Nov 03

Historic Housing Credit Investment Included in Amendment to Build Back Better Reconciliation Bill

An amended version of the Build Back Better reconciliation legislation released November 3 (see bill text and section-by-section) proposes an historic investment in the Housing Credit – nearly $12 billion – including key measures to strengthen the program.  Despite tremendous pressure to bring down the total cost of the reconciliation legislation from the House committee bills released previously, the following Housing Credit production proposals were included in the updated version:

    • Lowering the bond-financing threshold from 50 percent to 25 percent for five years, from 2022 to 2026,
    • Increasing the annual Housing Credit allocation at a rate of 10 percent per year plus inflation from 2022 to 2024, which amounts to a roughly 41 percent increase over current levels in 2024, followed by inflation adjustments after 2025,
    • Providing a permanent 50 percent basis boost for properties serving extremely low-income (ELI) households, along with an 8 percent set-aside for properties taking advantage of the ELI basis boost, as well as a limitation on the amount of allocation and volume cap that can be used for properties receiving the ELI boost,  and
    • Providing a permanent 30 percent basis boost for properties in Indian areas.

According to a new report from Novogradac, the key measures to expand and strengthen the Housing Credit included in the House Build Back Better bill could finance nearly 812,000 additional affordable homes than otherwise possible over the next decade. The measures could also spur over 1.2 million jobs, $137 billion in wages and business income, and $47 billion in tax revenue. See the state-by-state breakdown here, and see below for further details about the Housing Credit proposals.

The Housing Credit production proposals released today originated in the Affordable Housing Credit Improvement Act (AHCIA), which has been the AHTCC’s top legislative priority. The AHTCC played a leading role in building momentum for these proposals, coordinating closely with affordable housing champions in Congress and other advocacy groups.

The AHTCC thanks affordable housing champions Sen. Maria Cantwell (D-WA), Senate Finance Committee Chairman Ron Wyden (D-OR), and Reps. Suzan DelBene (D-WA) and Don Beyer (D-VA), House Speaker Nancy Pelosi (D-CA), Senate Majority Leader Chuck Schumer (D-NY), House Ways and Means Committee Chairman Richard Neal (D-MA), and the Biden Administration for their commitment to affordable housing and for supporting the inclusion of these Housing Credit proposals in Build Back Better. The AHTCC also thanks the many other members of Congress who prioritized the Housing Credit, including cosponsors of the AHCIA in the Senate and House, and the over 100 Democratic Representatives who signed on in support of including the AHCIA in the Build Back Better reconciliation legislation.

The AHTCC also thanks all of our members who have advocated for these provisions over the past weeks and months, and who have helped to build broad support for the Housing Credit over many years – your continued outreach has been essential for ensuring the inclusion of Housing Credit production proposals in the Build Back Better reconciliation legislation.

The Path Forward for Build Back Better

The House is aiming to vote on the updated reconciliation legislation later this week or weekend in tandem with consideration of the bipartisan infrastructure legislation, which would provide $550 billion in additional funding for ‘traditional’ infrastructure (see text and outline), but does not include any major affordable housing components. After passage of the reconciliation bill in the House, it will move to the Senate.

Because Democrats are using the budget reconciliation process, the legislation can pass the Senate if all 50 Senate Democrats vote in favor, rather than the typical 60 votes required under the regular legislative process. However, there are a number of issues that still need to be resolved, and the legislation is likely to be amended prior to passage in the Senate. If amended, legislation would need to pass the House again before being sent to the President’s desk for enactment.

We encourage all AHTCC members to thank any Democratic members of Congress with whom you have been engaging regarding the Housing Credit and Build Back Better. It will also be important to continue emphasizing the need to pass key Housing Credit production provisions through the reconciliation bill. Please stay tuned for more opportunities to advocate for these critically needed Housing Credit proposals and see additional details below.

Housing Credit Details in Build Back Better

Housing Credit Provisions that Originated in the Affordable Housing Credit Improvement Act

    • Lowering the 50 percent bond financing threshold test to 25 percent for 5 years (2022 to 2026), for “any building some portion of which, or of the land on which the building is located, is financed by an obligation which is described in section 42(h)(4)(A) and which is part of an issue the issue date of which is after December 31, 2021.”
    • Increasing the annual Housing Credit allocation at a rate of 10 percent per year plus inflation from 2022 to 2024, which amounts to a roughly 41 percent increase over current levels in 2024 (inclusive of a continuation of the current 12.5% cap increase) , followed by inflation adjustments after 2025. Note that we are in continued discussions around the allocation level for 2025, and changes may be possible within scoring constraints.
      • Per Capita and Small State Minimum Allocation Amounts for 2022 to 2025:
        • 2022: $3.14 per capita; $3,629,096 small state minimum
        • 2023: $3.54 per capita; $4,081,825 small state minimum
        • 2024: $3.97 per capita; $4,582,053 small state minimum
        • 2025: $2.65 per capita; $3,120,000 small state minimum
    • Providing a permanent 50 percent basis boost for developments serving ELI households, as well as requiring an 8 percent set-aside for ELI properties, effective for buildings placed in service after December 31, 2021
        • ELI Building Definition: Buildings serving Extremely Low-Income (ELI) households are defined as buildings in which at least 20 percent of units are restricted for households whose aggregate household income does not exceed the greater of 30 percent of area median gross income or 100 percent of the federal poverty line.
        • Set-Aside: Allocating agencies must allocate a minimum of 8 percent of the annual 9 percent Housing Credit allocation for developments serving ELI households. Note that the set-aside and following limitation did not originate in the AHCIA.
        • Limitation on Basis Boost: The 50 percent ELI basis boost is available for both the 9 percent and 4 percent Housing Credit, and is available for up to 13 percent of the state’s annual Housing Credit allocation and 8 percent of the state’s annual Private Activity Bond volume cap.
    • Providing a permanent 30 percent basis boost for developments in Indian areas, effective for buildings placed in service after December 31, 2021, by designating Indian areas as Difficult to Develop Areas.
      • Indian Area Definition: Indian Areas are defined in the Native American Housing Assistance and Self Determination Act of 1996. To qualify, buildings must be assisted or financed under the same Act, the project sponsor must be a qualifying Indian tribe or a tribally designated housing entity, or the building must be wholly owned or controlled by a qualifying Indian tribe or tribally designated housing entity.

Additional Housing Credit Provisions

    • Allowing for the Sec. 48 energy Investment Tax Credit to be taken on a Housing Credit property without reducing the eligible basis for the Housing Credit.
    • Curtailing the use of Qualified Contracts by repealing the option for buildings receiving allocations after January 1, 2022, and, for existing properties, changing the price for the low-income portion of a property to fair market value, determined by the allocating agency taking into account the rent restrictions required to continue to satisfy the minimum set aside requirements.
    • Making several modifications to the Right of First Refusal (ROFR) by (i) converting the right to a purchase option for agreements entered into after passage, (ii) allowing the inclusion of partnership assets related to the building in the definition of property; (iii) allowing the option holder to exercise the right of first refusal without requiring the approval of an investor or requiring a bona fide third party offer; and (iv) changing the purchase price to only debt and not debt plus exit taxes. The changes are not intended to change any express provision in an existing agreement.

AHTCC members will receive a further analysis of other affordable housing, community development, and tax proposals within the bill soon. Learn more about AHTCC membership here.