Federal COVID-19 Response
and the Housing Credit

• A minimum 4 percent Housing Credit rate was enacted on December 27, 2020, as part of a year-end legislative package.
• The permanent minimum 4 percent Housing Credit rate is effective for (1) any building which receives an allocation of Housing Credit dollar amount after December 31, 2020, and (2) in the case of any building any portion of which is financed with an obligation described in section 42(h)(4)(A), any such building if any such obligation which so finances such building is issued after December 31, 2020. Though we and our partners had been urging that the minimum rate apply to any developments placed in service after January 20, 2020, it was determined that new tax policies in this package would generally only apply prospectively. See the bill text here.
• The minimum 4 percent Housing Credit rate is a key provision in the bipartisan AHCIA of 2019, which is co-sponsored by more than half the House of Representatives and 40 percent of the Senate. The provision is also included in the House-passed Moving Forward Act infrastructure legislation, Senators Ron Wyden (D-OR) and Maria Cantwell’s (D-WA) Emergency Affordable Housing Act of 2020 and Senate Democrats’ Economic Justice Act, and gained the support of 103 bipartisan members of the House who signed a letter to leadership urging its passage this summer.
• In 2020, the so-called “4 percent” Housing Credit rate has fell to all-time lows as a result of the COVID-19 pandemic and the ensuing cuts to federal borrowing rates, putting at risk the financial feasibility of many affordable housing properties. Hovering between 3.07 and 3.09 percent in recent months, the increase to 4 percent in 2021 will make available an infusion of Housing Credit equity into developments for which additional financing is necessary, providing for an additional 130,000 affordable homes from 2021 to 2030, according to Novogradac and Co.
• Learn more about the 2020 year-end legislative package here.

• In response to the COVID-19 pandemic, $25 billion in Emergency Rental Assistance (ERA) was passed on December 27, 2020, through a bipartisan year-end legislative package, and an additional $21.55 billion was passed on March 10, 2021, through the American Rescue Plan. The latter funds were allocated by the Treasury Department on May 7, 2021, and were released in conjunction with guidance to expedite funds to renters and target those most severely in need of assistance.  The AHTCC applauds this relief which is a critical piece of our response to the pandemic and will provide much-needed financial relief for millions of Americans.
  • For many households whose incomes have been reduced or lost entirely due to the COVID-19 crisis, unemployment benefits are not enough to pay the rent while also meeting other needs, like health care and food. While eviction moratoriums may keep families in their homes for the near-term, the accrual of rent payments over time may only put them at greater risk of eviction in the future. Additional rental assistance is needed to fill the gap between households’ current income and what they need to stay in their homes while still meeting their daily needs.
  • Affordable housing properties have also been impacted by reduced operating budgets as a result of the crisis. The policies enacted to keep people in their homes during the crisis, like eviction moratoriums, also require counterbalancing measures to fund operating expenses, pay or resume paying debt service, and replenish operating reserves on affordable properties in the absence of cash flow from rent. Additional emergency operating funding may also be needed as properties respond to the unprecedented health crisis. Without assistance, owners may not be able to fulfill their obligations to ensure a safe living environment or provide the services that are helpful to support self-sufficiency and educational attainment, such as job training or after-school programming.
• As one of the most flexible affordable housing funding sources, providing additional HOME Investment Partnership Program (HOME) funds would help stabilize low-income families, cover increased operating costs associated with addressing COVID-19 related expenses, replenish operating reserves that are being depleted as cash flow from rent declines, and stimulate the preservation and production of additional affordable homes.

• Affordable housing developments are eligible for the maximum amount of 4 percent Housing Credit equity
  if at least 50 percent of the cost of development is financed with Private Activity Bonds. However, this threshold creates inefficiencies and limits the affordable housing that states are able to fund.
• Lowering the “50 Percent Test” bond financing threshold to 25 percent could provide as many as 1.5 million additional affordable homes through the Housing Credit and Private Activity Bonds over the next ten years. It would also free up over $93.2 billion in PAB cap over the next ten years, allowing states to spend those resources on more affordable housing, infrastructure, or other needs.
• Learn more about why the 50 percent test should be lowered here.

• Increasing the 9 percent Housing Credit allocation would help to address the increased demand for affordable homes that is resulting from the economic crisis. As the nation’s primary tool for financing affordable housing, additional Housing Credit resources will be needed for any significant increase in affordable housing production or preservation. A 50 percent increase would provide hundreds of thousands of crucially needed affordable homes for low-income households across the country at a time when the need will be greater than ever before.
• This provision would be phased in over two years at 25 percent per year and adjusted for inflation, beginning in 2021. Once the immediate obstacles directly related to the current crisis are resolved, the Housing Credit community will be prepared to focus on a significant increase in rental housing production in 2021 and beyond in response to the heightened need.

• Providing basis boosts would supply needed equity for developments that would not otherwise be financially feasible.
• These basis boosts would assist properties challenged by COVID-19 and assist in economic recovery, as explained by a Novogradac & Co. post.

We propose the following basis boosts:

• 30 percent basis boost for developments financed using Multifamily Private Activity Bonds, bringing parity with the current basis boost available for Housing Credit properties financed without Multifamily Private Activity Bonds,
• 50 percent basis boost for developments serving extremely low-income tenants,
• 30 percent basis boost for developments in rural areas, and/or
• 30 percent basis boost for developments in Native American communities.

• The COVID-19 crisis is causing significant construction and development delays, pushing construction completion and lease-up well beyond anticipated deadlines in some cases. Because of the financing and partnership agreements governing Housing Credit properties, missed deadlines can have serious implications for all parties involved. For those developing Housing Credit properties, delays can result in significant financial penalties, referred to as “adjusters,” which were standard partnership agreement provisions before the COVID-19 crisis hit, and could create funding gaps that threaten developments’ financial feasibility. As a result, many of these properties may require additional gap financing sources, which are very difficult to access as state and local funds that may have been allocated toward community development have now been redirected toward the immediate COVID-19 response.

• For properties facing this problem, we propose temporarily allowing more Housing Credits to flow in a project’s first tax credit year, thereby limiting the loss of funding. This proposal would permit owners to elect a 150 Percent First Year Credit, meaning that the partnership would be eligible to claim 150 percent of the credits it would otherwise have been eligible to claim in the first tax credit year, with prorated deductions over the balance of the credit period. This concept mirrors a legislative change adopted in the Revenue Reconciliation Act of 1990, which was also implemented to facilitate Housing Credit investment during a disruption. It does not affect the amount of Housing Credits a property receives – it simply frontloads allowable credits in the first tax credit year to help cover these temporary gaps.

• On January 15, 2021, the Internal Revenue Service (IRS) issued long-awaited guidance (Notice 2021-12) to extend Housing Credit program deadlines and provide other flexibilities in light of the COVID-19 pandemic. Learn about the guidance on our blog.
• In November the AHTCC led an effort in which over 140 of our partners signed onto a letter to the IRS  and Treasury Department to request deadline extensions and other accommodations for the Housing Credit in light of the ongoing disruption to affordable housing development, construction and operations brought on by the COVID-19 pandemic. See a matrix developed by National Council of State Housing Agencies (NCSHA) to compare the January guidance, IRS Revenue Procedures 2014-49 and 2014-50, and the full list requested by NCSHA and in our sign-on letter.
• In July, the IRS issued IRS Notice 2020-53, which provided important deadline extensions and other accommodations for the Housing Credit, including extensions of the 10 percent test and rehabilitation expenditures deadlines, compliance and review moratoriums, and other flexibilities needed to address COVID-19-related challenges, like social distancing policies. However, many of these deadlines expired at the end of 2020, and were in need of further extension. See the details of the original COVID-19-related guidance on our blog.
• Prior to the release of the IRS guidance, the AHTCC and more than 220 other organizations signed onto a letter urging the IRS to enact these accommodations, and the AHTCC advocated with both the Administration and Congress to urge expedited issuance of this guidance.