24 Feb Affordable housing developers take hit from Trump tax cut speculation!
President Donald Trump’s campaign promise to reform corporate income taxes has affordable housing projects across Oregon scrambling for funding.
The tax cut plan, which Trump teased again Thursday during a meeting with airline executives, wouldn’t directly cut affordable housing funding. But affordable housing projects often are partly financed through tax credits that are sold to investors.
The Low-Income Housing Tax Credit program allocates up to $8 billion a year and has helped develop more than 43,000 projects across the country since it was created in 1987. It also helped create more than 5,000 affordable units in Oregon from 2010 to 2015.
Since Trump took office, the value of the tax credits has plunged about 20 percent because of the possibility of tax reform, which the investors believe could dramatically reduce their tax liability. The administration has not announced the details of its tax plan, but Trump has said he would reduce the corporate tax rate from 35 percent to 15 or 20 percent.
That’s far from historic lows. When the tax credits were created in 1987, they sold for less than 60 cents on the dollar.
Still, it’s left affordable housing developers throughout the state facing a possible funding gap. That’s enough to at least temporarily upend developments just as they’re about to get underway — and during a period of record unaffordability when the housing units are sorely needed.
The effect could reverberate for several years, slowing the development of new affordable housing units.
“We’re in this kind of strange period of uncertainty,” said Martha McLennan, executive director of affordable housing developer Northwest Housing Alternatives.
Financing for affordable housing developments is usually cobbled together from various sources, including state and local grants. The tax credits often are offered as a means to attract private investment.
Before the November election, investors typically paid 95 cents to $1.15 for each tax credit dollar. (Investors would pay more than the face value because of other benefits, such as the ability to write off the housing development’s depreciation over time.)
Since then, the credits have shed 10 to 20 cents on the dollar. Some investors have begged off making commitments on pricing, while others who had tentatively agreed to invest in developments have pushed for a price cut.
The recent market volatility has left 33 affordable housing projects already underway in Oregon with an unexpected $35 million funding gap, forcing developers to pursue additional subsidies, scale back their projects or raise rents.
Two projects by the nonprofit Reach Community Development — a 52-unit apartment building in Hillsboro and a 101-unit building in Southeast Portland — likely face a funding gap as a result of the market volatility.
“In early November, we were fully funded and marching toward closing,” said Jessica Woodruff, director of housing development for the nonprofit. “Now there’s this uncertainty.”
It doesn’t expect to know how much of a gap it will have to close for two more weeks, when it receives a batch of proposals from prospective investors.
Oregon Housing and Community Services, the state agency that issues the tax credits, said Friday it would take the emergency step of canceling its tax credit offerings for the coming year, instead redirecting some of them toward filling existing projects’ funding gaps.
It also will use tax credits that would have been available for new projects to help fund projects that competed for, but didn’t win, them last year. That’s to hedge against further declines in tax credit values and to get projects underway sooner, said agency spokeswoman Ariel Nelson.
“We’re shoring up the existing pipeline projects,” Nelson said. “We’re still in a housing crisis. This gets the projects out the door faster.”
There are other reasons to rush. Interest rates and construction costs are rising, which further strain project budgets.
It’s not clear how dramatic corporate tax cuts would affect the tax credit program in the long run. Reduced tax liabilities could lessen demand for offsets like the low-income housing tax credit.
“If the corporate maximum tax goes way, way down,” McLennan said, “it could in theory eliminate the market altogether.”
But it could just mean affordable housing developers have to scrape together more funding from other sources.
— Elliot Njus
Courtesy of The Oregonian