In 2016, Senator Maria Cantwell (D-WA), Senator Orrin Hatch (R-UT), and member of the Senate Finance Committee, Ron Wyden (D-OR), joined together as co-sponsors for the Affordable Housing Credit Improvement Act of 2016. This year in 2017, the bill has been updated and editions have been made for the 115th congress, 1st session. On March 21, 2017 Pat Tiberi (R-OH) and Richard Neal (D-MA) introduced the Affordable Housing Credit Improvement Act of 2017 in the House of Representatives. This bill will reform Section 42 of the Internal Revenue Code of 1986 and strengthen the Low-Income Housing Tax Credit. From the perspective of a developer, this bill could make projects more financially feasible. Most importantly, it will likely increase the amount of affordable housing across the United States.
The bill will change state allocation formulas based on current inflation rates. In 2004, the established per capita allocation of credit was $2.35 and the state minimum allocation was $2.71 million. With the Affordable Housing Credit Improvement Act of 2017, adjustments will be made for inflation. The per capita allocation of credit will increase based on inflation rates to $3.53 over the next five years and the state minimum allocation will be increased to $4.065 million over the next five years. Over the next 5 years, the per capita allocation of credits would increase by 50% of the current allocation of credit. With this update, states will have a larger budget to finance the construction and rehabilitation of affordable housing.
Rules relating to tenant eligibility will be updated by the Affordable Housing Credit Improvement Act of 2017. The average income test is a very important piece of the bill. Under the current law, the Housing Credit serves residents that are strictly below 60% average median income (AMI). Under the new average income test, the average of all units in an apartment complex must equal 60%, but there can be units that qualify for tax credits up to 80% of the AMI. A project that could seriously benefit from this drastic change is Hall’s Heritage Apartments, to be renamed The Village at Iron Branch. The property is currently market rate and will go through a rehabilitation while being converted to low-income and serving residents under 60% AMI.
The bill will improve credit rate and other rules relating to credit eligibility and determination. On acquisition tax credit basis and bond-financed projects construction basis, Housing Credit Eligibility will be reformed to a minimum of 4%. An example of the effect this will have on the financial feasibility of an affordable housing development can be seen in Chestertown Cove Apartments. The Applicable Percentage for calculating Housing Credits for this project was 3.17% based on IRS rules. With a minimum of 4% Housing Credit Eligibility the project would have an increase of $53,302 in annual tax credit allocation. This increase would bring an extra $586,329 of equity, at the syndicator raise ratio, to contribute to the lifetime financial feasibility of the project.
The Affordable Housing Tax Credit Improvement Act of 2017 will change credit rate and other rules relating to credit eligibility and determination. Non-bond financed projects receive a 30% basis boost to the calculation of tax credits. The bill will provide for a 30% basis boost available to bond-financed projects that meet competitive location scoring criteria. Samuel Chase Apartments in Princess Anne is an example of a bond-financed project that would have qualified for the 30% basis boost.
Green Street Housing (GSH) is a proponent of this bill through the work that we do and the advocacy that the affordable housing industry conducts. In addition to industry support, David Layfield, Principal of GSH, visits Capitol Hill on an annual basis to advocate for affordable housing. As a member of the Board of Director for the Council of Affordable and Rural Housing (CARH) and an active member of the Maryland Affordable Housing Coalition (MAHC), David has a large role in advocating to implement legislation for the progress of affordable housing.