Federal tax credit programs that are essential to affordable housing production are under threat
Last week's "Affordable Housing Summit,"sponsored by Bisnow, a leading online e-letter and information service on real estate, was excellent, with two stellar panels on affordable housing financing and production.
Federal tax credit programs produce affordable rents, not just housing
Fred Copeland of the Reznick Group a national accounting firm specializing in real estate finance, made the point that federal tax credit programs--there are three programs, Low Income Housing Tax Credits, Historic Preservation Tax Credits, and New Markets Tax Credits, and certain of the programs can be "twinned" or used on the same project--make it possible for newly constructed apartments that are part of affordable housing projects to be leased at rates 1/3 to 1/2 lower than the price of straight up market rate housing.
Confirming this was Brad Fennell, Senior Vice President of the William C. Smith Companies, a for profit real estate development and management company specializing in the development and preservation of affordable housing--they are well known for their renovation of the Parklands Complex ("At Villages at Parklands, A Community Reborn" from the Washington Post) and the associated creation of the Town Hall Education Arts and Recreation Center, a community arts facility serving the Ward 7 and 8 communities.
His example is the newly opened and almost fully leased Sheridan Station project--an apartment building that is located a couple blocks from the Anacostia Metro Station, but wouldn't look out of place next to market rate construction projects in other revitalizing and now in demand DC neighborhoods like Columbia Heights, 14th Street, or on Georgia Avenue in Petworth.
Rents at Sheridan Station are roughly $850 for a studio, $1,100 for a one- bedroom, and $1,300 for a two- bedroom, providing low income residents with a well located, transit accessible, amenities- rich place to live--at a price for new construction that is significantly lower than for market rate housing.
Federal tax credit programs under threat
Because of the hyper focus on the federal deficit, various federal tax-related programs that impact housing production (and urban revitalization projects more generally)--the tax credit programs and the Mortgage Interest Deduction from federal taxes--are under threat.
The New Markets Tax Credit program has not been reauthorized for 2012, at least not yet.
-- New Markets Tax Credits Coalition
And Multi-Housing News reports in "Will the LIHTC Be Abolished?," that the Low Income Housing Tax Credit program faces serious threats. From the article:
Sixteen years after it was enacted, the LIHTC program stands at a crossroads. A prime threat to the very existence of the LIHTC program itself is national tax reform. “We are taking the threat very seriously,” says J.P. Delmore, assistant vice president—federal legislative at the National Association of Home Builders (NAHB). “From the 10,000 feet level, we agree that tax reform presents a risk to the program.”
In listing the dangers to the LIHTC program, Robert Landis, senior vice president and director of asset management at Raymond James Tax Credit Funds Inc., notes that unfortunately, some of the key, long-time, congressional supporters of the LIHTC programs are retiring this year—for example, Rep. Barney Frank (D-Mass.) and Sen. Olympia Snowe (R-Me.). ...
One point in favor of the housing tax credit is its success—and the lack of any scandals associated with it. “This is a squeaky clean program,” says Landis. LIHTC, which has produced some 2.4 million rental housing units since 1986, “has been remarkably successful for 25 years. No other programs in the history of the U.S. has created more housing more efficiently,” asserts Landis. In fact, “the IRS stopped random audits of LIHTC properties because it was not finding enough wrong with projects to make its efforts worthwhile,” notes Landis.
But just because something works doesn't mean that Congress won't mess with the program. Legislators from suburban, exurban, and rural districts are less likely to be supportive, since the tax credit programs are most likely to be used in cities--although not just center cities, but also suburban cities and towns. Their impact can be extended through similar types of tax programs at the state and local level (for example, many states have historic preservation tax credits also).
As an example of urban-rural tensions, the case of the state historic preservation tax credit program in Maryland is instructive. Baltimore, once one of the nation's largest cities and a major manufacturing city, has many large buildings left over from the abandonment of industrial plants. While perfect for adaptive reuse (the city has many exemplary rehabilitiation examples of industrial buildings repurposed for new uses, including Tide Point--home of Under Armour, and the old Montgomery Ward distribution center, now called Montgomery Park), the city was seen by State legislators as benefiting disproportionately from this "state" program, and a limit was put on the ability of any one jurisdiction from using the program, even though Baltimore has more eligible properties than the rest of the state combined. (See "Bill revamps Maryland's historic tax credits" from the Baltimore Business Journal.)
Still, these tax credit programs have been essential to urban revitalization projects in every state across the country, and their continuation should be supported.
Advocacy coalition to preserve affordable housing tax credit programs
Enterprise Community Partners, created by James Rouse to be a financing, development, and technical assistance provider and advocate in the affordable housing sector and other organizations have joined together to create Affordable Rental Housing A.C.T.I.O.N. (A Call To Invest in Our Neighborhoods), a grassroots campaign led by a broad, cross-industry coalition of more than 380 national, state, and local organizations, focused on preserving these tax credit programs
Resources on Affordable Housing
The law firm NixonPeabody, which has a big practice focused on tax credit financing, has a blog on Affordable Housing, which is well worth keeping up with.
Another good resource is the monthly e-letter by David Smith of Recap Advisors, entitled State of the Market.