Breaking Ground

With a new presidential administration installed in Washington, DC, members of the affordable housing industry are eyeing their legislative priorities to determine how best to advocate for them.

Michael Novogradac, managing partner of Novogradac, a national affordable housing consulting firm, believes affordable housing in the U.S. is, and has been for some time, at a crisis point. Now, more than ever, he says, advocates’ voices need to be heard.

Tax Credit Advisor sat down with Novogradac to get his take on the current state of the industry and its future, as well as the pending policy issues that could greatly impact the industry.

Tax Credit Advisor: What is Novogradac’s global view of the affordable housing industry writ large at this moment in time?

Michael Novogradac: In terms of affordable housing generally, the crisis has never been greater. The need for affordable housing has never been more recognized by elected officials. I wish that wasn’t the case. I wish demand was down and enough housing was getting built, preserved and renovated, but that is not the case. I look at the industry right now and say there is an incredible need and all of us have to find ways to expand the available resources and deliver the affordable housing that is so needed.

TCA: What do you view as the top three issues facing the affordable housing industry that are making it challenging to address this crisis?

MN: I was tempted to joke and play off the concept in real estate of what are the three most important things in real estate – location, location, location. I would say in answer to your question it’s resources, resources, resources. The top issue is access to resources and trying to expand resources at the federal, state and local levels amid budget crises and the like. And I think at the federal level we have a good opportunity to expand the nine percent credits and to lower the financed by test for private activity bonds. We also have the opportunity to enact other provisions, such as the Neighborhood Homes Investment Act and extending and modernizing Opportunity Zones, as well as other legislative efforts. These efforts are on the tax side. I also think there are opportunities within the Department of Housing and Urban Development, however, there definitely will be concerns about the level of funding. So, number one is access to resources.

Number two is rising construction costs and expenses. When I think of rising costs, it’s both construction and rehabilitation costs and operating expenses. We also hear a lot about insurance, which is increasing at unsustainable rates. But there are also other concerns. The inflation results for January increased three percent year over year, so inflation is up. When you look at the potential impacts of tariffs driving up construction costs that also could be an issue.

And the third is rising, higher interest rates.

TCA: Any projections on where you think interest rates are going?

MN: I always predict that they will go up or down or stay the same. Or I will say they are going to go up, but I won’t give you a time period. But seriously, I don’t know which way interest rates are going. My advice to clients is always to try to de-risk a transaction as much as you can so, you should lock in your interest rate, and you should lock in as many factors as possible in the course of a development so that you stay financially feasible as much as possible.

TCA: What is your perception of things politically in terms of federal and state endeavors on affordable housing?

MN: I think at the federal level and even at the state and local levels as I mentioned earlier, affordable housing and the need for affordable housing has never been as relevant. Both presidential candidates commented on the need for more affordable housing and to find ways to lower the cost of housing. It is a national issue. Every member of Congress is aware of the housing issue, which has led to the Affordable Housing Credit Improvement Act having so many co-sponsors. So, the good news is there is recognition of the issue. The goal is to now take the recognition of the issue and convert that to action. We are hopeful that as part of extending the Tax Cuts and Jobs Act, there will be an expansion of the nine percent tax credit, a lowering of the 50 percent test and several of the basis boosts to make more housing, either new construction or renovation, more financially feasible. That is at the federal level on the tax side. We are hopeful for that.

On the budgetary side at HUD, there will be a focus on efficiency and reducing regulations and the like, and that will be a real positive. We look forward to working with HUD and with Secretary Turner on those efforts.

From a budgeting perspective, there are concerns across the industry about what level of funding there will be. There is a lot of trepidation. We will have to see how It develops over time.

TCA: How are you engaging as a firm or as an individual in the political realm right now?

MN: We as a firm are committed to advancing federal, state and local legislation that supports affordable housing, community development, historic preservation, renewable energy and beyond. Within the affordable housing development space, I testified in front of the Senate Finance Committee last July and made the case for the modernization of Historic Tax Credits and a number of other tax incentives. We also have Peter Lawrence, our chief public policy officer in DC. We’ve had a DC presence for ten-plus years so we can be on the ground, helping educate members of Congress, the Administration and the like. Peter has a very active role in that. Also, at Novogradac we have various working groups. We have a Low Income Housing Tax Credit working group, an Opportunity Zones working group, a New Markets Tax Credit working group and others. In these various working groups, we take folks at Novogradac and a large number of those who are practicing and developing in those areas, and we meet once a month and come up with recommendations on regulatory matters and legislative matters so that we can educate both members of Congress and their staff, as well as members of the Administration. We write lots of comment letters. We also testify at hearings. Additionally, we are very active in all the major trade organizations, like the Affordable Housing Tax Credit Coalition, Housing Advisory Group, New Markets Tax Credit Coalition and Historic Tax Credit Coalition and others.

TCA: Let’s talk about the internal workings of your company. Tell us about the ways you are innovating and developing new certifications and classes.

MN: We have always been a bit of an outward-facing company with our conferences, workshops, podcasts, Journal of Tax Credits and the like. We’ve always been about getting information out to clients and prospective clients and policymakers in as cost-effective a format as possible. On the property compliance side, we created a Novogradac Property Compliance Certificate (NPCC) so that property owners would know that the folks on-site understand the intricacies of the LIHTC to ensure property compliance. We started that several years ago. In addition, we created a broaderNovogradac Community Development Certificate (NCDC)so that if someone were interested in getting a broader foundational knowledge in various community development tax incentives, they could take classes with Novogradac to learn the intricacies of the LIHTC, New Markets Tax Credit, Historic Tax Credit and renewable energy credits and Opportunity Zones. The NCDC is more for developer types looking for a broader knowledge of these tax incentives to spur project finance. We work with a couple of other groups to provide those courses free of charge. They were well received. Folks are reaching out to us to incorporate them into their programs. We have a relationship with the Urban League Academy Fellowship where they use the Novogradac Community Development Certificate as part of their fellowship. The Open Access Fellowship also incorporated the certificate in their fellowship. Novogradac has a program for students called Building Opportunities where students can register and have access to these various tools free of charge. We select a certain number of students every year and they apply for the program. The applications are usually in the fall.

TCA: Anything else you would like to add about this moment in affordable housing?

MN: I would say that everyone who cares about affordable housing should be making their voice heard. It takes a lot of hands to make light work, and even with a lot of hands, this won’t be light work. It is critical from a tax incentive perspective and from an affordable housing perspective that as part of the tax bill, we get more resources for affordable housing. All TCA readers should take a moment to be engaged and to reach out to their members of Congress, and their senators and encourage them to support more resources for affordable housing as part of the tax bill.