The A Call To Invest in Our Neighborhoods (ACTION) Campaign is a national, grassroots coalition of over 2,300 national, state, and local organizations and businesses calling on Congress to protect, expand and strengthen the Low-Income Housing Tax Credit (Housing Credit).
The Housing Credit Policy Landscape
Comprehensive tax reform was a top priority for the 115th Congress and the Trump Administration, and on December 22, 2017, President Trump signed the Tax Cuts and Jobs Act into law. Prior to the final bill, the House and Senate passed very different versions of tax legislation, with widely varying potential impacts for affordable housing. The most notable difference was the House’s proposal to eliminate private activity bonds, including multifamily Housing Bonds, which finance roughly half of all Housing Credit developments. Their repeal would have meant a loss of up to 881,000 affordable rental homes over 10 years. Fortunately, in large part due to the strong bipartisan support that the ACTION Campaign and its members have built over many years, the final bill retained both the Housing Credit and multifamily Housing Bonds. While the inclusion of these critical affordable housing financing tools was a major advocacy success and a testament to the programs' strong track record, the new tax system presents concerns for future affordable housing production.
The Tax Cuts and Jobs Act lowered the corporate tax rate from 35 to 21 percent, which impacts pricing for the Housing Credit, and ultimately affordable housing production. A recent analysis by Novogradac & Co. estimates that the tax reform bill will reduce affordable rental housing production by nearly 235,000 homes over the next decade, the vast majority of which comes from the reduced corporate rate. The Tax Cuts and Jobs Act also created a base erosion and anti-abuse tax (BEAT), which could also have a further negative impact on the Housing Credit equity market.
In March 2018, Congress passed The Consolidated Appropriations Act of 2018, which included two key provisions from the Affordable Housing Credit Improvement Act. The first was a 12.5 percent increase in Housing Credit allocation authority over four years (2018-2021). While this is not as significant an increase as the 50 percent phased-in permanent cap increase proposed in S. 548, it provides a substantial level of new resources and will allow for the construction or rehabilitation of an additional 28,400 affordable rental homes over the next decade. This is the first expansion of the Housing Credit in over ten years.
The omnibus spending bill also provided a new option for income averaging on a permanent basis. Income averaging would allow Housing Credit units to serve households earning up to 80 percent of area median income (AMI), offset by deeper targeting in other units to maintain average affordability in the development at 60 percent AMI.
Though the increase in resources and new flexibility authorized by the omnibus represent positive developments for the future supply of affordable rental housing, nearly 90 percent of the lost production due to tax reform remains.
Advocacy in 2018
The temporary 12.5 percent increase in Housing Credit allocation will not fully make up for the projected loss of Housing Credit production as a result of tax reform, but it serves as a meaningful first step. ACTION will continue advocating for modifications to strengthen and expand the Housing Credit in 2018 through passage of the Affordable Housing Credit Improvement Act, which would increase the Housing Credit allocation by 50 percent and make nearly two dozen changes to strengthen and streamline the program. This legislation will not only restore affordable housing production in light of the Tax Cuts and Jobs Act, but make a meaningful step towards addressing our nation's vast and growing shortage of affordable housing. ACTION will also continue educating members of Congress about the critical role that multifamily Housing Bonds play in the Housing Credit program.