Senate, House Announce Workforce Housing Tax Credit Act
Federal legislation would offer developers tax credits to build affordable rental housing for middle-income Americans
Don’t tell Ronald Reagan, but the federal government is finally on its way to addressing the nation’s housing crisis.
Amid the highest mortgage rates in two decades, a frozen transaction market for single-family homes, and nearly the highest rents ever seen, a bipartisan group of senators and representatives in Washington has introduced a new bill to encourage the construction of workforce housing for middle-income Americans.
Sen. Ron Wyden, an Oregon Democrat, and Sen. Dan Sullivan, an Alaskan Republican, announced on Dec. 7 the Workforce Housing Tax Credit Act, a middle-income housing tax credit that would allow state housing agencies to allocate federal tax credits to private real estate developers who build rental housing for tenants earning between 60 percent and 100 percent of the area median income.
The bill is modeled on the federal Low-Income Housing Tax Credit (LIHTC) of 1986 and aims to serve “the missing middle” of families who earn too much to qualify for the LIHTC but don’t earn enough to purchase a home or rent multifamily units at the current elevated prices.
Democratic Rep. Jimmy Panetta of California and Republican Rep. Mike Carey of Ohio have joined Wyden and Sullivan to make the bill both bipartisan and bicameral.
“Right now, America’s nurses, firefighters and teachers are struggling to find affordable housing near the communities they serve,” said Wyden in a statement. “Establishing a middle-income tax credit will guarantee more housing, and the flexibility our bill provides will help housing finance agencies best meet the needs of their individual communities.”
Novogradac, a real estate accounting firm, estimates that the Workforce Housing Tax Credit Act would finance the creation of 344,000 rental homes over 10 years.
The bill “would help to protect the supply of affordable rental homes financed as there are affordability and eligibility requirements that must generally be adhered to for a minimum of 30 years,” wrote Novograndac in a September industry alert.
Much like the LIHTC, Wyden’s bill would allocate tax credits to developers based on a competitive bid process, where developers would receive tax credits over a 15-year period, together with a 15-year compliance period and a 30-year extended commitment for each project.
Tax credits would be allocated to each state based on population. For specific building projects, newer buildings would qualify for a tax credit equal to 50 percent the cost of the development over the entire duration of the tax credit, while rehabilitation or renovation projects would receive tax credits worth 20 percent the cost of the building. Eligible buildings must have at least 60 percent of its units occupied by renters with some affordability restrictions based on area specific incomes.
The introduction of the Workforce Housing Tax Credit Act comes as rents across the nation have hit record levels, while mortgage rates have crested up to nearly 8 percent.
Average U.S. multifamily rents hit $1,713 per month in November, just $12 off the all-time high of $1,725 from this summer, according to Yardi Matrix. The average price of a home rose from $319,000 in January 2019 to $487,000 by October 2023, according to the U.S. Census; while inventory remains trapped beneath a glut of supply. Last month, existing home sales fell to their lowest level since October 2010.
Sen. Sullivan said in a statement that a scarcity of housing afflicts both rural and urban communities and creates an obstacle for economic opportunity for both low-income and middle-income Americans.
“Everywhere I travel in our state, I hear from Alaskans reeling from the scarcity of housing,” said Sullivan.
By modeling the bill’s structure off the LIHTC, the architects of the Workforce Housing Tax Credit Act hope to generate a similar level of housing production. The LIHTC has financed the construction or rehabilitation of 3.5 million affordable housing units since 1986, or an average of 94,000 per year.
Even so, production hasn’t kept pace with either demand or supply. Between 1990 and 2017, nearly 4 million low-cost rental units disappeared from the market due to market-rate conversion, expirations of federal assistance, or general obsolescence, according to Novogradac.
Moreover, Harvard University’s Joint Center for Housing Studies reported that 2.5 million units with monthly rents below $600 disappeared from the nation’s housing stock between 2004 and 2019.
The bill has generated strong support from the nation’s real estate community. The National Association of Home Builders, the National Multifamily Housing Council, and the National Apartment Association have all signaled their support.
Jeffrey DeBoer, president of The Real Estate Roundtable, an industry trade group, called the bill “a positive step” to improve the stock of the nation’s housing supply.
“Tax policy should support and encourage private sector investment that boosts the supply of affordable and workforce housing,” said DeBoer in a statement. “The Workforce Housing Tax Credit Act would build on time-tested tax incentives like the Low-Income Housing Tax Credit and further facilitate the conversion of underutilized, existing buildings to housing.”
Brian Pascus can be reached at firstname.lastname@example.org.