By Laura Calugar
One year after the 2016 elections, the U.S. affordable housing market continues to weaken. The new administration’s anti-immigration attitude has impacted the construction labor shortage and the recently passed tax reform legislation causes anxiety among affordable housing advocates.
In the first major overhaul of the nation’s tax laws since 1986, important affordable housing tools including private activity bonds, the low income housing tax credit, the New Market Tax Credit program and the Historic Tax Credit were fully preserved in the final bill. However, the corporate tax rate will be lowered from 35 to 21 percent, which will likely cause a reduction in housing credit equity. According to Novogradac & Co., this will most probably decrease Housing Credit equity by about 14 percent, meaning approximately $1.7 billion in lost equity annually. This will have a devastating impact on local housing finance agencies and will result in funding gaps for affordable housing projects across the country, according to the National Association of Local Housing Finance Agencies.
Although pleased with the final compromises the conference committee of the two chambers made to protect valuable affordable housing tools, NALHFA remains concerned over the lower corporate tax rate. “We urge Congress to find ways to strengthen affordable housing resources in the coming months to make up for the lost equity resulting from a 21 percent corporate tax rate,” said NALHFA Executive Director Jonathan Paine, in prepared remarks.
Kevin Morris, South Florida member of the Colliers International Affordable Housing division, talked to Multi-Housing News about the affordable housing market during the first year of the Trump administration and what to expect from 2018.
The Trump administration is close to entering its second year. How did the new administration influence the affordable housing market so far?
Kevin Morris: Following the election, there was uncertainty in the affordable housing market. Tax credits were increasing to .95, to .96 per dollar and no one was buying tax credits. We saw a lot of renegotiating deals and a lot of deals didn’t close because of the uncertainty of pricing. Furthermore, the proposed tax changes are creating even more uncertainty. It’s causing the value of tax credits to decrease and creating a shortfall in the financing of new affordable housing projects and in the rehabilitation of decaying affordable housing developments.
Morris: What does a developer, who is solely developing affordable housing, do without these programs to finance their projects? In the past, if we lost some funding on the federal level, we could always ask the state agencies to step up. But now, there are less of those options and that will hurt affordable housing and the families who depend on these projects to have a home.
These incentives help developers help teachers, firefighters and store clerks who cannot afford to pay market-rate rents in several cities across the U.S. If we don’t develop affordable housing, it will affect the entire housing market and ultimately each of our communities. There have always been changes to the affordable housing industry, but what we are seeing now is dire.
Two of the main reasons new affordable housing is hard to find are the rising costs of construction material and labor shortage. How much are these influencing the affordable housing market?
Morris: The good news is that the tax plan won’t be cutting the private activity bond program, which helps subsidize the increasing cost of building affordable housing. The rising cost of construction material and labor is absolutely a challenge that the affordable housing market will continue to face in the short and long term.
What should developers expect in 2018?
Morris: We have a very serious housing shortage across South Florida. In Miami-Dade County, there’s a two-year wait for Section 8 housing. The end users don’t have a voice. The way the budget is written, it will have serious implications with less new affordable properties hitting the market. If the HUD budget is cut, it will also have an impact on rehabilitating older affordable housing properties.
What’s raising the concern of low-income housing developers is that the reforms lower the corporate tax rate from 35 percent to 21 percent. Currently, affordable housing developers sell a federal Low Income Housing Tax to investors, which allows them to lower their taxes and raise money for the projects. By lowering corporate tax rates, it will make the credits less valuable and decrease the amount that can be raised for low-income housing projects.
Image courtesy of Colliers International