The recent tax reform legislation “will have an uncertain effect on future low-income housing tax credit (LIHTC) investments because a reduction in corporate taxes lessens the financial incentive for corporations to make equity investments in tax credits,” according to a new report from the Urban Institute.
“If LIHTC investments falter, developers will not build affordable rental housing and existing units will be lost,” says The Low-Income Housing Tax Credit: Past Achievements, Future Challenges, noting that the housing credit is especially critical to rural communities that may be most vulnerable to decline in program investments.
Although the Consolidated Appropriations Act of 2018 (the March 2018 omnibus appropriations bill) included a 12.5% increase in LIHTC allocations for the next four years, it might not fill the gap created by the tax reform changes because it will have little effect on the pricing of credits and investor tax benefits and is not a permanent fix.
The report also points out that the fate of LIHTC is intertwined with that of other federal housing programs because it frequently leverages other federal funding sources such as HOME and, more recently, the National Housing Trust Fund.
“If other federal housing programs get cut, LIHTC may shift more toward preservation, financing the capital requirements of a building without the additional subsidies needed to reach the lowest-income households. This could mean fewer investments in the new construction of additional supply, fewer units available to extremely low-incomehouseholds, and an overall stagnating supply of affordable rental housing across the U.S.,” says the report by Corianne Payton Scally, Amanda Gold, Carl Hedman, Matt Gerken, and Nicole DuBois.
Urban Institute researchers also released a paper on how the LIHTC program works and who it serves.