Industry Insights
Building Political Momentum
By Kaitlyn Snyder
4 min read
Demand for tax-exempt bonds has been steadily rising with more and more states reaching their bond cap limit. Just a few weeks ago, the Alabama Housing Finance Agency hit its cap and stopped accepting new applications. While this creates a myriad of issues, the silver lining is that it can also create political support for affordable housing.
Entering 2023, housers were disappointed that more affordable housing provisions weren’t enacted into law before Democrats lost control of both chambers of Congress. Divided Congress shifts the emphasis from legislation to regulation and National Housing & Rehabilitation Association will be actively engaged with the promulgation of housing-related regulations from the Inflation Reduction Act, as well as the Community Reinvestment Act.
But I want to be clear that not all hope for legislation is lost. There will still be must-pass legislation (think government funding and debt ceiling increases), to which we’ll try to attach a proposal or two.
There was no year-end tax bill in 2022 and several popular provisions expired or were made less attractive, including the Child Tax Credit, R&D credits, bonus depreciation and interest deductions. We’ll be trying to include our provisions in every piece of legislation that has a tax title.
Plus, the U.S. will, at some point, need to vote on implementing the new 15 percent global minimum tax on corporations. The appointment of former Treasury official Manal Corwin as tax policy director at the Organization for Economic Cooperation and Development likely moves that vote up.
And finally, affordable housing is broadly supported on both sides of the aisle and we’re working hard to increase bipartisan support. In December, Senator Marsha Blackburn of Tennessee joined the Affordable Housing Credit Improvement Act, thanks in part to the Tennessee Developers Council, and we’re hopeful that her fellow Tennessean Senator Bill Hagerty will join the party too.
With a new Congress comes the need to re-introduce legislation. Over the next few months, we’ll be engaged in an all-hands-on-deck effort to get even more members on the Affordable Housing Credit Improvement Act. There’s also a crop of new lawmakers (seven in the Senate and 75 in the House) that need to be educated on affordable housing and are potential supporters. This relatively quiet period for Congress is a great time to engage with new members or re-engage with returning ones to lay the groundwork and build support ahead of the crunch of pending legislation.
In Absentia
But states are struggling with volume cap issues now and must develop solutions independent of congressional action. Current law allows the recycling of bonds within six months of their ‘turn-back’ date. The recycled bonds do not generate four percent Low Income Housing Tax Credits a second time or help meet the 50 percent test, but they can be used to fill gaps created by inflation and rising interest rates. Only a few states have recycling programs stood up and we encourage more to do so to work out the kinks ahead of any federal changes that may make recycling more attractive. The Affordable Housing Credit Improvement Act changes the time period from six to 12 months and further changes are being considered for the new version of the bill to be introduced in this Congress.
Fundamentally, recycling, limiting bond cap to 51 to 55 percent of aggregate basis (as discussed in Legally Speaking), and implementing rounds and scoring criteria are all tinkering on the edges, trying to stretch a scarce resource as far as possible. What is needed is to dramatically increase resources for affordable housing. Each year, states are given a populated-based amount of volume cap to then divvy up between a myriad of needs, including housing (both single- and multifamily), student loans, water and sewer infrastructure, etc. While all those things are worthy of funding, I’d argue nothing on that list is facing quite the shortage that affordable housing is. Furthermore, nothing besides multifamily housing can generate the four percent LIHTC. Using bond cap for anything but multifamily housing amounts to leaving money on the table. Rapidly rising interest rates may make it painful to consider taxable products for those other uses, but it’s worth taking the long-view and remembering that even our current increased rates are still historically low.
Engage with your elected leaders at local, state and federal levels and urge them to use whatever levers they have at their disposal to meaningfully take action towards solving the affordable housing crisis.
