Election results affecting development of affordable housing
The growing affordable housing crisis in Texas could get worse. Tens of millions of dollars’ worth of affordable housing developments that had already won hard-fought approvals are on hold, following the election results some believe could lead to a lowering of the corporate tax rate.
Across Texas – and the nation – private investors who purchase the tax credits are reconsidering their investments in the program as a result of speculation that the credits might not be needed if the corporate tax rate is lowered as has been touted by the Trump administration.
The Low-Income Housing Tax Credit Program is one of the most successful housing programs in the nation’s history, combining public good with corporate interests. In Texas, the program is overseen by the Texas Department of Housing and Community Affairs, which this year awarded $65.3 million in housing tax credits to private developers in Texas.
These housing tax credits were expected to make it possible for private developers to build 64 new affordable apartment communities across Texas. These developments will offer rents affordable to households earning up to 60 percent of the area median family income.
Developers who won these housing tax credits need to sell them to investors who can use them, such as big banks, insurance companies and other corporations with high tax liabilities. But with the future corporate tax rate — currently at about 35 percent — up in the air, investors are backing away from closing.
This means a proposed senior living development to be built outside Waco, for example, is on hold, along with countless others across the state and nation.
“Our top investor for the Waco development is set to walk away from closing because they are not sure what the corporate tax rate will be next year,” said Janine Sisak, an executive with DMA Companies and TAAHP’s QAP Committee Chairperson. “Other investors tell me this isn’t an isolated incident. Investors are pulling out of deals, or drastically repricing them mid-stream, based on new models assuming a corporate tax rate of between 20 percent and 25 percent instead of the current 35 percent.”
“The effects of this closing crisis for affordable housing developments could be far-reaching if not resolved quickly”, said Frank Jackson, TAAHP executive director.
“Building affordable housing provides not only high-quality homes for those who need them most, it also provides jobs and helps lift local tax bases,” Jackson said. The National Association of Homebuilders says 122 jobs are created for every 100 Low Income Housing Tax Credit apartments built.
School districts in Austin, Dallas, Houston and San Antonio struggle every year to hire enough qualified teachers.
But the fresh graduates most eager to teach in big city schools face a huge problem once they are hired on — none of them can afford to buy a home in those cities.
That’s just one of the results from the National Housing Conference’s annual Paycheck to Paycheck report, which this year focuses on school employees. The report highlights some of the real consequences of Texas’ growing affordable housing crisis.
“Living near work cuts down on a household’s economic costs, like transportation, as well as personal costs, such as emotional and physical stress,” the report states. “Workers are forced to make tradeoffs when housing is not available near work. Cheaper housing that is farther away from work means longer commutes that eat up time and money … Living closer to work, in more expensive housing, means less of a household’s wages are going to things like food and healthcare.”
The study considered housing costs affordable if they did not exceed 30 percent of a household’s income. Buying a home was considered affordable if the mortgage payment (30-year fixed-rate mortgage with a 10 percent down payment) did not exceed 28 percent of a worker’s income.
Unfortunately, no affordable housing was built in any of the state’s biggest cities last year through the state’s most effective housing program, the Housing Tax Credit Program, which is overseen by the Texas Department of Housing and Community Affairs.
“Our teachers should be a part of the communities in which they work,” said Frank Jackson, executive director of the Texas Affiliation of Affordable Housing Providers. “Removing burdensome bureaucratic regulations from the state’s Housing Tax Credit Program, such as requiring letters of support from politicians and local governments, would encourage private developers to build more quality affordable housing where it is needed most.”
The oft-cited fear that affordable housing will hurt the value of nearby homes is unfounded, according to a decade long look at the data.
“The bottom line for NIMBYs who fear that property values will take a hit when a low-income housing project locates nearby is that their anxiety is largely unfounded – at least in cities where housing is either expensive or in short supply,” writes Cheryl Young, a senior economist at Trulia, a real estate aggregator.
Building affordable housing where it’s needed most — where inventory is low and prices are high — doesn’t counter the economic realities of supply and demand on the market price for homes.
“There Doesn’t Go the Neighborhood: Low-income Housing Has No Impact on Nearby Home Values” studied the impact of affordable housing on nearby homes from 1996 to 2006. This study is only the latest to show this lack of correlation.
The study looked at more than 3,000 properties in the 20 least affordable metro areas and found there was no significant effect on nearby home values resulting from Housing Tax Credit developments.
In the nation’s 20 least affordable markets, their analysis of 3,083 low-income housing projects from 1996 to 2006 found no significant effect on home values located near a low-income housing project, with a few exceptions.
In Denver, homes located near low-income housing projects actually registered a positive effect in terms of price per square foot after a project was completed. While other studies have also shown no correlation, opponents to building affordable housing often cite the fear of lowered property values as their top concern.
“Unfortunately, developers of affordable housing are faced with educating the public about the benefits with each proposal, because Texas law has politicized the siting process,” said Frank Jackson, executive director of the Texas Affiliation of Affordable Housing Providers. “Battling ignorance, and sometimes racism, is just part of the job.”
Guidance Needed for Setting Local Tax Rates on Housing Tax Credit Developments
Apartment complexes built with the state’s Low-Income Housing Tax Credit Program (LIHTC) are virtually indistinguishable aesthetically from their market-rate neighbors.
That’s great for the communities they seamlessly blend into. But for local tax appraisal districts unfamiliar with this successful public-private housing program, the drastic differences are causing headaches when it comes time to set the taxable value for these rent-stabilized apartments.
For example: Two apartment complexes share the same block. To the average person walking or driving by, these complexes look the same and so do the tenants. The major difference however, is in how the properties were financed, how that affects their potential income and how they should be taxed. Most importantly, LIHTC properties are the only rent-capped income properties in the state of Texas, and few if any, understand the drastic affect these deed-restricted rent caps have on their values.
One of the apartment complexes is a market rent development, financed conventionally with a mortgage loan. The other complex is an affordable development, financed with different sources of funds, including housing tax credits and a mortgage loan. Using housing tax credits as a portion of a development’s equity financing allows the “affordable” development to have a smaller mortgage loan than its “market-rate” neighbor, so it must charge lower rents.
Because one complex charges market-rate rents and the other charges lower, capped rates, the revenue generated is substantially different. How should the tax appraiser treat these properties?
The complexes cost about the same to build. If the properties were appraised based on their location and building costs, their appraised values would be about the same. But if the properties were appraised based on their net income, the affordable development would receive less rent and, therefore, pay less tax.
“When housing tax credit developments are overvalued, the owners are forced to litigate the value on an annual basis,” said Frank Jackson, executive director of the Texas Affiliation of Affordable Housing Providers. “Setting and publishing clear guidelines for the appraisal of affordable housing properties financed with tax credits will save everyone the time and trouble of setting tax values through litigation.”
Founded in 1997, the Texas Affiliation of Affordable Housing Providers (TAAHP) is a non-profit trade association serving as the primary advocate and leading resource for the affordable housing industry in Texas. Our vision is to inspire and engage our members and stakeholders to end the affordable housing crisis in Texas.