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The original item was published from 7/11/2017 9:48:00 AM to 7/17/2017 9:27:57 AM.

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Planning & Community Development

Posted on: July 11, 2017

[ARCHIVED] Affordable Housing Market Takes a Hit

The Trump administration’s plan to lower corporate tax rates has created uncertainty in the affordable housing market by devaluing low-income housing tax credits (LIHTC). LIHTC devaluation is casting a chilling effect on the construction of affordable housing units nationally, including a Jamaica Plain project currently under construction. The LIHTC program, a widely utilized $8 billion tax credit, is the primary resource for the creation of affordable units, providing crucial equity for 90% of all new affordable units built. According to Boston’s Department of Neighborhood Development, from 2009 to 2014 tax credits, including LIHTCs, provided over $170,000 of funding for each of the more than 1100 affordable units created in the city during that 5-year period.

Typically, developers sell LIHTCs to banks for much needed funding. Banks use the credits to reduce their taxes when they come due. The lower the corporate tax rate, the less valuable LIHTCs become. Currently, LIHTC buyers are discounting LIHTCs by 10% to 15%. Uncertainty over the corporate tax rate is causing many LIHTC buyers to postpone purchasing the credits until the tax rate is finalized. This devaluation and uncertainty translates to an expected decrease of at least 10,000 to 15,000 units being built this year. Adding to the challenges in the affordable housing market is the administration’s proposed 13% cut to the Department of Housing and Urban Development’s budget. Count in the significant cuts to other federal housing programs over the past several years, and it is obvious why the LIHTC program is a critically important funding source.

Help may be on the way. The U.S. Senate is considering a 50% expansion of the LIHTC program that will add an additional 40,000 affordable units per year over the next decade to the 100,000 affordable units currently being built annually. While helpful, this will barely make a dent in the demand for affordable housing. Currently, 4 million people qualify for low-income housing that is not available or in the pipeline, and that number is growing. Stay tuned to see how Washington handles funding for affordable units, it will have a significant impact on the local affordable housing market.

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