Addressing Affordability Through Supply
By Kaitlyn Snyder
5 min read
NH&RA Issues New Multifamily Tax-Exempt Bond Toolkit
Several initiatives and policy proposals of late seek to address housing affordability through supply side solutions.
The Opportunity Zones incentive attempts to drive development in low-income areas.
The White House’s Council on Eliminating Regulatory Barriers to Affordable Housing will recommend policies that reduce and streamline statutory, regulatory and administrative burdens that inhibit the development of affordable housing supply at all levels of government.
The biggest and most impactful supply side legislative solution is the Affordable Housing Credit Improvement Act of 2019 (H.R. 3077/S. 1703) that would increase the Low Income Housing Tax Credit (LIHTC) allocation by 50 percent and fix the four percent credit at four percent. Novogradac and Company estimates that these two provisions would build and preserve an additional 384,555 homes and 66,000 affordable homes over the next ten years, respectively.
Then there are the myriad housing affordability proposals from the 2020 democratic presidential hopefuls. Sen. Cory Booker (D-NJ), former HUD Secretary Julián Castro, Sen. Kamala Harris (D-CA) and Sen. Elizabeth Warren (D-MA) have all released plans that primarily proffer demand side solutions, like a renter’s tax credit or expanding the Housing Choice Voucher Program. However, most of their plans also include a supply side solution. Sen. Booker proposes to build new affordable housing options for low-income renters through an additional $40 billion a year to the National Housing Trust Fund (HTF). Former Secretary Castro would fund the HTF and the Capital Magnet Fund at $45 billion per year and expand the LIHTC. Sen. Warren’s American Housing and Economic Mobility Act of 2019 (H.R. 1737/787) would invest about $475 billion in federal programs over a ten-year period to preserve or create more than 3 million housing units for low- and middle-income families.
The National Housing & Rehabilitation Association emphatically supports all these initiatives and policy proposals and is working with our members, partners, Congress, the Department of the Treasury, the Department of Housing and Urban Development and the White House to pursue these supply- and-demand-side solutions to address housing affordability.
But NH&RA also believes that one of the biggest existing drivers of supply side housing affordability is being left on the table by too many states: tax-exempt bonds and the accompanying four percent LIHTCs.
Bond Volume Left on the Table
In its most recent analysis, the Council of Development Finance Agencies found that only eight states issued all or almost all of their private activity bond (PAB) volume cap in 2017. When accounting for new PAB cap, as well as carry-forward allocations, states had over $90.4 billion in private activity volume cap available in 2017. Only $24.9 billion was issued, while an additional $44.2 billion was carried forward. Utilizing even a portion of the unutilized $30 billion for additional multifamily housing would go a long way towards closing the affordability gap.
In our new Multifamily Tax-Exempt Bond Toolkit, we explore how Housing Credit Allocating Agencies (HCAAs) and state and local governments can scale up utilization of their private activity bond allocation to build and preserve more affordable housing. We offer recommendations in several topic areas including:
- Differentiating criteria between four and nine percent credits;
- Rolling application deadlines for four percent credits;
- Prioritizing subordinate & gap funding to support bond transactions; structure soft sources to maximize leverage;
- Maximizing eligible basis;
- Allowing developers to choose financial partners;
- Driving efficiency in the underwriting process;
- Encouraging policy flexibility, transparency & transactional velocity; and
- Allowing and encouraging the average income election.
Maximizing Eligible Basis
Perhaps the most important section of our toolkit focuses on maximizing eligible basis. Driving eligible basis generates more four percent credits, which in turn, reduces the need for gap funding and makes deals more financially viable on their own. There are a number of tweaks that HCAAs can make in their Qualified Allocation Plans to maximize eligible basis, like differentiating caps on total development cost and/or total per unit cost between nine and four percent transactions, increasing deferred developer fee limitations and allowing related-party seller notes to be included in eligible basis.
We are excited to see the bond recycling provisions in the Affordable Housing Credit Improvement Act of 2019 that would give HCAAs 12 months instead of the current six months to recycle multifamily tax-exempt bonds into Mortgage Revenue Bonds. Many states feel they are faced with a false choice of devoting scarce resources to homeowners or renters. NH&RA encourages states to devote the majority of their private activity bond allocation to multifamily housing options even while we pursue enhancements to bonds recycling through Congress. The fact is no other tax-exempt bond use also generates another federal subsidy: the four percent LIHTC.
NH&RA believes that HCAAs and state and local governments have the power to increase new unit production and expand preservation opportunities of affordable housing through tax-exempt bonds and the four percent LIHTC right now. While we are eager to see production through Opportunity Zones and the recommendations from the White House Council on Eliminating Regulatory Barriers to Affordable Housing, we know those solutions will take a significant amount of time while there are currently millions of people struggling to pay rent at this very moment. Time is of the essence and we need to use every tool at our disposal to address housing affordability.
We encourage everyone to check out the toolkit, which can be found on our homepage at www.housingonline.com and reach out to us with questions.
