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Low-Income Housing Tax Credit

Enterprise Point of Contact:

Emily Cadik
Senior Policy Analyst, Project Manager
Last Updated: April 9, 2015
 

Issue Background: Low-Income Housing Tax Credit

The Low-Income Housing Tax Credit (Housing Credit) is the nation’s largest and most successful affordable rental housing production program. Since its creation in the Tax Reform Act of 1986, the Housing Credit has leveraged nearly $100 billion in private investment capital, providing critical financing for the development of more than 2.7 million affordable rental homes for low-income families. The program supports 96,000 jobs annually and finances virtually all affordable rental housing.

According to Harvard University’s Joint Center for Housing Studies, there are only 3.3 million rental homes affordable and available to 11.5 million extremely low-income renters, representing an unmet need of 8.2 million affordable homes. The Housing Credit helps to close this gap by producing or preserving almost 100,000 affordable homes per year for low-income families a in urban, suburban and rural communities throughout the country. Tax-exempt multifamily private activity bonds (Housing Bonds) are an important component of affordable housing financing. Housing Bonds are used in more than 40 percent of annual Housing Credit developments each year, providing affordable homes to over 1 million families since 1986.

The Housing Credit is a premier examples of a public-private partnership. State agencies develop Qualified Allocation Plans (QAP) that determine the kinds and locations of affordable apartments to receive Housing Credits, based on local affordable housing needs and priorities. The selected developments can only receive credits after projects are completed, meet all federal requirements and are occupied by income-eligible tenants at affordable rents. This “pay-for-performance” model has led to very effective management of affordable apartments and an extraordinarily low level of foreclosure—a rate of 0.62 percent over the Housing Credit’s entire history, according to the accounting firm CohnReznick.

Current Policy State

Affordable housing development has become more difficult as a result of declining Housing Credit rates. When the Housing Credit was established in 1986, Congress set the credit rates at 9 percent for new construction and substantial rehabilitation and 4 percent for acquisition. Since then, the rates have fluctuated according to a formula related to federal borrowing rates, which have sunk to historic lows. As of March 2015, the new construction credit rate has dropped from 9 percent to 7.4 percent, while the acquisition credit rate dropped from 4 percent to 3.2 percent, resulting in a 15 – 20 percent drop in Housing Credit equity available for each development.

Recognizing the need for higher Housing Credit rates, Congress established a temporary minimum 9 percent credit rate for new construction and substantial rehabilitation in the Housing and Economic Recovery Act of 2008 (HERA) enacted. This provision simplified state administration of the program and removed the financial uncertainty and risk associated with underwriting Housing Credit-financed properties using the “floating rate” system. It was also cost-neutral, since it did not change the amount of Housing Credit allocation that each state receives.

The minimum 9 percent rate was extended through the end of 2013 in the American Taxpayer Relief Act of 2012, and again in the Tax Increase Prevention Act of 2014. However, the minimum 9 percent credit rate is now expired, and the Housing Credit is operating in a “floating rate” environment once again.

Representatives Pat Tiberi (R-OH-12th) and Richard Neal (D-MA-1st) have introduced bipartisan legislation in the House (H.R. 1142) that would enact permanent minimum Housing Credit rates of 9 percent for new construction and substantial rehabilitation and 4 percent for acquisition. The bill has strong bipartisan support. Companion legislation is expected to be introduced in the Senate by Senators Pat Roberts (R-KS) and Maria Cantwell (D-WA) in the coming weeks.

Legislative Priorities

Enterprise is committed to protecting, strengthening and expanding the Housing Credit and Housing Bonds as Congress considers proposals for tax reform. As a large corporate tax expenditure, the Housing Credit is vulnerable to being eliminated or substantially cut to help reduce corporate tax rates. It is also at risk of significant reforms that could impact the efficiency and effectiveness of the program. The tax exemption on Housing Bonds is vulnerable to elimination as well. Defending these programs requires a comprehensive advocacy effort that focuses on educating key members of Congress about the impacts of the Housing Credit and Housing Bonds in their communities. Along with the National Council of State Housing Agencies, Enterprise helps to lead the A Call to Invest In Our Neighborhoods (ACTION) Campaign – a broad grass-roots coalition of nearly 900 national, state, and local organizations committed to protecting and improving the Housing Credit and Housing Bonds.

Enterprise also urges Congress to enact permanent minimum Housing Credit rates in order to maintain financial feasibility and administrative predictability for Housing Credit projects in 2015 and beyond.

Enterprise Resources

Testimony and Public Comment

Advocacy Materials and Other Resources
 

  • Sign up to receive updates about the campaign, the Housing Credit and tax reform
  • Learn more about the threats facing the Housing Credit and our campaign proposals
  • Read the latest news pertaining to the Housing Credit
  • Access our advocacy toolkit, including:
  • Fact sheets, background and talking points
  • Housing Credit data and reports
  • Sample letters to Congress
  • Sample op-ed and letter to the editor
  • Housing Credit property event guidelines
  • State and district fact sheets showing the impact of the Housing Credit in all 50 states and all 435 congressional districts
  • Tips on contacting members of Congress