Although different news surrounding the low-income housing tax credit (LIHTC), which marked its 30th anniversary in October, dominated the headlines for much of 2016, the presidential election and its subsequent waves have had the industry abuzz for the past six weeks.
Affordable Housing Finance, with help from its Editorial Advisory Board members, takes a look at 10 notable events for the industry from the past year.
1. The 2016 Presidential Election
On Nov. 8, Republican Donald Trump was victorious in his bid for president, and Republicans maintained a hold on the House and the Senate. President-elect Trump was silent on affordable housing during his campaign; however, ripple effects from the election have sent the industry into a tizzy. Affordable housing leaders are still assessing what a Trump administration will mean for the industry, but the odds of tax reform have shot up, heightening concerns regarding the LIHTC program and leaving the market unsettled.
“Without a doubt, the [top news story is the] election giving control of the executive branch and both houses of Congress to one party. It's had a major impact on the affordable housing industry even before the president and members of Congress are sworn in–increasing interest rates, widening tax-exempt spreads, and causing uncertainty in the tax credit market,” says Richard Gerwitz, managing director and co-head of Citi Community Capital. “While it's too early tell what changes to the tax code might be enacted, the uncertainty will cause LIHTC investors, lenders, and bond purchasers to be more conservative or temporarily withdraw from the market.”
Pat Sheridan, executive vice president of housing at Volunteers of America, agreed. “Just in the last three weeks we are faced with dealing with large increases in debt costs, substantial equity price decreases, the prospect of shrinking federal housing resources as the discretionary budget potentially is cut, and the Department of Housing and Urban Development (HUD) run by a secretary with potentially a mandate to dismantle the department and particularly fair housing initiatives.”
Despite the election turbulence, LIHTC advocates remain upbeat about a program that’s built strong bipartisan support over 30 years. They feel the venerable housing credit remains in strong position with members of Congress and that fears of the program being eliminated are unfounded.
2. Ben Carson Tapped to Be HUD Secretary
In early December, former Republican presidential candidate and retired neurosurgeon was tapped to be the nation’s next top housing official. Although Carson is an unconventional choice for the job since he has little experience in housing policy or in running a government agency and has blasted the Obama administration’s fair housing efforts, many industry leaders are remaining open-minded.
“Despite his apparent lack of affordable housing experience, with his communication skills Dr. Carson has the ability to bring the message of poverty alleviation to people nationwide, and I would hope he would quickly learn the importance of HUD and would try to make it better, stronger, more efficient,” says Bob Moss, chairman of the Housing Advisory Group and national director of governmental affairs at CohnReznick.
3. Cantwell, Hatch Introduce LIHTC Expansion Legislation
“The top story is that for the first time since the housing credit went from $1.25 to $1.75, 2016 was the year that a 50% increase bill was introduced,” says Moss. “The co-sponsorship of Senate Finance chairman Orrin Hatch to Sen. Maria Cantwell’s bill, and Hatch’s solid support for the credit, makes it a brilliant move in light of the election.”
Sens. Cantwell (D-Wash.) and Hatch (R-Utah) introduced legislation in the spring and expanded it in July to make key changes to the LIHTC program.
The legislation, S. 3237, would expand the LIHTC program by 50% to help create or preserve approximately 1.3 million affordable homes over a 10-year period, which is an increase of 400,000 more units than is possible under the current program. It also would provide for a purchase option that will allow nonprofit and government sponsors to acquire housing credit properties when the current 15-year compliance period expires and keep properties affordable for future generations as well as a new incentive for projects that target homeless or extremely low-income families.
“This bipartisan, bold legislation would greatly expand the LIHTC program and address some longstanding issues, such as income-averaging,” says Deborah VanAmerongen, strategic policy advisor for Nixon Peabody. “Having chairman Hatch as co-sponsor is a very big deal, as it’s highly unusual for the chairman to sponsor such a bill.”
4. The 30th Anniversary of the LIHTC Program
This year marks the 30th anniversary of the LIHTC program, which was established as part of the Tax Reform Act of 1986 under president Ronald Reagan. Over the past three decades, it has become the most successful federal program ever for the production and preservation of affordable housing, financing more than 2.9 million units and providing 6.7 million low-income households with homes they can afford across the nation.
“Rarely has a program been so well designed and implemented to produce such superior results that support and implement the objectives of local and state housing leaders at such minimal cost in federal oversight. It is, in essence, self-regulating,” says Conrad Egan, a senior advisor at the Affordable Housing Institute.
Bart Mitchell, president and CEO of The Community Builders, agrees.
“The LIHTC reached year 30 with much more consistent quality of housing and ongoing local support than any previous U.S. housing program. Private underwriting works. Moderate-income families and seniors in every congressional district in the United States have benefitted from the stability and health benefits of living in better quality housing. Recent studies have shown that adjacent property values have mostly increased when LIHTC housing is built,” he says.
5. Court Dismisses Disparate Impact Claim Against Texas Agency
The U.S. District Court for the Northern District of Texas dismissed a high-profile disparate impact claim by The Inclusive Communities Project against the Texas Department of Housing and Community Affairs at the end of August.
Mark Shelburne, a senior manager of Novogradac & Co., wrote at the time that “one likely result may be added difficulty in making disparate impact claims against LIHTC allocating agencies and other program administrators. All that said, it’s important to note that the ruling does not change other aspects of fair housing, such as limitations on using criminal records and the duty to affirmatively further fair housing.”
Sean Thomas, chief of staff at the Ohio Housing Finance Agency, says it was big news for housing finance agencies, adding that “the ruling provided insight regarding how courts will look at disparate impact claims and state qualified allocation plans.”
6. Sen. Wyden Proposes Middle-Income Tax Credit
Sen. Ron Wyden (D-Ore.) introduced legislation in September that would create a middle-income housing tax credit (MIHTC).
Building on the success of the LIHTC, the proposed credit would create rental homes for families with incomes between 60% and 100% of the area median gross income (AMGI). This is a population that is still in need of affordable housing but does not qualify for housing under the LIHTC program, which caps incomes at 60%.
7. Affordable Housing Wins Big on Local Ballots
Voters in several cities and counties across the nation showed their support for affordable housing by passing measures in November that will increase funding as well as the number of units. The San Francisco Bay Area won big, with measures passed in Alameda, San Mateo, and Santa Clara counties as well as in Oakland. A $1.2 billion bond measure that will fund permanent supportive housing for the chronically homeless also passed in Los Angeles. In addition, Seattle voters in August passed a $290 million levy for affordable housing.
8. RAD Reaches Major Milestone
The Rental Assistance Demonstration (RAD) program has generated $2 billion in private investment to improve more than 30,000 former public housing units, reported federal officials earlier this year.
It’s a notable achievement in the effort to turn around the nation’s public housing stock. Each year, roughly 10,000 public housing units are lost due to disrepair.
Under RAD, HUD has made awards to public housing authorities across the country for all 185,000 units authorized to participate in the program and estimates over $6 billion in new, largely privately funded construction investments will be made in those authorized units.
9. National Housing Trust Fund Allocates First Dollars
Eight long years after being authorized, the National Housing Trust Fund saw its first dollars.
HUD allocated nearly $174 million to states this year, the first funds under the housing trust fund. California received the largest share ($10.1 million) followed by New York ($7 million) and Texas ($4.8 million). By law, each state receives a minimum of $3 million, and that's about what most states received.
10. Congress Passes Major Housing Assistance Reform Bill
A bill that calls for sweeping reforms of the nation’s rental assistance programs unanimously passed the House and Senate and was signed by President Obama.
The Housing Opportunity Through Modernization Act of 2016, H.R. 3700, makes several important changes to the “project-basing” of housing choice vouchers. An agency would be able to project-base up to 20% of its authorized number of vouchers, plus an additional 10% of its vouchers to assist households in areas where vouchers are difficult to use or to assist people with disabilities, formerly homeless individuals, veterans, or seniors. The maximum term of an initial contract or extension is also increased from 15 to 20 years.
“This bill is significant for being the first low-income housing authorizing bill passed since QHWRA (Quality Housing and Work Responsibility Act) in 1998,” says Sunia Zaterman, executive director of the Council of Large Public Housing Authorities. “It includes mostly noncontroversial provisions that have been under consideration for many years with strong bipartisan support focused on simplifying and streamlining existing programs.”
