The Tax Cuts and Job Act will have a negative impact on the Affordable Housing industry
Development of quality affordable housing properties in the US is largely a function of the equity raised from the sale of tax credits to corporations. Since the new tax bill incorporates substantial cuts in corporate taxes, it seems logical that corporations will have less (or no) incentive to invest in such credits, in which case the development of affordable housing will face an immediate major crisis. Are there any ideas for alternative funding of this pending ‘equity gap’?
[{"id": "ds8ad1b", "text": "There will likely be a gap caused by decreased demand for tax credits (and reduced credit pricing, due to to corporations paying less taxes to begin with) and the resulting decrease in equity from those credits. \n\nI think we dodged a bigger bullet when the house tried to remove tax exempt bonds. Many many Affordable housing projects were financed with these bonds, known as 4% tax credit deals. This would have had a much larger effect on affordable housing than a reduced corporate tax rate. \n\n\n", "replies": [], "depth": 1}, {"id": "ds8ljvr", "text": "You address the supply side but ignore the demand side.  A more vibrant economy decreases demand for subsidized housing. ", "replies": [{"id": "ds958sb", "text": "This sounds good in theory but I\u2019m not sure it\u2019s supported by statistics. The reality is that rising rents for conventional multi family housing has resulted in the conversion of a significant number of affordable units to conventional units (https://www.frbatlanta.org/-/media/documents/community-development/publications/discussion-papers/2016/03-housing-declines-in-low-cost-rented-housing-units-in-eight-large-southeastern-cities-2016-05-10.pdf). \n", "replies": [], "depth": 2}, {"id": "dsde30c", "text": "So we have increasing demand and lower supply? Not sure what you are implying. ", "replies": [], "depth": 2}], "depth": 1}, {"id": "ds8loys", "text": "Pricing on 4% deals where I work dropped from ~$0.95 to 0.88 with the tax bill passage (7.5% reduction). 4% tax credits make up about 30% of the capital stack in a typical transaction, so that's a loss of 3.33% of total sources. Sucks but isn't a killer for a typical deal. Can fill the gap with local/competitive funds (muni/state gov, FHLB, etc), energy efficiency finance programs like PACE, or just deferring more of the developer fee", "replies": [], "depth": 1}]