This post was submitted by Theresa Curry, Program Supervisor of Solid Ground’s Lifelong Housing Safety Net.
While the movement for a higher minimum wage grows, there are many other avenues to making our community more equitable for all.
One of the largest challenges that those in poverty face is finding affordable housing. Luckily, there is one program that has a proven track record of producing and preserving affordable rental housing throughout the country: the Low-Income Housing Tax Credit.
The Housing Credit, signed into law by President Reagan in 1986, provides an incentive to the private sector to invest in building affordable housing. To date, the credit has financed the construction and preservation of over 2.6 million units of affordable rental housing. Nearly 57,000 of those apartments are in Washington State, including some of the buildings Solid Ground owns and operates as permanent supportive housing. The Housing Credit also creates jobs, approximately 95,000 nationwide each year, and state and local tax revenue.
Unfortunately the credit is facing pressure in Washington D.C.
Please join Solid Ground in advocating to maintain and strengthen the Housing Credit program. We are supporting a campaign, led by Affordable Rental Housing ACTION, to get massive public support for this critical funding mechanism.
You can pledge your support and sign up to receive email updates at Affordable Rental Housing ACTION’s Join the Campaign webpage. Check out their Advocacy Tool Kit with tips on writing letters to your members of Congress or to your local newspapers. Follow the campaign on Facebook and Twitter, and encourage your friends to do the same.
Here’s how the tax credit works: Developers are awarded with Housing Credits by each state in a highly competitive process. They use the credit to raise equity capital from investors (nearly $100 billion nationwide to date), thereby reducing the debt that would otherwise be required to finance the building of the property. In return, they commit to charging lower rents. Without this tax incentive, building affordable housing is fundamentally uneconomical. The demand from investors for Housing Credits is strong, so the program is very cost effective.
Properties receiving Housing Credits must target at least 20-40% of apartments to low-income residents (though most properties are actually 100% low-income) in order to reduce their federal income taxes for 10 years. States monitor the properties for at least 15 years, and if one is ever not complying with tenant income and rent policies, the credits are subject to recapture by the IRS, meaning the property has to pay back the government for the taxes they were given credit for. States enforce other affordability requirements for an additional 15 years or more using deed restrictions.
So since the program is so effective at producing affordable housing, a win/win for developers and communities, why are we talking about it? What is the problem?
With many in Congress pushing for deficit reduction, tax reform discussions could target tax expenditure programs, including the Housing Credit. Legislators need to know that while tax reform, including reducing or eliminating unnecessary credits or loopholes, is critically important to our national budget and economy, the Housing Tax Credit needs to be maintained, as there would be very little development of affordable rental housing without it.
Also, the IRS calculates the credits based on medium and long-term interest rates, and these variable rates create uncertainty and make the finances more complex. In 2008, the Housing and Economic Recovery Act set a fixed floor rate of 9% for new construction and sustainably rehabilitated properties that were up and running by the end of 2013. In 2012, the American Taxpayer Relief Act extended this provision for projects that were allocated by the end of 2013. Making the 9% fixed floor permanent and creating a minimum 4% rate for purchasing existing properties will ensure that development of affordable rental housing is economically feasible.
Affordable housing is the foundation of stability for families and individuals, and the Housing Credit is the most effective tool we have for building that foundation. Let’s make sure we always have it available in our toolbox.