February 28, 2024

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Muni-friendly housing provisions poised to become law

4 min read
Muni-friendly housing provisions poised to become law

As a potential government shutdown looms and tax season is set to open, key provisions friendly to the municipal market tied to low-income housing tax credits appear poised to become law in legislation aimed at avoiding the government stoppage. 

The Republican-chaired House Ways and Means Committee and the Democrat-led Senate Finance Committee have preliminary agreements in place to move on a $78 billion piece of legislation currently known as the “Tax Relief for American Families and Workers Act of 2024.” 

The proposal addresses expanding the Child Tax Credit, and a slate of business tax deductions. The details of the CTC provisions are still being haggled but adjusting the levers governing LIHTC seem to be sailing through the process. LIHTCs are a critical component of the capital stack used to finance affordable housing by offering 9% and 4% tax credits. 

“Under current law, a property that is financed with at least 50% of the total cost of bonds, gets the 4% credits,” said Jennifer Schwartz, director, tax and housing policy, National Council of State Housing Agencies. “What this legislation is going to do is reduce that down to 30%. That means that states are going to have more bond capability to use for other things. Our hope is that it will be used, for affordable housing.”  

National Council of State Housing Agencies

“Under current law, a property that is financed with at least 50% of the total cost of bonds, gets the 4% credits,” said Jennifer Schwartz, director, tax and housing policy, National Council of State Housing Agencies. “This legislation is going to reduce that down to 30%. That means that states are going to have more bond capability to use for other things. Our hope is that it will be used for affordable housing.”  

The new legislation would also loosen restrictions currently in place on the 9% credits which are dispensed through local housing authorities via a competitive award process, capped by state population levels and consistently over-subscribed. 

Housing advocates and the muni world both point to the positive effects of a temporary 12.5% expansion of the Treasury’s LIHTC plan that happened in 2021 as proof that the policy moves are financially sound. 

“These proposals would restore a now-expired 12.5% allocation increase in the Housing Credit, and lower the private activity bond financing threshold,” said Emily Cadik CEO, Affordable Housing Tax Credit Coalition.

“Together, these changes are estimated to finance more than 200,000 affordable homes than would otherwise be possible, the vast majority coming from the proposal to lower the bond threshold.”  

Chances for the LIHTC adjustments to stay in the final bill are reinforced by a history of bipartisan efforts in the past. 

In March of last year the Senate pushed the Affordable Housing Credit Improvement Act through two committees which contained provisions to expand LIHTCs. The AHCIA has been introduced to Congress several times since 2016. Late last year muni leaders expressed high hopes for movement on LIHTC-related issues and cited support from the powerful homebuilder’s lobby.  

“We have been working with the National Association of Home Builders and many other national partners to see these changes become law,” said Cadik.  “The consensus among a broad constituency of affordable housing groups has enabled us to reach record levels of bipartisan support.”  

The new legislation hammers down on the same provisions as the AHCIA but with a few key differences including a 2026 time limit on how long the bond requirement is reduced for the 4% credits. “The changes that are made in the AHCIA are not time limited,” said Schwartz. “We are looking to reduce that bond financing threshold, down to 25% forever, that would be an ongoing change in policy.” 

Housing affordability is key policy issue for the Biden Administration.  In January of last year the Senate took a shot at boosting affordable housing construction via the Affordable Housing Bond Enhancement Act which intended to expand the use of mortgage revenue bonds and mortgage credit certificate programs.     

Mortgage revenue bonds are tax-exempt bonds that state and local governments issue through housing finance agencies to help fund below-market-interest-rate mortgages for first-time qualifying homebuyers.  

The current bill is still being kicked around on the Senate side and moving towards a markup session at Ways and Means on Friday. There have also been rumblings from other congressional corners about tacking on an adjustment to the current cap on state and local tax deductions.

Deadline pressures present another impediment to getting the deal done before support wanes or another crisis crops up.  

“Expanding the range of policies included in the package seems to have garnered more political support,” said Emily York, senior economist, research director, Tax Foundation. “Whether it’s enough to move it along given the other legislative priorities and deadlines facing Congress is hard to say.”