Reasonably priced property builders ask for a LIHTC price of four %

Affordable property developers hope the federal government will set a minimum rate of 4 percent tax credits for low-income housing. (iStock)

For an affordable housing project in Brooklyn, a small change to a federal affordable housing program could mean a difference of $ 7 million.

The project, a residential building with 128 residential units planned for 1601 DeKalb Avenue, is not alone. The value of the Low Income Housing Tax Credit Program, which has financed more than 3 million homes since its inception in 1986, depends on the interest rates set by the Treasury Department. Because of this, this key program has succeeded in a downward market where the federal government is cutting lending rates to mitigate the financial impact.

“Building affordable housing is a great economic stimulus for communities,” said Spencer Orkus, managing director at L + M Development Partners. “It is unfortunate that the rate is falling, just as municipalities and economies could use that additional bump.”

Affordable property developers hope the federal government will step in to change this, either as part of the spending bill currently being drawn up by Congress or at the start of the Biden presidency. They urge lawmakers to separate the tax credit from the interest rates and set a lower limit of 4 percent instead.

This would mean that the loans that can be sold to investors to raise equity for a project would be more valuable and more attractive to corporate investors who would receive a 10 year federal income tax reduction based on the tax rate.

According to the New York Housing Conference, the change could mean a difference of $ 240 million or 1,700 affordable housing units will be built or maintained in New York City alone. According to the organization, the change would create 23,000 homes over the next ten years. An analysis by auditing firm Novogradac estimates that the change would fund 126,000 affordable homes at the national level between 2020 and 2029.

“We just got a stalled pipeline for affordable housing,” said Rachel Fee, NYHC executive director. “This is one way to start this pipeline.”

During the last major financial crisis in 2008, the federal government set a minimum tax credit rate of 9 percent. These have limited availability and are given to developers by state and local governments, while the 4 percent loans are provided by law for projects funded with private activity bonds. Although the idea of ​​setting a 4 percent floor has been supported by both parties over the years, it has often been fraught with controversial measures. Washington Most recently, Senator Maria Cantwell of Washington State proposed a measure to set the minimum rate of 4 percent along with other reforms in June 2019.

With interest rates just above 3 percent and state and local governments running out of money, the change is more important than ever, according to developers. Rick Gropper, principal of Camber Property Group, which is developing the DeKalb Avenue project, said setting a 4 percent floor would free up more local subsidies because developers using the loans could put more equity into their projects.

“You could then take that money and reinvest it in other projects that really need it,” said Gropper.

A spokesman for the city’s Department of Housing Preservation and Development called the tax credit “the most powerful federal instrumental cities to create and maintain affordable housing,” and said setting a minimum rate would result in $ 200 million in annual funding.

According to NYHC, the city lost around $ 200 million in affordable housing finance due to the Trump administration’s 2017 tax overhaul. The tax law lowered the corporate income tax rate to 21 percent – versus a graduated tax rate between 15 and 35 percent – which reduced investor demand for credit. Aaron Koffman of Hudson Companies described the tax credit as “the lifeblood of affordable housing.”

“It’s so transformative to be able to take this one step and change it so dynamically without costing anything,” he said. “There will be a much-needed boost when things are really on the ropes.”

Contact Kathryn Brenzel