Prospect of Tax Reform Upends Affordable Housing Finance


The mere whiff of corporate tax reform is said to be causing delays in bank-backed financing for low-income housing projects amid a severe U.S. shortage of affordable units.

Investments by banks in housing developments have hit snags in the two months since Republicans swept the elections, according to bankers, auditors and affordable-housing advocates.

The sense that tax reform is within reach for the first time in decades “immediately slowed things down,” said Rob Likes, national manager for community development at KeyBank. “We’re hearing about that from our clients and from the market.”

What’s the connection? The affordable housing market relies heavily on subsidies through the low-income housing tax credit program. Developers use the credits to fund as much as 70% of the cost of new housing projects. Banks make equity investments in the projects by buying the tax credits and in return claim a range of tax benefits over a 10-year period.

“Different banks are approaching this differently,” said Buzz Roberts, CEO of the National Association of Affordable Housing Lenders, whose members include several large and regional banks.

Some banks have taken a “bit of a pause” on making new investments, Roberts said, describing it as a “prudent” move as banks wait for clarity on corporate rates (and thus potential tax savings) drop. Such decisions leave last-minute gaps in financial plans that have taken years to finalize, observers said.