Tax reform could put affordable rental housing in peril

by Anna Sobrevinas19 Jan 2017
Comprehensive tax reform may have a bad effect on affordable housing – and it is not the home mortgage deduction, according to Forbes.

Lower corporate taxes could affect the low income housing tax credit – and that could be worrisome to renters and future renters of affordable housing, said Forbes contributor Peter J. Reilly.

“If substantial tax reform is enacted, it will undoubtedly result in lower corporate rates, which in turn reduces the value of some tax benefits,” said Mark Shelburne, senior manager at Novogradac & Company LLP. “Because of this distinct possibility, some low-income housing tax credit (LIHTC) investors have paused activity, and others are making decisions based on less equity per dollar of credit (sometimes referred to as the ‘price’).”

The Joint Committee on Taxation Estimates of Federal Tax Expenditures noted revenue reduction on LIHTC by $8.6 billion – with corporate income tax virtually amassing it all – while home mortgage interest deduction is estimated to be at $84.3 billion this year.

How the $8.6 billion will be used to affordable housing spurs curiosity.

“Consider a hypothetical 80-unit new construction development with $10 million in total sources awarded LIHTCs in 2016,” added Shelburne. “If the price drops from $1.00 to $0.85, there will be a funding gap of $950,000 or more.”

Related stories:
Greying US population will face serious housing issues by 2035
New HUD Study Finds Affordable Housing Remains Affordable 15 Years After Low Income Housing Tax Credits Take Effect