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Use tax reform to strengthen what's working: The low-income housing tax credit
Now that the GOP has released a tax reform framework, Congress will try to pass sweeping tax reform legislation in the few short weeks left in this year's legislative calendar. While we hear reports of the latest negotiations around tax rates, tax base-broadening and simplification, we don't often hear about another critical issue for which tax reform has profound implications: rental housing.
Housing policy will not be the driving force in tax reform, but it has a tremendous impact on millions of families and our economy, and could be significantly strengthened - or significantly undermined - during the process. Crucially, the tax reform framework proposes to maintain America's primary tool for encouraging the development of low-income rental housing, the Low-Income Housing Tax Credit (Housing Credit), a strong show of support at a time when more and more families struggle every year to pay the rent.
The Housing Credit has been driving the production of nearly all new affordable homes for over 30 years. The reason that it's endured with such strong bipartisan support is that it achieves exactly what Congress intended - it addresses a gap in the market through public-private partnerships. It doesn't make economic sense for developers to build housing that's affordable to low-income households unless they have some kind of incentive or subsidy. The Housing Credit does just that, encouraging developers to build and investors to provide financing for homes that would otherwise be infeasible - more than 3 million of them over the past three decades. As the GOP framework notes, the Housing Credit has "proven to be effective in promoting policy goals important in the American economy."
Nearly half of the affordable homes financed by the Housing Credit also use multifamily housing bonds, an essential tool for the preservation of existing affordable housing. When possible, preservation is often much more cost-effective than building only new developments. Maintaining access to these housing bonds in a reformed tax code will ensure that the Housing Credit works as efficiently and effectively as possible.
Since the Housing Credit was signed into law by President Reagan in 1986, the need for this program has continued to grow. According to HUD's recently released "Worst Case Housing Needs," there are 8.3 million very low-income families who are either paying more than half their monthly income on rent, living in severely substandard housing, or both. This hurts their ability to stay healthy, buy nutritious food and maintain a steady job, and their kids' chances to do well in school.
We simply aren't producing affordable apartments fast enough to keep up with the number of low-income renters entering the market. Harvard's Joint Center for Housing Studies found that the share of renters in the US housing market has gone up 5 percent since 2004. Largely due to this increased demand, rent for the average apartment has nearly doubled, but wages have only increased slightly - meaning that for your average low-wage worker, housing has become nearly impossible to afford.
We need to make a meaningful dent in the growing shortage of affordable homes, and the best way to do that is to encourage developers to build them.
Senators Maria Cantwell and Orrin Hatch recently introduced a bill that would advance a recommendation from the Bipartisan Policy Center to expand the Housing Credit by 50 percent, which would finance up to 400,000 more affordable homes over the next decade than would otherwise be possible. This is the most viable bipartisan proposal to make a meaningful dent in our nation's growing affordable housing gap. It also includes several important changes to the program, including provisions to encourage mixed-income developments, enable the Housing Credit to serve lower-income tenants better, make it a more effective tool in rural areas, and support the preservation of our existing affordable housing using housing bonds.
These are common-sense, non-partisan reforms, which is why the Affordable Housing Credit Improvement Act has such strong support on both sides of the aisle and in both chambers of Congress. And with tax reform on the horizon, these sorely-needed changes may finally be possible.
Tax reform should be an opportunity to strengthen what's working. It's important that Congress not only recognize the value of retaining the Housing Credit in the tax code, but seizing upon this moment to build a stronger housing policy for the future.
Ed Brady is president of Brady Homes Illinois and immediate past chairman of board of the National Association of Homebuilders. Terri Ludwig is president and CEO of Enterprise Community Partners, Inc.