Affordable Housing Market Hurt By Tax Overhaul Uncertainty
MARY LOUISE KELLY, HOST:
Uncertainty over tax reform has already hurt the affordable housing market. Here's why. A tax credit used for building affordable housing lost a chunk of its value with the November elections. From member station WBUR in Boston, Simon Rios reports.
SIMON RIOS, BYLINE: Bart Mitchell looks over a field along the train tracks in Boston's Jamaica Plain neighborhood. The site was supposed to be full of workers and heavy equipment right now for 78 affordable apartments. But then the elections happened.
BART MITCHELL: We hoped to be in construction of some beautiful, new, mixed-income housing, but we aren't starting construction because of what's changed to the low-income housing tax credit marketplace.
RIOS: That $8 billion federal tax credit, known as LIHTC, is used to finance 9 out of 10 affordable units built in the United States. Here's how it used to work. A developer, like Bart Mitchell, would be awarded a million dollars in tax credits. He'd sell them to a bank for roughly a million dollars in financing. And the bank would use the credits to save money on Tax Day. But when President Trump was elected, everything changed.
MITCHELL: On November 9, there were investors saying, we may not want to proceed with tax credit investments for the next many months. We may pull out projects that you thought we were committed to.
RIOS: Suddenly, millions - even hundreds of millions of dollars - evaporated for affordable housing. That's because if the tax rate goes down, so does the price of the tax credits. Banks are now pricing them at 10 or 15 cents less on the dollar. That's if they're willing to buy them at all.
ESTHER SCHLORHOLTZ: Until there's more certainty about that, it makes it very hard for us to make investment decisions.
RIOS: Esther Schlorholtz heads community investments at Boston Private bank. The bank is heavily invested in affordable housing tax credits, but it's not buying any right now.
SCHLORHOLTZ: Our analysis is that we will need to wait to make a more prudent decision on our equity investments.
RIOS: LIHTC now supports the building of about 100,000 affordable units a year. Michael Novogradac sits on the board of directors of the affordable housing tax-credit coalition.
MICHAEL NOVOGRADAC: And if the value of the tax credit were to decline the 10 to 15 percent range, then you would end up losing 10,000 to 15,000 affordable rental housing units a year.
RIOS: And that's already happening. But Novogradac says it could be even worse, depending on whether the corporate tax rate is cut more than investors are expecting. In the case of Bart Mitchell's development in Boston, he was able to patch the money together to fill the financing gaps for his project to go forward, albeit a half a year behind schedule. But it's sort of like robbing Peter to pay Paul.
MITCHELL: There will be less affordable housing built because the existing resources will have to fill gaps on existing projects, rather than be saved for funding the next projects.
RIOS: The price of low-income housing tax credits isn't the only problem builders are facing. President Trump wants to cut funding to the Department of Housing and Urban Development by 13 percent. Those cuts could threaten programs that provide gap funding to affordable housing developments. But many in the industry are optimistic about the future of low-income housing tax credits. A bipartisan bill in the Senate would expand the tax credit program by 50 percent. Supporters say that expansion would lead to 400,000 new homes over a decade. It may sound like a lot, but there's over 4 million Americans who now qualify for low-income housing and don't get it. For NPR News, I'm Simon Rios in Boston.
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