Enterprise Point of Contact:
Senior Policy Analyst, Project Manager
Last Updated: January 15, 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 2.6 million affordable rental homes for low-income families. The program supports 95,000 jobs annually and finances virtually all affordable rental housing.
The Housing Credit is the fundamental housing resource used to transform communities. According to Harvard University’s Joint Center for Housing Studies, there are only 6.9 million rental homes affordable and available to 11.8 million extremely low-income renters, representing an unmet need of 4.9 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 working families and people with special needs (veterans, the elderly, the disabled, and the homeless) in urban, suburban, and rural communities throughout the country. The program also addresses the needs of those who are acutely underserved, such as farmworkers and Native Americans.
The Housing Credit is a premier example of public-private partnerships. After incorporating public comment and participation, state agencies develop Qualified Allocation Plans (QAP) that aim to address the particular affordable housing priorities of the state and determine the kinds and locations of affordable apartments to be built. Because private investors can only claim credits after projects are completed, meet all federal requirements and are occupied by income-eligible tenants at affordable rents, the Housing Credit benefits from private-sector discipline. 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
The Housing Credit is at risk. There is strong bipartisan support in Congress and the Obama Administration for pursuing tax reform that lowers corporate tax rates. As the Housing Credit is one of the largest corporate tax expenditures, it is vulnerable to being eliminated or substantially cut to help pay for the lowered rates.
In addition to the threat from tax reform, there are specific policy issues affecting the Housing Credit. The Housing and Economic Recovery Act of 2008 (HERA) enacted a temporary provision which created a fixed floor rate for new construction and substantial rehab Housing Credits (also known as 9 percent Housing Credits) at no less than 9 percent - the amount originally envisioned when the program was created. This provision has simplified state administration of the program and removed the financial uncertainty and risk associated with underwriting Housing Credit-financed properties using a “floating rate” system.
The minimum 9 percent rate was extended for Housing Credit allocations made through the end of 2013 in the American Taxpayer Relief Act of 2012, but it expired at the end of 2013. In the 113th Congress, Senators Maria Cantwell (D-WA) and Pat Roberts (R-KS) introduced bipartisan legislation in the Senate (S. 1442) that would have enacted permanent minimum Housing Credit rates, and representatives Pat Tiberi (R-OH-12th) and Richard Neal (D-MA-1st) introduced companion legislation in the House (H.R. 4717). Both received extensive bipartisan support. The Senate Finance Committee also approved minimum 9 and 4 percent Housing Credit rates in the Expiring Provisions Improvement Reform and Efficiency (EXPIRE) Act in May 2014, but the bill never went to the Senate floor for a vote.
In December 2014, Congress passed the Tax Increase Prevention Act (commonly known as “tax extenders), which retroactively extended a number of tax provisions for one year through the end of 2014. However, because nearly all of the 2014 Housing Credit allocation had already been distributed into developments that were underwritten at the floating rate, this legislation provided virtually no benefit to the Housing Credit. Once again, the Housing Credit is in a floating rate environment, and minimum credit rates must again be extended in order to maintain financial feasibility and administrative predictability for Housing Credit projects in 2015 and beyond.
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 over 850 national, state, and local organizations committed to protecting, preserving and improving the Housing Credit. Beyond its work to protect the Housing Credit in tax reform, the campaign has also advocated to make permanent a minimum Housing Credit rate to maintain the amount of private equity capital that goes into each Housing Credit project, as well as establish a similar minimum for acquisition credits. The campaign was successful in extending the minimum rate for projects allocated through the end of 2013 and will continue to work in the 114th Congress to further extend this provision.
Testimony and Public Comment
- On June 17, 2014, Enterprise and ACTION wrote a letter to the Ways and Means Committee urging permanent extension of minimum Housing Credit rates.
- On February 26, 2014, Enterprise and ACTION issued a press release responding to House Ways and Means Chairman Dave Camp's tax reform discussion draft
- On January 17, 2014, Enterprise joined the ACTION Campaign in submitting comments responding to a Senate Finance Committee tax reform discussion draft on cost recovery and accounting rules that would significantly impact the Housing Credit.
- On July 23, 2013, Enterprise and ACTION wrote a letter to the Senate responding to the Senate Finance Committee’s “blank slate” tax reform effort
On May 9, 2013, Enterprise signed on to ACTION Campaign testimony, and also submitted its own testimony, in response to an April 25 hearing in the House Ways and Means Committee on tax reform and residential real estate.
- On April 9, 2013, Enterprise joined the ACTION Campaign in submitting comments to the House Real Estate Tax Reform Working Group in support of preserving and strengthening the Housing Credit in tax reform. On April 15, Enterprise also submitted its own comments to the Working Group, addressing the same issue as well as the need to preserve and strengthen the New Markets Tax Credit.
- Visit the ACTION Campaign website to:
- 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