Game Changers for Affordable Housing - National League of ... · Section 811 $150 $146 $121 $147...

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March 12, 2018 www.novoco.com

Game Changers for Affordable Housing

for National League of Cities’ Congressional Cities Conference

Peter LawrenceDirector of Public Policy and Government Relations

peter.lawrence@novoco.com

Novogradac & Company LLP

@NovocoPolicy

Agenda

Tax Reform?

Key Changes to Impact the Low-Income Housing Tax Credit

Impact on New Markets and Historic Tax Credits

Opportunity Zones

LIHTC Legislation

www.novoco.comMarch 12, 2018

Low-Income

Housing Tax

Credit

Private activity bonds retained (over half of

affordable housing production)

Low-Income

Housing Tax

Credit

Inflation factor changed to:

“CHAINED CPI”Will reduce future 9% LIHTC and private activity bond

volume cap per-capita/small state minimum amounts.

Low-Income

Housing Tax

Credit

Lower Corporate Rate

Interest Expense Limitation

• Most LIHTC partnerships expected to elect out and shift to Alternative Depreciation System (ADS) for rental housing

100% Expensing through 2022 for:

• Site improvements, and

• Furniture, Fixtures & Equipment

Likely negative impact of the Base Erosion and Anti-abuse Tax (BEAT)

9 Percent Property

Assumes 4.5% – 5.0% investor level yield in all scenarios

Results may differ based on a change in underlying assumptions.

Property not eligible for 30% basis bonus

Price per Credit

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4 Percent Tax Exempt Bond Property

Price per Credit

March 12, 2018

Effect of Tax Reform on LIHTC Equity Pricing

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Affordable housing community had already lost investment and production in 2017

March 12, 2018

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INCREASED

VOLUME OF

SECONDARY

MARKET

TRANSACTIONS

FANNIE MAE

FREDDIE MAC

REDUCED SIZE

OF ANNUAL

EQUITY

MARKET

CAULDRON OF

AFFORDABLE

HOUSING FUTURE

Markets

Tax Credit

• No statutory changes to section 45D

• 2017, 2018 and 2019 rounds from the PATH Act in

2015 remain at $3.5 billion each

– House bill had originally eliminated 2018 and 2019

rounds

• Efforts to extend or make the NMTC an indefinite part

of the internal revenue code likely included in a future

extenders package

• Corporate AMT repealed

• Unlike LIHTC, lower corporate rate is a slight positive

for NMTC because investors pay taxes on gains at exit

March 12, 2018

Historic

Rehabilitation

Tax Credit

• House would have dropped the HTC entirely; Senate

bill prevailed

• The 10 percent non-certified rehabilitation credit (for

pre-1936 buildings) is repealed

• 20 percent historic rehab credit is claimed ratably over

5 years

• Pricing may drop 7% to 15% due to changes

March 12, 2018

Investing in Opportunity Act

• Allows investors with capital gains from sale of assets to defer those gains

– Similar in concept to Section 1031 “Like-Kind” exchanges

• Creates new incentive to invest capital gains in low-income communities

• Authorizes the designation of “opportunity zones”

• Governors (and DC Mayor) responsible for designating these zones by end of March

• Encourages investors to pool resources and risks in “Opportunity Funds” (O Funds).

Investors can temporarily defer capital gains recognition if they reinvest in these zones

• Incentivizes long-term investment by stepping up basis

– 10 percent step-up after 5-year hold, 15 percent step-up after 7-year hold

• Provides shallower subsidies per investment than the NMTC, but can be used on a

greater scale

March 12, 2018

More LIHTCs via

Affordable Housing Credit Improvement Act

50 percent increase

Income-averaging

Minimum 4 percent rate

CANTWELL HATCH

TIBERINEAL

RETIRED

Curbelo, R-FL-26

March 12, 2018

50 percent increase

Income-averaging

More LIHTCs via

CANTWELL HATCH

TIBERINEAL Curbelo, R-FL-26

RETIRED

More LIHTCs via

CANTWELL HATCH

Curbelo, R-FL-26

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TIBERINEAL

50 percent increase

Income-averaging

RETIRED

March 12, 2018

TIBERINEAL

More LIHTCs via

CANTWELL HATCH

Curbelo, R-FL-26

50 percent increase

Income-averaging

RETIRED

Note these assumptions:

• Assumed that states will increase

their tax-exempt bond issuance for

multifamily by 25%

• Assumed the absolute amount of

soft subsidies going to tax exempt

bond properties would remain

unchanged

• To the extent that there is less

deferred developer fee, that is offset

with more taxable bond financing

Approximately 131,000 more units over 10 years

More LIHTCs via

Additional Resources

• Give states discretion to provide 30% basis boost for

bond-financed projects

• Increase DDA designation from 20 to 30%

• Repeal QCT population cap

• Relocation costs included in eligible basis

• No basis reduction for certain energy tax incentives

• Indian areas generally treated as DDAs

More LIHTCs via

Financial Feasibility

• 50% basis boost for ELI units

• Modify student occupancy rules

• Codify increased tenant income guidance

• Modify 10-year rule (limits apply to acquisition basis)

• Adopt uniform income eligibility for rural projects

More LIHTCs via

• Modify voucher rent-setting rule in LIHTC

• Clarify the community revitalization plan

• Prohibit local approval or contribution requirements

• Add selection criteria for Native American areas

• Restriction of planned foreclosures

• Clarify casualty loss rule

• Convert ROFR to purchase option

• Change the official name of the LIHTC to Affordable

Housing Tax Credit

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FY16 Enacted FY17 EnactedPresident’s

FY18 Request

Senate

FY18 Bill

President’s

FY19 Request

Housing Choice Vouchers $19,628 $20,292 $19,317 $21,365 $20,486 $20,015*

Project-Based Section 8 $10,620 $10,816 $10,751 $11,507 $11,082 $10,866*

Public Housing Operating Fund $4,500 $4,400 $3,900 $4,500 $4,390 $3,141*

Public Housing Capital Fund $1,900 $1,942 $628 $1,945 $1,852 $0

Section 202 $433 $502 $510 $573 $576 $563*

Section 811 $150 $146 $121 $147 $147 $132*

HOPWA $335 $356 $330 $330 $375 $330

CDBG $3,000 $3,000 $0 $3,000 $3,010 $0

HOME $950 $950 $0 $950 $850 $0

Homeless Assistance $2,250 $2,383 $2,250 $2,456 $2,383 $2,383

Choice Neighborhood Initiative $125 $138 $0 $50 $20 $0

Overall (gross) $46,978 $48,055 $40,722 $49,942 $48,034 $41,240

Note: amounts in millions

HUD Budget

*Administration FY19 “addendum” proposes to add $1 billion to vouchers, PBS8, Public Housing Operating Fund, Section 202 and Section 811 rental assistance for seniors and people with disabilities.

March 12, 2018

March 12, 2018 www.novoco.com

Game Changers for Affordable Housing

for National League of Cities’ Congressional Cities Conference

Peter LawrenceDirector of Public Policy and Government Relations

peter.lawrence@novoco.com

Novogradac & Company LLP

@NovocoPolicy

Game Changers for Affordable Housing - National League of ... · Section 811 $150 $146 $121 $147...

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