GOP Tax Plan To Have Destructive Effect On Affordable Housing

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The tax plan did away with tax credits that encourage the creation of affordable public housing for working Americans.

A little-known tax credit implemented in 1987 that was intended to encourage investment in affordable housing by the public sector - a widely successful and celebrated program - has been dealt a significant blow by the recently passed Republican tax plan.

The credit was not eliminated, but by reducing the corporate tax rate, Congress reduced the value of the tax credit. This serves only to exacerbate the current affordable housing market.

It works like this: State governments award credits to affordable-housing developers, who transfer them to corporations in exchange for equity in rental buildings whose units are set aside for low-income tenants. Corporations use the credits as a coupon against future taxes. Low-income housing tax credits are particularly popular among banks because affordable-housing investments help satisfy their obligations under the Community Reinvestment Act.

Developers are already searching for new financing and reevaluating long-term plans. City agencies are in the same boat. And in areas like San Francisco, where an affordable housing crisis is ongoing, the impact will be huge.

“It’s the greatest shock to the affordable-housing system since the Great Recession,” said Michael Novogradac, managing partner of Novogradac & Company, a national accounting firm based in San Francisco.

According to an analysis by his firm, the new tax law will reduce the growth of subsidized affordable housing by 235,000 units over the next decade, compounding an existing shortage.

Decreased tax incentives can only hurt a situation already burdened by a massive increase in the number of renters along with the gentrification of previously low-cost housing neighborhoods.

At present, there are no clear solutions, though some in Congress are trying to mitigate further strains on the market with legislative fixes:

At the federal level, Senators Maria Cantwell, Democrat of Washington, and Orrin Hatch, Republican of Utah, sponsored a proposal to increase the number of low-income housing tax credits by 50 percent.

But as the Times notes, the situation is not hopeful:

For now, there is little to suggest the rental burden will get better anytime soon. Over the next decade the younger half of the millennial generation will move into their 20s and 30s, adding to the pool of renters. Over that same period, more than a million units of affordable housing financed by low-income housing tax credits and other government programs are set expire and shift to higher rents.

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