One week after the presidential election, uncertainty remained for the affordable housing industry. Industry leaders expressed cautious optimism, voicing opportunities and challenges, during the State of the Industry Power Panel, which kicked off the AHF Live conference in Chicago on Nov. 15.
“There’s no doubt that what happened last week sort of put the brakes on the momentum that has been built over the last eight years. There is no doubt that this wasn’t a positive outcome,” said Beth Stohr, director of New Production—Affordable Housing Tax Credit Investments at U.S. Bancorp Community Development Corp.
However, she added that the industry’s momentum won’t go away with many of the supporters of the low-income housing tax credit (LIHTC) program still in office as well as the program’s strong track record.
Other panelists agreed.
“I feel cautiously optimistic at this point,” said Brenda Champy, senior vice president and director of acquisitions at Boston Capital. “The reason that is is that the need for affordable housing continues to grow in this country. The [LIHTC] program is doing a lot more than housing people at this point in time. A lot of states are using this for special needs, housing homeless, providing services, and I think that need will continue to grow and grow exponentially.”
David Gasson, executive director of the Housing Advisory Group and vice president at Boston Capital, said he believes the best days are ahead for the housing tax credit even though tax reform and other potential challenges loom.
“I don’t know how you can’t be optimistic when you look at this program, this tiny little tax credit that was created 30 years ago and the storms it has weathered all along the way, including attempts to eliminate it by very powerful people,” he said. “Every single time, the industry mobilized to beat back the attempts and made the program stronger.”
He said the industry has laid its groundwork in advocacy efforts. “We have established ourselves within the confines of Capitol Hill, specifically with the tax writing committees as one of those credits that more members than not hold dear in regards to economic development, fighting poverty, creating housing, and creating jobs in their communities.”
Another optimistic note touted was President-elect Donald Trump’s infrastructure plan.
“We are really optimistic that the infrastructure tax credit will become a reality, and we consider housing as part of the American infrastructure,” said Audra Hamernik, executive director of the Illinois Housing Development Authority.
Bob Moss, principal and national director of governmental affairs for accounting firm CohnReznick, agreed that this would be a big opportunity for the industry. “This administration is going to be pushing infrastructure. We have to make housing part of that formula,” he said. “I’m not sure if we’re there yet. That’s something we need to work on.”
Although advocacy in the industry has been strong in the past, more work needs to be done.
“Everyone out there has an opportunity between now and Jan. 31. Basically we have a window to go see members and bring a whole bunch of folks who work in the field and let legislators know how important affordable housing is in their districts,” said Moss. “We are at the table right now with the tax writing committees. They want to hear from us and meet with us and know how potential changes could affect the [LIHTC] program.”
Lee Harris, president and CEO of Cohen-Esrey, reiterated that advocacy is clearly the “name of the game right now” and emphasis should be placed on job and economic growth.
“If we don’t have housing that people can afford, then we cannot continue to stoke that economic engine that we have running in many communities across this country,” he said. “The most important thing we can do is get in front of—and I don’t mean emails and Facebook messages, I mean one-on-one—your congressman, your senator. Educate our legislators about the need for federal support for affordable housing, but be sure it’s about jobs and it’s about economic growth. Those are the messages of the day.”
Tony Alfieri, managing director of RBC Capital Markets and president of the Affordable Housing Tax Credit Coalition, also said there’s an opportunity for the different industry advocacy groups to join forces to protect the LIHTC program.
“We’ve got an opportunity to come together to craft a message that hopefully protects the LIHTC through tax reform, and we believe that is going to happen.”
Looking at the silver lining post-election, Deborah VanAmerongen, strategic policy advisor at law firm Nixon Peabody, said the industry needs to remember that Trump has a real estate background: He is from New York where there is a severe housing crisis, and he is exposed to it and aware of it; he has invested in real estate and built real estate and therefore understands how real estate finance comes together; his father’s wealth originally came from developing Department of Housing and Urban Development (HUD)-assisted housing; and he is also a limited partner in HUD-assisted housing.
“On some level, he has to understand the importance of these programs,” she said.
On the finance side, Stohr predicted the industry will be entering a noisy period in 2017. “There’s so much to focus on that you don’t know where to focus. There’s going to be a lot of assessing going on, which I think will take the froth off the market,” she said. “We have been in a very aggressive period pricing-wise and term-wise, and I think as we come out of the box in 2017 that could look a little different while everyone figures out what is going on in Washington.”
Richard Gerwitz, managing director and co-head of Citi Community Capital, said his team is still going though a process of discovery of what the election means, but it clearly is significant.
“If you are a tax credit investor, your portfolio just became worth a heck of a lot less. The logical thing to do for any large institutional player is to take your foot off the gas at a minimum or maybe even tap on the brakes. I would expect that we are going to see a lot of people in this market start to do that,” he said. “We are having active discussions about what it means for us and where we should be. We are going to continue to honor our commitments. What I am worried about are those that have financed with debt that have tight sources and uses to begin with and we have just seen a 50 basis point pop in interest rates and the transaction still has to get done by the end of the year. What does that mean for debt? It clearly means there will be less debt proceeds for people, and it means that hole will have to be filled. I’m concerned about that.”
Although most were in agreement that the housing tax credit program is in a strong position going forward, panelists expressed concern for HUD appropriated programs.
“I’m very concerned about the HUD programs and what will happen with that agency,” said VanAmerongen.
Doug Shoemaker, president of Mercy Housing California, agreed. “My pessimism really stems from the fact that I think all the other programs that affect the people that the housing is meant for are in the firing line. It’s hard to imagine that in addition to the appropriated programs at HUD, all the other things that affect low-income people have potential rollbacks.”
Gasson said one of the things industry advocates are looking at is how Trump’s vision of America touted on the campaign trail melds with Republicans’ mantra of no new taxes, decreased spending, and smaller government.
“In the context of the cutting that will be done, we will have to watch out for the other 12 federal agencies, other than defense, because that is where the ax is going to fall,” Gasson said. “I’m very much concerned about the appropriated programs and the HUD budget specifically. I’m concerned about the future of the National Housing Trust Fund and what resources we continue to get from that. And I am concerned about some other regulatory issues. But I think if the industry comes together and does what we have always done so successfully—advocate for the LIHTC and affordable housing as a whole—I think in the end we can make the programs even stronger.”
