House Infrastructure Bill Would Expand and Strengthen Housing Credit and Housing Bonds

The AHTCC applauds the bill’s inclusion of provisions that would significantly strengthen our nation’s affordable housing delivery system at a time when it is so critically needed.

The Moving Forward Act would increase the Low-Income Housing Tax Credit (Housing Credit) allocation by more than 60 percent over current levels, set a permanent minimum 4 percent Housing Credit rate, lower to 25 percent the “50 percent test” threshold for Housing Bond-financed properties, extend program deadlines and allow for an accelerated credit to help address challenges caused by the COVID-19 crisis, expand Private Activity Bonds, and enact other important provisions for which the AHTCC and our partners have been advocating. In his remarks on the legislation, House Ways and Means Chairman Richie Neal (D-MA) said, “There is a desperate need for modernizing low-income housing and the Committee proposed a massive expansion of the Low Income Housing Tax Credit to get us there.”

The proposal would provide another $100 billion in funding for affordable housing, including $5 billion in HOME funding, authorize a new Neighborhood Investment Tax Credit to subsidize rehabilitation of vacant homes and construction of new homes in distressed areas, and expand and extend the New Markets Tax Credit and Historic Tax Credit. A detailed summary of the Housing Credit, Housing Bond and other affordable housing provisions is provided below.

House leadership is aiming to vote on the bill the week before the July 4th holiday. Senate Democrats are expected to introduce legislation containing these housing provisions this week, though Senate leadership is not expected to take up this infrastructure legislation in the near future. However, having this support for the Housing Credit and housing generally sets an important precedent for future infrastructure legislation, and could serve as potential proposals to include in future COVID-19 response legislation.

Housing Credit Provisions

The legislation includes the following proposals on the Low-Income Housing Tax Credit from the bipartisan Affordable Housing Credit Improvement Act (AHCIA/S. 1703/H.R. 3077):

• Enact a permanent minimum 4 percent Housing Credit rate, which is estimated to finance an additional 126,000 affordable homes over the next decade, according to Novogradac & Co. The rate would apply to buildings which receive Housing Credit allocations or, in the case of projects which are financed by tax-exempt bonds, which receive a determination of Housing Credits after December 31, 2019, and which are placed in service after such date.
• Increase the annual Housing Credit allocation from $2.81 per capita to $4.56 per capita, and from $3,217,500 to $5,214,051 for the small state minimum, an increase of more than 60% over current levels. The phase-in would be accelerated over two years instead of the five initially proposed in the AHCIA.
• Provide basis boosts to facilitate developments providing homes to hard-to-reach communities and populations:
  • A 50 percent basis boost for developments serving extremely low-income tenants in at least 20 percent of units, along with a 10 percent increase in Housing Credit allocations on top of the increase already proposed, to be used specifically for these developments,
  • A 30 percent basis boost for properties in rural areas through designation as Difficult to Develop Areas,
  • A 30 percent basis boost for properties in Native American areas through designation as Difficult to Develop Areas, and
  • The ability for the state housing agency to provide a 30 percent basis boost as needed for properties financed by Housing Bonds by treating such properties as located within Difficult to Develop Areas.
• A prohibition on local approval and contribution requirements to help address NIMBY issues.

The legislation also includes several provisions that the AHTCC and our partners had proposed as part of the COVID-19 response:

• Lower the “50 percent test” threshold of Housing Bond financing required in order to access 4 percent Housing Credits to 25 percent, which could provide as many as 1.4 million affordable homes over the next decade.
• Extend two key Housing Credit deadlines:
  • A 12-month extension of the 10 percent test, so that at least 10 percent of the anticipated basis of a development can be expended within two years of the Housing Credit allocation instead of one, and
  • A 12-month extension of the rehabilitation expenditure deadline, from 24 to 36 months.
  • Note that the AHTCC and our partners are also awaiting guidance from the IRS on these and other deadline extensions, as well as other flexibilities needed in light of the COVID-19 crisis. In the meantime, some relief has been provided, including a twelve-month extension of the placed in service deadline, by virtue of other disaster-related guidance having been issued.
• Address “adjuster” issues that have arisen from the COVID-19 crisis by temporarily allowing owners to elect to receive 150 percent of the Housing Credits otherwise allowable for a building in a project’s first or second tax credit year, reducing the credit for the subsequent years on a pro rata basis. This would help to cover financing gaps brought about by significant financial penalties, known as “adjusters,” caused by the delays resulting from the COVID-19 crisis. The proposal would apply to buildings for which the first year credit period ends after July 1, 2020, and before July 1, 2022, which also have construction or leasing delays occurring after January 31, 2020, due to COVID-19.

The legislation also includes two other Housing Credit provisions:

• A new 25 percent low-income housing supportive services credit to cover a portion of costs for providing certain resident services at Housing Credit properties.
• Curtail the use of Qualified Contracts by repealing the option going forward and changing the formula that determines purchase price on existing properties. This proposal is based on the Save Affordable Housing Act of 2019 (S. 1956/H.R. 3479).

Private Activity Bond Provisions

• Increase the ceiling on private activity bond volume cap for each state from $105 per capita to $135, and increasing the small-state minimum from $321,775,000 to $402,220,000, and increase of nearly 30 percent that would allow states to increase issuance of multifamily Housing Bonds.

Other Affordable Housing Provisions

• Establish a new Neighborhood Investment tax credit to incentivize the rehabilitation of vacant homes and construction of new homes in distressed communities.
• Authorize over $100 billion to facilitate the development and preservation of 1.8 million more affordable homes, including:
  • $70 billion for the Public Housing Capital Fund,
  • $10 billion for Community Development Block Grants (CDBG),
  • $5 billion for the HOME Investment Partnerships Program, for which the AHTCC and our partners have advocated as part of the COVID-19 response, and
  • $5 billion for the Housing Trust Fund.