Declining housing affordability has received a lot of attention over the past few years, and deservedly so. We’ve seen rising home prices across the country continue to chip away at Americans’ ability to buy their own homes. Declining housing affordability has taken center stage in the national debate over whether it’s a wise move to unwind Fannie Mae and Freddie Mac, the government-sponsored enterprises that back 90 percent of U.S. mortgages.
But while this challenge is well understood, declining rental affordability hasn’t been as much of a hot-button issue. By 2020, more than one million apartment projects backed by low-income housing tax credits (LIHTCs) will come to the end of their compliance periods, making them eligible for a return to market-rate rents. This “LIHTC Ledge” threatens to exacerbate what is already a tenuous situation for the growing tide of renters who can’t find affordable accommodations.
The housing sector is beginning to take its cue from such sentiments. In 2013, one in three of the nearly 1 million new residential housing units was a rental in a multifamily building, the highest share since the U.S. Census began tracking such data in the mid-1970s.
But while more apartments and townhomes are being built, there still isn’t enough supply to slake demand. Despite the recent pickup in activity, the rental market is still adding only about half the 300,000 new apartments units the National Multifamily Housing Council estimates we need each year to keep up with the growing number of would-be renters.
This is a great situation for landlords, who can keep pushing rents up, but not for renters – particularly not for those who earn less than the median income in their local area. In fact, more than 7 million low-income households now spend more than half their income on rent, according to the Joint Center for Housing Studies at Harvard.
It’s a problem that may very well get worse before it gets better, if the more than one million LIHTC-backed apartment properties leave the affordable housing stock between now and 2020. As each property comes out of its compliance period, owners will have to decide whether to convert those properties back into market-rate units or maintain them as affordable housing. New financing secured through LIHTC’s helps keep their borrowing costs down, so the demise of the LIHTC program would most assuredly make it uneconomic for most to preserve low-income housing. It would also seriously dent the new supply of affordable rental housing options, given that the LIHTC program has provided funding for approximately one-third of all new multifamily housing units built in the U.S. in recent years.
Thankfully, our leaders in Washington are taking steps to protect and strengthen this important support for low-income households. Outgoing House Ways and Means Committee Chairman Dave Camp (R-Mich.) recently retained the LIHTC program in the tax reform discussion draft it submitted in late February. By making the LIHTC one of only a few business credits that are preserved as part of the proposed reform, Camp and his colleagues are sending a clear message that they understand the irreplaceable role the program plays in our communities. We are hopeful that Camp’s successor on the committee will build on his important progress.
The U.S. Department of Housing and Urban Development (HUD) also deserves a lot of credit for making the LIHTC program more attractive to affordable housing owners and developers. One of its innovative programs, the FHA Housing Tax Credit Pilot Program, has dramatically accelerated loan processing timeframes for LIHTC properties. Recent changes the agency implemented to address borrower concerns are likely to produce a significant jump in financing applications in the months ahead.
These latest steps to preserve the LIHTC program suggest that we as a nation are more attuned to the mounting problem posed by a shortage of rental housing affordability. If we can build on this momentum, then we stand a great chance of ensuring that every American has a shot at housing they can afford.
Dellonte is president and Chief Executive Officer of Love Funding, an experienced HUD lender based in Washington D.C., offering refinance, construction, rehabilitation and acquisition financing programs for multifamily and affordable housing, healthcare facilities and hospitals.