In a major victory for the affordable housing industry, Congress has approved a permanent minimum 9% rate for the low-income housing tax credit (LIHTC).
Winning a permanent fixed rate was the best scenario for the industry. Other alternatives included a two-year extension or a one-year extension, which would have been largely useless.
Setting the minimum rate may seem like a small change, but it has a huge impact. Industry leaders have been pushing for the fixed rate for years.
“The significance of securing the fixed 9% LIHTC rate permanently cannot be overstated as our industry grapples to produce housing for a growing population in need of affordable housing,” says David Gasson, executive director of the Housing Advisory Group and vice president of Boston Capital. “With resources at a premium and the cost of producing housing continuing to rise, the added equity and certainty the permanently fixed rate will bring to tax credit transactions may be the difference in being able to provide affordable housing in many parts of the country.”
In 2008, the Housing and Economic Recovery Act created a temporary 9% floor for projects, allowing developers to receive additional credits during the economic downturn. However, the fixed rate has since expired, so the LIHTC industry has had to go back to using a floating rate that’s been about 7.5%. At the lower rate, a project may receive as much as 20% less equity.
“The significance of getting the 9% floor passed as a permanent extender means that we have successfully kept up the drumbeat for housing throughout the Camp to Ryan to Brady changes in Ways and Means leadership and also maintained great support from champions Reps. Pat Tiberi (R-Ohio), Richard Neal (D-Mass.), and Sens. Maria Cantwell (D-Wash.) and Pat Roberts (R-Kan.)," says Bob Moss, principal and national director of governmental affairs at CohnReznick. "We now have certainty for housing credit production for the future."
Cantwell called the move a “critical fix” to the LIHTC program, the financing tool that has created 2.4 million affordable housing units in the country.
“This is a win-win for affordable housing and good-paying Washington jobs,” she said earlier this week. “With growing homelessness in Washington state and across the country, we need more affordable housing in our communities. With funding certainty, communities in our state and across the country can better meet the need for affordable housing—making measureable improvements in the lives of low-income families and encouraging private investments that support small businesses and good-paying jobs.”
Cantwell said setting the LIHTC rate at a minimum 9% would end “an era where variable rates made financing of affordable housing less predictable.”
The New Markets Tax Credit (NMTC) also saw a big win in the tax extenders package. The program received a five-year extension from 2015 to 2019 at its current annual funding level of $3.5 billion. Enacted in 2000, the NMTC helps to stimulate private investment and economic growth in low-income urban neighborhoods and rural communities that lack access to capital needed to support and grow businesses, create jobs, and sustain healthy local economies.