Calling Housing Credit Advocates to Get Behind Housing Bonds

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5 min read

As the Housing Credit community rightly celebrates its hard-fought victory for the extension of the fixed 9 percent Housing Credit rate in the American Taxpayer Relief Act and moves into 2013 with a comprehensive strategy for protecting the program in tax reform, we must not lose focus on another important resource that accounts for approximately 40 percent of all annual Housing Credit rental home production.

Housing Bonds – tax-exempt bonds often used in combination with 4 percent Housing Credits – have been an unqualified success in producing, preserving, and rehabilitating decent and affordable rental housing for lower-income Americans. This achievement comes on top of and complements the long track record of success tax-exempt Mortgage Revenue Bonds have enjoyed in addressing our nation’s single-family affordable housing needs.

As Congress and the Administration scrutinize every tax expenditure in their continuing efforts to address the budget deficit and reform the tax code, the affordable housing community must ensure that they understand the importance of Housing Bonds, their successful partnership with the Housing Credit, and the vital role that both of these programs play in addressing our country’s unmet affordable housing needs.

The Importance of Housing Bonds

The importance of the multifamily Housing Bond program is clear. According to an annual survey conducted by the National Council of State Housing Agencies (NCSHA), 14,000 affordable rental properties across the country housing more than 1 million families have been financed with Housing Bonds. This housing production has generated billions of dollars in community development activity, millions in state and local tax revenue, and thousands of jobs each year.

Bond-financed developments serve a range of housing needs, including preserving at-risk affordable housing and creating affordable housing opportunities for people with special needs, including the elderly, persons with disabilities, veterans, and individuals and families facing homelessness and living in rural areas.

While demand for the 9 percent Housing Credit remains strong and state allocations remain oversubscribed, many developers are pursuing tax-exempt bond financing with 4 percent Housing Credits, which are not subject to state Credit caps, as a sound alternative to waiting for the possibility of a 9 percent Housing Credit allocation in a future funding round. In addition, the current favorable interest rate environment, coupled with higher demand and higher pricing on 4 percent Credits, has helped make more bond deals feasible in today’s market.

In 2011, the last full year for which NCSHA annual survey data is available, 4 percent Housing Credit allocations increased from approximately $187 million to more than $228 million nationwide.

More than 800,000 rental homes have been financed through combining Housing Bonds and the Housing Credit, with approximately 40,000 more added each year. States as geographically and demographically diverse as California, Florida, Hawaii, Illinois, Massachusetts, Minnesota, New Hampshire, Oklahoma, Vermont, Virginia, and Washington are experiencing notable increases in Housing Bond and 4 percent Housing Credit activity.

Program Is Under Scrutiny

For now, the tax exemption for private activity bonds, which enables states and localities to issue Housing Bonds and other types of bonds for several other activities, remains intact. But it is under intense scrutiny, with the Administration and others proposing potentially negative changes. For example, the Administration included last year in its Budget and recommendations to the deficit reduction “Super Committee” a proposal to limit the value of the tax-exemption for high-income taxpayers. Special deficit reduction commissions and other tax reform proposals have recommended curtailing or eliminating the bond tax exemption.

As Congress and the Administration look for ways to raise revenue and simplify the tax code, the affordable housing community must show them how important Housing Bonds are to people with affordable housing needs, our communities, and the overall economy. Any significant limits on or elimination of this tax exemption would cost far more in housing production than they would gain in revenue or economic efficiency.

Eliminating or curbing the tax exemption for bonds would lead bond investors to demand higher interest rates. This would result in higher borrowing costs for state and local governments, less investment in affordable housing, and fewer jobs. This would come at exactly the wrong time for our economy and as state and local government finances remain under pressure, limiting their ability to meet the growing need for affordable housing.

While the recently enacted “fiscal cliff” deal did not limit the value of the tax exemption of municipal bonds, including Housing Bonds, proposals to do so are still on the table and will require constant vigilance and proactive advocacy to defeat.

NCSHA is committed to preserving, protecting, and strengthening both the Housing Credit and Bond programs which, along with the HOME Investment Partnerships program, are at the center of our advocacy work on behalf of state HFAs in Washington. We encourage our partners in the affordable housing community to continue to join with us and strengthen our collective advocacy for the Housing Credit, Housing Bonds, and other vital affordable housing resources. So many people that need housing help are depending on us. We cannot let them down.

Barbara J. Thompson is the executive director of the National Council of State Housing Agencies. She is also a member of the Tax Credit Advisor Editorial Advisory Board.