Every day the presidential candidates talk about COVID-19, the fight for a new Supreme Court justice and the economy. So it may come as no surprise that while we are undeniably in a housing affordability crisis, the problem isn't getting much airtime.
However, from the politics favored by President Donald Trump and Democratic challenger Joe Biden in the past, and the published platforms of their campaigns, we can put together a prediction of how everyone might address the lack of affordable housing and rising housing costs, if that is the case Fall is chosen in November.
Either Trump or Biden could choose to make housing affordability a priority in their administration, and both could have a huge impact, although they would certainly use different methods. From what we've seen, Trump would focus on giving developers tax breaks, while Biden would apparently levy corporate taxes on his platform to fund investments in affordable housing programs.
However, from what we've heard from both candidates, it is unlikely that both of them prioritize housing issues. So, we don't expect seismic changes in the housing affordability programs, regardless of who wins the election.
I've worked on affordable housing projects with clients across the country Spoor Bunch Franzand I know investors, owners, developers, and community leaders have questions about what's to come and how to prepare. With that in mind, here's how the candidates' approaches could affect affordable housing over the next four years.
In 2017, President Trump signed the Tax Cuts and Employment Act, which helped create opportunity zones, stretches of land in distressed communities where investment would be encouraged through tax breaks for capital gains. Most of the financial reporting related to opportunity zones is voluntary, so it's difficult to pinpoint exactly how much money has been invested through this program, but it is estimated at $ 10 million to $ 30 million. In an agenda released During the Republican National Convention, the Trump campaign said he would widen the zones of opportunity if re-elected.
There are many questions about the effectiveness of opportunity zones. A report from the Urban Institute "Rather than rewarding investors who are willing to support projects with a large social impact, the capital gains exemption for OZ projects is structured to bring the greatest financial benefit to the projects with the highest returns."
In that report, the Urban Institute (an organization other than the Urban Land Institute, which also includes the Terwilliger Center for Housing) advocated a number of reforms to the Opportunity Zone program.
"I think it's clear that opportunity zones are still not having the hoped-for impact on distressed census areas," said Christopher Ptomey, ULI Executive Director Terwilliger center. “There are examples where zones have worked well, but private investment was required alongside state and local investment. Ultimately, the opportunity zones weren't game changers – they were pieces of the puzzle. "
It should also be said that the impact of the COVID-19 crisis makes it difficult to fully assess the impact of opportunity zones this year. When the pandemic forced companies to change, temporarily close, or permanently close their business models, many investors focused on protecting their core businesses. Instead, in an economic downturn, capital gains that might have been ripe for investment in opportunity zones have declined.
At Biden platformHe says he will "reform opportunity zones to ensure they serve black and brown communities, small businesses and homeowners." Proposed reforms include incentives for opportunity funds to work with nonprofit or "community-based" organizations to jointly develop a plan for how the investment will benefit the community. To do this, the benefits of the opportunity zone must be verified by the finance department to ensure the benefit to the community, and investments must be made with transparency.
Low income housing tax credit
Another piece of the puzzle is that Low Income Housing Tax Credit (LIHTC) Program that was launched in 1986 and has funded millions of units to date. Lawmakers and lobbyists have come up with numerous proposals over the years to strengthen the program, and ULI's Ptomey is optimistic that it will break through regardless of who is elected, even though Republicans did called to cut the program in the past.
"Congress now has enough support to make this program more productive. It will continue to be the greatest development opportunity we have," said Ptomey.
Our LIHTC customers are currently watching and waiting to see whether Congress passes another COVID-19 aid package and whether this legislation includes and prioritizes affordable housing. On July 31, 103 members of the House of Representatives signed a letter sent to the management of the house asking them to consider housing a priority in upcoming legislation.
In particular, they called for a 50% increase in the annual allocations for the low-income residential property tax credit from 2021. a minimum rate of 4% for low-income tax credits for residential property and an additional base boost for properties that were acutely burdened as a result of the COVID-19 crisis. For the context a base boost makes it easier for developments to build equity by increasing the property's maximum allocation. This encourages investment in areas where there is a difference between (often high) development costs and average income. For example, in a situation where the base is raised by 30%, each eligible dollar generates a base of $ 1.30. And after Analysis of NovogradacAdopting a 4% "floor" on LIHTCs would generate additional capital and equity and ultimately enable the creation of 126,000 affordable homes over the next decade.
It would be challenging to add additional laws to the law before the November elections, but we are closely monitoring this.
In 2015 a rule came into force Reinforce a clause in the Fair Housing Act that has been required by law since 1968 and prohibits discrimination in housing. The 2015 rule introduced a structured reporting process for reporting data to the Housing and Urban Development Agency, which at the time prevented cities from receiving HUD funding from ignoring the portion of the Fair Housing Act that they wanted to do forced progress to secure their programs issue of fairness in housing.
According to ULI's Ptomey, the Obama administration's publication of the 2015 rule was "the first real attempt to meet this requirement of the Fair Housing Act." In 2018, Ben Carson, President Trump's appointee to run the HUD, suspended the rule, and in 2020, the Trump administration suspended officially ended. Biden's platform says it will implement the rule again.
It is difficult to say what impact the reintroduction of the rule could have in the future. "We hadn't seen what it would look like, how the communities would react," says Ptomey. "It just wasn't long enough."
Financing affordable housing
A major difference between Biden's government philosophy and that of Trump can be seen in their approaches to the problem of housing affordability. Biden said he would levy taxes on corporations and large financial institutions to pay for his $ 640 billion investment in affordable housing, while Trump has said he wants to keep corporate tax rates at the levels they are now because of the tax cuts are and Jobs Act.
On his platform, Biden proposes setting up a $ 100 billion affordable housing fund “to build and improve affordable housing” and investing $ 640 billion in affordable housing over a 10-year period. This is significant, says Ptomey, because "not a lot of money was put into affordable housing programs during the Obama administration."
The proposed investment would include providing financial support to tenants and homebuyers, increasing housing supply and reducing costs, and ending redlining and other discriminatory and unfair practices in the housing market.
A collaborative approach
While it comes down to who will be elected president in November, and housing policy will be influenced by that person's agenda and philosophy, it will take much more than an election to make the changes needed to improve housing affordability.
"Local government involvement in the development community makes all the difference," says Ptomey. "When cities, developers, investors and community leaders work together to circumvent burdensome regulations, cut costs, and build homes that the community needs and can afford, it is possible to be successful without subsidies."
What Should Affordable Housing Investors Do Now?
This year and crisis has been unpredictable, but it helps to plan for what might be around the corner. A rise in corporate tax rates could be imminent for affordable housing investors. If corporate tax rates rise, it will likely lead to higher tax credit prices, which could impact potential deals in the affordable housing sector.
We work as advisors with our clients to plan a variety of scenarios that could arise over the next year, including a corporate tax increase, and we encourage them to keep working at all levels to coordinate with local government officials, community leaders . and developers, because the way to make progress is to find innovative ways to work together to solve the housing affordability issue, regardless of who gets the most votes in November.
Julie Lawrence is the CPA and Senior Manager at Spoor Bunch Franz, a Florida-based company helping affordable property owners, investors, and developers with historic tax credits, LIHTCs, RD, and HUD rules. Lawrence has worked on all aspects of affordable housing, spending time as an exam director and CPA with an emphasis on affordable housing. She is also the Treasurer of the Florida Council on Affordable and Rural Housing Board of Directors.