Why the Affordable Housing Credit Improvement Act Stands a Chance
by Michael Novogradac, Managing Partner, Novogradac & Company LLP, and AHTCC Vice President
Since Sens. Maria Cantwell (D-WA), Orrin Hatch (R-UT), Chuck Schumer (D-NY), and Ron Wyden (D-OR) introduced legislation May 19 proposing, among other things, a 50 percent expansion of allocations of the federal low-income housing tax credit (LIHTC), it has been lauded by the affordable rental housing community as a bold step in the right direction.
Last week the show of bipartisan support for LIHTC grew stronger as Sens. Kelly Ayotte (R-NH) and Amy Klobuchar (D-MN) signed on as cosponsors.
This backing will be essential and must be expanded with additional cosponsors if the legislation has a chance of progressing through Congress during a presidential election year while tax reform looms. That said, the significance of Senate Finance Committee Chairman Hatch cosponsoring the tax bill is bolstered by Wyden’s support as the Ranking Democrat on the Senate Finance Committee and the expectation that Schumer will be the Senate’s Democratic leader next year. If the Democrats take control of the Senate in the November election, Wyden will be chairman and Schumer will be the Senate Majority Leader.
The bill (S. 2962) includes several major provisions, chief among them a 50 percent increase in allocation authority. Allocations would grow 10 percent per year starting in 2017, reaching the 50 percent boost level in 2020. Novogradac & Company LLP’s analysis found that the 50 percent cap increase alone could fund between 200,000 and 225,000 additional affordable rental homes from 2017 through 2026.
The bill also proposes a 4 percent minimum credit rate for the acquisition of affordable housing and for multifamily tax-exempt housing bond-financed developments, which would parallel the establishment of a 9 percent minimum rate that was included in the PATH Act passed at the end of 2015. The current rate is closer to 3 percent. An increased minimum rate would increase the amount of equity invested by approximately 25 percent, expanding the number of financially feasible tax-exempt bond-financed affordable housing developments.
The legislation also includes a provision that allows income averaging in LIHTC developments. That would allow certain apartments in a LIHTC property to be available to residents making up to 80 percent of the area median income (AMI), so long as the development-wide average is 60 percent or less. Allowing income averaging permits a broader mix of incomes and makes LIHTC attractive in places where it now is difficult.
The Affordable Housing Credit Improvement Act didn’t include some provisions that Sen. Cantwell supported in her March 24 announcement, including a basis boost of up to 50 percent for units reserved for extremely low-income households, those earning at or below 30 percent of the AMI. Reports suggest Cantwell and Hatch could soon introduce future legislation that would include additional, related provisions.
In the meantime, building support for S. 2962 should be a top priority for the affordable housing community to build on the bipartisan agreement it has secured to date.