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Home » New Legislation Could Preserve Affordable Housing Funding

New Legislation Could Preserve Affordable Housing Funding

Jan 12, 2012

In December, a group of lawmakers in the House and Senate introduced legislation to make permanent the 9 percent tax credit percentage floor for the low-income housing tax credit (LIHTC).

This provision was originally authorized by the Housing and Economic Recovery Act of 2008 (HERA). It set the rate for new construction and substantial rehabilitation housing credits from each state's allocation at no less than 9 percent, the amount originally envisioned when the program was created in the Tax Reform Act of 1986. To supporters of the bill, this experiment proved successful—it removed the uncertainty and financial complexity of the floating-rate system, simplified state administration, and facilitated development of affordable housing after HERA's enactment.

Currently, projects for new construction and the cost of rehabilitating an existing building, if not funded by tax-exempt bonds, can receive a maximum annual tax credit allocation based on a rate that's generally 9 percent of the project's eligible basis or the cost to complete the project. The cost of acquiring an existing building (but not the land), and projects financed in whole or in part with tax-exempt bonds, are eligible for a credit of approximately 3 to 4 percent annually.

However, the current 9 percent LIHTC floor expires for developments placed in service after Dec. 30, 2013. Legislators are trying to extend this provision at the beginning of the year because the housing credit development cycle generally takes about two years to complete. If the bill doesn't pass, state agencies will underwrite developments at the floating rate, which would mean a sudden and substantial reduction in the amount of equity that a development could receive for its allocation, though there would be no change in the amount of credits allocated. For December 2011, that floating rate was 7.47 percent, which is 17 percent less than the 9 percent rate. This means that for developments that have no excess eligible basis at the 9 percent floor rate, developers would suffer a 17 percent loss in tax credit equity.

The legislation introduced in December would also extend the same policy to 4 percent allocated housing tax credits, but not 4 percent low-income housing tax credits generated by tax-exempt bond financing.

In the News
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      Federal Funding Freeze Creates Confusion for Affordable Housing Industry

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      New York State Bars Insurers from Discriminating Against Affordable Housing

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