On August 22, U.S. Sen. Ron Wyden (D-OR) introduced legislation to create a middle-income housing tax credit (MIHTC) aimed at sparking the development of rental homes affordable to Americans with moderate incomes. The bill builds on the successful LIHTC model, allocating funds to states based on population with state housing authorities and then following a competitive process to allocate the tax credits to developers for individual new construction projects or rehabilitations. The legislation aims to provide a comprehensive affordable housing package in tandem with the low-income housing tax credit (LIHTC), a tool Wyden has long supported that’s helped to finance construction of affordable rental units.
How the credit works. Under the bill, the federal government would allocate tax credits to the states based on population. For 2019, the allocation would be $1 per capita with a $1.14 million small state minimum. An additional 5 cents per capita above this allocation would be reserved for middle-income housing developed in rural areas. State housing authorities would then allocate the tax credits to developers through a competitive process. The tax credits would be provided to developers over a 15- year compliance period. The credit amount would equal 50 percent of the present value of the qualifying costs, or 5 percent a year on an undiscounted basis. However, state housing authorities would only allocate so much credit as makes a housing project feasible.
What construction projects would qualify. To qualify for the credit, a rental property would need to meet two affordability standards: 1) a property would have to include a minimum percentage of affordable units; and 2) rents for those units could not exceed maximum amounts based on average incomes in the area. Specifically, at least 60 percent of the property’s units must be occupied by individuals with incomes of 100 percent or less of Area Median Gross Income (AMGI). Furthermore, tenants’ rents must not exceed 30 percent of 100% of AMGI. The affordability restrictions would remain in place for up to 15 years after the compliance period. Credits are discontinued to the developer if a project fails to meet these income/rent requirements.
Safeguarding low-income affordable housing. While geared to incentivizing the construction of affordable housing for middle-income families, the bill also includes protections for low-income affordable housing. A state’s unused MIHTC allocation would get added to the state’s existing LIHTC allocation after one year. If still unused after a second year, the state’s MIHTC allocation would go back to the national LIHTC allocation pool. The bill also contains a Sense of the Senate that Congress pass the Cantwell-Hatch “Affordable Housing Credit Improvement Act”. The Act would increase the annual per capita LIHTC allocation and small state minimum by 50 percent and set a floor under the 4% LIHTC credit, among other provisions.
Senator Wyden also introduced in separate legislation a measure that would provide a federal tax credit for first time home-buyers. At time of press, neither legislation has been assigned a bill number. Both measure are expected to be referred to the Senate Finance Committee.