Housing Credit History
The Low-Income Housing Tax Credit (Housing Credit) was signed into law by President Reagan in the Tax Reform Act of 1986. It was first expanded and made permanent under President Clinton in 1993, and further strengthened under President Bush and President Obama, reflecting its strong bipartisan support. Senators Maria Cantwell (D-WA) and Orrin Hatch (R-UT) introduced the Affordable Housing Credit Improvement Act of 2017 to expand the Housing Credit by 50 percent and enact other provisions to further strengthen the Housing Credit.
Since 1986, the Housing Credit has financed the development of 3 million apartments, providing affordable homes to roughly 7 million low-income families. The development of these apartments has supported 3.4 million jobs, and generated $323 billion in local income and $127 billion in federal, state and local tax revenues. See the impact of the Housing Credit in every state and congressional district.
The Housing Credit Policy Landscape in 2017
Comprehensive tax reform is a top priority for the 115th Congress and Trump Administration. In order to reduce top corporate tax rates, the House, Senate and White House will consider eliminating many corporate tax expenditures, which poses a serious threat to the Housing Credit and Housing Bonds, which provide critical financing to roughly 40 percent of Housing Credit developments. The ACTION Campaign is urging Congress and the Administration to protect these programs, which together finance nearly all affordable housing development in the U.S., in a reformed tax code.
Affordable housing also faces threats in corporate tax reform beyond elimination of the Housing Credit and Housing Bonds - whether through reduction in allocation, potentially harmful program modifications, or the indirect effects of tax reform, such as a lower corporate rate. The ACTION Campaign is committed to ensuring that these programs are not only protected in tax reform, but that their production potential is not diminished.
There may also be opportunities to expand and strengthen the Housing Credit in 2017, either through investments in our nation's infrastructure or other bipartisan legislation, and the ACTION Campaign will be working to advance these efforts.
Read our letter to Congress and the Administration in support of the Housing Credit, and visit our Advocacy Toolkit for materials to share with Congress and the Administration.
How the Housing Credit Works
The Housing Credit is administered by the Department of Treasury, which issues tax credits to state Housing Credit allocating agencies based on the state's population. The allocating agencies develop Qualified Allocation Plans (QAPs) that include selection criteria, based on local priorities, to guide the type and location of affordable housing developed in each state. Developers submit applications to receive Housing Credits, and the credits are awarded to the most qualified developers through a highly competitive selection process. On average, state Housing Credit allocating agencies receive applications requesting more than three times their available authority.
Financing and Development
Developers sell the tax credits to investors in exchange for equity capital through a process called "syndication." With capital from investors, developers can limit the amount of money they need to borrow for construction, which reduces the developers’ debt so that they can keep rents affordable. Without an incentive like the Housing Credit, it is simply not financially feasible for the private sector to build affordable homes for the families that need them most.
Once a Housing Credit development is completed, meets all requirements and is occupied by low-income tenants, the investors are able to begin claiming tax credits to reduce their federal tax liability. While the credits are awarded over a ten-year period, they can be recaptured any time in the first fifteen years if the development falls out of compliance, and the development must remain affordable for a period of at least 30 years. This unique financing structure means that the private sector - not the government - bears the financial risk, which has led to a high degree of private sector oversight. State Housing Credit allocating agencies also monitor developments closely for compliance.
Investment in the Housing Credit is also a designated activity under the Community Reinvestment Act (CRA), meaning that certified crediting institutions, such as banks, can also meet CRA obligations by investing in the Housing Credit.
Affordable Housing Impact
Low-income families whose income are at or below 60 percent of the area median income (AMI) are able to rent Housing Credit properties, and rent payments are capped at 30 percent of the income limit for each apartment. The roughly 3 million apartments financed by the Housing Credit have provided affordable homes to more than 6.7 million low-income families over the past 30 years, making it easier for them to afford other necessities like health care, transportation and nutritious food.