Federal COVID-19 Response
and the Housing Credit

• Enacting a minimum 4 percent Housing Credit rate would make critically needed affordable housing developments financially feasible in light of the drastically reduced Housing Credit rate, now hovering at an historically low of 3.07 to 3.09 percent as a result of cuts to federal borrowing rates as part of the crisis response. Because the rate has fallen so low, many critically needed developments – and the jobs that this construction would support – are at risk of not moving forward.
• Setting the minimum rate is vital to the country’s affordable housing delivery system, as approximately half of all Housing Credit homes are provided through the 4 percent Housing Credit, and would provide more than 126,000 additional affordable homes over the next decade. Additionally, setting a minimum 4 percent rate would provide parity to the 9 percent Housing Credit rate, for which Congress first enacted a minimum rate in response to the 2008 economic crisis.
• This change would apply for buildings placed in service after January 20, 2020 (the beginning of the COVID-19 “incident period” as determined by the Federal Emergency Management Administration).
• For more information, see our explainer and the ACTION Campaign state fact sheets and letter to congressional leadership requesting this change. The AHTCC serves on the steering committee of the ACTION Campaign, which is a coalition of more than 2,300 organizations advocating for the Housing Credit.

• For many households whose incomes have been reduced or lost entirely due to the COVID-19 crisis, unemployment benefits will not be enough to pay the rent while also meeting other needs, like health care and food, and their financial burden may increase significantly after initial benefits expire. 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, will 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.

• Lowering the “50 Percent Test” would reduce the amount of limited Private Activity Bond financing required to access 4 percent Housing Credits, providing needed flexibility at a time when several issues are impacting the availability of bond financing, including delays and added costs due to the COVID-19 crisis. These unexpected and increased project costs are putting affordable housing at risk as the expected bond allocation for a development may no longer represent 50 percent of the total cost, substantially decreasing the 4 percent Housing Credit equity that is essential for the development’s financial feasibility.
• According to a new report from Novogradac & Co. and the National Council of State Housing Agencies found that lowering the 50 Percent Test to 25 percent could provide as many as 1.4 million additional affordable homes over the next decade.
• This change would apply for Housing Credit properties financed using Multifamily Private Activity Bonds that are placed in service after January 20, 2020.
• See the ACTION Campaign letter to congressional leadership requesting this change. The AHTCC serves on the steering committee of the ACTION Campaign, which is a coalition of more than 2,300 organizations advocating for the Housing Credit.

• 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 July 1, the Internal Revenue Service (IRS) released guidance that addresses many of the obstacles to Housing Credit development that have arisen as a result of the COVID-19 crisis, and covers many of the regulatory accommodations requested by the National Council of State Housing Agencies (NCSHA) and advocated for by AHTCC and our partners. See the details of the guidance on our blog.
• The IRS guidance provided several key deadline extensions, including 10 percent test and rehabilitation expenditures deadline extensions, compliance and review moratoriums, and other flexibilities needed to address other challenges that have emerged, such as social distancing policies, and the AHTCC commends the IRS for providing this guidance. The AHTCC will continue to advocate for additional regulatory accommodations as needed to respond to the crisis.
• NCSHA has developed a matrix comparing the July 1 guidance, relief through existing IRS Revenue Procedures 2014-49 and 2014-50, and their full list of requested regulatory accommodations.
• 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.