Republican Tax Plan Could Grind Affordable Housing Construction to a Virtual Halt
The tax plan proposed by Congressional Republicans will likely decimate production of new affordable rental housing, even as housing shortages across the country are driving rents higher and taking ever-larger shares of Americans’ incomes.
The plan released last week by the House Ways and Means Committee preserves a well-regarded program called the Low Income Housing Tax Credit — but effectively guts it. That’s because about half of all low-income housing credit development is done in conjunction with private activity bonds, a financing method that the plan scraps.
Private activity bonds are tax-exempt bonds issued by municipal government entities for special projects, often involving a private developer. In each of the five years after the recession, an average of about $5 billion of PABs were issued for housing, according to the Council of Development Finance Authorities. Issuance surged to $14 billion in 2016.
What’s more, the other half of all affordable housing deals, which rely purely on the tax credit program, would become more expensive as tax rates go down and make tax credits worth less.
“It’s shocking. It’s devastating,” said Michael Novogradac, who runs an accounting consultancy that tracks the tax credits. Novogradac estimates the changes together will result in a reduction of about two-thirds of new affordable housing units each year for the next decade.