The suggestion of tax reform early in 2017 slowed down affordable housing production. The low-income housing tax credit (LIHTC) market reacted, and housing credit pricing fell quickly at the suggestion. Now that the Tax Cuts and Jobs Act has become law, analysis by accounting firm Novogradac & Co., predicts a reduction in the affordable rental housing market by 235,000 homes over the next decade, as reported by Affordable Housing Finance.
The corporate tax rate reduction, from 35 percent to about 21 percent, is expected to further diminish the value of the housing credit for investors -- and reduce investment in housing credits -- possibly pushing some investors out of the market beginning in 2018.
The Tax Cuts and Jobs Act will decrease affordable housing production as a result of the lower corporate rate and other provisions — continuing a trend that we have already seen for the past year in anticipation of tax reform,” said Emily Cadik, director of public policy at Enterprise Community Partners.
While affordable housing advocates are breathing a sigh of relief that LIHTCs and private-activity bonds (PABs), or multifamily housing bonds, have been preserved in the tax code, the effects of the Base Erosion and Anti-Abuse Tax (BEAT) provision on housing credits are uncertain.
About 80 percent of the housing credit can be used against the BEAT, but when housing credit investors learn they may lose 20 percent of the value, that might be enough to cause them to walk away from the affordable rental housing market, explained Peter Lawrence, Novogradac’s director of public policy and government relations.
The affordable housing industry will seek modifications to the housing credit and the Affordable Housing Credit Improvement Act is needed more than ever, according to Cadik.
Lawrence noted that consequences like the BEAT provision will cause Congress to move on a technical corrections bill. Also, affordable housing is expected to also be addressed on the upcoming infrastructure agenda.
