In December 2023, Congress considered a new approach to America’s housing affordability crisis with the introduction of the “Workforce Housing Tax Credit Act” in both the House and Senate. This proposed bill aims to establish a Middle-Income Housing Tax Credit, focusing on providing affordable housing options for middle-class families and young professionals who are beginning their careers.
The United States is currently grappling with a housing affordability crisis that has transformed the landscape of American renters. With a decline in homeownership and a rise in rental demand, there is a pressing need for housing that bridges the gap between low-income options and high-end residences. This ‘missing middle’ represents a vast segment of the population, including families and individuals who earn too much to qualify for low-income housing but are priced out of the expensive housing market.
The Workforce Housing Tax Credit (WHTC) aims to supplement the highly successful Low-Income Housing Tax Credit (LIHTC) program. The WHTC proposes additional tax incentives that would encourage the development of housing for tenants earning 60% to 100% of the area median income (AMI). These credits could also be transferred to the LIHTC program to benefit tenants generally earning below 60% of AMI.
A key feature of the WHTC is its strategic utilization of state and local housing authorities’ expertise in determining the most suitable projects for their communities. It also emphasizes the importance of public-private partnerships to leverage private investment in the housing sector. States are afforded significant flexibility in resource allocation, including the ability to transfer middle-income housing allocations to LIHTC and the combination of credits within housing projects.
Notable aspects of the Workforce Housing Tax Credit Act include:
- State housing finance agencies will allocate tax credits to developers through a competitive process, akin to the LIHTC program. These tax credits are distributed over 15 years, accompanied by a 15-year compliance timeframe and a 30-year extended commitment.
- The allocation of tax credits to states is population-based, with the 2024 allocation set at $1 per capita and a minimum of $1.5 million for smaller states. An extra 5% of the allocation is reserved for middle-income housing in rural locations.
- For new construction, the credit would cover 50% of the construction costs over the life of the credit, while rehabilitated and bond-financed buildings would receive a credit equating to 20% of the construction costs. Additional credits are available for developments in areas that are challenging to develop, as identified by HUD.
- To be eligible for the credit, a minimum of 60% of a building’s units must house individuals earning an AMI of 100% or less, with rent restrictions capped at 30% of the applicable income level. These affordability conditions are maintained for up to 15 years following the compliance period, totaling a 30-year affordability duration.
- The WHTC is designed to work in tandem with the LIHTC to bolster low-income housing. States can adjust allocations to address specific needs and may transfer any portion of their middle-income allocation to LIHTC anytime during the year. The WHTC can also enhance the financial viability of affordable housing projects by combining LIHTC and middle-income credits, provided that at least 20% of units cater to the middle-income bracket.
The enactment of the WHTC is yet to be determined and has seen resistance from some low-income housing advocates who argue for the expansion of the LIHTC program instead. However, developers and managers of affordable housing recognize the necessity of a workforce housing initiative. If passed, the WHTC could significantly alleviate the current housing affordability issues.
The Workforce Housing Tax Credit Act intends to build on the achievements of LIHTC and presents a critical solution that Congress could adopt to address the ongoing housing affordability dilemma.
As the legislation progresses, the appropriate committees in both the House and Senate will deliberate over the bills. At present, no specific timeline has been established for the passage or concrete legislative action regarding the Act.