Congress Targets Housing Bonds: Our Response

We should have seen it coming, but here at ViaHome we were shocked to read that this week’s tax reform bill (the “Tax Proposal”) proposes to eliminate tax-exempt multifamily bonds (“Multifamily Bonds”).  These bonds, together with the housing tax credits they generate, support some 40% of affordable housing starts nationwide.  In 2016, housing developers used $14 billion in Multifamily Bonds to support affordable housing.  Eliminating this financing source will be tremendously disruptive.

In this post, we’ll do our best to explain what’s going on as well as give you our take on what it means for the future of affordable housing development.

Bonds – What’s the Big Deal?

The Low-Income Housing Tax Credit (“LIHTC”) is the primary federal subsidy for affordable housing.  LIHTC comes in two varieties, the more valuable 9% Credit, and the 4% Credit.  9% Credits can generate 2x-3x the amount of financing for a project compared to the 4% Credit.

States can award only a limited amount of 9% Credits in a year (the “Tax Credit Cap”); competition to obtain them is fierce.  4% Credits, however, are not subject to the Tax Credit Cap, as long as an affordable housing development also uses Multifamily Bonds as a finance source. 

The Tax Proposal simply deletes the Multifamily Bond language from the tax code.  In addition to effectively killing off 4% Credits, the Tax Proposal will increase the borrowing cost for affordable housing by repealing its tax-exempt status.

What’s behind this proposal?  The Tax Proposal argues that the federal government should not subsidize the “costs of private businesses” – a curious claim in light of the Tax Proposal’s other provisions.  We suspect it might have more to do with raising revenue so that the Tax Proposal’s cost doesn’t violate parliamentary rules.  Whatever the reason, it’s clear these proposals will upend affordable housing development in the future.

Time to Think Outside the Box…

Multifamily Bonds and 4% Credits are a hugely important part of our arsenal in the affordable housing fight.  If passed into law as drafted, the Tax Proposal will do incredible harm to the housing sector and to working families in general.  We think that when Congress sees how important these tools are, they will ultimately preserve them.

Despite LIHTC’s successes, the Tax Proposal reminds us that we cannot rely on LIHTC alone.  LIHTC transactions, though effective, are extremely complex, exceedingly expensive, and currently do not produce units at the rate needed to alleviate the housing gap. 

At ViaHome, we are thinking hard about innovative ways to finance affordable housing developments alongside – or without – LIHTC, and the Tax Proposal has motivated us to double our efforts.  We’ll be talking about some of our ideas over the next several months, but we want to hear from you.  Naturally occurring affordable housing?  New CRA investment opportunities?  If you’re thinking about something new, reach out to us and let’s talk.

Welcome, and a Question...

Is a Unit Affordable if it's not Available?

We spend a lot of time here at ViaHome thinking about affordable housing, and we welcome you to check out our blog where we will be analyzing affordable housing in depth. 

One of the things we are focused on are trends, and one big trend stands out to us; despite averaging 80,000 – 100,000  affordable housing starts every year, the shortage of affordable housing crisis appears to be getting worse.

We are going to be exploring that paradox over the next few weeks.  But first, let’s look at the numbers:

The Drop in Affordable Housing Since 2010

A study that was just released by Freddie Mac suggests that the number of homes and apartments that were affordable for very low-income family in the U.S. declined by more than 60 percent between 2010 and 2016.  Similarly, the National Low Income Housing Coalition’s annual report “The Gap” indicates that the deficit in available affordable units worsened between 2013 and 2015 by roughly 1 million units.

The decline in housing affordability was not just limited to a small geographical area or a certain region. Housing in California and Florida was already deemed unaffordable before 2010, and between 2010 and 2016, it also declined in Colorado, North Carolina, Arizona, Georgia, Nevada, Texas and Washington. As of today, no metropolitan area currently has enough affordable housing to meet demand.

Affordable, but Unavailable?

Low vacancy rates, an influx of renters into center cities, and the lingering effects of the housing crisis have all squeezed the affordable housing stock.  As a result, more higher income people are moving into formerly affordable housing units.  Nearly half of the units available to lower income families are currently occupied by higher income households.  This effect becomes more important as developers produce unsubsidized “naturally occurring” affordable housing; these units currently have low rents but also do not always have the income restrictions typical of most affordable housing developments

What’s ViaHome’s Take?

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Is housing ever affordable if we can’t guarantee they will be available to lower-income families?  We don’t think so.   At ViaHome, we are committed to supporting affordable housing, that’s why we include income restrictions in all the units we finance, ensuring that the units we support remain in the affordable housing stock for years to come. 

If you want to help preserve stock of affordable housing across the country, get in touch with us at ViaHome. We are creating a platform that helps pair developers who are interested in building affordable housing developments with investors who are looking to put their money into smart, socially conscious investments.  We are looking forward to hearing from you.