As we head into the new year, Affordable Housing Finance asked its Editorial Advisory Board members to weigh in with their predictions for the affordable housing industry for 2017. Overwhelmingly, the responses focus on the potential for tax reform and the unsettled low-income housing tax credit (LIHTC) market post-election.

“The top affordable housing story for 2017 is not yet written, and everyone reading this will play a part in what occurs, especially what tax reform and the federal budget put forward by president Donald Trump and Department of Housing and Urban Development secretary Ben Carson will do for affordable and workforce housing preservation and production,” says Bart Mitchell, president and CEO of nonprofit The Community Builders. “We need a large increase in affordable and workforce housing production. President-elect Trump says Ben Carson was selected to ensure major quality-of-life improvements for all Americans including in the inner cities. Quality housing provides major health benefits and improved neighborhood effects.”

Many are optimistic that the LIHTC program will survive tax reform, if enacted, in 2017.

Deborah VanAmerongen, strategic policy advisor at Nixon Peabody, predicts that the LIHTC will come out of tax reform with most, if not all, of the provisions incorporated from the proposed legislation from Sens. Maria Cantwell (D-Wash.) and Orrin Hatch (R-Utah) to strengthen and expand the program.

Mitchell agrees. “I predict that the affordable housing tax credit will maintain bipartisan support and will be restructured and expanded so that even with lower corporate tax rates we will achieve resources to support a 50% increase in LIHTC production in 2018.”

In addition to the inclusion of technical adjustments supported by the industry, Sean Thomas, chief of staff at the Ohio Housing Finance Agency, says he thinks many federal regulations that add costs and time to the development of affordable housing will be revised and/or rescinded.

However, Bob Moss, principal and national director of governmental affairs at accounting firm CohnReznick, says, “With the inaugural, hearings on nominees to cabinet positions, the transition, the debt ceiling, the Supreme Court, health-care/Medicare repeal, immigration reform, and then trying to tackle tax reform, 2017 will show us all that Congress will be Congress despite the speeding train rhetoric.”

Fewer units expected

Richard Gerwitz, managing director and co-head of Citi Community Capital, warns that industry will have a slow first quarter as the market continues to adjust to the current political uncertainty.

“Ultimately transaction volume will be down year over year,” he says. “Rental Assistance Demonstration (RAD) program transactions and 15-year recapitalizations will dominate the market.”

With resources being cut, developers are concerned that fewer affordable housing projects will be developed or preserved over the coming year.

“With resources slashed on both the debt and equity side, and federal gap sources drying up, it will be increasingly difficult to make deals pencil out. As an example, a $25 million project that we have that was slated to close Dec. 14 has lost $2.5 million in sources since the election due to increases in debt cost and reduction in credit pricing,” says Pat Sheridan, executive vice president of housing at nonprofit Volunteers of America.

Paul Purcell, president of Beacon Development Group, says he is seeing similar conditions. “We are seeing an immediate decline in tax credit pricing and interest; soft money sources are messaging a reduction in their funding such as HOME and Community Development Block Grants; housing authorities are gearing up for substantial reductions in the value of vouchers as well as operating dollars,” he says. “At the same time, construction costs are still going up and interest rates most likely will rise. The result is going to be fewer units and fewer very low-income households will be served in an environment where the housing crisis is growing every day.”

Sheridan also says at-risk preservation projects may more likely be lost to market-rate buyers in 2017.

"While hurting from increased debt costs, market-rate buyers are not subject to the LIHTC equity price drops nor the reduction in federal gap sources, while at the same time multifamily rentals continue to be an attractive real estate investment asset," he adds.