On June 25, 2019, four U.S. Senators and three members of the House introduced the Save Affordable Housing Act of 2019. The sole purpose of this proposed legislation is to repeal the qualified contract option for the federal Low-Income Housing Tax Credit (LIHTC).
LIHTC projects are required to comply with IRS requirements for 15-years (the Compliance Period) and a minimum of 15 additional years (the Extended Use Period) under a State controlled Extended Use Agreement. This minimum term of 30-years is known as the “Extended Use Period.”
There are two ways a LIHTC property can exit an Extended Use Agreement prior to the end of the 30-year period: (1) Foreclosure; and (2) When a “qualified contract” request is made to the State Housing Credit Agency (HCA) and the HCA is unable to find a qualified contract purchaser within 12- months of the request.
Through the years, it has become clear that the qualified contract formula price almost always exceeds the market value of the property as affordable housing, allowing owners to terminate the agreement when the HCAs cannot find a willing purchaser.
The Proposed Legislation
The proposed legislation would permit owners of LIHTC projects to request a qualified contract purchase of their project only if the project received an allocation of credits, or an issuance of bonds that resulted in an allocation of credits, before January 1, 2019.
For projects allocated credits prior to January 1, 2019 that are eligible to request a qualified contract purchase, the legislation would amend Section 42(h)(6)(F) to require that the qualified contract price would be the fair market value of the entire project. Current law requires only that any non-low-income portion of a project be valued based on fair market value. The low-income portion is valued based on a qualified contract formula, which has no relation to market value. The proposed law would require that when determining the fair market value of the low-income portion of a project, the housing credit agency must use the restricted rents required by the LIHTC program. Following passage of this proposed law, the Treasury Department would be required to issue regulations relating to the determination of market value.
If passed, the law will apply to all buildings for which a written request for a qualified contract purchase was made after the date of the enactment of the law.
If passed, the Save Affordable Housing Act of 2019 would,
- Repeal the qualified contract option for any project allocated credits after 2018; and
- Base the qualified contract price for properties remaining eligible on market value instead of the formula value. This second result will lead to more willing purchasers, who would be required to maintain the affordability of the current projects throughout the extended use period, while still allowing current owners to terminate ownership and management of a property.