Proposed tax credit change could reduce future affordable housing

Dec 7, 2017

Affordable housing advocates say that a provision in the House version of the tax bill would remove an incentive for developers to invest in affordable housing.

Tax-exempt private activity bonds are often used when affordable housing is built, along with the low-income housing tax credit, which provides a 4 percent tax credit. While the LIHTC is retained in the House version of the tax bill, private activity bonds are eliminated. In order for developers to get the 4 percent tax credit under the LIHTC program, they must fund 50 percent or more of their project using private activity bonds. 

“Without this program the crisis would be much worse especially for the low-income people,” said Diane Yentel with the National Low Income Housing Coalition. She adds that losing the tax-exempt status of these bonds would greatly affect future affordable housing developments.

“Without the incentive from the federal government, those affordable homes don’t get built,” she said.

Kevin Acklin works for the mayor’s office in Pittsburgh. He says the city relies on these bonds to finance infrastructure and housing. With the House proposal in play, local leaders are trying to lock in financing now.

“So there has been a bit of a rush. We've seen some discounting on the secondary market trading for housing credits because of the thought that they may be eliminated,” he said.

The National Low Income Housing Coalition estimates that the change could mean that at least 800,000 affordable units won’t be built over the next decade. Congress still needs to work out details of a final tax plan.

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