Major Affordable Housing Legislation Introduced in the Senate

Senator Ron Wyden (D-OR) has introduced the Decent, Affordable, Safe Housing for All (DASH) Act, legislation to make a generational investment to house all people experiencing homelessness, tackle the housing affordability crisis, and expand homeownership opportunities for young people by creating a new down payment tax credit for first-time homebuyers. The Act also institutes important reforms to local zoning and housing development to encourage a re-birth in the development of affordable housing. Title II of the DASH Act implements innovative and impactful tax policy to invest in homeownership more wisely, rent support for low-income families and construction of affordable housing nationwide.

One goal of the Act is to end child and family homelessness within five years by holding states accountable for wisely using the funds provided by the legislation and ensuring that public housing agencies (PHAs) continue to improve in administration of the voucher program. If fully enacted, the DASH Act could result in over three million additional homes being built in the United States in the next ten years.

A significant number of the Act’s elements relate to the provision of affordable rental housing, including:

• $10 billion for the Housing Trust Fund (HTF). This will be provided to states over a ten-year period to allow for the development of deeply affordable housing. Eligible activities will be land acquisition and the acquisition, rehabilitation or development of rental housing that prioritizes housing for people experiencing homelessness. The funding will be allocated to the states through the current HTF formula.
• Incentives to States: The DASH Act will provide investment in methods to increase production of affordable housing nationwide. Any jurisdiction that changes its zoning and land use practices after enactment of the legislation will become eligible for a grant award depending on the size of the jurisdiction. The funds could be used for any activity that is eligible under the Community Development Block Grant (CDBG) program. Jurisdictions that do not pass policies to increase affordable housing or that implement restrictive policies will not be eligible for the grant program.
• Rural Housing Reinvestment: The DASH Act invests in programs to increase and preserve the supply of available and affordable rental housing for low-income Americans living in rural areas. This will include additional funding for the Rural Development Section 515 program.
• Expansion of the Low-Income Housing Tax Credit (LIHTC): A major element of the DASH Act is expansion and improvement the LIHTC program and credits for additional affordable housing. These provisions are:
  • Extend the Deadline for Rehabilitation Expenditures: Would allow up to three years (increased from the current two years), following a credit allocation, to make rehab expenditures for a LIHTC project. This would apply to buildings receiving an allocation after December 31, 2017 and before January 1, 2023.
  • Extend the Deadline for Basis Expenditures: Would allow up to three years (compared to two under present law), following an allocation of credits, for a LIHTC building to be placed in service. The provision would also allow 24-months to meet the 10% test after an allocation of credits vs the 12-month period under current law. This would apply to buildings receiving an allocation after December 31, 2017 and before January 1, 2023.
  • Relax the “50% Test” for Two Years: Under current law, tax-exempt bonds must comprise 50% of the financing for an affordable housing project in order to receive a 4% LIHTC allocation for the entire project. This provision temporarily reduces the 50% test to 25% and will be effective for buildings financed by an obligation of bonds issued in calendar years 2021, 2022, 2023, and 2024, and placed in service in taxable years after December 31, 2021.
  • Expand the 9% Credit: The Act would make permanent the 12.5% expansion in the 9% credit passed in 2018 and increase the 9% credit by 50% on top of this.
  • 50% Basis Boost for Projects Serving Extremely Low-Income Households and the 10% Set-Aside: This 50% boost in eligible basis would be available for buildings that designate at least 20% of occupied units for extremely low-income tenants and limit rent to no more than 30% of the greater of (1) 30% of area median income or (2) the federal poverty line.
  • Inclusion of Indian Areas as Difficult Development Areas: The Act would modify the definition of a Difficult Development Area (DDA) to automatically include any project located in an Indian area, making such projects eligible for the 30% Basis Boost. This provision would be limited to projects that were assisted for financed under the Native American Housing Assistance & Self-Determination Act of 1996, or the project sponsor is a qualifying Indian tribe.
  • Inclusion of Rural Areas as DDAs: HFAs would be able to provide up to a 30% basis boost to properties in rural areas if needed for financial feasibility.
  • Increase in Credit for Bond-Financed Projects Designated by Housing Credit Agencies: HFAs would have discretion to provide up to a 30% basis boost for tax-exempt bond financed projects if needed for financial feasibility. This benefit is currently available only for 9% deals.
  • Repeal Qualified Contract Purchase Provision: This provision would eliminate the ability of owners of projects allocated credits after 2021 to request a qualified contract purchase. Owners of projects that received credits prior to 2021 and who submit a qualified contract request after the date of the law’s enactment would have to submit the request based on the fair market value of the property – not the current QC formula.
  • Modification and Clarification of Rights Relating to Building Purchase: The Act would (a) clarify that the existing right of first refusal (ROFR) may be exercised at the minimum purchase price and converts the right to an option. I.e., no third party offer of purchase would be required in order for the ROFR to be exercised.
  • Prohibition of Local Approval and Contribution Requirements: This provision removes the requirement for HFAs to notify local or elected officials about the location of a proposed project. It also bars a state’s qualified allocation plan from prioritizing local support (including contributions) or opposition relating to an application for a LIHTC project.
  • Adjustment of Credit to Provide Relief from COVID-19: Many projects have suffered construction and lease-up delays from COVID-19. This provision would allow taxpayers to elect to receive a first-year credit equal to 150% of the allowable amount, to be reduced pro rata in subsequent years (there would be no increase in the total credits). Eligible buildings are those that have (1) a first-year credit period ending between July 1, 2020 and July 1, 2022 and (2) pandemic related construction or leasing delays that have occurred since January 31, 2020 (requiring certification by the taxpayer to the HFA).
  • Credit for Supportive Services: This would provide a 50% basis boost to LIHTC projects that dedicate space to providing qualifying supportive services. This would include health services, coordination of tenant benefits, job training, financial counseling, resident engagement services, or services aimed at helping tenants retain permanent housing and promoting economic self-sufficiency.
  • Study of Tax Incentives for the Conversion of Commercial Property to Affordable Housing: This would require the Department of Treasury, HUD, Department of Agriculture, and the Office of Management & Budget (OMB) to produce a cost-benefit analysis of providing tax incentives to taxpayers who sell vacant or under-utilized commercial real estate to State, local, or tribal housing finance agencies for conversion to affordable rental housing.
  • Renter’s Tax Credit: The Renter’s Tax Credit establishes a refundable credit (under new tax code §36C) claimable by taxpayers who own and operate affordable housing. Eligible tenants will be those with gross monthly household incomes at or below 30% of area median or at or below the federal poverty line, whichever amount is greater. This matches the HUD extremely low-income level. For each eligible unit, the credit will be 110% (up to 120% for low-poverty neighborhoods) of the difference between market rent and 30% of a tenant’s gross family income. The rent will include a utility allowance. The goal of this new tax credit program is to ensure that extremely low-income renters do not have to pay more than 30% of their gross monthly income in rent and utilities, while providing owners of rental housing a financial incentive to participate. The total annual credit for a taxpayer equals the number of months of reduced rent for a given taxable year times the number of eligible units, summed across all the buildings that a taxpayer owns. The credit will be available to both for-profit and non-profit owners and is a fully refundable credit. Recertifications will be required in order to determine adjustments to rent. Taxpayers will not be permitted to evict other tenants in order to rent to credit-eligible tenants. Assume market rent of $1,500. Assume a family of four with an income of $25,000. 30% of the family’s income on a monthly basis is $625. The difference between the family income and the market rent is $875. 110% of $875 is $962.50. In return for holding the tenant’s gross rent to no more than $625, the taxpayer would receive an annual tax credit of $11,550 ($12,600 in a low-poverty neighborhood) if the unit met the rent requirements for all 12-months of a year. This credit would be available to all units that meet the affordability test. Credits will be allocated based on population – in the same manner as the LIHTC.  The amount will be $36.75 per capita in 2023, with a small state minimum. Credits will be allocated competitively and the credit period will be 15 years, with credits claimed annually. The bill requires reporting and compliance monitoring for taxpayers and states. The IRS will have the authority to develop coordination rules with LIHTC properties.

• Middle Income Housing Tax Credit (MIHTC): A new Middle Income Tax Credit would pick up where the LIHTC program ends. It would provide a tax credit to developers to provide affordable housing to tenants between 60% and 100% of area median income. Credits would be allocated based on population at $1.00 per capital with a $1.4 million small state minimum. Rural areas would receive an extra 5 cents per capita. Credits would be allocated by HFAs through a competitive process and would be provided over a 15-year compliance period. The credit amount would equal 50% of the present value of the qualifying costs, or 5% per year on an undiscounted basis. Only the amount of credit needed for project feasibility would be allocated.
  • To qualify for the credit, a rental property would need to meet two affordability standards: (1) a property would have to include a minimum percentage of affordable units; and (2) rents for those units could not exceed maximum amounts based on the average incomes in the area. Specifically, at least 60% of a project’s units must be occupied by individuals with incomes of 100% or less of AMGI. Tenant rents may not exceed 30% of 100% of AMGI. The affordability restrictions would remain in place for at least 15 years after the compliance period.
  • The MIHTC may be used in conjunction with the LIHTC. However, taxpayers will have to make an irrevocable building-by-building election to use one credit or the other. The eligible basis for using the LIHTC cannot include the MIHTC basis and vice versa. The provision allows the 5% MIHTC credit to be used in conjunction with the 9% LIHTC, and a 2% MIHTC credit to be used with a 4% LIHTC.
  • Unused MIHTC credits from a state’s allocation would be added to the state’s existing LIHTC allocation after one year. After a second year, unused credit will go to a national pool.

Obviously, this is comprehensive legislation, and if passed, it would create a seismic shift in the affordable housing world. We’ll keep an eye on it as it moves through Congress and, along with the rest of the affordable housing industry, will keep our fingers crossed.