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The House Ways and Means Committee has approved H.R. 5720: Housing Assistance Tax Act of 2008 a bill sponsored by committee Chairman Charles Rangel (D-N.Y.). The bill according to Affordable Housing Finance will “temporarily expand the low-income housing tax credit (LIHTC) and tax exempt housing bond programs, revise some of the program rules and requirements, and create a new tax credit for first-time home buyers.”

Specific changes include:

The bill would increase the annual per capita cap for the LIHTC by 20 cents in 2008 and 2009, raising the current-year ceiling to $2.20. It would also provide an aggregate increase of $10 billion in the tax-exempt private-activity bond cap for the 2008-2010 period, with the additional authority to be used for rental and ownership housing.

The additional housing bonds, which would be allocated among the states based on population, could be used to refinance adjustable-rate subprime home mortgage loans made after December. 31, 2001, and before Jan. 1, 2008, that the bond issuer determines would be reasonably likely to cause financial hardship for the borrower if not refinanced.

The housing tax credit provisions would eliminate the current difference in the credit rates for new and existing buildings and establish a minimum rate equal to the average of the rates for the previous 12 months. In addition, the definition of federally subsidized buildings, which can only use the 4 percent credit, would be narrowed to apply only to buildings financed by tax-exempt bonds. That means, for example, that HOME-assisted projects could still get the 9 percent credit.

In addition, federal grants would have to be subtracted from eligible basis only if they are received before the beginning of the 15-year tax credit compliance period.

The bill would also eliminate the ban on combining tax credits and Sec. 8 moderate-rehabilitation assistance. At the same time, it would raise the thresholds for rehabilitation to the greater of 20 percent of the basis of the building or $6,000 per unit, with the per-unit minimum to be adjusted annually for inflation. The current requirements are the greater of 10 percent of basis or $3,000 per unit.

Other changes would make state-designated projects eligible for the 30 percent basis increase now available for projects in difficult development areas and qualified census tracts, and would increase the allowable basis for community facility space to 15 percent of the first $5 million in eligible project basis and 10 percent of the remainder.

The bill would also coordinate some of the rules for tax-exempt and bond financed projects, including the next-available-unit rule, the student housing eligibility requirements, and the rules for single room occupancy projects. In addition, the legislation includes hold-harmless provisions for bond-financed rental housing projects that find their tenants suddenly exceeding income limits when area median incomes (AMIs) are reduced.

The first-time home buyer tax credit would provide a credit of up to $7,500 to be taken over two years. The allowable credit would be phased out for incomes between $70,000 and $90,000 ($140,000 and $160,000 for those filing joint tax returns). The credit would be available for home purchases made between April 8, 2008, and April 1, 2009.

The credit would have to be paid back without interest over 15 years. The recapture would be accelerated if the property is disposed of or ceases to be the purchaser’s principal residence before the end of the 15-year period.

We found this report on KnowledgePlex. State housing financing agency staff convened by the National Housing Trust during the National Council of State Housing Agencies spring training in Tucson, Arizona, discussed strategies they are using to keep viable projects moving forward despite falling tax credit prices. According to NHT, housing finance agencies have adopted five basic approaches to the market volatility: lowering minimum tax credit pricing, adding subsidies to transactions, modifying already adopted qualified allocation plans, providing additional credits to particular transactions and allowing developers to hike rents where the rent increases maintain agreed upon initial affordability limits. For a summary of HFA responses discussed at the roundtable, click here.

New Jersey’s strategies include:

1. Increase in basis limit,
2. Increase in maximum per project limits,
3. More flexible hardship clause mechanism (& non-competitive applications for less than $100,000)
4. Decrease equity pricing

Also held 2 meetings within the last 3 months with a group of core syndicators in an effort to stay up to date on current market conditions.

The House of Representatives introduced on April 8, 2008, H.R. 5720, the “Housing Assistance Tax Act of 2008“. Unlike the Senate bill it includes provisions to improve low income housing tax credits including raising the allocation from $2 to $2.20 for each person residing in the state.

The Senate version is S.2636 “The Foreclosure Prevention Act of 2008.” The Senate bill contains supplemental CDBG funds to allow communities “to purchase foreclosed homes, at a discount, and rehabilitate or redevelop the homes to stabilize neighborhoods and stem the significant losses in house values of neighboring homes.” This funding might provide opportunities for local communities in New Jersey to utilize these properties to develop supportive housing for persons with special needs and the homeless.

Neither bill may pass even though they have secured bipartisan support.

To read the full details of the House Bill click here.

To read the full details of the Senate Bill click here.

The House bill includes new initiatives including several that would impact on low income housing tax credits.

Temporary increase in low-income housing tax credit. Under current law, there is a state-bystate limit on the annual amount of Federal low-income housing tax credits that may be allocated by each state. This limitation is currently set at $2.00 for each person residing in the state. The bill would increase this limitation in 2008 and 2009 by an additional 20 cents for each person residing in the state. This proposal is estimated to cost $1.05 billion over 10 years.

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The Wall Street Journal published an article on how the credit crunch is impacting on an affordable housing projects funded by low income housing tax credits on March 12, 2008. The article entitled “Losses Stall Affordable-Housing Projects” detailed a situation that is also beginning to impact projects in New Jersey. It is a reminder of how an economic downturn can have an impact on those least able to adjust.

The following is opening paragraphs of the article. To read the full article click here.

Losses Stall Affordable-Housing Projects
By Ales Frangos
The Wall Street Journal, March 12, 2008; Page B1

Affordable housing is the latest victim of the credit crunch that is reverberating through financial markets.

Projects are being canceled because some of the nation’s largest financial companies, including Fannie Mae, Freddie Mac and Bank of America, have scaled back their participation in the federal government’s largest and most prolific affordable housing tax-credit program, designed to boost construction of below-market-rent apartments.

Carlisle Development Group, a developer that manages 6,000 government-subsidized units in Florida, recently shelved the first phase of a $100 million project it was planning in Miami with the local YMCA. It would have provided 355 affordable housing units. The housing authority in Pueblo, Colo., delayed a 25-unit project for senior citizens this week. Developers report similar tales around the country.

Reeling from losses in the housing and credit markets, U.S. financial giants are without profits that need shielding from taxes and therefore don’t need tax credits. With few buyers, the value of tax credits has declined sharply, leaving a funding gap for developers.

To read the full article click here.

According to an article in Affordable Housing Finance Magazine “2008 is going to be a tough year for low-income housing tax credit (LIHTC) developers, with equity prices for credits projected to be lower than they have been in recent years. The one silver lining that might be on the horizon is a proposal to update the LIHTC program and make it more efficient.”

To read the full article click here. The following is a portion of the article.

By most accounts, 2008 is going to be a tough year for low-income housing tax credit (LIHTC) developers, with equity prices for credits projected to be lower than they have been in recent years. The one silver lining that might be on the horizon is a proposal to update the LIHTC program and make it more efficient.

A bill had yet to be unveiled as of late December, but one was expected to be introduced in early 2008.

Early program modifications being weighed include allowing corporate taxpayers to use the LIHTC to reduce their alternative minimum tax liability, fixing the tax credit percentages at 9 percent and 4 percent, and allowing states to award additional credits to certain projects.

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Tags: Advocacy, Low-Income-Housing-Tax-Credits, Supportive Housing