just reintroduced, designed to increase the supply of both rentals and owner-occupied housing were mentioned throughout the hearing. Sens. Ben Cardin, D-Maryland; Todd Young, R-Indiana; Wyden, Jerry Moran; R-Kansas, and Banking, Housing and Urban Affairs Committee Chair Sherrod Brown, D-Ohio, reintroduced the Neighborhood Homes Investment Act (NHIA) the morning of the hearing. NHIA would create a Neighborhood Homes Tax Credit (NHTC) that would help to bridge the gap between development costs of acquiring and rehabilitating owner-occupied homes and home prices in distressed neighborhoods.
In his opening statement, Wyden announced the reintroduction of the Decent Affordable and Safe Housing for All (DASH) Act, legislation that would address both renter and owner-occupied housing needs. The DASH Act includes proposals to expand the 9% low-income housing tax credit (LIHTC), lower the financing threshold for private activity bond (PAB) financing from 50% to 25%, provide basis boosts for extremely low-income households, rural and Native American communities, provide a renter’s tax credit for affordable housing operators who provide homes to low-income tenants and a refundable first-time homebuyer tax credit. The DASH Act also incorporates the creation of a NHTC. Further, the legislation would create a middle-income housing tax credit (MIHTC), which would help those households that earn too much to qualify for LIHTC homes but not enough to afford available market-rate housing. Novogradac estimated in 2021 that the MIHTC as drafted in the DASH Act would finance 344,000 affordable rental homes. The needs of these households came up several times throughout the hearing, including being a key focus of one of the witnesses. Novogradac analyzed all of the housing financing provisions of the 2021 version of the DASH Act, concluding that it could finance the creation and rehabilitation of nearly 2 million affordable homes.
On the rental front, the Affordable Housing Credit Improvement Act (AHCIA) of 2021 is expected to be reintroduced this spring and would again include numerous enhancements to the LIHTC, most of which are included in the DASH Act. Novogradac’s analysis of the 2021 AHCIA shows more than 2 million additional affordable rental homes could be financed over 10 years. Novogradac will update this estimate when AHCIA is reintroduced. Senators and witnesses alike acknowledge the LIHTC incentive is the most successful tool for the production and preservation of affordable rental housing—since its inception, the creation and rehabilitation of more than 3.7 million affordable rental homes have been financed through the incentive, according to the National Council of State Housing Agencies. Still, the oft-quoted housing supply gap of 7 million affordable and available rental homes means immediate action is needed to alleviate the burdens caused by the country’s housing crisis.
Supply-side Solutions, Drivers of Housing Affordability Issues Take Center Stage
While some witnesses testifying before the committee shared their expertise on ways in which current tax policy can be enhanced to better address housing supply gap, others asked that the committee consider the factors that make it difficult for the private sector to build housing that is affordable to low- and middle-income households. Testifying before the committee were: Denise Scott, Local Initiatives Support Corporation (LISC); Steve Walker, Washington State Housing Finance Commission; Sharon Wilson Géno, National Multifamily Housing Council (NMHC); Mark A. Calabria, Ph.D., Cato Institute; and, Garrett Watson, Tax Foundation. Scott, Walker and Géno all supported passage of the AHCIA, which, in the 2021 version, would enhance the LIHTC by lowering the “financed by” threshold from 50% to 25% for private activity bond- (PAB-) financed housing, increase 9% LIHTC authority and implement basis boosts targeting PAB-financed properties, and properties in rural and Native areas, among many other provisions. In his testimony, Walker lamented the fact that the 12.5% allocation increase for the 9% LIHTC was allowed to expire in 2021, a sentiment shared by Sen. Maria Cantwell, D-Washington, who called for reinstating this bump up in allocation. Other legislation supported by witnesses included the NHIA, which Scott noted would attract private capital for affordable owner-occupied housing to areas suffering from a lack of investment, and MIHTC, which Géno stressed would be an essential tool to solve a growing need unaddressed by most other housing incentives.
Both Calabria and Watson acknowledged the LIHTC is the most prominent federal housing production and preservation incentive and asked that if any changes were made to the tax credit, that legislators consider increased flexibility, deeper income targeting, data transparency and program oversight. Calabria commended those jurisdictions that had deeper income targeting, reaching down to assist extremely low-income (ELI) households, which generally are those that earn less than 30% of the area median income and also recommended looking for ways to support smaller multifamily properties. AHCIA does include a proposal to provide up to a 50% basis boost for units targeted to ELI households. In a response to a question from Sen. Thom Tillis, R-North Carolina, Watson also supported targeting smaller properties, noting that doing so could help to address the needs of rural areas. Watson also stressed, in both his testimony and in response to questions from Sen. Chuck Grassley, R-Iowa, the need for more data to be able to better assess LIHTC outcomes.
Looking beyond tax policy, participants took an opportunity to share their thoughts on factors affecting housing affordability and supply. Calabria discussed the factors driving high housing costs and lack of additions to supply. In his testimony, he shared that land costs, labor costs/shortages, and materials costs are driving housing costs. He suggested that federal land could be used for housing development, at least addressing the land cost issue. Ending federal trade wars would address high construction supply costs, a recommendation voiced by Sen. Ron Johnson, R-Wisconsin.
Another recurring theme was the need to address zoning requirements that add to the cost of, or otherwise act as barriers to, the development of affordable housing. Sen. Thomas Carper, D-Delaware, noted that addressing housing issues should not just fall on the federal government, and we need state and local governments as well as for-profit and nonprofit organizations to work together. Sen. Tillis shared that sentiment, noting that those states that do not over-regulate should be supported. However, in an exchange with Wyden, Tillis acknowledged to Wyden that he would not support federal legislation on zoning and land-use laws, which are generally governed on the state and local level.
All Agree Housing Crisis Touches Range of Households, Areas
There is no doubt low-income households, especially the lowest income households, face the greatest difficulty finding affordable housing ; however, the issues faced by middle-income households was brought up throughout the hearing. The lack of available workforce housing, that geared toward firefighters, teachers and the like, was a common theme. The MIHTC proposal included in the DASH Act would provide rental homes for these households. In her testimony, Géno recommended passage of MIHTC, as well as later during the hearing in response to questions from Sens. Wyden and Maggie Hassan, D-New Hampshire.
The needs of households in rural areas were on the minds of Sens. Wyden, Tillis, Hassan and Cantwell. Cantwell noted the LIHTC’s success in rural areas, and in response to her questions, Walker commented that while rents may be lower in rural areas, developers there still face issues such as high costs of materials, and the LIHTC, in particular the 9% credit, is an important tool. Walker also noted the rural basis boost and income parity provisions, as well as those targeting Native Americans in the AHCIA.
Action Needs to be Taken Now
The more congressional hearings convened on housing keeps the issues facing American households in the spotlight. Calabria noted that several Senate Finance Committee members are also on the Banking Committee and there are opportunities for cross-committee work addressing housing problems. Further, the reintroduction of legislation such as the NHIA, DASH Act and, in the near future, the AHCIA is also a necessary step but there needs to be action. In addition to the LIHTC, other tax incentives like the historic tax credit (mentioned by Sen. Cardin) and the opportunity zones incentive (Géno recommended that this incentive be enhanced to “incentivize the rehabilitation and preservation of multifamily buildings”) provide opportunities to use the tax code to address housing problems.
Unfortunately, budget and debt ceiling negotiations will take up a great deal of bandwidth in the House and Senate in the coming months. President Biden’s fiscal year 2024 budget blueprint was released March 9 and will serve as a starting point for at least the budget process. Analysis shows Congress will need to act on the debt limit, which could be breached as early as early as mid-June, in the coming months before any movement will be seen on housing legislation.
Regardless, one main takeaway from the hearing is that the time to act is now—in her testimony and later in the hearing Géno noted that even if AHCIA was passed today it would take time to see new homes constructed and recapitalized so there is no time to waste, and Congress should act “with urgency.” The country’s housing needs continue to grow, and each day of inaction threatens households and the economy.
Those wishing to learn more about the housing issues and recommendations discussed during the hearing are encouraged to register for the upcoming Novogradac 2023 Affordable Housing Conference taking place April 27-28 in San Francisco. To gain more targeted information and help shape the discussion around housing tax incentives, consider joining Novogradac’s LIHTC Working Group and the NHTC Working Group.