Uncertainty Surrounding Low Income Housing Tax Credits Impacts Local Projects
The election of Donald Trump had an immediate impact on a number of affordable housing projects in Columbus — an impact that was felt before he took office and long before any actual policy decisions were made by his new administration.
The reason has to do with the central importance of Low Income Housing Tax Credits to the affordable housing business. Developers, many of them nonprofit organizations, apply for the credits from the Ohio Housing Finance Agency (OHFA) and use them to finance their projects. Because Trump had campaigned on the promise of dramatically lowering the corporate tax rate, his election caused the investors who typically buy those credits to stop and evaluate whether that still made sense.
“When investors owe a dollar of taxes that they invest in tax credits, they can get a dollar rebate,” explained Michelle Norris, Executive Vice President of National Church Residences, a Columbus-based nonprofit that builds affordable senior housing. “Their return is calculated based on how much they will have to pay in taxes – if they don’t have to pay as much, the value is less.”
With the new uncertainty about the value of the tax credits, a number of projects are experiencing delays. Three NCR developments that were awarded credits in 2016 — a new 100-unit project in Dublin, a 150-unit rehab in Gahanna, and a third project in Florida — are now back on track, but running anywhere from three to six months behind schedule.
Homeport has had a similar experience with its plan to build 33 new single family homes in Milo-Grogan.
“Essentially, the markets are a little frozen; they don’t know what the tax policies are going to be, and that impacts the pricing of credits,” said Bruce Luecke, Homeport’s President and CEO. “Our closing will be delayed, probably by a couple of months, but ideally, it shouldn’t impact our ability to still complete (some of the homes) this year.”
Although the final pricing of the credits is unknown, it will almost certainly be less, meaning that developers of affordable housing are also facing a gap in funding. Both Luecke and Norris credited OHFA for stepping in with funds to ensure that projects approved last summer will still get built.
“We want to make sure these projects are finished,” said Kelan Craig, Director of Planning, Preservation & Development at OHFA. He added that, because the funding is being taken out of the pot of money that would have gone toward a new round of projects in 2017, there will be less money available for the program next year.
In 2016, tax credits were allocated for nearly 3,000 affordable housing units in Ohio. Even if the program continues to operate in the future with the same level of funding – and it does traditionally have strong bipartisan support – a reduced corporate tax rate would still lead to less valuable credits, and therefore fewer affordable units being built.
The uncertainty surrounding the tax credit program — as well as the possibility of reduced federal funding for other poverty-fighting programs — has local affordable housing developers looking to other sources of funding.
“I am guessing that the tax credits will still be there… it’s a wonderful private-public partnership,” said Luecke. “But the issue remains that it’s a finite amount of dollars. For us and our peers to close the gap on the need, we need to generate more capital, to find more ways to build more. We’re looking at everything… including potential partners in the private sector.”
Norris said that the board of National Church Residences has been proactive in recognizing the changes in the funding environment and planning for it. But she emphasized that it is not just changes to housing policy that the organization is tracking.
“National Church Residences is an organization that runs across the continuum of senior housing and services,” explained Norris. “We work with federal and state programs, including Medicaid and Medicare… we really work at the intersection of affordable housing and health care, so we’re watching very carefully to see what happens with the Affordable Care Act.”
“The folks that are most vulnerable in our country,” added Norris, “based on either their income and/or health needs, we feel strongly that we need to continue to look out for their needs.”