The results of the 2016 presidential election produced much hand-wringing in many sectors. At the AHF Live conference in Chicago in mid-November there was more an air of uncertainty than anything else—and for good reason. The incoming Trump administration and GOP Congress have touted plans for corporate tax reform that could include a reduction in the corporate tax rate.
Concerns were voiced that the low-income housing tax credit (LIHTC) would lose substantial value and provide insufficient funds for development. There was some speculation the LIHTC could be eliminated altogether. Finally, there was pretty much a consensus belief that the industry could see a pause in the investor markets while all of this gets sorted out.
Despite the gloom in some corners, there is much for which to be optimistic. The LIHTC enjoys strong bipartisan support on Capitol Hill. The program has had remarkable success over its 30 years of existence. Republicans embrace it because it’s a government program that’s delivered by the private sector. Further, it has been crucial to underpinning economic growth and job creation in large and small markets across the country.
David Gasson, Bob Moss, Tony Alfieri, and other industry leaders have done yeoman’s work in helping to educate senators and representatives about the need for a development subsidy in order to produce affordable housing. Federal housing programs have been in place continuously since the 1930s through a wide range of ideologies and administrations. It’s inconceivable that there would not be some sort of assistance for affordable housing going forward.
There appears to be strong sentiment among those who work with Congress that the LIHTC will survive. Depending upon what happens with corporate tax reform, the program may need to be reformulated. Shortening the credit period, increasing the credit percentage, or some combination of both may be necessary to maintain current funding levels. Fortunately, the new president has an extensive background in multifamily housing, and a strong case can be made for affordable housing being a key component in our nation’s infrastructure. So it’s unlikely the executive branch will push back against keeping or strengthening the credit.
It will take time and lots of wrangling to pass a new corporate tax bill. Most likely nothing will be in place until 2018. Meanwhile a pause in the LIHTC investor markets could cause a slowdown in development. Developers must learn how to adapt in the new environment. Times of great uncertainty are also times of great opportunity. What strategy do you have for dealing with the effects of uncertainty? This is a time for introspection and the tweaking of business plans.
It’s also a time for connecting with elected officials in Washington to intensify their education on the LIHTC program. And it’s especially important that they understand how construction and land costs make it impossible to provide housing at rents that are affordable to a large swath of working-class Americans. The most effective way to help in this regard is to invite your representative and senator to visit one of your Sec. 42 properties. Don’t bother with e-mails, letters, Facebook, or other forms of social media. Get face time on a property if at all possible. Remember that there are many new senators and representatives who need to be brought up to speed on LIHTC and affordable housing in general.
A tremendous opportunity exists to work with Congress to create LIHTC 2.0. This would include working within the framework of corporate tax reform to broaden the credit and make it even more attractive to investors and developers alike. We have much heavy lifting to do to ensure success, but we’re not starting from scratch. Let’s roll up our sleeves and get to work.
R. Lee Harris is president and CEO of Cohen-Esrey, LLC, a Kansas City–based multifaceted real estate firm that has been involved in affordable and market-rate housing since 1970. His e-mail is [email protected].
