What You Need to Know about the Affordable Housing Credit Improvement Act
Last week Sen. Maria Cantwell, D-Wash., and Sen. Orrin Hatch, R-Utah, introduced legislation that, if enacted, would represent some of the most significant changes to the federal low-income housing tax credit (LIHTC) since its enactment. The proposal is a striking statement of bipartisan support for the LIHTC and promises to make considerable progress toward meeting the nation’s severe need for more affordable rental housing.
The Affordable Housing Credit Improvement Act of 2016 (S. 2962), which is also cosponsored by Senate Finance Committee ranking member Ron Wyden, D-Ore., and likely next Senate Democratic Leader Charles Schumer, D-N.Y., includes several substantial provisions, starting with an increase in allocation authority.
LIHTC Authority Increase
The Affordable Housing Credit Improvement Act would increase LIHTC authority by 10 percent each year for five years until it reaches $3.53 per capita in 2021. The small state minimum amount would also increase 10 percent each year before reaching $4,035,000 in 2021. For 2022 and beyond, the per capita amount and small state minimum would again be subject to increase based on inflation. Over the five years of increases, the total amount of LIHTC authority available for allocation would increase by 50 percent.
Cantwell’s office estimates the Affordable Housing Credit Improvement Act would finance the development or preservation of up to 400,000 additional affordable homes over the next decade. Novogradac & Company LLP’s analysis found that the 50 percent cap increase alone could fund between 200,000 and 225,000 additional affordable rental homes from 2017 through 2026. That analysis will be discussed in more detail in a separate blog post.
4 Percent Minimum Rate
The Affordable Housing Credit Improvement Act also proposes a 4 percent minimum credit rate for the acquisition of property and for multifamily housing bond-financed developments, which would parallel the establishment of a 9 percent minimum rate that was included in the PATH Act passed at the end of 2015. Cantwell’s previous LIHTC bill would have set a permanent 4 percent minimum rate only for property receiving an allocation of LIHTCs subject to the credit volume cap.
The current rate is closer to 3 percent. An increased minimum rate would increase the amount of equity invested by approximately 25 percent, expanding the number of financially feasible tax-exempt-bond-financed affordable housing developments.
The bipartisan Cantwell-Hatch bill also includes a provision to allow income-averaging at LIHTC properties. This would allow certain apartments in a LIHTC property to be available to residents making up to 80 percent of the area median income (AMI), so long as the development-wide average is 60 percent or less.
Allowing income averaging permits a broader mix of incomes and makes developing LIHTC properties attractive in places where it now is difficult, such as
- high housing cost areas,
- sparsely populated low-income areas, where finding enough renters earning less than 60 percent of the AMI to justify construction of new property is difficult,
- low-income neighborhoods in need of revitalization, and
- existing developments in need of preservation, but where tenant incomes have risen over the years.
This provision will be discussed in more detail in a separate blog post.
What You Need to Know about the Affordable Housing Credit Improvement ActWhat’s Next?
Now that S. 2962 has been introduced, attention turns to gathering bipartisan support from additional cosponsors. In addition, reports indicate that Sens. Cantwell and Hatch are working together on a second bill that will include provisions that were announced in Cantwell’s proposal on March 24 but not included in the Affordable Housing Credit Improvement Act. These include a 50 percent basis boost for units serving extremely low-income households, among others.
In the meantime, Novogradac will provide more information about the bill’s potential in a variety of places. Here, we will post analyses of the bill’s provisions in the days and weeks to come. This week, the bill’s future will be discussed at the Novogradac 2016 Affordable Housing Conference in San Francisco. The June issue of the Novogradac Journal of Tax Credits will also feature coverage of the legislation.