New Developments, Act Now!
By Thom Amdur
5 min read
What I love most about the affordable housing industry is that it is populated by so many makers, doers and visionaries. Where most people see a piece of dirt, a blighted factory or a run-down apartment community, the tax credit developer seeks to fill an unmet societal need or market niche and conceives a future community.
It is an inherently risky business: markets and consumer preferences change, interest rates rise and fall and, no matter how much due diligence you do, there always seems to be an unexpected challenge in the dirt or a NIMBY around the corner. Developers are skilled at navigating most of these common risks associated with real estate, including pre-development, capital and construction, as well as operational risks inherent in these properties. But for many tax credit professionals, the biggest risk today is not any of those traditionally associated with real estate, but rather the political threat of proposed tax reform.
It is, admittedly, a bit precarious to predict the outcome of tax reform in mid-November for a column that won’t reach our readers until early December. As I write this, things are moving fast on Capitol Hill and the state of play may be very different by the time you read this. But we are currently facing a threat of losing valuable programs and I think it is vital to consider how we as an industry grapple with increasing political risk and, ultimately, how we can mitigate it.
As tax reform efforts built up steam, we started from a position of relative strength. Since the end of the last financial crisis, the affordable housing industry has taken great strides to develop a unified message on the importance of the LIHTC. An impressive coalition of developers, investors, lenders and professionals organized hundreds, if not thousands, of Hill visits, ground-breakings and grand openings designed to educate elected officials and media influencers. I cannot recall a time when there have been more public commitments by senators and representatives, on both sides of the political aisle, in support of the LIHTC and affordable housing.
So, it came as quite a shock for many when the House Ways & Means Committee introduced tax reform legislation that would hamstring affordable housing and community development production by eliminating private activity bonds, the Historic Tax Credit and the New Markets Tax Credit.
We structure caps and swaps to hedge against interest rate risk and we purchase insurance to protect against all manner of catastrophes and disasters. The only way to effectively hedge against political risk is political engagement. Whether or not tax reform passes tomorrow, next week or next year, there is still time to act collectively. The avalanche of calls, emails and meetings with senators and representatives following the introduction of HR 1, the House tax proposal, has put the LIHTC, NMTC and HTC on far firmer footing than in the current Senate draft.
I urge our members to think even more expansively. We are an industry that employs tens of thousands and houses millions. We must leverage this broad network in new ways to defend and expand the key resources we depend on.
Consider the innovative organizational efforts of Dominium, which I consider a best practice approach we should all aspire to. When Jack Sipes, senior vice president of Property Management at the Minnesota-based developer, was tasked with scaling-up their advocacy and community outreach efforts, he struck on a simple yet elegant solution.
Embedded at properties, few people in our respective firms know better than the local resident manager about the impact affordable housing truly has on the local community. Sipes made it a primary job responsibility at the property level to share and leverage the local knowledge and leadership ability of these boots on the ground, these close-up observers. Sipes set a goal for every resident manager at Dominium’s 200+ properties to initiate at least one communication each month with a local elected official or community leader, such as fire chiefs, police chiefs or city managers. This expectation was memorialized, simply but effectively, as a recurring work-order in Yardi. The initiative is elegant in its simplicity and scalable across organizations and industries. At Dominium, this effort alone translates to 2,000+ additional contacts annually with key elected officials and local influencers across 23 states. In a recent conversation, Sipes observed, “The result is universally positive. Many politicians had no idea that affordable housing is as clean, safe, and indistinguishable from market-rate housing to the outer appearance. One lieutenant governor remarked that he was nervous before his visit and asked his staff if he needed to wear body armor. After visiting, he felt like he was at a country club. It is a vivid example, but a typical response—the politician thinks he is going to visit substandard housing and instead sees modern finishes, high levels of maintenance, and a great community atmosphere. The impact is immeasurable.
As good a job as our industry has done, we can and must do more and better. Think about where we would be if we fully leveraged everyone on our teams and organized our resident and tenant associations to do the same. To quote the immortal Dante, “The secret of getting things done is to act!”
