Without low-income housing tax credits, projects like Cedar Rapids’ Kingston Village
Apartments, a $9.7 million, 64-unit complex at 600 Second St. SW, may struggle to find
funding for development – or not be developed at all. PHOTO ADAM MOORE
By Katharine Carlon
Sweeping tax reform enacted last month might have been great news for corporations who saw their tax rates lowered from 35 to 21 percent, but those same cuts are potentially disastrous to efforts to build more affordable housing both nationwide and in the Corridor.
At issue is the fate of low-income housing tax credits, or LIHTCs, which are meant to incentivize the private sector to invest in affordable rental housing projects. Although the tax plan leaves the credits untouched – some had feared the GOP-led effort could eliminate them altogether – the lower corporate tax rate means a corresponding lowering of the value of the credits. That makes them far less appealing to would-be developers who sell the credits to large corporations to raise equity for their projects.
Low-income tax credits are responsible for about 90 percent of all affordable housing units built in the U.S., including 21,000 units built across the state of Iowa since 1986 when the last dramatic tax code overhaul brought them into existence.
“It will mean fewer units coming at a time we have an increasing need for them,” said Mary Ann Dennis, executive director of the Housing Fellowship in Iowa City. “In the last 24 months or so, real estate prices have gone way up and wages have not, so you don’t have to be terribly smart to get that this is going to have an impact.”
The Housing Fellowship, a community-based organization dedicated to providing affordable, quality homes to people with limited incomes, is one of 30 contenders for $20 million in 2018 grants from the Iowa Finance Authority, which administers the federally awarded tax credits in the state. In partnership with investors, the nonprofit is asking for $476,000 in annual credits to build Del Ray Ridge, a 33-unit multifamily development with 29 low-income units at 628 S. Dubuque St.
“A reduction in the corporate tax rate impacts how much we can sell credits for,” Ms. Dennis said, adding that developers and partners like the Housing Fellowship may now have to explore other sources of financing and alternate funding mechanisms, such as new market and historic tax credits, to get projects completed.
“In the short term, we’re kind of scampering around,” agreed Richard Sova, president of Landover Corporation, a Chicago-area development company also vying for LIHTCs for Kirkwood Lofts, a proposed 52-unit affordable housing project at 815 Kirkwood Parkway SW in Cedar Rapids. Mr. Sova’s company has used the credits in the past to raise funds for other Corridor-area projects, including Kingston Village Apartments, a $9.7 million, 64-unit complex at 600 Second St. SW in Cedar Rapids.
“Now we may have to do some gymnastics to make those projects happen,” he said. “If there isn’t some type of program to leverage that equity, it’s going to be harder to do those kinds of deals.”
Each year, the federal government allocates tax credits to states based on population and developers vie for them via a competitive process. Once a developer is awarded credits – in Iowa, by the Iowa Finance Authority – it then sells the credits to private corporations, who buy them to offset their federal tax liability dollar for dollar.
With a lower tax liability thanks to last month’s reform package, Mr. Sova said those credits are a whole lot less attractive.
“We’re hoping the state and federal government can come up with some kind of program to compensate for the gap,” he said. “But it hasn’t happened yet.”
A recent analysis from national accounting firm Novogradac & Co. estimated a 14 percent decrease in the value of LIHTCs as a result of tax reform, leading to a reduction of as many as 235,000 new units of subsidized affordable housing nationwide over the next decade.
Local affordable housing advocates say that could worsen an already existing crisis at the lower end of the housing market.
“We’re seeing a lot of developers waiting and wondering about what will happen, whether they’ll have to find funding to make up the difference or just not go forward,” said Tracy Achenbach, the executive director of housing trust funds serving six of the Corridor’s seven counties. “It’s going to be interesting to see what happens. And not necessarily in a good way.”
Ms. Achenbach said she and other stakeholders plan to meet later this month to discuss solutions and policy at the state level. At the national level, Congress will likely feel pressure to take up the bipartisan Affordable Housing Credit Improvement Act, which would expand the credit by 50 percent and result in an additional 400,000 affordable homes over the next decade.
In the meantime, however, developers and others who rely heavily on LIHTCs to fund projects for lower income residents are in limbo. Ms. Achenbach cited Coral Ridge Apartments at 915 20th Ave. in Coralville and Diamond Senior Apartments at 1030 William St., in Iowa City as examples of badly-needed projects that would not have happened without LIHTCs. The two Johnson County developments, both awarded tax credits of $800,000 and $562,432 respectively, will provide a combined 96 affordable units for seniors.
“If projects like that are not able to happen, if developers are not able to move those projects forward, the real impact is big,” Ms. Achenbach said. “Historically, low income tax credits have been the way most affordable housing gets done.”