Snapshot of Tax Reform’s Possible Effects on Affordable Rental Housing

Published by Michael Novogradac on Wednesday, May 8, 2013 - 12:00am

Snapshot of Tax Reform’s Possible Effects on Affordable Rental Housing

If current corporate tax reform proposals are successful, the amount of equity that can be raised from the low-income housing tax credit (LIHTC) would decrease significantly, according to a report released this week by Novogradac & Company LLP. “Affordable Rental Housing After Tax Reform: Calculating Corporate Tax Reform’s Possible Effects on Equity Raised from Low-Income Housing Tax Credits” found that lower top corporate tax rates would lower LIHTC yields and create downward pressure on LIHTC investor equity pricing.

Of course the actual effect will depend on the totality of the impact of the various changes, but based on the scenarios considered in the report, the combined, projected effect of lower corporate tax rates and longer depreciation periods could mean a loss of $500 million to nearly $1 billion dollars, or more, in equity raised used to finance affordable rental housing.

Blog Chart Total Estimated Change in Equity Raised - Changed in Tax Rate
Click to Enlarge

What does this mean for the availability of affordable rental housing? In short, such a reduction could:

  • reduce the total number of affordable rental units built or rehabilitated each year by as many as 9,500 units, or more.
  • weaken affordable housing providers’ ability to develop housing for the lowest income populations and
  • make affordable housing development more dependent on gap financing sources, even as those sources are shrinking in the face of budget cuts at the federal, state and local levels.

To read the report’s findings and what they could mean for the future of affordable rental housing, check out “Affordable Rental Housing After Tax Reform.”

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