Letter to Congress: Saving Jobs by Unfreezing Stalled LIHTC Rental Housing Investment
The Low Income Housing Tax Credit, or LIHTC, program funds the majority of the affordable rental housing produced, preserved, and rehabilitated in the country annually. This program, a model for public-private partnerships since its creation in 1986, has resulted in over 1 million units of quality housing for families, seniors, and individuals, much of the workforce housing stock around the country. In addition, the LIHTC program is an economic engine. A recent National Association of Homebuilders report estimates that approximately 302,000 construction jobs are created annually by this program alone, with local economies benefiting from the addition of $1.5 billion in taxes and other revenues.
The current economic turmoil, however, has shut off much of the normal flow of private corporate investment into LIHTC rental developments. This has left literally hundreds of otherwise worthwhile, publicly approved construction projects stranded, cutting the normal level of activity for 2008 perhaps in half, with more dire consequences expected in 2009.
Equity investment in the LIHTC program comes primarily from publicly traded corporations and financial institutions. Private annual investment in the LIHTC program prior to 2008 normally was in the area of $8 billion, allowing for the construction or renovation of 115,000 to 150,000 apartment units annually. The key to fueling this level of construction activity and housing production—what the program is able to accomplish when the country’s economic engine is operating efficiently and at cruising speed—is a stable investor base with incentives to use the credit against federal income taxes. With so many investors, especially financial institutions, having quickly moved into tax loss positions, the market has, to a large degree, collapsed as an additional casualty of the current economic downturn.
The apartments not being produced are nonetheless still needed. Each of the LIHTC housing developments currently in the pipeline has already gone through a state approval process, in which local market need was factored into the allocation of tax credits. Although in many communities around the country there is an abundance of foreclosed single-family homes (or two- and three-family properties) available, many of these are not adaptable either economically or by virtue of location for the renter population served by LIHTC units. According to studies such as those by Harvard’s Joint Center for Housing Studies, critical need for LIHTC-type rental housing remains in the area of 5 million apartment units nationally and growing. Over 90 million Americans live in housing for which they pay more than they can afford, and nearly 43 million Americans are in households paying more than 50 percent of their income for housing, most being renters.
Market evidence also suggests that in areas with high foreclosure levels, the shifting of families from homeownership back into the rental market is producing upward pressure on rental rates, at the same time as unemployment is rising and incomes are stagnant. Consequently, even if LIHTC investment is restored to normal full levels, the resulting housing production, while significant, does not come close to meeting the total need for decent affordable rental housing.
Because the fallout from the current financial crisis has choked off investment in the LIHTC program, swift action to bring back investors to the LIHTC market can save many of the projects already approved that are ready to be built if an investor can be found. For 2009, if nothing is done, it is expected that investment in LIHTC will be less than a third of normal capacity. Fewer than one in eight proposed LIHTC apartment properties are receiving the funding necessary to see construction through to completion. This has left thousands of affordable properties, already with tax credit allocations from state Housing Finance Agencies, without the equity financing necessary to get off the ground, further exacerbating the employment plunge in construction. It is therefore critical that new sources of capital be found by broadening the equity market for LIHTC investments.
Knowledgeable parties are working with the appropriate committees and members in Congress on a variety of potential solutions. CAPAF supports those efforts that will maintain and expand the production of this vitally needed housing, to preserve construction jobs for projects in the pipeline, and to re-stabilize an important part of the nation’s approach to the housing needs of millions of Americans. We strongly encourage Congress to take advantage of this opportunity to prevent greater job loss, provide much needed housing for struggling American families, and to combat a deepening rental housing crisis on top of the financial burden already afflicting so many Americans.
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David M. Abromowitz