America continues to have an acute shortage of affordable rental homes. According to analysis by Harvard’s Joint Center for Housing Studies, there is a continued critical need for at least 5 million more affordable rental housing units for working families. The situation has been exacerbated by the foreclosure crisis, which has caused families of foreclosed homeowners to move back into the rental market.
The Low-Income Housing Tax Credit (LIHTC) program is by far the most significant national resource for the development and preservation of affordable rental housing. Since its inception in 1986, the LIHTC program has been a model public/private partnership and, prior to the financial crisis, had financed 9 out of 10 apartments for low-income families (c. 120,000 apartments per year)—providing safe, decent and affordable housing to more than 2 million Americans. SAHF members use the LIHTC in the development of a vast majority of their deals.
Vacancy rates in LIHTC properties are relatively low compared to those in the conventional market. Furthermore, due to the structure of the program, compliance remains high while foreclosure of LIHTC properties remains low.
As a result of the recession and economic crisis, investment in the LIHTC fell sharply, leading to a major reduction in units being constructed or preserved at a time when the housing crisis has created an even greater need for affordable rental housing. While the LIHTC investment market is slowly rebounding, it is unclear how sustainable the rebound is in the medium and long-term, nor is it clear that there will be investor interest in rural and secondary urban markets.
SAHF is a member of the A.C.T.I.O.N Campaign that called on the 111th Congress and the Administration to take measures to ensure that investment in affordable rental housing continues for America’s communities. The goal was to restore the annual volume of affordable rental housing built, rehabbed, and preserved annually for America’s communities.
The legislative proposals included:
Extending the Exchange Program to Maintain the Development Pipeline in 2010
The provision would extend the Section 1602 Housing Credit exchange program as established in the Recovery Act and modify it to allow states to exchange Housing Credits arising from tax-exempt multifamily housing bonds (4% credits). This would give each state the resources needed to continue funding affordable rental housing while the investment market recovers. Click here for more detail on the Exchange Program provided by the A.C.T.I.O.N Campaign.
Increasing the Housing Credit Carryback Period
The proposed legislation would create investment incentives to stimulate Housing Credit investment demand in both the short- and long-term. In order to do this, the A.C.T.I.O.N. Campaign suggested the following two-point plan:
Click here for more detail on the Carryback Proposal provided by the A.C.T.I.O.N Campaign.
Expand the Investor Base
A third initiative would allow some S Corporations, Limited Liability Companies, and closely held C Corporations to use the Housing Credit on the same basis as most corporations if they satisfy the following tests: 1. They have at least $10 million in annual gross receipts. 2. They are not created purely to invest in Housing Credits. 3. They have state-approved asset management plans. This proposal would stimulate investment in rural areas and diversify the investor base to protect the program from economic downturns targeting a particular industry.
Click here for more detail on the Pass Through Investor Proposal provided by the A.C.T.I.O.N Campaign.
If these legislative proposals were adopted, investment in both large and small developments as well as in metro and rural areas across the country would increase by nearly 50 percent—at least $5 billion—in 2010 and 2011, according to an October 2009 report by Ernst & Young. Combining this increased investment with an extension and modification of the exchange program would lead to the construction or rehabilitation of at least 123,000 more affordable apartments, the generation or saving of 232,000 jobs, $50 billion in additional local income, and $8 billion in additional revenue to states and localities nationwide, than if Congress does not act. In addition to the jobs created through construction, development, and property management, the operation and occupancy of these apartments would result in new jobs in retail, business services and other industries.