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Novogradac Estimates 1.93 Million Additional Affordable Rental Homes Could be Financed if LIHTC Proposals Are Included in Year-end Tax Legislation

Published by Dirk Wallace and Peter Lawrence on Friday, December 16, 2022 - 12:00AM

As Congress considers a possible year-end tax title that could be added to the forthcoming fiscal year (FY) 2023 omnibus spending bill, Novogradac updated its unit financing estimates of the two most significant proposals from the Affordable Housing Credit Improvement Act (AHCIA, H.R. 2573/S. 1136): lowering the private activity bond financing threshold from 50% to 25% and increase 9% low-income housing tax credit (LIHTC) allocations. In total, these LIHTC proposals could finance 1.93 million additional affordable homes over 2023-2032.

Nearly 4.5 Million People Could be Affordably Housed as a Result of the Two Main AHCIA Proposals

Using calculations that include assumptions based on research conducted by the National Association of Home Builders, Novogradac estimates the 1.93 million additional affordable rental homes financed by these LIHTC proposals could house nearly 4.5 million low-income people. Over the next decade, the financing of these homes could also generate:

  • nearly 3.0 million jobs,
  • more than $335 billion in wages and business income, and
  • nearly $116 billion in tax revenue.

About these Estimates

The estimates presented in this post are part of Novogradac’s ongoing analysis of rental housing provisions included in proposed legislation to enhance and expand the LIHTC and private activity bond (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 12.5% allocation increase enacted in 2018 and expiring at the end of 2021 is retroactively reinstated for 2022 and becomes the baseline for 2023-2032 9% allocations. 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% LIHTC properties in the analysis that follows, because the 4% LIHTC is a shallower subsidy than the 9% LIHTC.

Reduce the PAB Financed-By Threshold

As proposed in the AHCIA, the tax-exempt PAB financed-by threshold would be reduced from 50% to 25% for buildings financed by obligations issued in calendar years (CY) 2023-2032, but not obligations issued prior to CY 2023. Novogradac estimates lowering the threshold from 50% to 25% could generate an additional 1.48 million additional affordable rental homes financed by 2023-2032 multifamily PAB issuances. This estimate is updated with data from the 2020 Council of Development Finance Agencies 2019-2020 National Private Activity Bond Volume Report and preliminary data on 2021 multifamily PAB issuance.

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.

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 2016-21, 2017, 2018 and 2019 (the four most recent years available at the time of writing the 2021 update). 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.

Increased 9% Allocations

Section 101 of the AHCIA would extend the 12.5% increase in 9% LIHTC allocations originally enacted in 2018 and scheduled to expire at the end of this year as part of the baseline with annual inflation adjustments, and add a 25% increase in the first year and a further 25% increase in the second year. Specifically, the proposal as determined for purposes of the updated estimate would increase the annual 9% LIHTC allocation from $2.81 per-capita with $3,245,625 small state minimum in 2021 under current law, to:

  • $2.93 per capita and $3,346,875 small state minimum in 2022,
  • $3.90 per capita and $4,485,000 small state minimum in 2023,
  • $5.00 per capita and $5,755,000small state minimum in 2024, and
  • 2025-2032 annual amounts are based off the 2024 amounts as adjusted by inflation annually.

Novogradac estimates these 9% allocation increases could finance 450,100 additional affordable rental homes over 2023-2032. If only the 12.5% allocation increase were retroactively reinstated for 2022 and made permanent over 2023-2032, Novogradac estimates that would finance 59,100 additional affordable rental homes over 2023-2032.

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Actual and Projected Total (9% and 4%) allocations

Analyzing the effect of both the lowering the PAB financed by threshold to 25% and increasing 9% allocations, Novogradac projects overall (9% and 4%) allocations increasing from nearly $26 billion in 2021 to a high of as much as $43.8 billion in 2026. See below for Novogradac’s estimates of actual and projected allocations in 2017-2026 below:

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State-Level Estimates

Below are the states that Novogradac projects could gain the largest number of affordable rental homes over a decade if these provisions were enacted:

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