Restoring the housing industry to health will be a key priority of the incoming administration and Congress. While struggling homeowners will get the most attention, aid for rental housing also will be on the agenda.
With Barack Obama in the White House and increased majorities in the House and Senate, the Democrats can brush aside any Republican opposition to their plans for economic recovery, including aid to housing. Budgetary concerns that might normally restrain federal spending won't be a factor, at least in the short run, as worries about the deficit take a back seat to efforts to stimulate the economy.
Familiar housing-friendly faces will again be shaping policy on Capitol Hill, with Rep. Barney Frank (D-Mass.) chairing the House Financial Services Committee and Sen. Christopher Dodd (D-Conn.) heading the Senate Banking Committee. Dodd could have replaced Vice President-elect Joe Biden as chairman of the Foreign Relations Committee but decided to keep his current post.
Dodd says the committee's priorities for the 111th Congress include modernization of the financial regulatory system, with stronger consumer protections in mortgage lending.
While acknowledging the pressing concern of foreclosure relief for homeowners, Dodd points to the continuing crisis in affordable rental housing. Up to 1 million Americans live on the streets or in shelters, and millions more are on the edge of homelessness, according to Dodd, while 17 million households pay more than half of their income for housing.
“Safe, affordable rental housing is not a luxury, and it is an absolute necessity if we expect our children to learn, their parents to work, and our economy to grow,” Dodd says. “If we can dedicate billions of dollars to propping up the nation's largest financial institutions, surely we can find the will to support Americans working to keep a good home.”
Housing also could be part of the huge economic stimulus package the Democrats are putting together. The leadership hopes to rush through legislation soon after the new Congress convenes so that it can be ready for Obama's signature as soon as he is inaugurated.
The National Low Income Housing Coalition (NLIHC) wants $5 billion in public housing capital funds included in the stimulus plan, with $1 billion to be allocated immediately to public housing authorities to deal with an estimated backlog of $32 billion in capital repair needs. The remainder would be distributed through a competitive process. The NLIHC also is seeking $110 million in Community Development Block Grant (CDBG) disaster relief funds for Alabama, while the U.S. Conference of Mayors has proposed a $90 billion Main Street economic stimulus plan that includes $10 billion in CDBG funds for infrastructure improvements.
On the tax side, the Affordable Housing Tax Credit Coalition (AHTCC) has proposed a temporary reduction in the low-income housing tax credit (LIHTC) term from 10 to five years, with an accompanying increase in the annual tax credit percentage, as a way to attract more equity investors. The overall present value of the credit would still be 70 percent, or 30 percent of the qualified basis, depending on project type.
The shorter term would apply to credit allocations in 2009 through 2011, as well as 2008 allocations for which there was no binding investment contract on or before Oct. 3, 2008.
The AHTCC proposals also would give housing finance agencies an additional year to allocate credits before they are lost to the national pool and allow investors to carry back credits for up to five years, with the credits to be available to off set alternative minimum tax liability during that period.
The National Association of Home Builders (NAHB) is proposing a 10 percent tax credit for home buyers, with the dollar amount of the credit based on the Federal Housing Administration loan limit for the area, up to $22,000. The credit would replace the previously enacted $7,500 tax credit, and unlike that credit, it would not have to be repaid.
In addition, NAHB wants an interest rate buydown for homes purchased with a conforming mortgage this year. The effective rate would be reduced to 2.99 percent on 30-year loans for home purchases through June 30 and to 3.99 percent for purchases in the second half of the year.
9 percent minimum tax credit rate will apply to rate locks
The Internal Revenue Service (IRS) has made clear that the temporary 9 percent minimum LIHTC percentage enacted by the Housing and Economic Recovery Act of 2008 (HERA) applies to projects that had already locked in a lower tax credit rate.
Under HERA, the credit percentage for new buildings placed in service after July 30, 2008, and before Dec. 31, 2013, that aren't financed with tax-exempt bonds will be no lower than 9 percent.
There was some question regarding the applicability of this provision to projects that had previously locked in at a lower rate but hadn't been placed in service before July 30.
In Notice 2008-106, the IRS said the 9 percent minimum rate applies even if the taxpayer had made an election to lock in a lower rate. The notice also points out that despite the tax credit percentage, the dollar amount of the credits allocated to a project can't exceed the amount the housing finance agency determines to be necessary for the financial feasibility of the project.
HUD establishes '09 operating cost adjustment factors
The Department of Housing and Urban Development (HUD) has established the operating cost adjustment factors (OCAFs) to be used to determine rents for Sec. 8 contracts renewed under the Low-Income Housing Preservation and Resident Homeownership Act and the Multifamily Assisted Housing Reform and Affordability Act.
The OCAFs are applied to the portion of contract rent attributable to operating expenses. HUD has established OCAFs for each state, the District of Columbia, Puerto Rico, and the Virgin Islands. They range from zero for the Virgin Islands to 12.4 percent for Alaska, with a national average of 4.3 percent.
Barry G. Jacobs is editor of Housing and Development Reporter, the nation's premier source for in-depth, factual coverage of all aspects of affordable housing and community development. The two-part publication includes informed reports and insightful analyses in “HDR Current Developments,” and an upto- date compilation of essential documents in the “HDR Reference Files.” Jacobs is also the author of the annually updated HDR Handbook of Housing and Development Law. For more information, call (800) 723-8077.