The United States House of Representatives and Senate are each developing bills to modify the United States Tax Code. Provisions in the existing tax code contain benefits to provide financing of housing for low- and moderate-income families and households (affordable housing).
Tax-exempt private activity bonds are used to fund, among other things, mortgages made to first-time, moderate-income home buyers and mortgages made to finance the construction of affordable rental housing. The tax-exempt nature of these bonds permits an investor who purchases a bond to earn interest without paying federal tax on the interest earnings. Investors receive a lower interest rate on the bond, and that lower rate is passed on as a lower interest rate mortgage.
Another provision of the tax code provides Low Income Housing Tax Credits that fund large amounts of the cost to develop rental housing projects so that rents are low enough to be affordable to low and very low income earners and seniors. Investors purchase the tax credits and receive an ownership interest in the rental project along with a fixed amount of credit toward federal income taxes that are owed.
The House version of the bill, passed on Nov. 16, eliminates all private activity bonds, passed by the House on November 16th, will reduce affordable rental housing production by 50 percent. The Senate version retains private activity bonds and makes certain improvements to the tax code for the housing credits.
The Senate version is authored by the Finance Committee, chaired by Utah’s Sen. Orrin G. Hatch, who is the most influential national figure to assure that the tax code continues to affect housing finance for the nation’s lower income home buyers and renters.
One might ask why it is necessary for the tax code to be involved in affordable housing. Although the mismatch of low wages and high housing costs is decades old, accelerated household formations and birth rates following the Great Recession and relocation of families taking advantage of better job opportunities have created a demand for more housing units than builders can produce. This is the case for rental housing and homes for sale.
The result is rapidly rising rents and rapidly rising home prices. This mismatch is worse in cities such as Seattle, San Francisco, Denver and even our Wasatch Front cities, where the economies are some of the best in the nation.
But the wages of so many hard-working people are not keeping pace as housing costs eat away the spending power for other necessities. We all rely on the labor performed by low-skilled low-wage earners. Our education dollars are stretched as well, so presuming everyone should get more education would be an expense to the taxpayers and clearly not every job requires higher education.
The cost to finance affordable housing borne by the current tax code is an investment in valuable lives and families, better housing for our growing population of seniors and the preservation of existing housing stock.
Utah Housing Corporation is a public corporation created by Utah legislation and is the state’s leader in financing affordable housing. Working with the private sector, Utah Housing Corporation provides mortgage financing for lower-income home buyers and rental properties. At no cost or risk to the state, Utah Housing Corporation has provided financing for 84,000 single-family home purchases and 26,000 multi-family apartments since 1977. Private activity bonds and housing credits have financed most of this production.
The Senate version of tax reform allows for the continued issuance and allocation of these precious resources. I strongly encourage all members of our Washington delegation to firmly support their continuation.
Grant S. Whitaker is president & CEO of Utah Housing Corporation and president of the National Council of State Housing Agencies.