The Low-Income Housing Tax Credit (LIHTC) has been the cornerstone of affordable housing in our country for the past 30 years. To help developers build and maintain these low-income projects, the tax code provides financing incentives to offset the cost of offering below-market rents.
The House Republican tax reform plan eliminates the tax-exempt status of private activity bonds (PABs), which effectively prevents developers from getting a 4% bond-financed project off the ground. This will make it harder for builders to finance the production of affordable housing through the LIHTC at a time when the nation already faces an affordability crisis.
The Senate package fully retains the LIHTC and PABs, and includes several provisions from the Affordable Housing Credit Improvement Act, legislation introduced in the Senate by Sens. Maria Cantwell (D-Wash.) and Hatch designed to make the LIHTC more effective. These provisions would:
- Permit state housing finance agencies to set up to a 25-month grace period after a LIHTC property’s casualty loss (fire, hurricane or flood) to allow the owner to get the unit restored before the credits would have to be recaptured from the property.
- Modify rights relating to a building purchase by replacing the right-of-first refusal with a purchase option. This will allow project sponsors to ensure that properties remain affordable over the long term.
- Allow states to determine the definition of a community revitalization plan to give them flexibility to determine local criteria.
- Help combat local opposition to affordable housing projects by prohibiting local approval and contribution requirements.
- Require that state-qualified allocation plans include selection criteria that serve the affordable housing needs of Native Americans.
- Rename the Low-Income Housing Tax Credit the “Affordable Housing Tax Credit.”
NAHB’s Chief Lobbyist Jim Tobin explains why the House tax reform plan threatens affordable rental housing.