To Solve The Affordable Housing Crisis, Cities Will Need More Than Federal Tax Credits

Uncategorized

It is becoming increasingly difficult to find affordable housing in the U.S. More than 11.4 million households across the country spend over half their incomes on monthly rent, and someone who works for the minimum wage would have to work 91 hours per week to afford most two-bedroom apartments.

To help solve this problem, developers have used low-income housing tax credits as an incentive to produce housing that is livable and affordable. Introduced as part of the Tax Reform Act of 1986, LIHTCs give incentives for developers to build affordable housing that supports low-income individuals, seniors and families. These tax credits have developed or preserved over 6.7 million homes, supporting America’s most vulnerable communities.

The Tax Cuts and Jobs Act, which amended previously existing tax policy and was signed into law in December, will have several implications for housing. While LIHTCs will only see minor changes, affordable housing production may experience a slowdown due to lower equity and fewer investment and funding sources. TCJA is expected to temporarily stunt a market already starved for affordable housing. To get around this, cities are beginning to look beyond federal tax credits to state and local sources to help solve the housing crisis.

“In recent years, many multifamily developers have produced a significant amount of Class-A apartments without any affordable units set aside," RSM U.S. Director Justin Heberling said. "The main production of affordable units has come from developers who utilized the LIHTC or other affordable housing programs. Local jurisdictions are now working with developers to offer incentives beyond these tax credits to meet the needs of a city and its local economy."

In Nashville, Tennessee, the lack of affordable housing development could have a direct impact on the local economy.

The tourism industry is critical to the region’s growth. In 2016, tourism reached $1.7B in state and local sales tax, a 6.7% increase over 2015. Nashville’s service industry supports its robust tourism growth, but it has become more difficult for the bartenders, waiters and hospitality staff behind this success to live in the city.

The city and local developers came to a resolution: Developers could build residential properties at market rate in the center of the city, as long as they could designate a certain percentage of the units toward affordable housing. These units would be reserved for service employees.

“As demand for LIHTCs shifts in the investor market, these projects need to look to local jurisdictions,” RSM Affordable Housing Sector Lead Jim Beal said. “Cities need to support their communities with affordable housing, workforce housing and permanent supportive housing. In this climate, it’s necessary to find this aid at the local level.”

In many communities, this financial assistance also comes from nonprofit organizations. The Alabama Affordable Housing Association, for instance, works with government officials and activist groups to increase awareness of affordable housing programs and resources within the state. AAHA also funds over $100K annually in educational scholarships for students in low-income families who benefit from affordable housing.

Some states offer their own version of LIHTCs. New York’s LIHTC program, which was signed into law in 2000, provides financial assistance to develop properties that serve households with incomes at or below 90% of the area’s median income. The program is expected to provide $8M in tax credits over the next decade.

“Affordable housing initiatives have been the most successful example of public-private partnership in any area,” Beal said. “It’s programs like these that motivate the private sector to facilitate meeting a public need, creating opportunities for people who struggle to make ends meet. The government will seemingly always have a role in housing, and the real estate community needs to continue working with legislators to make safe and stable places to live more affordable.”

Developers can help solve the affordability crisis, as long as they look for support in the right places.

To learn more about this Bisnow content partner, click here.

Source Article