U.S. GOVERNMENT PUBLISHING OFFICE

30–902—PDF WASHINGTON : 2018

S. HRG. 115–288 

AMERICA’S AFFORDABLE HOUSING CRISIS: 

CHALLENGES AND SOLUTIONS 

HEARING 

BEFORE THE

COMMITTEE ON FINANCE 

UNITED STATES SENATE 

ONE HUNDRED FIFTEENTH CONGRESS 

FIRST SESSION 

AUGUST 1, 2017 

( 

Printed for the use of the Committee on Finance 

COMMITTEE ON FINANCE 

ORRIN G. HATCH, Utah, Chairman 

CHUCK GRASSLEY, Iowa 

MIKE CRAPO, Idaho 

PAT ROBERTS, Kansas 

MICHAEL B. ENZI, Wyoming 

JOHN CORNYN, Texas 

JOHN THUNE, South Dakota 

RICHARD BURR, North Carolina 

JOHNNY ISAKSON, Georgia 

ROB PORTMAN, Ohio 

PATRICK J. TOOMEY, Pennsylvania 

DEAN HELLER, Nevada 

TIM SCOTT, South Carolina 

BILL CASSIDY, Louisiana 

RON WYDEN, Oregon 

DEBBIE STABENOW, Michigan 

MARIA CANTWELL, Washington 

BILL NELSON, Florida 

ROBERT MENENDEZ, New Jersey 

THOMAS R. CARPER, Delaware 

BENJAMIN L. CARDIN, Maryland 

SHERROD BROWN, Ohio 

MICHAEL F. BENNET, Colorado 

ROBERT P. CASEY, JR., Pennsylvania 

MARK R. WARNER, Virginia 

CLAIRE MCCASKILL, Missouri 

CHRIS CAMPBELL, Staff Director 

JOSHUA SHEINKMAN, Democratic Staff Director 

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(III) 

C O N T E N T S 

OPENING STATEMENTS 

Page 

Hatch, Hon. Orrin G., a U.S. Senator from Utah, chairman, Committee on 

Finance .................................................................................................................. 1 

Wyden, Hon. Ron, a U.S. Senator from Oregon .................................................... 2 

WITNESSES 

Garcia-Diaz, Daniel, Director, Financial Markets and Community Investment, 

Government Accountability Office, Washington, DC ........................................ 5 

Whitaker, Grant, president, National Council of State Housing Agencies, 

Washington, DC ................................................................................................... 7 

O’Regan, Hon. Katherine M., Ph.D., professor of public policy and planning, 

Robert F. Wagner Graduate School, and faculty director, Furman Center 

for Real Estate and Urban Policy, New York University, New York, NY ....... 8 

McClure, Kirk, Ph.D., professor, Urban Planning Program, School of Public 

Affairs and Administration, University of Kansas, Lawrence, KS .................. 10 

MacDonald, Granger, chairman, board of directors, National Association of 

Home Builders, Washington, DC ........................................................................ 12 

ALPHABETICAL LISTING AND APPENDIX MATERIAL 

Garcia-Diaz, Daniel: 

Testimony .......................................................................................................... 5 

Prepared statement .......................................................................................... 37 

Responses to questions from committee members ......................................... 46 

Hatch, Hon. Orrin G.: 

Opening statement ........................................................................................... 1 

Prepared statement .......................................................................................... 49 

MacDonald, Granger: 

Testimony .......................................................................................................... 12 

Prepared statement .......................................................................................... 50 

McClure, Kirk, Ph.D.: 

Testimony .......................................................................................................... 10 

Prepared statement .......................................................................................... 58 

Responses to questions from committee members ......................................... 62 

O’Regan, Hon. Katherine M., Ph.D.: 

Testimony .......................................................................................................... 8 

Prepared statement .......................................................................................... 65 

Responses to questions from committee members ......................................... 69 

Whitaker, Grant: 

Testimony .......................................................................................................... 7 

Prepared statement .......................................................................................... 78 

Responses to questions from committee members ......................................... 84 

Wyden, Hon. Ron: 

Opening statement ........................................................................................... 2 

Prepared statement .......................................................................................... 88 

COMMUNICATIONS

A Call To Invest in Our Neighborhoods (ACTION) Campaign ............................ 91 

Affordable Housing Developers Council (AHDC) .................................................. 94 

Capital One Financial Corporation ........................................................................ 96 

Center for Fiscal Equity .......................................................................................... 100 

Council for Affordable and Rural Housing (CARH) .............................................. 101 

Page

IV 

Council of Large Public Housing Authorities (CLPHA) ....................................... 106 

Local Initiatives Support Corporation (LISC) ....................................................... 108 

LOCUS ...................................................................................................................... 112

National Affordable Housing Management Association (NAHMA) ..................... 114 

National Association of Housing and Redevelopment Officials (NAHRO) .......... 117 

National Housing Conference ................................................................................. 119 

National Low Income Housing Coalition ............................................................... 120 

National Multifamily Housing Council (NMHC) and National Apartment Association (NAA) .................................................................................................... 128 

National Trust for Historic Preservation, National Trust Community Investment Corporation, and Historic Tax Credit Coalition ....................................... 137 

New York City Department of Housing Preservation and Development and 

New York City Housing Development Corporation ........................................... 140 

Olsen, Edgar O. ........................................................................................................ 142 

Winkler Development Corporation ......................................................................... 147 

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AMERICA’S AFFORDABLE HOUSING CRISIS: 

CHALLENGES AND SOLUTIONS 

TUESDAY, AUGUST 1, 2017 

U.S. SENATE, COMMITTEE ON FINANCE, Washington, DC. 

The hearing was convened, pursuant to notice, at 10:10 a.m., in 

room SD–215, Dirksen Senate Office Building, Hon. Orrin G. Hatch 

(chairman of the committee) presiding. 

Present: Senators Grassley, Cornyn, Thune, Isakson, Portman, 

Toomey, Cassidy, Heller, Scott, Wyden, Stabenow, Cantwell, Nelson, Cardin, Brown, Bennet, Casey, and McCaskill. 

Also present: Republican Staff: Mark Prater, Deputy Staff Director and Chief Tax Counsel; Nicholas Wyatt, Tax and Nominations 

Professional Staff Member; Jeff Wrase, Chief Economist; and Martin Pippins, Detailee. Democratic Staff: Michael Evans, General 

Counsel; Tiffany Smith, Chief Tax Counsel; Adam Carasso, Senior 

Tax and Economic Advisor; and Robert Andres, Tax Policy Analyst. 

OPENING STATEMENT OF HON. ORRIN G. HATCH, A U.S. 

SENATOR FROM UTAH, CHAIRMAN, COMMITTEE ON FINANCE 

The CHAIRMAN. The committee will come to order. 

I want to welcome everybody to today’s hearing entitled ‘‘America’s Affordable Housing Crisis: Challenges and Solutions.’’ 

This is an important issue, and this hearing will allow the committee to hear from experienced and well-educated witnesses who 

can provide more context on our affordable housing policies and the 

sections of the tax code that were written with the intent of mitigating this long-time set of problems in our society. 

As many of you are aware, the last time we underwent a national, comprehensive revision of the tax code was in 1986, with 

the passage of the Tax Reform Act. At that time, affordable housing tax incentives were baked into statute, with the Low-Income 

Housing Tax Credit being chief among them. 

Since then, this important section of the tax code has enjoyed bipartisan support. Still, it is worth examining this particular law as 

we continue to ramp up our work on tax reform. 

Throughout today’s hearing, I want each member to keep in 

mind some guiding principles for tax reform. I have repeated these 

principles quite a bit in recent years. But for those in the audience 

who may not have heard me mention them, the principles are fairness, efficiency, simplicity, and American competitiveness. 

These principles are important within the context of affordable 

housing tax policy, because they should be able to help us improve 

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* For more information, see also, ‘‘Present Law and Data Relating to Tax Incentives for Rental 

Housing,’’ Joint Committee on Taxation staff report, July 28, 2017 (JCX–40–17), https:// 

www.jct.gov/publications.html?func=startdown&id=5019. 

upon what is currently in the code. I know the prospect of more 

oversight can be seen as a challenge, but I think we should all view 

this examination as an opportunity to determine where we can improve. 

While some sections of the tax code have undergone changes over 

the past 3 decades, solutions on affordable housing remain as elusive as ever. There seem to remain many households facing cost 

burdens associated with renting, with perhaps as much as 26 percent of renter households having paid more than half of their incomes in rent in 2015, for example. 

And the burdens seem to fall heavily on lower-income households. And this is not just simply a problem of arithmetic. In 2015, 

25 million children lived in households in which rent comprised a 

fairly large share of household income. 

This is a problem that should be ready for a bipartisan solution. 

We have already introduced bipartisan legislation to address some 

of these issues. And many are hopeful that cooperation on these efforts will continue. I personally believe they will. 

With that, I would just like to thank everyone for attending 

today, and I look forward to hearing from our distinguished panel 

of witnesses. But before we get to that, I would like to hand it over 

to the ranking member, Senator Wyden, for his opening remarks 

at this time.* 

[The prepared statement of Chairman Hatch appears in the appendix.] 

OPENING STATEMENT OF HON. RON WYDEN, 

A U.S. SENATOR FROM OREGON 

Senator WYDEN. Thank you very much, Mr. Chairman. Mr. 

Chairman, let me thank you for focusing today on the Low-Income 

Housing Tax Credit, which is a key part of the tax reform puzzle. 

I also want to thank our colleague from Washington State, Senator Cantwell, who has been for years now the go-to person on this 

committee on this issue. I am going to talk a little bit more about 

the history of it in a minute. 

I would also like to note there was a lot of talk last week about 

bipartisanship and bipartisanship on key issues. That is what this 

committee is showing today, that we are serious about tackling an 

important issue in a bipartisan way. 

Colleagues, my bottom line is, America’s housing policy needs an 

urgent remodel. Today millions of Americans struggle to pay the 

rent, and they cannot even dream of purchasing a home. 

To recall our old classes on Introduction to Economics, a key 

housing challenge is increasing supply. When housing is scarce in 

the communities where people want to live and work, prices get bid 

up and working people get pushed out. Rent rises faster than people’s incomes, even among those who are earning a pretty good salary. And there are few incentives to build affordable housing near 

schools, public transit, and amenities like parks and retail services. 

Oftentimes, the only places where people can afford housing are 

an hour or more from where they work or where they want their 

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kids to go to school every single day. And a lot of Americans either 

spend a small fortune on train tickets and bus fares, or they spend 

an eternity sitting behind a steering wheel on a daily commute. 

And a lot of our folks wind up in food deserts where it is almost 

impossible to get healthy fresh food. 

This crisis is a five-alarm fire across America. And it is certainly 

true in my home State of Oregon—in Portland, Bend, Hood River, 

Astoria, Medford, and a lot of other places. I see it on the faces of 

families, children, vets, and folks who are living on the streets. 

Now Senator Cantwell and Senator Hatch have an important 

bill, and I have cosponsored it. It is entitled the Affordable Housing 

Credit Improvement Act of 2017. 

In effect, it supercharges the Low-Income Housing Tax Credit, 

and it also builds on what the three of us got into the 2015 tax bill 

which made the expanded Low-Income Housing Tax Credit permanent. 

In my view, this is a bipartisan, smart way to attack the housing 

scarcity problem, and it is going to mean more housing goes up in 

communities where folks want to work and plant roots. 

In the days ahead, I am going to have other ideas about the 

housing challenge, particularly about helping the middle-class and 

first-time homebuyers and doing a better job of linking services— 

services like transportation—with low-income housing. 

Today we are going to talk to our witnesses about some of the 

ideas that Senators Cantwell and Hatch have put forward. I want 

to thank the two of them and particularly note that, after the 

events of last week, colleagues, it is more important than ever to 

be very concrete about this issue of bipartisanship and not just 

make it a rhetorical talking point. That is what we are doing today. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Well, thank you, Senator. 

[The prepared statement of Senator Wyden appears in the appendix.] 

The CHAIRMAN. I also would like to thank Senator Cantwell. She 

was the one who suggested this hearing, and we have gone out of 

our way to make sure that we have it. And I just want to thank 

you for your efforts in this regard. 

I would like to welcome each of our five witnesses today. I am 

confident we have some of the Nation’s greatest minds and experts 

on housing and urban development matters. 

First, we will hear from Mr. Daniel Garcia-Diaz, Director of the 

Financial Markets and Community Investment group at the U.S. 

Government Accountability Office. 

Mr. Garcia-Diaz leads a range of reviews covering mortgage finance, rental housing, economic development, and insurance. Specifically, he led recent reviews of management issues in the Department of Housing and Urban Development on Home Ownership and 

Affordable Rental Housing, the Low-Income Housing Tax Credit, 

and the Federal Terrorism Risk Insurance Programs. He has also 

led reviews of programs and regulatory changes authorized under 

the Emergency Economic Stabilization Act and the Dodd Frank 

Wall Street Reform Act. 

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Mr. Garcia-Diaz joined GAO in 1998. He holds a bachelor’s degree from Dartmouth College and a master’s degree in public policy 

from Harvard University’s Kennedy School of Government. 

Then we will hear from Mr. Grant S. Whitaker, president of the 

National Council of State Housing Agencies. 

Mr. Whitaker hails from my home State of Utah and has been 

extraordinarily helpful as we have prepared for this hearing. He 

has dedicated his career to serving the financial needs of low- and 

moderate-income families back in our home State of Utah. 

He currently serves as president and CEO of the Utah Housing 

Cooperation, a self-supporting, State-sponsored public corporation 

which has been funding and promoting affordable housing in Utah 

since 1977. Mr. Whitaker was appointed to the position of president and CEO in January 2009 and has served in that capacity 

since that time. But Mr. Whitaker’s experience at UHC started 

back in 1979, before the last time we reformed the tax code. 

Mr. Whitaker earned a bachelor’s degree in business management from the University of Utah’s David Eccles School of Business. Subsequently, he worked on post-graduate studies at the University of Utah and through the university’s professional education 

division. 

Third will be the Honorable Dr. Katherine M. O’Regan, professor 

of public policy and planning at NYU’s Wagner Graduate School of 

Public Service, where she is also the faculty director of the Furman 

Center for Real Estate and Urban Policy. Dr. O’Regan recently 

served from April 2014 to January 2017 as the Assistant Secretary 

for Policy Development and Research at the Department of Housing and Urban Development. 

Her primary research interests are at the intersection of poverty 

and space. Among others, she has served on the board of the Reinvestment Fund, the advisory board for NYU’s McSilver Institute for 

Poverty Policy and Research, and the editorial board for the Journal of Policy Analysis and Management. She has been a visiting 

scholar at the Federal Reserve Bank in Boston and at the Economic Studies Group at the Brookings Institution. 

Dr. O’Regan holds a Ph.D. in economics from the University of 

California at Berkley and spent 10 years teaching at the Yale 

School of Management. 

Then we will hear from Dr. Kirk McClure from the Urban Planning Program at the University of Kansas. Dr. McClure has won 

several awards for his research on housing and urban planning. 

His academic career has also included an appointment as scholar 

and resident to the U.S. Department of Housing and Urban Development. He serves on the board of editors of Housing Studies and 

the Journal of Planning, Education, and Research. He is associate 

editor of Housing Policy Debate. 

Dr. McClure holds a master’s of city planning degree from the 

Massachusetts Institute of Technology and a Ph.D. degree from the 

University of California at Berkeley. 

And finally, Mr. Granger MacDonald is chairman of the board of 

directors for the National Association of Home Builders and president of the MacDonald Companies. 

Mr. MacDonald is a Kerrville, TX-based builder and developer 

with 40 years of experience in the home-building industry. His 

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company, MacDonald Companies, provides affordable housing for 

communities in need in the State’s rural and small metro areas. 

Mr. MacDonald also has extensive experience working in the 

NAHB leadership, including more than 30 years on the NAHB 

board of directors and chairing the Federal Government Affairs 

Committee, the State and Local Government Affairs Committee, 

the Housing Credit Group, and the Multifamily Council and Build 

PAC. 

Mr. MacDonald holds a BBA degree in real estate and finance 

from the University of Texas School of Business. 

We will start with you, Mr. Garcia-Diaz. You will kick this off 

with your opening remarks, if you will. 

STATEMENT OF DANIEL GARCIA-DIAZ, DIRECTOR, FINANCIAL 

MARKETS AND COMMUNITY INVESTMENT, GOVERNMENT 

ACCOUNTABILITY OFFICE, WASHINGTON, DC 

Mr. GARCIA-DIAZ. Thank you. 

Mr. Chairman, Ranking Member Wyden, members of the committee, thank you for the opportunity to be here today to discuss 

the Low-Income Housing Tax Credit program, the Nation’s largest 

source of Federal assistance for developing affordable rental housing. 

Over the past 3 years, GAO has completed three reviews of this 

program. We have a current effort underway looking at development costs under the program. We have worked with a total of 17 

different allocating agencies in 14 States and in the District in conducting these four reviews. 

I want to recognize the cooperation of these agencies during our 

site visits and in responding to requests for information. We look 

forward to continuing a productive working relationship with them. 

As you know, the Internal Revenue Service is in charge of administering the LIHTC program, while State and local allocating 

agencies are responsible for day-to-day implementation of the program. My statement today focuses on allocating agencies’ implementation of Federal requirements and IRS’s oversight of the program. 

We found that allocating agencies have implemented varying 

processes to address key Federal requirements, but we have some 

concerns that I would like to highlight in my remarks, which are 

discussed more fully in our prior reports. 

Allocating agencies are responsible for alerting IRS about any 

property noncompliance. Problems with property physical condition 

are the most common form of noncompliance. 

We found that agencies varied in when they submitted noncompliance reports to IRS, what types of violations were reportable, 

and the level of supporting details provided. Because of these differences, it is not surprising that the number of submitted noncompliance reports from nine agencies we examined ranged from as 

little as one to more than 1,700 over a 1-year period, and, in fact, 

we are aware that some agencies have submitted few or no compliance reports to IRS over a 3-year period, and IRS has not followed 

up with them. 

Furthermore, we also found that IRS does very little to assess 

the noncompliance information it receives. IRS has no method to 

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determine if issues reported have been resolved or if properties 

have recurring noncompliance issues. 

In addition, we also found that critical data on allocation 

amounts and certification were not complete and reliable. For example, we could not tell how often LIHTC properties were placed 

in service within required time frames. Across these findings, a 

common problem has been that IRS oversight of this program has 

been minimal. 

Over the past 30 years, IRS has audited allocating agencies 7 

times. Yet, even when these audits were conducted, they often 

yielded multiple findings, including agency policies that conflict 

with the code or Treasury regulation, incomplete or outdated qualified allocation plans, annual reports to IRS with errors, and so on. 

We have some thoughts on how to strengthen oversight and accountability in the LIHTC program. First, with respect to noncompliance reporting, we made two recommendations that IRS 

clarify when agencies should report noncompliance and evaluate 

how it could improve noncompliance information by leveraging 

HUD’s physical inspection data systems. These recommendations 

remain open. 

Second, in response to our concern about data quality, we recommended that IRS should address weaknesses in control to ensure reliable data are collected on credit allocations. IRS has not 

completed implementation of this recommendation but is taking 

steps to improve it. 

And finally and more significantly, we continue to believe that 

the Department of Housing and Urban Development can be a resource to augment IRS’s oversight capabilities. Other tax credit 

programs such as the New Markets Tax Credits and the Historic 

Tax Credits have formal partnerships grounded in statute with a 

relevant subject matter agency to assist in oversight, data collection analysis and reporting, and technical assistance. 

HUD is well-positioned to assist allocating agencies’ efforts to 

monitor physical and financial condition of properties, address Federal fair housing goals, and perform other tasks that are common 

in managing affordable rental housing programs—all areas in 

which IRS has no specific expertise. 

Over the past 30 years, LIHTC has matured to be the most significant Federal policy tool for incentivizing the production of affordable housing nationwide. We believe that investing in oversight 

and accountability will help ensure that agencies meet program requirements, use Federal resources effectively, and ultimately 

achieve the Nation’s goal of providing poor and vulnerable families 

safe, decent, and affordable housing which is so desperately needed 

today. 

This concludes my opening remarks. Thank you again for the opportunity to speak today. I would be glad to take any questions you 

have. 

[The prepared statement of Mr. Garcia-Diaz appears in the appendix.] 

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STATEMENT OF GRANT WHITAKER, PRESIDENT, NATIONAL 

COUNCIL OF STATE HOUSING AGENCIES, WASHINGTON, DC 

Mr. WHITAKER. Mr. Chairman, Senator Wyden, members of the 

committee, thank you for this opportunity to testify on behalf of the 

National Council of State Housing Agencies. 

I am Grant Whitaker, president and chief executive officer of the 

Utah Housing Corporation. I also serve as president of NCSHA, a 

nonpartisan, national organization that represents State housing 

finance agencies. 

Thank you, Mr. Chairman and Senator Cantwell, for your steadfast support for the Low-Income Housing Tax Credit and taxexempt private activity housing bonds. And thank you for your 

leadership in introducing the Affordable Housing Credit Improvement Act, S. 548. 

I also want to acknowledge Senator Wyden and the many other 

members of the committee who have cosponsored this bill. We urge 

all Senators to become cosponsors. 

The Housing Credit and Housing Bonds program has long enjoyed strong bipartisan support, and this bill is no exception. Already, nearly one-third of Senators—Republicans and Democrats— 

have cosponsored this legislation. The House companion legislation 

also has significant bipartisan backing. 

The need for affordable rental housing across the country is great 

and growing. Nearly half of all renters pay an excessive share of 

their income for housing. And the crisis is most acute for the poorest households. 

Simply put, we have a severe shortage of affordable rental 

homes. Nationwide, there are more than 11 million extremely lowincome renter households, but only 4 million rental homes are 

available and affordable to them. This shortage continues to grow 

as hundreds of thousands of new renter households enter the market each year while we lose countless affordable homes to conversion and obsolescence. 

The housing crisis impacts working families, seniors, people with 

disabilities, and so many more: those living in high-cost cities, suburban neighborhoods, and rural communities. Coastal cities, like 

Seattle, are well-known to have extreme housing costs. 

Low-income households in Utah also struggle to find affordable 

housing. Over 58,000 renter households in my State pay more than 

half of their income for housing, and we have a shortage of over 

38,000 homes that are affordable and available to the extremely 

low-income households. 

We are not unique. Every State confronts this challenge. This crisis will only get worse unless we act. 

If current rent and income trends continue, the number of severely cost-burdened renters, those paying 50 percent or more of 

their income for rent, will reach nearly 15 million nationwide by 

2025. That is a 25-percent increase. 

The Housing Credit and Housing Bonds are the most effective response. These are highly successful, private-public partnerships 

with a proven track record. They are administered by publicly accountable HFAs that take seriously the responsibility for their operation and oversight that you have entrusted to us. States deploy 

8 

these resources to respond to the needs we determine to be most 

pressing. 

The Housing Credit and Housing Bonds create affordable homes 

for families, seniors, people with special needs, veterans, and those 

experiencing homelessness. The stable housing created improves 

lives by supporting better health, education, and employment outcomes. These programs also contribute to economic growth by creating jobs and generating tax revenue. 

In Utah, we have had great success using the Housing Credit 

and Housing Bonds. We have made considerable progress, for example, in reducing our chronically homeless population. In fact, 

Utah Housing Corporation will devote 30 percent of our 2018 housing credit authority to supportive housing properties, moving us 

closer to the goal of ending chronic homelessness. But we still have 

significant work ahead as we continue to tackle family homelessness and help the many low-income households who pay more rent 

than they can afford. 

NCSHA urges you to seize the opportunity of tax reform, or other 

legislation that may advance this year, to build on what works. We 

ask you to increase housing credit authority and make the other 

critical program changes you proposed in S. 548, such as facilitating the development of mixed-income rural and deeply incometargeted housing. 

Current housing credit authority is oversubscribed by a measure 

of nearly three to one nationally. Meanwhile, reliance on the credit 

continues to grow as other Federal resources shrink and new demands are placed on the credit. 

Finally, we ask you to mitigate any unintentional negative effects the changes you make to the tax code might have on the housing credit and bond programs. 

Thank you for your commendable efforts to address the affordable housing crisis. I am honored to have had this opportunity to 

testify. We stand ready to assist you in any way that we can. 

The CHAIRMAN. Well, thank you so much. 

[The prepared statement of Mr. Whitaker appears in the appendix.] 

The CHAIRMAN. Dr. O’Regan? 

STATEMENT OF HON. KATHERINE M. O’REGAN, Ph.D., PROFESSOR OF PUBLIC POLICY AND PLANNING, ROBERT F. 

WAGNER GRADUATE SCHOOL, AND FACULTY DIRECTOR, 

FURMAN CENTER FOR REAL ESTATE AND URBAN POLICY, 

NEW YORK UNIVERSITY, NEW YORK, NY 

Dr. O’REGAN. Thank you. Chairman Hatch, Ranking Member 

Wyden, and members of the committee, thank you for inviting me 

to appear today. 

I want to begin by reminding people of a few facts about America’s affordable housing crisis. As stated, the housing cost burdens 

are extremely high, particularly for renters. Nearly half of all renters were cost-burdened in 2015, and more than a quarter face severe cost burdens. 

So they were spending more than 50 percent of their income on 

housing costs. These rates remain far above pre-recession levels, 

and the challenges are widespread, extending beyond high-cost citVerDate Sep 11 2014 20:17 Jul 27, 2018 Jkt 000000 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 R:\DOCS\30902.000 TIM
9 

ies and lowest-income households. At least 37 percent of renter 

households in each State across the Nation were cost-burdened in 

2014, and the sharpest growth in cost burdens over the past 15 

years has been among middle-income households. 

And finally, housing supply is simply not keeping up with demand. Housing completions in the last 10 years were lower than 

any other 10-year period since the late 1970s. The rental vacancy 

rate is at its lowest level in 30 years. 

So what to do about it? In terms of the Federal response and tax 

policy, the main lever is the Low-Income Housing Tax Credit, 

LIHTC. So I will focus my comments there. 

With more than 30 years of LIHTC experience to build on, it is 

an opportune time for reforming and streamlining LIHTC. I want 

to highlight three critical areas for reform that are greatly facilitated by Senate bill 548, the Affordable Housing Credit Improvement Act of 2017. 

First is working in a broader set of markets across a broader set 

of incomes. While LIHTC’s Federal income limits are tied to 50 or 

60 percent of area-median income, States are also required to 

prioritize developments reaching lowest-income tenants, and indeed, nearly half of LIHTC tenants have incomes below 30 percent 

of area median income, AMI. 

Serving such households with extremely low incomes requires 

some form of additional rental assistance such as vouchers or other 

development-level subsidies. Yet those additional subsidies are in 

decreasing supply, may not be within the control of the housing 

agency or developer, and even if available, require coordination and 

layering across multiple funding streams. 

Income averaging can help address these challenges as well as 

improve economic feasibility in different market settings. It permits a development to employ an average income cap of 60 percent 

of AMI with no household’s income exceeding 80 percent of AMI. 

Higher rents can be used to offset lower rents, and a broader set 

of incomes can be served, where the additional resources needed to 

reach low-income households come from within the finances of the 

development itself. This cross-subsidy will be useful in high-cost 

markets for developments that are a part of a mixed-income community revitalization plan, and in rural markets where it may be 

necessary to serve a broader set of income ranges to be economically feasible. This greater flexibility is one of the most important 

LIHTC reforms. 

Permitting States to increase maximum basis boosts for serving 

extremely low-income tenants has a similar flexibility, providing 

resources from within the tax credit itself for reaching lowestincome tenants. And broadening the definition of difficult development areas to automatically include Indian areas would enable the 

credit to work in a high-need environment that has been underserved. 

The second area is achieving locational goals. Siting LIHTC in 

higher opportunity neighborhoods or ensuring that LIHTC investments contribute to neighborhood revitalization requires two reforms contained in S. 548: prohibiting local approval and contribution requirements which can act as local vetoes, and clarifying the 

10 

States’ authority to determine the definition of a community revitalization plan. 

The third area is preservation of existing affordable housing, 

which is a key and potentially cost-effective strategy for narrowing 

the demand-supply gap. This would be greatly aided by the establishment of a permanent minimum for the 4-percent credit. 

Finally, on LIHTC resources, expected declines in the corporate 

tax rate are estimated to decrease LIHTC resources by up to 17 

percent in the future. Failure to increase the per-capita allocation 

is equivalent to cutting LIHTC resources relative to recent years. 

Given the breadth and depth of the affordability issues across the 

country, now does not seem a time to withdraw Federal resources 

for affordable housing. 

Thank you. 

The CHAIRMAN. Well, thank you very, very much. 

[The prepared statement of Dr. O’Regan appears in the appendix.] 

The CHAIRMAN. We will now turn to Dr. McClure. 

STATEMENT OF KIRK McCLURE, Ph.D., PROFESSOR, URBAN 

PLANNING PROGRAM, SCHOOL OF PUBLIC AFFAIRS AND ADMINISTRATION, UNIVERSITY OF KANSAS, LAWRENCE, KS 

Dr. MCCLURE. Chairman Hatch, Ranking Member Wyden, members of the committee, thank you for the opportunity to address you 

on this very important topic. 

The Low-Income Housing Tax Credit program is the Nation’s primary affordable housing production program. It is a good program, 

but it is one that is in need of improvements to make it perform 

better. I would like to make three observations about the performance of the program and use those observations to support recommendations to help it be a better fit with current housing market conditions. 

The first issue answers the question, ‘‘Does the Low-Income 

Housing Tax Credit program produce units in the price range 

where there is a shortage of units?’’ And here, sadly, the answer 

is ‘‘no.’’ 

Generally rents on tax credit units fall in the range of $500 to 

$1,000 a month. If a household is to spend no more than 30 percent 

of income to afford these units, these incomes need to be in the 

$20,000 to $40,000 per year range. 

When we examine rental markets across the Nation, we find that 

there is, in fact, no shortage of units in this price range. Rather, 

the number of units is far in excess of the number of households 

with these incomes. 

When we shift to the lowest tier and we look at the rental markets below this one, we see there is a significant mismatch. The 

number of households with incomes below $20,000 is far in excess 

of the number of apartments available for under $500. What this 

means is that the Low-Income Housing Tax Credit program is adding units to the market segment that already is in surplus, but is 

unable to reach far enough down to the households who suffer from 

a shortage. 

So a first reform would be to ask State housing finance agencies 

to exercise greater rigor in their market analysis and to certify the 

11 

need for each tax credit development supported by independent, 

not developer-driven, market analysis. 

A second reform would be to permit State housing finance agencies to exchange tax credit authority for voucher authority. The 

vouchers could be freestanding, where that is appropriate to the 

marketplace, or they could be attached to the project. The vouchers 

would permit a poorer population to afford the unit, with the tenant contribution importantly set at 30 percent of their income, not 

at the flat rent. This would eliminate the cost-burden for these 

households. 

The second issue seeks to answer the question, ‘‘Does the LowIncome Housing Tax Credit program add new units to tight markets and rehabilitate existing units in soft markets?’’ And the answer here is ‘‘not very well.’’ 

Typically, the program should add new units where we have 

tight markets, very low vacancy rates, and should rehabilitate existing units in soft markets where we have very high vacancy 

rates. Built into the tax credit program is an incentive that favors 

new construction. Nine-percent credits are awarded against new 

construction costs; 4-percent credits are offered against rehabilitation costs independent of market conditions. Developers have responded appropriately by developing 45 percent more new construction units than rehabilitation, favoring new construction whether it 

is a tight, normal, or soft market. 

This problem can be rectified by reconfiguring the benefits of the 

tax credit program to favor rehab in soft markets and to permit 

new construction only where a market is very tight or is eliminating severely dilapidated units for replacement. 

The final point asks the question, ‘‘Does the Low-Income Housing 

Tax Credit program support mixed-income housing?’’ And sadly, 

again, the answer here is ‘‘no.’’ Research demonstrates that projects 

wholly populated by the poor are not good for the households, not 

good for the projects, and not good for the surrounding neighborhoods. Mixed-income housing is a much more beneficial format for 

all concerned. 

The tax credit program provides no incentives for mixed-income 

housing. As a result, 76 percent of all tax credit developments are 

occupied entirely by subsidized low-income households. Fewer than 

3 percent are configured with more than one-half of all units at 

market rates. 

The program can be improved by reconfiguring the benefits of 

the tax credit program to favor mixed-income developments and 

prohibit wholly subsidized developments, except in very distressed 

markets were mixed-income developments are not feasible. The tax 

credit program remains an important tool for resolving the Nation’s 

affordability problems. With improvements, it can be made better. 

Thank you. 

The CHAIRMAN. Well, thank you. 

[The prepared statement of Dr. McClure appears in the appendix.] 

The CHAIRMAN. Mr. MacDonald, we will turn to you. 

12 

STATEMENT OF GRANGER MacDONALD, CHAIRMAN, BOARD 

OF DIRECTORS, NATIONAL ASSOCIATION OF HOME BUILDERS, WASHINGTON, DC 

Mr. MACDONALD. Thank you. I appreciate the opportunity to testify today. 

My company specializes in construction and management of affordable rental housing. We currently own and manage 4,700 units 

throughout Texas. For the past 20 years, I have built affordable 

rental housing with the Low-Income Housing Tax Credit. 

We are here today because the housing affordability has reached 

crisis proportions. The number of renter households who are severely cost-burdened—meaning they pay more than half of their 

monthly income on rent—is at an all-time high of 11.4 million people. This is one in four renters. 

The first step to solving this crisis is to pass Senate bill 548, the 

Affordable Housing Credit Improvement Act of 2017. I want to 

thank Senator Cantwell, Senator Hatch, and all the bipartisan cosponsors. Bipartisanship seems to be rare these days, and I hope 

we can all unite around this bill and take action this year. 

The challenge we face is inadequate supply to meet the growing 

demand. S. 548 will increase the supply, most noticeably by boosting the tax credit allocations by 50 percent; in addition, creating 

the 4-percent floor will allow more units to be preserved and developed using housing bonds. 

Our housing stock ages. The first tax credit projects are now 30 

years old. Preservation and rehabilitation is a cost-effective tool, 

and fixing the 4-percent credit will really help that. 

Enacting this bill is expected to result in an additional 400,000 

tax credit units over the next 10 years. That added construction activity will increase the Federal tax revenue by $11.4 billion. 

To get to the root of the crisis, we need to look at the challenges 

facing developers. There is no magic wand to erase the basic development cost. Fees, regulatory compliance, modern building and energy codes, building materials, land and labor costs determine what 

rents are needed to make a project viable. 

The bottom line is, if we want to increase the supply of affordable rental housing for lower-income households, it is financially 

impossible to do without the tax credit. The tax credit is the most 

successful affordable housing production program in our Nation’s 

history. 

Part of the success is the advantage of creating it in the tax code. 

Investors have the confidence and the predictability of the tax code, 

which ensures a fairly constant supply of affordable housing. And 

tax credit communities outperform the rest of the multifamily sector in the annualized foreclosure rate. This rate is less than onetenth of 1 percent, but it lacks the resources to keep up with demand. 

Without a sizable investment in our housing stock, particularly 

as older units reach obsolescence, we risk a worsening problem. 

Rental housing demand remains solid and is expected to grow even 

stronger. Absent new supply, this demand will increase rents and 

worsen the affordability issues we now have. 

We also need to recognize the important role affordable housing 

plays in our communities. I see how affordable housing creates staVerDate Sep 11 2014 20:17 Jul 27, 2018 Jkt 000000 PO 00000 Frm 00016 Fmt 6633 Sfmt 6633 R:\DOCS\30902.000 TIM
13 

bility for my tenants and their families. My properties also help revitalize neighborhoods and break the cycle of poverty that starts 

with access to stable and affordable housing. 

The housing affordability crisis affects our economy as well. 

Housing affordability is critical in areas experiencing robust economic growth, but our fellow citizens cannot afford to live where 

the jobs are, because we are just creating a divide based on housing 

costs. 

Some criticize the program for not directing more affordable 

housing to higher-income areas. Let me shed some light on these 

challenges that I face as a developer. 

In Texas, unless you have the blessing of the local community to 

put an affordable housing project there, the State agency will never 

award me an allocation. In many higher-income areas, as soon as 

you utter the word ‘‘affordable,’’ the discussion often turns ugly and 

may take on racial overtones. 

This is the reality affordable housing developers face every day. 

Fortunately, some relief is possible. Senate bill 548 will prohibit 

States from requiring special local approval of tax rate developments. This will ensure that if the zoning allows it, an affordable 

project will be treated just like any other development. 

We have an opportunity to do something that not only makes 

good economic sense, but will uplift the lives of millions of Americans. I greatly appreciate the bipartisan support for 548 and urge 

the committee to pass it as soon as possible. 

The CHAIRMAN. Well, thank you so much. 

[The prepared statement of Mr. MacDonald appears in the appendix.] 

The CHAIRMAN. You have been an excellent panel, and I think 

we have learned a lot from you. 

Let me just ask this question of Mr. Whitaker and Mr. MacDonald. 

One reason I support the Low-Income Housing Tax Credit program is that it keeps decision-making on affordable housing away 

from a centralized bureaucratic agency in Washington, DC and allows decisions to be made within the communities where the housing is needed, while involving the private sector. 

Can both of you discuss how that helps you decide what projects 

to build and how the public-private partnership aspect of the program promotes more spending in affordable housing than would 

happen if only the government was involved? 

Mr. WHITAKER. In Utah, we offer up two different opportunities 

for developers, syndicators, advocates, public entities, private entities, and nonprofits to come in and talk to us. There is a mandatory public hearing that we hold, and we also hold another one earlier in the session to get input on how we should run our program, 

specifically how we should modify our qualified allocation plan. 

So we get a lot of input from the industry partners through this 

effort. Obviously, they do not agree with themselves all the time, 

and so we have to ferret that out. But we also look at needs that 

are happening. 

So a moment ago I mentioned that we are going to set aside 30 

percent of next year’s allocation for supportive housing, because we 

know there is a horrendous homeless issue that is taking place 

14 

right downtown in Salt Lake City right now, and that is a problem 

that cannot be solved if there is not some permanent place for 

them to be housed. 

So we work diligently with governmental entities and the private 

sector, try to find out how we can utilize these very scarce resources the best that we can to meet the needs of our population. 

The CHAIRMAN. Well, thank you. 

Mr. MACDONALD. And I would just like to add to that, that every 

State has its own qualified allocation process which allows a decentralization of how the tax credits are allocated. They are allocated 

more based on what the citizens of a specific State need. 

Every State’s needs are slightly different than another, and it allows them to be addressed based more on the economic trends in 

the State, the housing trends in the State, and the demographic 

changes that are always occurring across a State. For example, my 

home State of Texas is a large State, and we go from one very rural 

area to a very urban area, to the necessity for family housing, to 

the necessity for senior housing. So it lets everything stay in balance. 

Our local State agency did a wonderful job this last year of 

changing the balance between families and senior housing. And it 

was very, very important, and it is an extremely well-balanced 

process because of just what Mr. Whitaker said, that we are able 

to address all of these issues on a local State basis with lots of public and private input, public hearings, so the citizens and everyone 

get to benefit from those decisions. 

The CHAIRMAN. Let me ask another question for Grant Whitaker. 

One of the series of reports that the GAO has published on the 

Low-Income Housing Tax Credit recently notes that it does not appear that the IRS is doing very much oversight of the program. 

And while Federal oversight of this program is important, I know 

that there is much oversight that takes place at the State housing 

authority level. 

As president of the National Council of State Housing Agencies, 

and especially as president and CEO of the Utah Housing Corporation, can you discuss how you ensure that your credit allocation is 

wisely and prudently awarded and how you monitor the use of 

these credits? 

Mr. WHITAKER. Starting with the allocation process, we have a 

process that is outlined very clearly in our qualified allocation plan. 

It is based on those projects that score the highest in the pools that 

we set aside for them, how that is allocated, so the best projects 

are the ones that are awarded credits. 

In terms of the compliance of the properties, we have a team of 

compliance auditors who look at properties on a more regular basis 

for those that have problems, that exhibit problems in their properties, and less often at those that are in full compliance as we go 

around. 

But this team looks at their financial records, it looks at the rent 

rolls, it looks at the physical conditions of the properties. We do 

submit reports to the IRS, those that will imply that if they do not 

fix these things, the tax benefit can go away from the investors. 

15 

We make sure that the development company that is managing 

the projects know that that is happening, and we think we get 

some pretty darn good compliance from our projects in Utah. 

The CHAIRMAN. Well, thank you so much. 

Senator Wyden? 

Senator WYDEN. Thank you, Mr. Chairman. 

Thank you all. It has been an excellent panel. I want to ask first 

about some questions that relate to the overall tax reform puzzle, 

because, as you know, these pieces are interrelated. 

Mr. Whitaker, for you—the Low-Income Housing Tax Credit is a 

tax credit that is often claimed by corporate partners like banks in 

qualifying for low-income housing tax projects. Reducing the corporate tax rate could reduce the value of the Low-Income Housing 

Tax Credit and thus investor demand. 

We have heard some talk about the credit declining by up to 17 

percent. So what do you think needs to be done to make sure that, 

as we get into tax reform, the credit is kept whole? 

Mr. WHITAKER. Thank you, Senator. 

Yes, we do see that. We have already seen that, though not so 

much in Utah. I think we are a little bit blessed with the CRAhungry industrial banks, so our credit pricing has not gone down 

as much as it has in other areas, but we do recognize through the 

National Council of State Housing Agencies that this is very critical to some of the areas. Some of the HFAs are handling their allocations in different ways to try to get that out there so that the 

properties do work, so that they do pencil out. 

In going forward with S. 548, we recognize that there is not a 

mechanism in their right now that would enable us to increase the 

benefit of the tax code such that, as pricing might go down on tax 

credits, as corporate rates go down—there is not a mechanism built 

in there, but we think that there are some opportunities for that 

to happen. 

Senator WYDEN. Why don’t you, for the record, get us those 

ideas, because I think one of the areas I am going to concentrate 

on is trying to make sure that, as we look at these critically important needs, like increasing the supply of low-income housing, that 

we make sure that it fits into the tax reform puzzle and we do not 

end up having an inadvertent problem as a result of, say, a reduction in the corporate rate lowering the value of the credit. 

Dr. O’Regan, let us go to you. 

In my town hall meetings at home—I go to every town every 

year—I hear from folks at home who are just apoplectic about having to live in one place and then drive hither and yon to get to 

work, to take their kids to school, buy groceries, get medical care, 

and so on. I am always struck by how people in politics just preach 

morning, noon, and night about family values. It is pretty hard to 

get family values when you spend 2 hours a day just commuting, 

driving family members to the places they need to go. 

What are your ideas about how we could do more in a practical 

way to link low-income housing with transportation and services 

and the like? I mean, you do not want to just do some kind of onesize fits all national mandate from Washington, DC, but you do 

want to say, let us really wring the value out of this low-income 

credit. I mean, I think that is really what Senator Cantwell and 

16 

Chairman Hatch are trying to do, to wring every bit of value out 

of this low-income credit. 

Do you have any thoughts on what could be done to make sure 

that, when you build this housing, it is more closely tied to the 

services like transportation, and schools, and health, that lowincome folks need? 

Dr. O’REGAN. Thank you, Senator. 

Yes, this is a big issue. We talk about the cost of housing, and 

we should be talking about the cost of housing and transportation 

when we think about what it is that families pay in order to make 

their life work. 

There are some States that have been very aggressive in this, in 

their qualified allocation plan, where they use their ability to apply 

basis boosts and priority points in a way that prioritizes not just 

low-poverty neighborhoods, but neighborhoods that have good access to transit and good schools. So I think there is a lot that could 

be learned from what States have done in the last 5 to 10 years. 

I also think you need to be getting a broader group of stakeholders in some of these meetings, because employers really care 

whether or not the workforce is within driving distance. So they 

have a role to play in making sure that the collection of resources, 

not just LIHTC, but local resources are where the housing is located and the transit dollars to make sure that they are being used 

in a way that works well for the whole community. 

Senator WYDEN. Okay. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Senator Grassley? 

Senator GRASSLEY. Yes. 

Thank you, Mr. Garcia-Diaz, for GAO doing some studies I have 

asked you to do. So I have some issues I would like to have you 

comment on. 

The organization has found that basic LIHTC data, including 

credit allocations, certification information, building dispositions, 

and program noncompliance, is either not collected or rarely used. 

So could you describe what steps were taken to gather the information on how this lack of data impacted GAO’s ability to analyze 

basic program information? 

Mr. GARCIA-DIAZ. Thank you, Senator. 

Essentially the LIHTC program, from our perspective, is a very 

hard program to review. There is a lack of information at the Federal level, such as basic information about allocations awarded to 

projects and placed-in-service dates, which are critical requirements in the program, making this program difficult for us to review. What is more, when we asked the IRS to provide us information on how many properties had a recapture because of noncompliance, the IRS was not able to provide us with that information. 

So we are very concerned that, on these basic accountability 

measures, the IRS and no one else in the Federal Government really has an idea what is going on. The program lacks basic accountability requirements that we would expect of any program, and especially one as important as this one. 

Senator GRASSLEY. Okay. 

GAO is currently examining development costs of LIHTC properties. What are some of your preliminary observations about this 

17 

data that you are collecting and the types of activity allocating 

agencies are doing to manage costs? 

Mr. GARCIA-DIAZ. So, on the first part of your question, we are 

developing a database on development costs of LIHTC projects for 

12 different allocating agencies representing the period where properties were placed in service between 2011 and 2015. This information does not exist in a central location. So we have had to go to 

individual allocating agencies to collect it. 

It has taken us well over a year and a half to build this database, but we have amassed about 1,900 projects representing 

122,000 units. And we hope, early next year, to be able to report 

on our cost estimates. Our plan is to meet with the individual allocating agencies and share what we have done with the data, so 

that we can help these agencies build a capacity to analyze cost 

data and assess the reasonableness of their costs. 

Right now, in our interviews with the 12 agencies, we are seeing 

a range of practices regarding assessing the reasonableness of 

project costs. Part of that is driven by the availability of analyzable 

data at the agency level. 

So we have identified certain agencies that may have some cost 

limits that they impose on project applications, yet they may not 

be assessing the reasonableness of the costs. Other agencies are 

using the analysts’ judgment on whether costs are reasonable. 

Then finally, you have another group of agencies that are actually 

doing pretty sophisticated analysis, using statistical regressions for 

instance, to better understand their data. 

So we are seeing quite a bit of variety in the sophistication of the 

agencies in analyzing costs and assuring that credits are used as 

cost-effectively as possible. 

Senator GRASSLEY. Okay. 

We often hear from LIHTC industry participants that syndicators provide the necessary program oversight because they have 

the vested interests in ensuring that programs run effectively. So, 

Mr. Garcia-Diaz, do you believe that this is sufficient oversight? 

Mr. GARCIA-DIAZ. I would not say it is sufficient. It is an important component of oversight. The syndicators are a very important 

player in this program, and actually if you look across past affordable housing programs, we have never had a private entity like 

this that monitors projects and performs audits and reviews and 

other kinds of asset management services. 

However, I do not think this relieves the Federal Government of 

the responsibility of having basic performance information about 

LIHTC and, particularly, understanding the extent of noncompliance. 

Senator GRASSLEY. Yes. 

For Mr. Whitaker and Dr. McClure: in his written statement, Dr. 

McClure raised—this will be my last question—Dr. McClure raised 

concern that State housing agencies fail to conduct rigorous market 

analysis to build LIHTC units in areas with the greatest need. As 

a result, he finds that most LIHTC projects are not being built in 

areas that experience a housing shortage. 

So, Mr. Whitaker, could you first comment on whether or not you 

agree with Dr. McClure’s concerns, and two, what policies are in 

18 

place at State housing agencies to identify where projects are most 

needed? 

Mr. WHITAKER. Thank you, Senator. 

I think, first of all, I can speak mostly on behalf of my own State. 

However, the Council of State Housing Agencies is putting together, with participation by all allocating entities, some best practices that would probably improve those that are not doing quite 

as well. 

But in terms of what we require, we mandate that we get a market study with the application that is submitted for the tax credits. 

Market studies have to be fairly new. I think they cannot be more 

than 6 months old, or 90 days. I am not sure which. But we do look 

at those very carefully. 

We also have some of the market studies done independently in 

some areas where we are concerned about what is happening. So 

there are a couple of rural counties in Utah where we can see the 

rent rolls, and some projects that we have funded with tax credits 

a number of years ago are having high vacancy rates. So we do not 

accept applications in those counties. 

So we are very careful about that. We have not seen the kind of 

problem that he described, at least in my State. So it is a little 

hard for me to describe what might be happening in other places. 

Senator GRASSLEY. Thank you. 

The CHAIRMAN. Thank you, Senator. 

Senator Stabenow? 

Senator STABENOW. Well, thank you, Mr. Chairman, for this very 

important hearing. 

I first want to indicate my strong support for S. 548. I am looking forward to being a cosponsor. I know we are doing this in twos, 

a Republican and a Democrat coming on together. So I am looking 

forward to that, but I want to commend Senator Cantwell and 

yourself, Mr. Chairman, for this important legislation. I hope we 

are going to be able to move it through the process quickly. 

I do have one issue that has come up, though, that, Mr. Whitaker, I thought I might ask you about, and if anyone else has any 

thoughts on it. But affordable housing is so critical, whether it is 

rental or purchasing, building, and so on. 

We have had a very concerning issue come up in Michigan related to the Low-Income Housing Tax Credit. We have at least one 

developer who has essentially foreclosed on their own properties to 

try to avoid the affordability requirements under the tax credit. 

Obviously, this is not what was intended, and you cannot just 

simply plan foreclosures so you can circumvent the commitments to 

affordable housing. However, only the Secretary of the Treasury 

has the authority to deem a foreclosure illegitimate for LIHTC purposes. 

And formal guidance has not been issued on this. So as a result, 

we have Michigan families who are wrongfully losing access to affordable housing which is absolutely critical to them because developers want to charge more. 

I wonder if this is something that you are seeing more broadly 

with members. And if so, what can we do to fix this? 

Mr. WHITAKER. Thank you, Senator. 

19 

We have heard of it. It has not happened in Utah, and I understand Michigan has that problem. It may be unique, but possibly 

not either. 

But we know that S. 548 may have some language in there that 

will help to correct that so that the allocating entities are the ones 

who can make that determination. We have had, I think, very good 

compliance in the State of Utah with maintaining those properties 

through the extended use periods and beyond. We require that the 

properties have a 50-year compliance period. So that is beyond 

what the Federal Government requires. 

But we have not had any who have threatened to do that. I think 

it is possible that it could happen. So we welcome the steps that 

were taken in S. 548 to enable us to handle that as opposed to 

Treasury. 

Senator STABENOW. Do you know if there have been discussions 

with Treasury or how they have reacted? Is this, at this point, isolated, do you think, to Michigan? Have you heard from other people? I am wondering if there is any real discussion going on about 

this. 

Mr. WHITAKER. I do not think there has been much discussion, 

because I think it is fairly rare. We do know, and I have heard, 

that Michigan has that problem. So that is why I say, perhaps it 

is unique. 

My understanding is that when Treasury has been notified of the 

problem, they have chosen to take no action. 

Senator STABENOW. Thank you. 

Well, we need to fix that process. 

Mr. MACDONALD. If I may—— 

Senator STABENOW. Yes? Mr. MacDonald? 

Mr. MACDONALD. If I may—in Texas, the State, in their qualified 

allocation process, detailed an identity of interests who could and 

could not foreclose. And it boiled down to, obviously, lenders need 

to have the preservation right to foreclose or a syndicator if they 

have someone who is not taking care of their asset like they 

should. But after that, it is just not allowed. 

I think it is very similar—I understand GAO’s problem in auditing the tax credit program. But what makes the tax credit program 

so wonderful is that it has 50 Qualified Action Plans, and it is very 

regionalized. It is not a one-size-fits-all program. 

So a best practices idea like this or like what is being proposed 

in this bill could go forward and is maybe something that should 

circulate more to the other 50 States, like we have in Texas on this 

one. The decentralization has its negatives, but it also has its 

positives in that the program is customized for a region, for a 

State. 

Senator STABENOW. Thank you. 

And, Mr. MacDonald, on a different note, again, it is rental housing, it is affordable housing, it is also affordable purchasing and 

people being able to get into home ownership as well. I wonder— 

we all know what happened with the financial crisis, where we lost 

$7 trillion in home equity. I am sure it has happened in other 

places, but home values in some locations in Michigan—it was unbelievable, actually, how far they dropped. And people are just now 

20 

coming back a little bit. Finally, with the recovery, they are starting to build up a little bit of equity in their home again. 

When we go into tax reform, one of my concerns is that there are 

proposals that would limit the value of the mortgage interest deduction for families. With a major increase in the standard deduction, fewer taxpayers would itemize, as we know. And that means 

home ownership would not be a benefit in terms of the mortgage 

interest deduction unless you owned a very large home. 

So this is also a concern to me. I wonder if you might talk about 

the different proposals and the impacts that they would have on 

working families who are finally starting to regain their equity 

after being under water for so long. 

Mr. WHITAKER. Yes, ma’am. It is very important that the mortgage interest deduction be preserved. However, we also need to 

keep the same amount of funds flowing into housing that are generated under the existing tax code. There are several alternatives 

for that. 

A first buyer home assistance purchase program is very, very important. And that is something that is administered on a Statewide basis too, through the housing agencies. 

Additionally, there has been a lot of discussion in reference to a 

tax credit, a home buyer’s tax credit and a home owner’s tax credit, 

and that could be a very efficient way to augment the mortgage interest deduction as well. 

Senator STABENOW. Thank you, Mr. Chairman. 

The CHAIRMAN. Okay. 

Senator Cantwell? 

Senator CANTWELL. Is my colleague from Georgia next, Mr. 

Chairman? Are we going back and forth? Okay. 

Well, thank you, Mr. Chairman. I so appreciate my colleague 

from Georgia and his help on all of this, and, Mr. Chairman, thank 

you for holding this hearing along with Ranking Member Wyden, 

and thank you for your work on this legislation. 

I so appreciate everything our witnesses have said. I actually disagree with very little that has been discussed so far. 

I want to point out that the reason I went to Chairman Hatch 

about this to begin with, Mr. Whitaker, was your great work in 

Utah on the veterans’ homelessness issue, and the fact that you 

guys have driven that down to such a low rate or next to zero is 

just so impressive. In the United States of America, to take that 

population that we owe so much to and deliver for them on affordable housing—I so appreciate that, and I have a question on that. 

But I did want to emphasize a couple of things in these points 

that were made. The first fact is that we have 15 million people, 

as Dr. O’Regan was talking about, and that the projections are getting worse. That 2025 number—if we do nothing, this is just going 

to be exacerbated. Several people mentioned the 25-percent increase in renters over the last 10 years, which is the largest on 

record. That is just unbelievable to me, unless you stop and think 

about the implosion of the economy during that time period, and 

then you realize, yes, those who were on the last rung of the ladder 

literally fell off the ladder. So there were no more rungs, and this 

10-percent reduction, the lack of supply, that is the crazy thing. 

But I guess, Mr. MacDonald, you would say that is not so unusual 

21 

either, because if you had an implosion of the economy, then you 

also had the lowest production of rental housing in 40 years, because of this crisis. 

So I guess, if anything, you have illuminated for many of us 

things that we knew, that this is both an urban and a rural problem, that there are places like Jackson, MS or Baton Rouge that 

are just right up there with Miami and other places, and that there 

are places like Clark, IA or Douglas, NV—that it is everywhere. 

So the one thing that I have not heard talked about is that—I 

have heard this number: that 90 percent of the affordable housing 

units are built with a tax credit. I do not know if somebody can 

clarify that information, but the majority of affordable units do use 

a tax credit. So when you look at that chart and you see that the 

number of renters is increasing, if we do not increase the tax credit, how are we going to get out of this crisis? 

Also for Mr. MacDonald, I have heard that the discussion of tax 

reform has actually suppressed the amount of capital going into 

this, so that we are actually going to see in 2017 and 2018 a decrease in the amount of affordable housing at the very moment 

that we are at this crisis, and we know that the tax credit is the 

dial to help create more supply, and we are actually seeing a decrease just because people are waiting to see, or just because of this 

uncertainty. 

So I do not know if anybody—if, Mr. MacDonald, you can address 

that or, Dr. O’Regan, if you can address that. 

Mr. Whitaker, I do want to hear about the veterans success in 

Utah. 

Mr. MACDONALD. Well, you are exactly right. After the November elections and the first thoughts of tax reform came out and the 

15-percent tax bracket was announced, it had an extreme impact 

on credit prices. And it was mainly the fear of the unknown. People 

did not realize where it was going; the syndicators were petrified. 

And they went to a stop. There was a point where they fell in 

price, and then they just would not purchase credits at all. And it 

came to a grinding halt. 

I think that now that there has been more discussion of tax reform, the reality is that we are not going to have a 15-percent rate, 

in all likelihood. You people know better than I, but it is probably 

more in terms of a 25-percent rate. So it is not going to be as dramatic. It has softened it some. 

We have seen some recovery in prices. But I will tell you that 

the fixing of the 4-percent rate, as this bill does, is the perfect way 

to fix that problem, because it puts the money back into the program even if the credit price does not recover. And by fixing the 

4-percent rate and getting the bond prices back up, you pick up 25 

percent more funds, so you more than offset the loss of what the 

credit price is. 

Senator CANTWELL. Dr. O’Regan, is this the primary tool that we 

have for fixing this crisis? 

Dr. O’REGAN. This absolutely is, on the affordable side of the 

market. So I had heard the 90-percent number. I have not checked 

it myself, so I will say it is in the range of that, in terms of the 

role that LIHTC plays for the creation of affordable housing at the 

low end of rent. 

22 

So what we know is that when markets are responding, they are 

responding and producing at the very high end. The bulk of units 

that come into the low-rent market are what economists call ‘‘filtered down.’’ They are units that exist, that as they age, their value 

goes down, and they are lower rent. 

The tighter the housing market, the less likely that units filter 

down. In fact, in very tight markets, you see them filtering up. So 

units that were affordable are no longer affordable, and the production that comes in is at the top of the market. 

So what you need to do is have a mechanism for producing along 

a range of price points, and it is only with these types of subsidies 

that you are going to relieve any of the pressure at the low end of 

the market. 

Senator CANTWELL. So you are saying, basically, the only thing 

we have to do is to turn this dial if we think we are going to make 

a dent? 

Dr. O’REGAN. We need to turn this dial. And I think a point that 

Professor McClure was making is, to the extent that we want the 

dial to go as deep as 30 percent of income, we want some of the 

other reforms that are in your proposal and in S. 548 to be able 

to have a little bit of the ability to reach deeper in the income level. 

Senator CANTWELL. Well, I cannot emphasize enough how this is 

a crisis across many parts of our country. I can tell you, from Seattle to Walla Walla, the housing crisis is real. 

Many times it is trying to help either the senior population or 

the veteran population. So, Mr. Whitaker, how did you address the 

veteran population in your State? 

Mr. WHITAKER. It was in conjunction with a housing authority. 

The Salt Lake County Housing Authority, specifically, put an application into us for 9-percent credits. And one of the things that they 

proposed is that a portion of those units be set aside for the homeless. 

So they got points for that, and they have rents at levels such 

that people coming out of a homeless situation could afford them, 

or they would have set aside vouchers for them. As it turns out, 

this property was such a unique property because, initially, it was 

not even welcome in the neighborhood. Since it has been built, it 

is a real jewel, and it is appreciated very much. 

Many of the residents who are residing there are those who have 

been veterans who were formally homeless. And they have a good 

comradery going there. Also, the service providers who need to be 

there for issues related to addictions and mental health cases and 

so forth, they have a single place to go where they can help a lot 

of people in one spot. 

That has made this project, in particular, successful. But we 

have quite a number of other projects that are doing something 

similar. 

Senator CANTWELL. Thank you. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you. 

Senator Isakson? 

Senator ISAKSON. Thank you, Mr. Chairman. 

23 

Mr. MacDonald, of the 4,700 units—I believe you said you had 

built 4,700 units, low-income housing units. How many of those do 

you own as an owner with tenants? 

Mr. MACDONALD. Forty-seven hundred. 

Senator ISAKSON. All 4,700? 

Mr. MACDONALD. Yes, sir. 

Senator ISAKSON. Were the tax credit program not available, 

would you have had that big an investment? 

Mr. MACDONALD. No, sir. We would have never had the ability 

to raise capital and offer a portfolio with affordable rent. It would 

just not have been a viable alternative at all. 

Senator ISAKSON. The reason I make that point is, Senator Cantwell is exactly right. The only way you meet the future shortage, 

the existing shortage today, is to have the program that attracts 

the money into it. If you do not do what you need to do, the money 

will go somewhere else, and then you will have a bigger problem 

than you had before. I think that program is great. 

So all 4,700 were rental units in multi-family buildings? 

Mr. MACDONALD. Some are multi-family buildings. We also have 

some single-family. We did a neighborhood revitalization program 

in San Angelo, TX where the city gave us the lots for $1,000 and 

we built 36 scattered single-family homes there, for example. And 

it jump-started a community revitalization in the whole area. People started fixing up the entire area because of it. We do both 

multi-family and single-family. 

Senator ISAKSON. Mr. Chairman, there is one point I want to 

make. There are two tax credit programs created by Congress. One 

is the Conservation Easement Tax Credit program and the other 

is the Low-Income Housing Tax Credit program, both of which 

have caused a lot of land to go into conservation, and a lot to go 

into low-income housing. 

There have been some attacks on both of those programs in 

terms of the syndicators and others—questioning their validity. So 

one of the things we have to be sure we do not do—we want to 

make sure the integrity of the programs that raise the money by 

the syndicators is intact. We want to make sure there is no misrepresentation or other mishandling of the funds. 

But we have to realize that it is such an attractive program. It 

is the only way we are going to have money flowing into two things 

that meet the test of what we want to give a tax credit for, and 

instead of the government taking tax money and investing it into 

land to buy for conservation easements, or the government getting 

into the business of building housing projects, we are incentivizing 

the private sector to build projects, utilizing the capital that is invested by individual investors who recover their capital investment 

by tax credits earned over time. Am I not correct? 

So it has a multiplier effect in terms of what it does for generating more moderate-income housing, and it is a solid program. It 

also has about as many motivations as you can have in a program 

to incentivize the developer and the owner to take care of the property to make sure it does not become a blighted property and to 

make sure it is a great property. Is that not correct? 

Mr. MACDONALD. Absolutely, sir. We have what seems to be a 

continual audit. We are being examined by our lenders, by our synVerDate Sep 11 2014 20:17 Jul 27, 2018 Jkt 000000 PO 00000 Frm 00027 Fmt 6633 Sfmt 6633 R:\DOCS\30902.000 TIM
24 

dicators. If we have section 8 vouchers, we are being reviewed on 

those. 

And then, of course, our State agency is out every year, goes 

through our books and records, notices what we are doing with our 

rents, makes sure it does a property evaluation, does a complete 

needs assessment for our property, gives us 90 days to fix it. If it 

does not get fixed, they give you an 8609 and we lose our tax credits. 

We take it very, very seriously. I realize that is hard to track 

from a GAO standpoint, but on a local basis there is a lot, a lot 

of oversight to make sure that the compliance in this program is 

being carefully, carefully monitored. 

Senator ISAKSON. In terms of cost of your units, what percentage 

of the cost of the average unit that you build goes to regulatory 

costs like impact fees and things like that? 

Mr. MACDONALD. Approximately 25 percent. 

Senator ISAKSON. Senator Wyden asked a question a little bit 

ago—he is gone now. I will try to remember to tell him this, but 

when we talk about what local governments can do to help make 

it easier to bring the project to fruition and bring housing programs 

in, they can look at the regulatory burden of costs on the developer 

to build the project in and of itself. 

Mr. Whitaker, I think, was talking about the homeless veterans 

program. I chair the Veterans’ Affairs Committee. We had a family, 

a veteran in 1906 who gave 300 acres in West Los Angeles to the 

VA. That zip code is now 90210. So it is a pretty good location, if 

you know what that means, Beverly Hills. 

They are going to use a lot of that land to build housing for veterans who have been homeless. And it is going to be because the 

local government is going to exercise some authority it has in zoning and land use restrictions to motivate and incentivize the private sector to build housing so the veterans will have the housing 

on that project. 

So, it is a great way to provide housing. I am a big supporter of 

Ms. Cantwell’s program. It is a good program. It has passed the 

test of time. And if we do not do it, I cannot think of any other 

way to get private capital flowing to generate the housing necessary to house the American people. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you. 

Senator Menendez? 

Senator MENENDEZ. Thank you, Mr. Chairman. 

I think this is an incredibly important hearing. I appreciate my 

colleague from Washington driving the opportunity for the hearing, 

and I want to make the case for her specific legislation by speaking 

about some of the other issues that we have in housing that only 

strengthen the need for her legislation. 

In New Jersey and across the Nation, low-income households, including seniors living on fixed incomes, people with disabilities, 

and families with children, are struggling to find affordable places 

to call home. For the lowest-income families, New Jersey faces a 

shortage of more than 212,000 homes that are affordable and available. 

25 

That problem is exacerbated by the fact that only one out of 

every four eligible low-income households receives Federal rental 

assistance. So I cannot help but point out that the President’s fiscal 

year 2018 budget request slashes HUD’s funding by more than $7 

billion. Now that would turn this crisis into an epidemic. 

By eliminating programs like CDBG and HOME, cutting public 

housing funds to the bone, eliminating a quarter-million housing 

choice vouchers, failing to provide sufficient funding for projectbased assistance renewals, and requiring low-income families, seniors, and people with disabilities to pay more in rent, the President 

is clearly not in tune with the housing crisis that we have in this 

country. 

So, Mr. Whitaker, could you comment on how the elimination of 

the Community Development Block Grant program and the HOME 

Investment Partnership would impact the affordable housing crisis? 

Mr. WHITAKER. I can surely talk about the HOME program, because that is what funds a fund in Utah that we call the Olene 

Walker Housing Loan Fund. Olene Walker was a former Lieutenant Governor, and ultimately Governor of the State of Utah, who 

had a very ideal outlook for affordable housing. 

This funds this program, and this provides the gap funding. So 

when we have a project that is submitted to us, in order to score 

points, one of the things that they will do is to offer up some of 

the units for the very, very low-income, extremely low-income— 

below 35 percent AMI, typically at 25 percent AMI. 

Those units receive rents that are very low, and that does not 

contribute a lot of revenue to the project. So they are funded with 

their mortgage, and they are funded with tax credits. But those 

units at that very low level have a very difficult time supporting 

themselves. So they go to this other funding source and use that 

for gap funding. They get soft seconds—sometimes grants, but usually soft seconds. And that HOME money is what keeps that program going in Utah. 

I think that is the same as it is for other areas. CDBG, I am not 

so familiar with. 

Senator MENENDEZ. I appreciate your answer on HOME. 

Professor O’Regan, how would you view affordable housing efforts? Would they be hampered if Congress were to enact largescale cuts in the housing voucher program and create greater income payments by low-income households? 

Dr. O’REGAN. Thank you, Senator; yes. There is an incredible 

overlap between the units that HUD funds and developments that 

also use the tax credit. About 47 percent of LIHTC units receive 

some type of rental assistance, and most of that is project-based or 

voucher-based. 

LIHTC owners are not allowed to discriminate on source of income. So the LIHTC stock itself is critically important for voucher 

households as they go around and try to find units that they can 

rent. 

The HOME funding is one form of the gap funding. CDBG is also 

paired with broader community redevelopment. And LIHTC is usually the big infusion of capital into those plans. 

26 

So the streams on the ground—up here at the Federal level, 

these are very separate. On the ground, these are tools that you 

are using in your communities to be able to address the issues. And 

the flexible tools, such as HOME and CDBG, those going away 

would make it even more difficult, because you are looking for 

things that can work well with the plans that you are putting together. 

Senator MENENDEZ. Let me follow up on that. The Low-Income 

Housing Tax Credit program sets income limits at 50 percent, 60 

percent of area median income; however, extremely low-income 

households have incomes that are less than 30 percent of area median income. For those households, the vast majority of which face 

severe cost burdens—paying more than 50 percent of their incomes 

on rent—the Low-Income Housing Tax Credit alone is not enough 

to make a home affordable. 

You highlight this issue in your testimony. Can you explain why 

additional subsidies, be they project-based, tenant-based, rental assistance, are critical to ensuring the lowest-income families are 

served by the Low-Income Housing Tax Credit? 

Dr. O’REGAN. Yes. So I think the point that Mr. Whitaker made 

is, there is a gap. There is a penciling gap; right? So if the rents 

work out financially at 50 or 60 percent of AMI, to go all the way 

to 30, you are going to need something else. 

But I will point out, 59 percent of tenants in LIHTC units have 

incomes below $20,000 a year. So right now, State HFAs are piecing together a collection of things—a lot of it is HUD funding—to 

be able to reach deep. So as the HUD budget changes, you are not 

going to see these units able to reach down. So we are going to see 

an increase in rent burdens among that group purely outside of the 

LIHTC allocation, because of other parts of what is happening in 

the budget. 

State and local jurisdictions put their own money in. As other 

money goes away, their budget is going to shift. They may not have 

the ability to put their resources in. And it is this kind of patchwork that makes the system work as well as it does currently. 

Senator MENENDEZ. Thank you, Mr. Chairman. 

The CHAIRMAN. Senator Scott? 

Senator SCOTT. Thank you, Mr. Chairman, and thank you to you 

all for being here this morning. 

Mr. MacDonald, affordability and accessibility go hand-in-hand 

when it comes to housing. Fannie and Freddie use an old creditscoring model that does not take into account rent, utility payments, your cell phone bill payments, things that actually show a 

broader swath of the credit history of the borrower. 

Why is it so important for the GSEs to start considering this 

data? Who stands to benefit? And I will note that Senator Warner 

and myself have legislation that we introduced today to hopefully 

help the GSEs update their credit scoring model. 

Mr. MACDONALD. Senator, I want to thank you for the legislation 

you filed, and we really look forward to studying it. It is an issue 

that has been at the forefront for home builders for quite some 

time, probably since 2008, when the downturn of the economy 

came. And we were trying to find out why all of a sudden we were 

27 

having so many perspective home buyers who were losing the opportunity to purchase homes. 

We sat down with our economics department—and we have four 

or five of the smartest Ph.D.s I have ever met in my life—and we 

said, ‘‘Tell us how FICO works.’’ Sir, after about 30 days, they came 

back, and they could not figure it out. 

We need a system that is transparent so that you know, and you 

know, and you know exactly how that score that controls your life 

and what kind of housing you are going to be able to provide your 

family is made up, so you know what to do and how to improve it, 

how to work with it, how to work toward having good credit. 

Good credit should not be an accident. It should be something 

that you work at as a goal. And if you understand the rules that 

you are playing by, it is a lot easier to play the game. 

Senator SCOTT. Absolutely. Thank you so much, sir. 

Mr. MACDONALD. Yes, sir. 

Senator SCOTT. I appreciate your passion as well. 

Mr. Garcia-Diaz, I have a question for you on a different topic. 

So often in the discussion about home ownership and affordability, manufactured housing just goes unnoticed. In South Carolina, one out of every five homes is, indeed, a prefabricated home, 

the highest percentage in the Nation. 

At the same time, the average household income for a manufactured homeowner is around $30,000, versus about $52,000 nationwide. Folks who buy manufactured housing are the least equipped 

to deal with rising costs. 

A 2014 GAO study found that high financing costs often keep 

these homes from being even more affordable. What conclusions did 

the GAO reach on improving manufactured homes’ affordability? 

Mr. GARCIA-DIAZ. I am aware of the report that you are referring 

to. I do not have an exact answer, but I will be more than happy 

to reach out to your staff and provide that information related to 

our work on financing manufactured homes. 

Senator SCOTT. Thank you, very much. 

Back to you, Mr. MacDonald—I liked your passion, so I am going 

to ask you another question here. 

You testified that many home builders struggle to fill vacancies 

because the workforce lacks the skills necessary, whether it is 

welding, carpentry, plumbing. This shortage of qualified workers 

prevents housing inventories from keeping pace and ultimately 

leads to higher costs. I have worked on legislation around apprenticeship programs. I think that one of the ways we improve the 

housing inventory is to help folks earn and learn at the exact same 

time on the job sites. 

How can we ensure more Americans are ready for the skilled 

labor jobs that are high-paying? 

Mr. MACDONALD. The National Association of Home Builders 

this year is sponsoring 8,400 people in the apprenticeship programs. These programs are exceptionally important. 

The average age of a master plumber in Texas is 61 years old. 

The average age of a master electrician in Texas is 59 years old. 

That is a recipe for disaster. 

We are not having the skilled people come into our workforce. 

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28 

selors who will tell young people that it is not a bad thing if you 

do not go to college, if you go to a trade or technical school. 

We also have to start offering more trade and technical school 

education in our high schools for people to use so that they can develop the job skills where they can make a wonderful living and 

have a wonderful career, possibly own their own business, and then 

not be burdened by student debt. 

Senator SCOTT. Absolutely. 

I know I am running out of time, Mr. Chairman, but I will close 

by saying that there is dignity in all work. I recall back in my days 

in high school, just about a few years ago—Mr. Brown was there 

with me in a different State—the reality of it was, we had shop 

when I was in high school. 

We need to restore dignity in all work and encourage every facet 

of this society to participate and encourage the fact that there is 

strong income as a welder. I understand in Texas you can make 

over $125,000 a year as a welder. 

Mr. MACDONALD. I am a licensed welder. Thank you. [Laughter.] 

Senator SCOTT. Exactly. It works. So we have problems that we 

can solve if we work together towards those solutions. 

Thank you very much to all of you guys for being here today. 

The CHAIRMAN. Well, thank you, Senator. 

Senator Brown? 

Senator BROWN. Thank you, Mr. Chairman. 

I am flattered that Senator Scott thinks we were in high school 

at the same time, but thank you for that. 

Senator SCOTT. I need your cosponsorship on the legislation. 

There is that. [Laughter.] 

Senator BROWN. Nice try. 

Thank you, Mr. MacDonald, for your comments about the importance of the trades, and thank you for your passion about that and 

in reminding people how important it is that young people become 

carpenters and machinists and sheet metal workers and plumbers 

and electricians. 

A couple of comments, and then I have questions for Dr. O’Regan 

and for Mr. Whitaker, if I could. 

As we know, families burdened by high housing costs have fewer 

resources, obviously, to meet other needs like food, transportation 

to work, medicines, and may face homelessness and eviction. As a 

sociologist, Matthew Desmond says, ‘‘The rent eats first.’’ 

A person with a full-time job would need to earn an hourly wage 

of $21 to afford a modest two-bedroom rental at HUD’s national average fair market rate. This housing wage, for want of a better 

term, varies, along with housing costs, across the country. The fact 

remains there are only 12 counties in the U.S. where a full-time 

worker earning Federal minimum wage can afford a modest onebedroom rental home. 

In my home State of Ohio, a more affordable State than many 

others, the average housing wage is still $15. The State’s minimum 

wage is $8.15. The mean renter wage is $12.87. 

My wife and I live in Cleveland in zip code 44105. Ten years ago 

that zip code had more foreclosures than any zip code in the United 

States of America. So we see every day the blight that comes from 

people not being able to afford decent places to live. 

29 

The Low-Income Housing Tax Credit is a critical tool—as you 

know from your service in the administration—and developing affordable housing certainly should be protected and expanded, regardless of whether tax reform develops into a real bipartisan process or remains the partisan fantasy that people here talk about. 

Yet all of you here today as witnesses say the mismatch between 

housing costs and wages goes far beyond the cost of building and 

operating affordable units. 

I am the ranking member of the Banking, Housing, and Urban 

Affairs Committee. We have had a lot of discussion of the President’s proposed 15-percent cut in HUD funding. Senator Menendez 

asked you a moment ago about that. 

This proposal goes in the wrong direction. How can you provide 

more affordable rental and home purchases when you make such 

savage cuts to affordable housing? So my question to Professor 

O’Regan, first for you, is, can you discuss additional steps that 

Congress and HUD should take to address the needs of rentburdened working families? 

And then the question for both you and Mr. Whitaker: pediatrician Megan Sandel likens affordable housing to a vaccine due to its 

ability to improve or not improve children’s health and other outcomes. So, could the two of you talk about what we know about the 

effect that the lack of safe, healthy, affordable housing has on children’s health? 

Dr. O’Regan, if you would answer both questions, and, Mr. Whitaker, if you would take the second question. 

Thank you. 

Dr. O’REGAN. Okay. 

So I will start with the need for resources. The need for resources 

on affordable housing is broad. The hit on the HUD budget is going 

to be felt severely around the country. So I am not in a position— 

I am no longer at HUD, and I am not in a position to affect the 

Federal budget. But it is hard—you want to find ways in which the 

resources do not get cut for those most at need. 

I know there are a number of other proposals being considered, 

things like renter tax credits, things that can be used that would 

actually focus on the greatest need at a time when other types of 

resources are becoming less available. Additional flexibility within 

the tax credit so resources can be used in more than one way is 

a way to help fill those gaps as the home funding goes away, which 

is the gap and fungible funding. You are going to need to look for 

other places where it can come in. 

On the vaccine part, I would like to highlight one piece of work 

that came out from HUD called the ‘‘Family Option Study.’’ I think 

it is the most rigorous and best evidence to date on the effect of 

stable, affordable housing on outcomes for children and on nonhousing outcomes, radiating benefits that came from homeless families who were provided with long-term housing subsidies. 

Within 3 years, a whole collection of additional impacts were 

seen. Domestic violence went down in these families. Family separations were significantly lower. Kids were less mobile across 

school and across day-care. 

By the third year follow-up, you were seeing prosocial behavior 

and a collection of all of those outcomes that the longer-term health 

30 

studies show are directly connected to adult health and mental 

well-being. And I think that researchers will be following that 

study for the next 5 years and be using it to show exactly the direct 

correspondence between stable affordable housing and good outcomes for kids. 

The CHAIRMAN. Thank you. 

Senator Cassidy? 

Senator BROWN. I did not get an answer, but thank you, Mr. 

Chairman. 

The CHAIRMAN. Oh, I am sorry. 

Mr. WHITAKER. Well, mine will be short, because I am not much 

of a health expert, actually. But we do know for a fact that for 

households that are on the cusp of just being able to afford their 

daily lives, paying the rent and the necessary food and so forth for 

their families, anything such as a significant car repair is something that can throw them into homelessness. And a homeless family, those with children—there is nothing more pathetic than to go 

to the areas of Salt Lake City where we see that on a daily basis. 

We see a shopping cart with mom and dad with kids in tow with 

all of their goods in that shopping basket walking down the street. 

That is all they have. And we know that is an unhealthy situation 

for those families. 

The CHAIRMAN. Well, thank you. 

Senator Cassidy? 

Senator CASSIDY. Mr. MacDonald, good to see you. 

Mr. MACDONALD. Good to see you, sir. 

Senator CASSIDY. I love your industry. Folks start off swinging 

the hammer, they end up being quite an entrepreneur. It is really 

tremendous. So just to compliment you, and we have met before, 

so just to mention that. 

Now when I read you all’s testimony, it seems as if it is pointing 

in different directions—nothing against your testimony; very provocative. But let me toss this out. 

Dr. McClure, you quote some of Dr. O’Regan’s research. So on 

the one hand, there is data showing that if you ‘‘ghettoize’’ lowincome people, that is negative. So, Dr. McClure, you suggest that 

we should have more policy forcing integration, if you will, of the 

lower-income into richer neighborhoods. It sounds great, except Mr. 

MacDonald’s testimony points out that wealthier people tend to live 

near transit centers, probably live near better schools, better restaurants, better et cetera. That increases your development costs. 

So we have kind of a push-back there, because it is going to increase your cost to the program. And then, similarly, when you 

speak about those being underserved—I think you quoted Dr. 

O’Regan’s research—most of these programs are for those who are 

kind of at $40,000 to $60,000, not less than $20,000. 

But when you are down in that level of poverty, there tends to 

be more economic segregation. Folks do not live near transit centers. They do not live near nice Whole Foods as a rule, although 

there is a nice place in New Orleans where there is a Whole Foods 

near such a neighborhood. 

So I just toss that out, because it seems like the recommendations and the reality kind of go against each other. Yes, we need 

more housing for those who have reportable incomes of less than 

31 

$20,000. But that is going to increase your housing development 

costs. Yes, you want to integrate those folks into the broader social 

fabric, but the social indicators may make it more difficult to do so. 

How do we reconcile that? 

Dr. MCCLURE. Thank you, Senator. You are correct. It is an enormously tricky process. 

What we have now is a one-size-fits-all tax credit program with 

very few flexibilities built into it. We have built an entire industry 

of developers, underwriters, nonprofits, that have found ways to 

layer subsidy on top of subsidy to come up with some very impressive results. 

If we could make the Low-Income Housing Tax Credit program 

more flexible, if we would reward the type of developments that 

better serve those households truly in need, our outcomes would 

improve in the program. 

Dr. O’REGAN. I would like to join in on that. I think that making 

it work by having the ability within the program to be flexible is 

quite useful. But you did point out something that is kind of inherent: locational goals may be in conflict. 

Senator CASSIDY. Totally. 

Dr. O’REGAN. And so I think this is where the benefit of it being 

a decentralized program for localities that have the housing market 

and the needs in front of them getting to be flexible there is important. 

But I want to point out one thing on the research that is important for thinking about them potentially not being in such conflict. 

There is very good work by Rebecca Diamond and Timothy 

McQuade, who look at the effect of creating low-income housing, 

LIHTC housing in higher poverty neighborhoods, and find robust 

findings that those investments, themselves, pay off in the neighborhood. 

And if you look at the properties nearby, the housing values go 

up by more than 6 percent, crime rates go down, and you see larger 

benefits—— 

Senator CASSIDY. Now, that is just that good money drives out 

bad people. 

Dr. O’REGAN. No. You will see composition coming in differently. 

You will see higher-income households coming in, so the economic 

and racial composition of the neighborhood changes over time. So 

it is a community reinvestment strategy. 

So, if you think about the place-based side of this, where the 

LIHTC development goes in now, 5 years in the future looks different. So that is one way to think about some of the benefits you 

get on that location side. 

Senator CASSIDY. Okay. I get that. 

Now, also it is interesting—I was also just in North Baton Rouge, 

an area of low socio-economic class in Louisiana. After the flooding, 

they have lost a lot of their rental stock. So the local pastor was 

saying, ‘‘They are not rebuilding our rental homes, which means 

that I am losing my congregation. We are losing the fabric of our 

community.’’ 

So your point, sir, that perhaps we need to award rehabilitation 

a little bit more than new construction would maybe solve some of 

that. I will concede that. 

32 

If you go to New Orleans, sometimes older neighborhoods are 

closer to transit sites, hubs, if you will—they are just older neighborhoods. It did seem like rehabilitation would be part of the answer. I will just kind of commend your testimony on that. 

Mr. MACDONALD. And I also think that the 4-percent side of this 

bill will aid that rehabilitation. It will heighten it. We have to realize that rehabilitation is really, really a strong position, because we 

are starting to get older and older units that need the work, and 

we have to do something to revitalize some of these neighborhoods. 

The taxpayer program does a wonderful job of that. 

I agree that in a perfect world, we would try to build in more 

affluent areas. But the problem is that the real estate costs in the 

more affluent areas, everything else, then would reduce the amount 

of units we are able to get on the ground to assist families. 

So, if we are going to get the most bang for our buck, we need 

to let that stay as a State’s issue. When they write their QAPs, 

those people back home, we need to trust that the people back 

home know exactly where they need to develop and what is best 

for their community. 

In Texas, we will see the need for revitalization, and you will see 

an entire set-aside for revitalization. And that is very, very important. We would not want to do anything to swipe that. 

They know exactly how to monitor this at home. They know what 

is good in Baton Rouge for what needs to happen in the rest of 

North Baton Rouge. 

Senator CASSIDY. Thank you all very much. 

The CHAIRMAN. Senator Cardin? 

Senator CARDIN. Thank you very much, Mr. Chairman. I just 

really wanted to sort of summarize and thank all of the witnesses 

for being here. 

I particularly thank the chairman and Senator Cantwell for your 

leadership on this issue. We need your leadership. 

Affordable housing is more challenging today than ever before. 

The statistics that were brought out today indicate that we need 

to have stronger tools available in order to meet the needs of the 

people of this country. I think the legislation the two of you have 

authored gives us a way to move forward in the best traditions of 

this committee and the Senate. So I first want to thank you all. 

I also just want to make an acknowledgment. As I see the work 

that is done in Maryland, whenever we can get a program started 

to provide additional affordable housing for people in need, there 

is not usually one tool available that will make that happen. You 

sort of have to rely on a lot of different opportunities. 

No question, the Low-Income Housing Tax Credit is the major 

tool that is available, and strengthening that tool will be the most 

important thing I believe we can do for affordable housing. But the 

historic tax credits are a major part. We had over 5,000 units, I 

think, of residential housing that was created under the tax credits. 

That is another important tool that is available that has combined many times with Low-Income Housing Tax Credits. We have 

the New Markets Tax Credits that can be a helpful part of getting 

this done. 

33 

We have incentives for energy efficiency, which can be coupled 

with these projects, that accomplish additional savings for the people who live there and their energy costs, but also help us in regards to our energy policies in this country. That can also help us 

deal with those issues. 

So, as we look at improving the Low-Income Housing Tax Credit, 

which I think we definitely strongly support, I think we should be 

also mindful of the other tools that are available and look at ways 

that they can be strengthened and in some cases more targeted to 

the objective of affordable housing. 

I am not squeamish about looking at ways we can make these 

programs more effective. We need to do that, but at the same time, 

we need to expand them and provide greater resources in order to 

deal with the tremendous needs that we have in our community. 

I should mention also, we could not do this without the private 

sector. The private sector takes incredible risks at times in order 

to carry out a public function of affordable housing. They are committed to that. 

So it is all of that coming together that has allowed us to move 

forward in Maryland on the affordable housing issues. 

I look forward to working with all of the stakeholders to find 

ways that we can improve the programs. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thanks, Senator. 

Senator Thune? 

Senator THUNE. Last person here, Mr. Chairman? 

The CHAIRMAN. As far as I know. [Laughter.] 

Senator THUNE. Okay. 

Well, thank you. And thank you to all of you for being with us 

today. We appreciate you taking time away from your jobs and 

families to testify this morning. 

Affordable housing is an important issue for each of us in our 

States across the country, and we are fortunate in my State of 

South Dakota to have one of the lowest unemployment rates in the 

Nation. But we still have a need for housing that lower-income individuals—especially those just getting started—are able to afford. 

Now there are a number of Federal programs and provisions in 

the tax code that are intended to help provide affordable housing 

in this country, both in urban areas and rural parts of the Nation 

as well. 

As we turn to tax reform as our top priority, we have an opportunity to look at a lot of these tax provisions to make sure that 

they are working effectively and efficiently. Your insights this 

morning are an important contribution to that effort. So, thank you 

again for being here. 

As part of tax reform, many of us on the committee have been 

looking at the important role that cost recovery can play in helping 

ensure long-term economic growth. And while much of the testimony this morning has focused on the Low-Income Housing Tax 

Credit, I understand that depreciation is also a significant component of the financing of affordable housing projects. 

However, the current recovery period of 27.5 years can create a 

significant lock-in effect for residential housing investment. So the 

question is, if tax reform were to include a shorter recovery period 

34 

for residential real estate or acceleration of the depreciation deductions, how would you see that affecting affordable housing projects? 

And I will just throw that open to the panel. 

Mr. MacDonald? 

Mr. MACDONALD. It would obviously bring down the price. 

Twenty-six years is better than 27. Twenty-five would be better 

than 26. So, however you come down the scale, what you will do 

is help reduce the cost of producing affordable housing. And I do 

not think there is anyone is this room who will not say that is a 

great idea. 

Senator THUNE. Okay. 

Anybody else? 

Everybody is for that. All right. 

The focus on affordable housing is often centered on our larger 

cities and the surrounding suburbs, but there is also a need for affordable housing in States like South Dakota, which are largely 

rural. In these areas we often need housing properties that are 

smaller, since low-income individuals are more dispersed than in 

larger cities. 

Due to their smaller scale, these housing projects may not be as 

financially feasible as those being developed in urban communities. 

Some have suggested enhancing the Low-Income Housing Tax 

Credit to encourage financing for affordable housing in rural areas. 

So the question is, do you agree that the low-income housing in 

rural areas presents challenges for using the current Low-Income 

Housing Tax Credit, and what do you think might be the most effective enhancement to the credit that we could come up with that 

would address this issue? 

Yes, sir? 

Mr. MACDONALD. Well, Senator Cantwell has got it right here, 

and that is the ability to adjust DDAs, difficult to develop areas, 

and give the economic boosts and to allow the States to do that 

when they write their QAPs on a local area basis, so that in South 

Dakota or in Texas, they can reach deep and give that boost to the 

rural areas, which in Texas they do. And that is what allows the 

development of affordable housing in rural Texas. 

Senator THUNE. Okay. 

Anybody else? 

Dr. O’REGAN. I think this is correct. The bill actually has several 

things in it that would help with rural communities, including 

making a change on the income definitions. I think income averaging gives you a broader market so that you would be able to actually support this in rural areas. 

I am going to just second the DDA designations so that Indian 

areas are automatically designated as difficult to develop, which 

comes with the basis boosts. 

Senator THUNE. Okay. 

All right. Well, those are my questions, Mr. Chairman. Thank 

you. 

The CHAIRMAN. Well, thank you, Senator. 

Senator THUNE. Thank you all for being here. 

The CHAIRMAN. Senator Cantwell really deserves the credit for 

this hearing. And she is a very integral and important member of 

this committee. 

35 

Senator Cantwell? 

Senator CANTWELL. Thank you, Mr. Chairman. I would say you 

are a very integral part of this committee as well. [Laughter.] 

The CHAIRMAN. That is good to know. 

Senator CANTWELL. And Utah has been a very integral leader in 

this issue. And so I thank them, again, for pioneering and piloting. 

I do not know all of the ways in which Utah has been able to muster that, but I admire it. So thank you. 

I just want to bring up one last point, and that is, does doing 

nothing save us any money? Because one of the things that I have 

heard is that dealing with this population—I know there are some 

studies, but dealing with this population is costing us $3 billion 

more because everything is more expensive. If you are dealing with 

the same population without a roof over their head—or as my colleague, Senator Scott, was talking about, apprenticeship—well I 

guarantee you, you cannot deliver job training to a tent. It just 

does not work. 

So how do we communicate about the fact that doing nothing is 

not really saving us any money here? 

Dr. O’REGAN. I would say that the language that is used on this 

frequently is the ‘‘wrong pocket’’ issue. There is an incredibly increasing body of evidence on the role of affordable and stable housing for non-housing outcomes, for improvements in health, mental 

well-being, for economic mobility for children. 

So the lack of affordable housing shows up in the budgets outside 

of the housing budgets. And so how do you get the attention of 

those who care about that range of outcomes to realize that investing in housing now decreases all of those other costs over time? 

Senator CANTWELL. Do we know of a specific analysis of that 

now, or could you help us with CBO in scoring that some way, because the—— 

Dr. O’REGAN. The bane of my existence, when I had my previous 

job, was trying to get to this, but I think the best evidence is on 

supportive housing, on all of the immediate cost savings from emergency room visits, and actually from implications in the criminal 

justice system. 

So we have very robust evidence there. And then with more recent evidence with homeless families, what we are seeing is outcomes that—down the pike—would hit the budget. 

But certainly, on the ones that are most robust on supportive 

housing, we could get that to you. 

Senator CANTWELL. Well, somebody mentioned to me they 

thought the number was 25 percent per person. It cost 25 percent 

more to deal with someone who is in this homeless situation than 

if they had a roof over their head, because of all those health care 

costs and expenses. 

I do not know, Mr. Whitaker, if you have seen or could comment 

on that? 

Mr. WHITAKER. I cannot comment on statistics, but one of the 

things that we are beginning to see in our State is the health insurers who are becoming very involved in investing in the tax credit projects. 

The supportive housing project that we just funded most recently, with some leftover funding, has major investment by one of 

36 

the health insurers in Utah, because they understand that, going 

forward, getting people into a home is going to be cheaper for them 

than it is to deal with their health issues, particularly related to 

people who are moving into supportive housing from homelessness. 

Senator CANTWELL. So health insurers are investing in affordable 

housing? 

Mr. WHITAKER. Yes. 

Senator CANTWELL. Because they think it helps drive down costs 

of health insurance? 

Mr. WHITAKER. Is that not amazing? 

Senator CANTWELL. Thank you. 

Mr. MacDonald, anything else on that point? 

Mr. MACDONALD. I just want to second the comment about the 

criminal justice system, because there is no way of ascertaining the 

costs there, but the end result of homelessness and despair puts an 

impact on criminal justice. 

Senator CANTWELL. Thank you. 

Again, thank you, Mr. Chairman. And thank you for your leadership on this issue. 

And again, I thank all of those in the Utah area who created 

great models for us to follow. 

The CHAIRMAN. Well, thank you. I want to thank you for your 

leadership on this in this area. This would not have happened 

without you. 

I just want to say this is one of the best panels I have seen in 

all of my years as a member of this committee. You folks have really been right on. You have made your points very well, and I think 

you have been very persuasive, and you have been coordinated 

with each other, which is very, very good as far as I am concerned. 

We appreciate your taking the time to help us to understand this 

better. Hopefully, we can do a better job than we have done in the 

past. 

I want to thank, again, Senator Cantwell and other members of 

this committee for the work that they are doing on this. And we 

will just go from there. 

With that, any other questions that people have, we will want 

them to get them in as soon as possible, and we will adjourn this 

particular meeting at this particular time. 

Thank you. 

[Whereupon, at 12:05 p.m., the hearing was concluded.] 

(37) 

A P P E N D I X 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

PREPARED STATEMENT OF DANIEL GARCIA-DIAZ, DIRECTOR, FINANCIAL MARKETS AND

COMMUNITY INVESTMENT, GOVERNMENT ACCOUNTABILITY OFFICE

LOW-INCOME HOUSING TAX CREDIT 

Actions Needed to Strengthen Oversight and Accountability 

GAO Highlights 

Why GAO Did This Study 

The LIHTC program, established under the Tax Reform Act of 1986, is the largest 

source of Federal assistance for developing affordable rental housing and will represent an estimated $8.5 billion in forgone revenue in 2017. 

LIHTC encourages private-equity investment in low-income rental housing 

through tax credits. The program is administered by IRS and allocating agencies, 

which are typically State or local housing finance agencies established to meet affordable housing needs of their jurisdictions. 

Responsibilities of allocating agencies (in section 42 of the Internal Revenue Code 

and regulations of the Department of the Treasury) encompass awarding credits, assessing the reasonableness of project costs, and monitoring projects. 

In this testimony, GAO discusses (1) how allocating agencies implement Federal 

requirements for awarding LIHTCs, assess reasonableness of property costs, and 

monitor properties’ ongoing compliance; and (2) IRS oversight of the LIHTC program. This statement is based primarily on three reports GAO issued in July 2015 

(GAO–15–330), May 2016 (GAO–16–360), and February 2017 (GAO–17–285R). GAO 

also updated the status of recommendations made in these reports by reviewing new 

or revised IRS policies, procedures, and reports and interviewing IRS officials. 

What GAO Found 

In its May 2016 report on the Low-Income Housing Tax Credit (LIHTC) program 

of the Internal Revenue Service (IRS), GAO found that State and local housing finance agencies (allocating agencies) implemented requirements for allocating credits, reviewing costs, and monitoring projects in varying ways. Moreover, some allocating agencies’ day-to-day practices to administer LIHTCs also raised concerns. For 

example: 

• Qualified allocation plans (developed by 58 allocating agencies) that GAO analyzed did not always mention all selection criteria and preferences that section 

42 of the Internal Revenue Code requires; and 

• Allocating agencies could increase (boost) the eligible basis used to determine 

allocation amounts for certain buildings if needed for financial feasibility. However, they were not required to document the justification for the increases. The 

criteria used to award boosts varied, with some allocating agencies allowing 

boosts for specific types of projects and one allowing boosts for all projects in 

its State. 

In its 2015 and 2016 reports, GAO found IRS oversight of the LIHTC program 

was minimal. Additionally, IRS collected little data on or performed limited analysis 

of compliance in the program. Specifically, GAO found that: 

38 

1 Joint Committee on Taxation, ‘‘Estimates of Federal Tax Expenditures for Fiscal Years 

2016–2020’’ (Washington, DC: Jan. 30, 2017). 2See GAO, ‘‘Low-Income Housing Tax Credit: The Role of Syndicators,’’ GAO–17–285R (Washington, DC: Feb. 16, 2017); ‘‘Low-Income Housing Tax Credit: Some Agency Practices Raise Concerns and IRS Could Improve Noncompliance Reporting and Data Collection,’’ GAO–16–360 

(Washington, DC: May 11, 2016); and ‘‘Low-Income Housing Tax Credit: Joint IRS–HUD Administration Could Help Address Weaknesses in Oversight,’’ GAO–15–330 (Washington, DC: July 

15, 2015). 3Our review examined plans from 2013 or the most recent QAP available. 

• Since 1986, IRS conducted 7 audits of the 58 allocating agencies we reviewed. 

Reasons for the minimal oversight may include LIHTC being viewed as a peripheral program in IRS in terms of its mission and priorities for resources and 

staffing. 

• IRS had not reviewed the criteria allocating agencies used to award discretionary basis ‘‘boosts,’’ which raised concerns about oversubsidizing projects 

(and reducing the number of projects funded). 

• IRS guidance to allocating agencies on reporting noncompliance was conflicting. 

As a result, allocating agencies’ reporting of property noncompliance was inconsistent. 

• IRS had not participated in and leveraged the work of the physical inspection 

initiative of the Rental Policy Working Group—established to better align the 

operations of Federal rental assistance programs—to augment its databases 

with physical inspection data on LIHTC properties that the Department of 

Housing and Urban Development (HUD) maintains. 

In its prior reports, GAO made a total of four recommendations to IRS. As of July 

2017, IRS had implemented one recommendation to include relevant IRS staff in the 

working group. IRS has not implemented the remaining three recommendations, including improving the data quality of its LIHTC database, clarifying guidance to 

agencies on reporting noncompliance, and evaluating how the information HUD collects could be used for identifying noncompliance issues. In addition, because of the 

limited oversight of LIHTC, in its 2015 report GAO asked that Congress consider 

designating certain oversight responsibilities to HUD because the agency has experience working with allocating agencies and has processes in place to oversee the 

agencies. As of July 2017, Congress had not enacted legislation to give HUD an 

oversight role for LIHTC. 

Chairman Hatch, Ranking Member Wyden, and members of the committee: 

I am pleased to be here today to discuss our work on the Low-Income Housing 

Tax Credit (LIHTC) program administered by the Internal Revenue Service (IRS) 

and allocating agencies, which typically are State or local authorities established to 

meet the affordable housing needs of the residents of their States. LIHTC, established under the Tax Reform Act of 1986, is the largest source of Federal assistance 

for developing affordable rental housing. Each State receives an annual allocation 

of LIHTCs, determined by statutory formula. Allocating agencies then competitively 

award the tax credits to owners of qualified rental housing projects that reserve all 

or a portion of their units for low-income tenants. In 2017, LIHTC will represent 

an estimated $8.5 billion in forgone revenue to the Federal Government.1

My statement today will focus on (1) how allocating agencies implement Federal 

requirements for awarding LIHTCs, assess reasonableness of property costs, and 

monitor properties’ ongoing compliance; and (2) IRS’s oversight of the LIHTC program. This statement is based primarily on three reports we issued in July 2015, 

May 2016, and February 2017.2 To conduct the work for the three reports, among 

other methodologies, we reviewed IRS regulations and guidance, including how allocating agencies and taxpayers are selected for review. We also conducted a structured analysis of 58 Qualified Allocation Plans (QAP), which outline processes for 

awarding LIHTCs and compliance monitoring responsibilities.3 We selected a nonprobability, nongeneralizable sample of nine allocating agencies for site visits, and 

during these visits, we reviewed files for randomly selected housing developments 

to determine how each agency addressed Federal requirements for awarding 

LIHTCs, assessed the reasonableness of development costs, and monitored properties’ compliance with program requirements. We also interviewed officials from 

IRS, the Department of the Treasury (Treasury), the Department of Housing and 

Urban Development (HUD), the National Council of State Housing Agencies 

(NCSHA), and selected allocating agencies. For our 2017 report, we gathered data 

39 

4 CohnReznick completed a survey to capture requested data on behalf of the 31 syndicators 

for which it had information. It then sent the completed surveys to the syndicators to review 

and, if necessary, correct before transmitting the data to us. 5 An allocating agency develops the QAP and receives approval of the plan by the governmental unit of which the allocating agency is a part. The agency then evaluates the proposed 

projects against the approved QAP. The QAP also must be developed in accordance with section 

42 requirements for such plans. Section 42 requires that QAPs give preference to certain 

projects, specifically, those that: (1) serve the lowest-income tenants; (2) are obligated to serve 

qualified tenants for the longest periods; and (3) are located in qualified census tracts and the 

development of which contributes to a concerted community revitalization plan. 

for 32 syndicators in total—31 through a no-cost contract with CohnReznick, a national accounting firm—and one survey response directly from a syndicator.4 More 

detailed information on our scope and methodology can be found in each of the reports cited throughout this testimony. To update the status of recommendations 

from our 2015 and 2016 reports, we reviewed new or revised IRS policies, procedures, and reports and interviewed IRS officials. 

We performed the work on which this statement is based in accordance with generally accepted government auditing standards. Those standards require that we 

plan and perform the audit to obtain sufficient, appropriate evidence to provide a 

reasonable basis for our findings and conclusions based on our audit objectives. We 

believe that the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives. 

BACKGROUND

Overview of IRS Administration of LIHTC Program 

IRS administration of the LIHTC program involves overseeing compliance on the 

part of allocating agencies and taxpayers and developing and publishing regulations 

and guidance. IRS is responsible for reviewing LIHTC information on three IRS 

forms that are the basis of LIHTC program reporting and then determining whether 

program requirements have been met. Taxpayer noncompliance with LIHTC requirements may result in IRS denying claims for the credit in the current year or 

recapturing—taking back—credits claimed in prior years. 

Published guidance may include revenue rulings and procedures, notices, and announcements. Other guidance for the program includes an Audit Technique Guide 

for Completing Form 8823 that includes specific instructions for allocating agencies, 

including when site visits and file reviews are to be performed, and guidelines for 

determining noncompliance in areas such as health and safety standards, rent ceilings, income limits, and tenant qualifications. 

Role of Allocating Agencies 

State and local allocating agencies are responsible for day-to-day administration 

of the LIHTC program based on section 42 of the Internal Revenue Code and Treasury regulations. More specifically, allocating agencies are responsible for: 

Awarding tax credits. Each State receives an annual allocation of LIHTCs, determined by statutory formula. Allocating agencies then competitively award the tax 

credits to owners of qualified rental housing projects that reserve all or a portion 

of their units for low-income tenants, consistent with the agencies’ QAPs.5 Developers typically attempt to obtain funding for their projects by attracting third-party 

investors willing to contribute equity to the projects; the project investors then can 

claim the tax credits. 

Monitoring costs. Section 42 states that allocating agencies must consider the 

reasonableness of costs and their uses for proposed LIHTC projects, allows for agency discretion in making this determination, and also states that credits allocated to 

a project may not exceed the amount necessary to assure its feasibility and its viability as a low-income housing project. However, section 42 does not provide a definition or offer guidance on determining how to calculate these amounts. 

Monitoring compliance. After credits are awarded, Treasury regulations state 

that allocating agencies must conduct regular site visits to physically inspect units 

and review tenant files for eligibility information. The agencies also have reporting 

and notification requirements. For example, allocating agencies must notify IRS of 

any noncompliance found during inspections and ensure that owners of LIHTC 

properties annually certify they met certain requirements for the preceding 12- 

month period. 

40 

6For more information on the role of syndicators and their characteristics, see GAO–17–285R. 7We collected data through calendar year 2014 because that was the most current available 

at the time of our 2017 report. 

Role of Investors and Syndicators 

Developers of awarded projects typically attempt to obtain funding for their 

projects by attracting third-parties willing to invest in the project in exchange for 

the ability to claim tax credits. The developer sells an ownership interest in the 

project to one or more investors, or in many instances, to a fund managed by a syndicator who acts as an intermediary between the developer and investors. 

Investors and syndicators play several roles in the LIHTC market. For example, 

syndicators help initially connect investors and developers and oversee acquisition 

of projects. Once a project is acquired, syndicators perform ongoing monitoring and 

asset management to help ensure the project complies with LIHTC requirements 

and is financially sound. Syndicators attempt to identify potential problems and intercede if necessary, such as replacing under- or nonperforming general partners, 

and may use their own reserves to help resolve problems. In exchange for these 

services, syndicators typically are compensated through an initial acquisition fee— 

usually a percentage of the gross equity raised—and an annual asset management 

fee. 

Syndicators that we surveyed for our 2017 report were nonprofit or for-profit entities, generally had multistate operations, and averaged more than 20 years of experience with the LIHTC program.6 Of the 32 syndicators we surveyed, the syn- dicators collectively had raised more than $100 billion in LIHTC equity since 1986, 

helping to fund more than 20,000 properties and about 1.4 million units placed-inservice through 2014. Projects for which these syndicators raised equity in 2005– 

2014 represented an estimated 75 percent of all LIHTC properties placed-in-service 

in that period.7

SELECTED ALLOCATING AGENCIES IMPLEMENTED DIFFERING PRACTICES

FOR KEY LIHTC REQUIREMENTS

As we reported in 2016, allocating agencies implemented requirements for QAPs 

in varying ways and had processes in place to meet requirements for credit awards. 

Allocating agencies also had procedures to assess costs, but determined award 

amounts for projects differently, used various cost limits and benchmarks to determine reasonableness of costs, and used widely varying criteria for basis boosts. 

Agencies also had processes in place to monitor compliance. However, some of these 

practices raised concerns. 

Agencies Implemented Requirements for Allocation Plans and Award Credits in 

Varying Ways 

In our 2016 report, we generally found that allocating agencies implemented requirements for QAPs in varying ways and had processes in place to meet requirements for awarding the tax credit. 

• Based on our 2016 review of 58 QAPs and our 9 site visits, we found the QAPs 

did not always contain, address, or mention preferences and selection criteria 

required in section 42. Rather, some allocating agencies incorporated the information into other LIHTC program documents, or implemented the requirements 

in practice. 

• While section 42 specifies some selection criteria (such as project location or tenant populations with special housing needs), it also more broadly states that a 

QAP set forth selection criteria ‘‘appropriate to local conditions.’’ As a result, allocating agencies have the flexibility to create their own methods and rating 

systems for evaluating applicants. We found that nearly all the allocating agencies that we reviewed used points or a threshold system for evaluating applicants. They used criteria such as qualifications of the development team, cost 

effectiveness, or leveraging of funds from other Federal or State programs. 

• According to section 42, allocating agencies must notify the chief executive officer (or the equivalent) of the local jurisdiction in which the project is to be located. However, some agencies imposed an additional requirement of letters of 

support from local officials. Specifically, as of 2013, we found that of the 58 

agencies in our review, 12 agencies noted that their review or approval of applications was contingent on letters of support, and another 10 agencies awarded 

points for letters of local support. HUD officials have cited fair housing concerns 

in relation to any preferences or requirements for local approval or support beVerDate Sep 11 2014 20:17 Jul 27, 2018 Jkt 000000 PO 00000 Frm 00044 Fmt 6601 Sfmt 6621 R:\DOCS\30902.000 TIM
41 

8 IRS, Rev. Rul. 2016–29. 

9The credit the taxpayer can claim each year is determined by the following calculations: (1) 

eligible basis × applicable fraction = qualified basis; and (2) qualified basis × applicable percentage = annual credit amount. Qualified basis is the portion of a project’s total costs—excluding 

the costs of land, obtaining permanent financing, rent reserves, syndication, and marketing— 

allocable to units that meet section 42 requirements for rent, tenant income, and habitability. 

The applicable fraction is the lesser of the portion of qualified low-income units in relation to 

total rental units or the portion of total floor space dedicated to low-income units in relation 

to the total floor space of residential rental units. The applicable percentage is the discount factor needed to limit the present value of the credit available over a 10-year period to either 70 

percent or 30 percent of the qualified basis, depending on the characteristics of the housing. The 

credit percentages are adjusted monthly by IRS based on current interest rates. Under a special 

rule first enacted in 2008 and made permanent in 2015, the minimum percentage is 9 percent 

for the buildings eligible for the 70 percent credit. 10Our review examined plans from 2013 or the most recent QAP available. Allocating agencies we observed that did not describe cost limits in their QAPs still may have used cost limits 

or other factors as a measure of reasonableness in their actual application reviews and these 

may have been documented elsewhere. 11 A difficult development area is ‘‘any area designated by the Secretary of Housing and Urban 

Development as an area which has high construction, land, and utility costs relative to area median gross income.’’ 26 U.S.C. § 42(d)(5)(B)(iii)(I). The Housing and Economic Recovery Act of 

2008 amended section 42 and gave allocating agencies the discretion to designate any building, 

regardless of location, as eligible for a boost of up to 130 percent of the eligible basis. Although 

the boost is applied to the total eligible basis (as opposed to the total credit amount), the credit 

amount awarded increases (the actual increase to the credit award is less than 30 percent beContinued 

cause of the discriminatory influence these factors could have on where affordable housing is built. In December 2016, IRS issued a revenue ruling that clarified that section 42 neither requires nor encourages allocating agencies to reject 

all proposals that do not obtain the approval of the locality where the project 

developer proposes to place the project.8

Allocating agencies we visited for our 2016 report had processes in place to meet 

other section 42 requirements, including awarding credit to nonprofits and longterm affordability of projects. Allocating agencies must allocate at least 10 percent 

of the State housing credit ceiling to projects involving qualified nonprofit organizations. All nine allocating agencies we visited had a set-aside of at least 10 percent 

of credits to be awarded to projects involving nonprofits. Section 42 also requires 

allocating agencies to execute an extended low-income housing commitment of at 

least 30 years before a building can receive credits. For example, one allocating 

agency we visited required developers to sign agreements for longer extended-use 

periods, while some agencies awarded points to applications whose developers elect 

longer periods. 

Agencies We Reviewed Had Procedures to Assess Costs and Used Widely Varying Criteria for Basis Boosts 

Allocating agencies we reviewed for our 2016 report had procedures to assess 

costs, but determined award amounts for projects differently and used various cost 

limits and benchmarks to determine reasonableness of costs. All nine allocating 

agencies we visited required applicants to submit detailed cost and funding estimates, an explanation of sources and uses, and expected revenues as part of their 

applications. These costs were then evaluated to determine a project’s eligible basis 

(total allowable costs associated with depreciable costs in the project), which in turn 

determined the qualified basis and ultimately the amount of tax credits to be awarded.9

Reasonableness of costs. We found that allocating agencies had different ways 

for determining the reasonableness of project costs. Based on our analysis of 58 

QAPs and our 9 site visits, agencies had established various limits against which 

to evaluate the reasonableness of submitted costs, such as applying limits on development costs, total credit awards, developer fees, and builder’s fees.10 Section 42 

does not provide a definition of reasonableness of costs, giving allocating agencies 

discretion on how best to determine what costs are appropriate for their respective 

localities. 

Discretionary basis boosts. Allocating agencies commonly ‘‘boosted’’ the basis 

for projects, but used widely varying criteria for doing so. Section 42 notes that an 

increase or ‘‘boost’’ of up to 130 percent in the eligible basis can be awarded by an 

allocating agency to a housing development in a qualified census tract or difficult 

development area.11

42 

cause the award is determined by multiplying the applicable fraction by the total eligible basis, 

which is increased by the boost). 12We use ‘‘discretionary basis boosts’’ to describe boosts awarded to developments outside of 

qualified census tracts or difficult development areas. 13 H. Rept. No. 110–606, at 25 (2008). 14 National Council of State Housing Agencies, Report of the National Council of State Housing Agencies’ Housing Credit Task Force on Recommended Practices in Housing Credit Allocation 

and Underwriting (December 2011). 

According to our QAP analysis, 44 of 58 plans we reviewed included criteria for 

awarding discretionary basis boosts, with 16 plans explicitly specifying the use of 

basis boosts for projects as needed for financial or economic feasibility. The discretionary boosts were applied to different types of projects and on different scales (for 

example, statewide or citywide). 

• For example, we found one development that received a boost to the eligible 

basis for having received certain green building certifications, although the applicant did not demonstrate financial need or request the boost. The allocating 

agency told us that all projects with specified green building certifications received the boost automatically, as laid out in its QAP. At the time of our review, 

agency officials said that the agency had changed its practices to prevent automatic basis boosts from being applied and required additional checks for financial need. 

• In another QAP we reviewed, one agency described an automatic 130 percent 

statewide boost for all LIHTC developments. According to the officials, the automatic statewide boost remained in effect because officials made the determination that nearly all projects would need it for financial feasibility. 

Section 42 requires that allocating agencies determine that ‘‘discretionary basis 

boosts’’ were necessary for buildings to be financially feasible before granting them 

to developers.12 Section 42 does not require allocating agencies to document their 

analysis for financial feasibility (with or without the basis boost). However, legislative history for the Housing and Economic Recovery Act of 2008 included expectations that allocating agencies would set standards in their QAPs for which projects 

would be allocated additional credits, communicate the reasons for designating such 

criteria, and publicly express the basis for allocating additional credits to a project.13 In addition, NCSHA (a nonprofit advocating for State allocating agencies) recommends that allocating agencies set standards in their QAPs to determine eligibility for discretionary basis boosts and make the determinations publicly available.14

Agencies We Visited Had Processes for Monitoring Compliance 

In our 2016 report we found that the allocating agencies we visited had processes 

for and conducted compliance monitoring of projects consistent with section 42 and 

Treasury regulations. Treasury regulations require allocating agencies to conduct 

on-site physical inspections for at least 20 percent of the project’s low-income units 

and file reviews for the tenants in these units at least once every 3 years. In addition, allocating agencies must annually review owner certifications that affirm that 

properties continue to meet LIHTC program requirements. 

• Allocating agencies we visited followed regulatory requirements on when to conduct physical inspections and tenant file reviews. 

• Allocating agencies we visited generally used electronic databases to track the 

frequency of inspections, file reviews, and certifications, although most of these 

agencies documented these reviews on paper. 

• All the allocating agencies we visited had inspection and review processes in 

place to monitor projects following the 15-year compliance period, as required 

under section 42. Allocating agencies must execute an extended low-income 

housing commitment to remain affordable for a minimum of 30 years before a 

tax credit project can receive credits. After the compliance period is over, the 

obligation for allocating agencies to report to IRS on compliance issues ends and 

investors are no longer at risk for tax credit recapture. 

IRS OVERSIGHT OF LIHTC HAS BEEN MINIMAL

Our prior reports found IRS conducted few reviews of allocating agencies and had 

not reviewed how agencies determined basis boosts. Data on noncompliance were 

not reliable and IRS used little of the reported program information. IRS had not 

directly participated in an interagency initiative to augment HUD’s databases with 

43 

15 In GAO–15–330, we reported that IRS did not regularly review QAPs as it was the agency’s 

view that regular reviews of QAPs were outside the scope of its compliance responsibilities. 

LIHTC property inspection data. Both our 2015 and 2016 reports concluded that opportunities existed to enhance oversight of the LIHTC program, specifically by 

leveraging the knowledge and experience of HUD. 

IRS Conducted Few Reviews of Allocating Agencies and Had Not Reviewed How 

Agencies Determined Basis Boosts 

Few reviews of allocating agencies. In our 2015 report, we found that IRS had 

conducted seven audits (reviews) of allocating agencies from 1986 (inception of the 

program) through May 2015. In the audits, IRS found issues related to QAPs, including missing preferences and selection criteria. 

But in both our 2015 and 2016 reports, IRS officials stated that they did not regard a regular review of QAPs as part of their responsibilities as outlined in section 

42 and therefore did not regularly review the plans.15 IRS officials said that allocating agencies have primary responsibility to ensure that the plans meet section 

42 preferences and selection criteria. IRS officials noted that review of a QAP to determine if the plan incorporated the elements specified in section 42 could occur if 

IRS were to audit an allocating agency. 

No review of agencies’ discretionary basis boosts. In our 2016 report, we 

found IRS had not reviewed the criteria allocating agencies used to award discretionary basis boosts. The use of basis boosts has implications for LIHTC housing 

production because of the risk of oversubsidizing projects, which would reduce the 

amount of the remaining allocable subsidies and yield fewer LIHTC projects overall 

within a State. 

IRS also had not provided guidance to agencies on how to determine the need for 

the additional basis to make projects financially feasible. IRS officials told us that 

section 42 gives allocating agencies the discretion to determine if projects receive a 

basis boost and does not require documentation of financial feasibility. Additionally, 

IRS officials explained that because the overall amount of subsidies allocated to a 

State is limited, the inherent structure of the program discourages States from oversubsidizing projects. However, during our 2016 review, we observed a range of practices for awarding discretionary basis boosts, including a blanket basis boost that 

could result in fewer projects being subsidized and provide more credits than necessary for financial feasibility. We concluded that because IRS did not regularly review QAPs, many of which list criteria for discretionary basis boosts, IRS was unable to determine the extent to which agency policies could result in oversubsidizing 

of projects. 

Some Program Data Were Not Reliable and IRS Used Little of Reported Program 

Information 

Unreliable data. We reported in 2015 that IRS had not comprehensively captured information reported for the program in its Low-Income Housing Credit database and the existing data were not complete and reliable. IRS guidance requires 

the collection of data on the LIHTC program in an IRS database, which records information submitted by allocating agencies and taxpayers on three forms. The forms 

include: 

• Credit allocation and certification (Form 8609). The two-part form is completed by the allocating agency and the taxpayer. Agencies report the allocated 

amount of tax credits available over a 10-year period for each building in a 

project. The taxpayer reports the date on which the building was placed in service (suitable for occupancy). 

• Noncompliance or building disposition (Form 8823). Allocating agencies 

must complete and submit this form to IRS if an on-site physical inspection of 

a LIHTC project finds any noncompliance. The form records any findings (and 

corrections of previous findings) based on the inspection of units and review of 

the low-income tenant certifications. 

• Annual report (Form 8610). IRS staff review the reports to ensure allocations 

do not exceed a statutorily prescribed ceiling for that year. 

Based on our analysis of the information in the database, we found in 2015 that 

the data on credit allocation and certification information were not sufficiently reliable to determine if basic requirements for the LIHTC program were being 

achieved. For example, we could not determine how often LIHTC projects were 

placed-in-service within required time frames. We concluded that without improveVerDate Sep 11 2014 20:17 Jul 27, 2018 Jkt 000000 PO 00000 Frm 00047 Fmt 6601 Sfmt 6621 R:\DOCS\30902.000 TIM
44 

ments to the data quality of credit allocation and certification information, it was 

difficult to determine if credit allocation and placed-in-service requirements had 

been met by allocating agencies and taxpayers, respectively. Thus, we recommended 

that IRS should address weaknesses identified in data entry and programming controls to ensure reliable data are collected on credit allocations. 

At the time of our 2015 report, IRS acknowledged the need for improvements in 

its controls and procedures (including data entry and quality reviews). IRS officials 

agreed that these problems should be corrected and data quality reviews should be 

conducted on an ongoing basis. As of March 2017, in response to our recommendation, IRS officials said that they had explored possibilities to improve the database, 

which not only houses credit allocation information, but also data from noncompliance and building disposition forms. Specifically, IRS is working to move the database to a new and updated server, which will address weaknesses identified in data 

entry and programming controls. IRS expects to complete the data migration step 

by early fall of 2017. Until IRS implements its plan to improve the data, this recommendation will remain open. 

Limited noncompliance data, analysis, and guidance on reporting. We 

found in our 2015 and 2016 reports that IRS had done little with the information 

it collects on noncompliance. IRS had captured little information from the Form 

8823 submissions in its database and had not tracked the resolution of noncompliance issues or analyzed trends in noncompliance. As of April 2016, the database included information from about 4,200 of the nearly 214,000 Form 8823s IRS received 

since 2009 (less than 2 percent of forms received). 

For our 2015 report, officials told us the decision was made during the 2008–2009 

time frame to input information only from forms that indicated a change in building 

disposition, such as a foreclosure. IRS focused on forms indicating this change for 

reasons including the serious nature of the occurrence for the program and impacts 

on taxpayers’ ability to receive credit. Officials also stated it was not cost effective 

to input all the form information and trend analysis on all types of noncompliance 

was not useful for purposes of ensuring compliance with the tax code. 

In addition, as we reported in both 2015 and 2016, IRS had assessed little of the 

noncompliance information collected on the Form 8823 or routinely used it to determine trends in noncompliance. Because little information was captured in the LowIncome Housing Credit database, IRS was unable to provide us with program-wide 

information on the most common types of noncompliance. Furthermore, IRS had no 

method to determine if issues reported as uncorrected had been resolved or if properties had recurring noncompliance issues. 

In our 2016 report, we also found inconsistent reporting on the noncompliance 

forms, the reasons for which included conflicting IRS guidance, different interpretations of the guidance by allocating agencies, and lack of IRS feedback about agency 

submissions. 

• IRS developed guidelines for allocating agencies to use when completing the 

Form 8823, the ‘‘fundamental purpose’’ of which was identified as providing 

standardized operational definitions for the noncompliance categories listed on 

the form. The IRS guide adds that it is important that noncompliance be consistently identified, categorized, and reported and notes that the benefits of consistency included enhanced program administration by IRS. 

• Allocating agencies we visited had various practices for submitting Form 8823 

to IRS, including different timing of submissions, reporting on all violations 

(whether minor or corrected during inspections) or not, and amounts of additional detail provided. Partly because of these different practices, the number 

of forms each of the nine agencies told us they sent to IRS in 2013 varied from 

1 to more than 1,700. 

We concluded that without IRS clarification of when to send in the Form 8823, 

allocating agencies will continue to submit inconsistent noncompliance data to IRS, 

which will make it difficult for IRS to efficiently distinguish between minor violations and severe noncompliance, such as properties with health and safety issues. 

We recommended that IRS should clarify what to submit and when—in collaboration with the allocating agencies and Treasury—to help IRS improve the quality of 

the noncompliance information it receives and help ensure that any new guidance 

is consistent with Treasury regulations. 

In August 2016, IRS stated it would review the Form 8823 Audit Technique Guide 

to determine whether additional guidance and clarification were needed for alloVerDate Sep 11 2014 20:17 Jul 27, 2018 Jkt 000000 PO 00000 Frm 00048 Fmt 6601 Sfmt 6621 R:\DOCS\30902.000 TIM
45 

16The Rental Policy Working Group comprises representatives from the White House Domestic Policy Council, National Economic Council, Office of Management and Budget, HUD, Treasury, the Department of Agriculture, and the Department of Justice. 

cating agencies to report noncompliance information on the form. If published legal 

guidance is required, IRS stated that it will submit a proposal for such guidance 

for prioritization. IRS indicated an expected implementation date by November 

2017. In addition, in March 2017, officials stated that IRS Counsel attended an industry conference with allocating agencies at which issues related to the Form 8823 

were discussed. 

Lack of participation in data initiative. Moreover, in our 2016 report we 

found IRS had not taken advantage of the important progress HUD made through 

the Rental Policy Working Group (working group)—which was established to better 

align the operation of Federal rental policies across the administration—to augment 

its databases with LIHTC property inspection data.16 This data collection effort created opportunities for HUD to share inspection data with IRS that could improve 

the effectiveness of reviews for LIHTC noncompliance. However, the IRS Small 

Business/Self-Employed Division managing the LIHTC program had not been involved in the working group. We concluded that such involvement would allow IRS 

to leverage existing resources, augment its information on noncompliance, and better understand the prevalence of noncompliance. 

We recommended that staff from the division participate in the physical inspection initiative of the working group and also recommended that the IRS Commissioner evaluate how IRS could use HUD’s real estate database, including how the 

information might be used to reassess reporting categories on Form 8823 and reassess which categories of noncompliance information to review for audit potential. As 

of March 2017, IRS had implemented our recommendation to include the appropriate staff at the working group meetings. However, IRS officials stated that since 

HUD’s database with property inspection data was not complete as of March 2017 

and contained data from 30 States, it was unclear how the database could be used. 

IRS officials said they would continue exploring the HUD database if the data for 

all LIHTC properties were included and it was possible to isolate the LIHTC property data from other rental properties in the HUD database. 

Leveraging Experience of HUD May Augment IRS’s Capacity to Oversee Program 

Both our 2015 and 2016 reports found that opportunities existed to enhance oversight of the LIHTC program, specifically by leveraging the knowledge and experience of HUD. We found in 2015 that while LIHTC is the largest Federal program 

for increasing the supply of affordable rental housing, LIHTC is a peripheral program in IRS in terms of resources and mission. Oversight responsibilities for the 

program include monitoring allocating agencies and taxpayer compliance. However, 

as we have discussed previously, IRS oversight has been minimal and IRS has captured and used little program information. As we previously stated, such information could help program managers and congressional decision makers assess the 

program’s effectiveness. 

HUD—which has a housing mission—collects and analyzes information on lowincome rental housing, including LIHTC-funded projects. As we reported in 2015, 

HUD’s role in the LIHTC program is generally limited to the collection of information on tenant characteristics (mandated by the Housing and Economic Recovery Act 

of 2008). However, it has voluntarily collected project-level information on the program since 1996 because of the importance of LIHTC as a source of funding for affordable housing. HUD also has sponsored studies of the LIHTC program that use 

these data. HUD’s LIHTC databases, the largest Federal source of information on 

the LIHTC program, aggregates project-level data that allocating agencies voluntarily submit and information on tenant characteristics that HUD must collect. 

Since 2014, HUD also has published annual reports analyzing data it must collect 

on tenants residing in LIHTC properties. As part of this report, HUD compares 

property information in its tenant database to the information in its property database to help assess the completeness of both databases. 

In our 2015 report, we also discussed HUD’s experience in working with allocating 

agencies. While multiple Federal agencies administer housing-related programs, 

HUD is the lead Federal agency for providing affordable rental housing. Much like 

LIHTC, HUD’s rental housing programs rely on State and local agencies to implement programs. HUD is responsible for overseeing these agencies, including reviewing State and local consolidated plans for the HOME Investment Partnership and 

Community Development Block Grant programs—large grant programs that also 

46 

1See GAO, ‘‘Low-Income Housing Tax Credit: Some Agency Practices Raise Concerns and IRS 

Could Improve Noncompliance Reporting and Data Collection,’’ GAO–16–360 (Washington, DC: 

are used to fund LIHTC projects. HUD also has experience in directly overseeing 

allocating agencies in their roles as contract administrators for project-based section 

8 rental assistance. HUD has processes, procedures, and staff in place for program 

evaluation and oversight of State and local agencies that could be built upon and 

strengthened. 

In our 2015 report, we concluded that significant resource constraints affected 

IRS’s ability to oversee taxpayer compliance and precluded wide-ranging improvement to such functions, but that IRS still had an opportunity to enhance oversight 

of LIHTC. We also concluded that leveraging the experience and expertise of another agency with a housing mission, such as HUD, might help offset some of IRS’s 

limitations in relation to program oversight. HUD’s existing processes and procedures for overseeing allocating agencies could constitute a framework on which further changes and improvements in LIHTC could be effected. However, enhancing 

HUD’s role could involve additional staff and other resources. An estimate of potential costs and funding options for financing enhanced Federal oversight of the 

LIHTC program would be integral to determining an appropriate funding mechanism. 

We asked that Congress consider designating HUD as a joint administrator of the 

program responsible for oversight. As part of the deliberation, we suggested that 

Congress direct HUD to estimate the costs to monitor and perform the additional 

oversight responsibilities, including a discussion of funding options. Treasury agreed 

that it would be useful for HUD to receive ongoing responsibility for, and resources 

to perform, research and analysis on the effectiveness of LIHTCs in increasing the 

availability of affordable rental housing. Treasury noted that such research and 

analysis are not part of IRS’s responsibilities or consistent with its expertise in interpreting and enforcing tax laws. However, Treasury stated that responsibility for 

interpreting and enforcing the code should remain entirely with IRS. Our report 

noted that if program administration were changed, IRS could retain certain key responsibilities consistent with its tax administration mission. 

In our 2016 report, we concluded that IRS oversight of allocating agencies continued to be minimal, particularly in reviewing QAPs and allocating agencies’ practices 

for awarding discretionary basis boosts. As a result, we reiterated the recommendation from our 2015 report that Congress should consider designating HUD as a joint 

administrator of the program responsible for oversight due to its experience and expertise as an agency with a housing mission. 

In response to our 2016 report, HUD stated it remains supportive of mechanisms 

to use its significant expertise and experience administering housing programs for 

enhanced effectiveness of LIHTC. HUD also stated that enhanced interagency coordination could better ensure compliance with fair housing requirements and improve alignment of LIHTC with national housing priorities. As of July 2017, Congress had not enacted legislation to give HUD an oversight role for LIHTC. 

Chairman Hatch, Ranking Member Wyden, and members of the committee, this 

concludes my prepared statement. I would be happy to respond to any questions 

that you may have at this time. 

QUESTIONS SUBMITTED FOR THE RECORD TO DANIEL GARCIA-DIAZ

QUESTION SUBMITTED BY HON. ORRIN G. HATCH

Question. Are there any best practices or other recommendations you have for requirements based on oversight done at the State housing agency level we could put 

in legislation for State housing agencies to follow? 

Would you recommend any requirements be put in legislation or are there other 

ways to address the oversight question? 

Answer. In our 2015 and 2016 reports, we reviewed oversight done by the Internal Revenue Service (IRS) and State and local housing finance agencies (allocating 

agencies) on the Low-Income Housing Tax Credit (LIHTC) program. We made multiple recommendations to IRS for improving oversight as well as asked Congress to 

consider designating the Department of Housing and Urban Development (HUD) as 

a joint administrator of the program responsible for oversight.1 We discuss these in 

47 

May 11, 2016); and ‘‘Low-Income Housing Tax Credit: Joint IRS–HUD Administration Could 

Help Address Weaknesses in Oversight,’’ GAO–15–330 (Washington, DC: July 15, 2015). 2GAO, ‘‘Low-Income Housing Tax Credit: Actions Needed to Strengthen Oversight and Accountability,’’ GAO–17–784T (Washington, DC: Aug. 1, 2017). 

more detail below, along with other GAO work underway on development costs 

under the LIHTC program. 

Leveraging HUD to Improve Oversight. In 2016, we reported that selected allocating agencies implemented requirements for Qualified Allocation Plans (QAPs) 

in varying ways and had processes in place to meet requirements for awarding credits. Allocating agencies also had procedures to assess costs, but determined award 

amounts for projects differently, used various cost limits and benchmarks to determine reasonableness of costs, and used varying criteria for basis boosts. Agencies 

also had processes in place to monitor compliance. My testimony on August 1, 2017, 

and our 2015 and 2016 reports stated these variations and some of the concerns 

raised.2 For example, all the required selection criteria and preferences in the Internal Revenue Code were not always listed in the QAP documents we reviewed (we 

noted that they could be documented in other publicly available sources) and some 

allocating agencies required local letters of support, which can lead to fair housing 

concerns. 

In our 2015 and 2016 reports, we stated that oversight of the program was minimal with IRS performing seven audits of all 58 allocating agencies since 1986. Examples of the IRS audit findings included allocating agencies’ policies that conflicted 

with the Internal Revenue Code; QAP did not address all compliance requirements 

or was outdated; annual report to IRS had incorrect credit allocations; failure to report noncompliance to IRS; and physical inspections and tenant file reviews were 

not completed as required. IRS cited multiple reasons for not conducting regular reviews of QAPs and audits of allocating agencies, including not regarding regular review of QAPs as a part of its compliance responsibilities and competing priorities 

for resources and staffing. We found that without regular monitoring of allocating 

agencies, IRS could not determine the extent to which agencies comply with program requirements. 

In our comparison of tax credit programs (similar in purpose and structure of 

LIHTC) in our 2015 report, we found that these programs were jointly administered 

by IRS and a Federal agency to conduct monitoring, report on performance, and collect data. These other Federal agencies had missions consistent with the purposes 

of the tax credit programs. For example, the National Park Service’s Technical Preservation Services (TPS) administers the Historic Rehabilitation Tax Credit program 

and the Department of the Treasury’s (Treasury) Community Development Financial Institutions (CDFI) Fund administers the New Markets Tax Credit program. As 

part of its oversight, TPS directly oversaw State entities through on-site inspections 

of projects, and the CDFI Fund performed programmatic- and risk-based compliance 

site visits of the private-sector partner entities that monitor investments. Further, 

TPS and the CDFI Fund published annual reports and worked with research institutions to conduct additional evaluation of the programs. The LIHTC program does 

not have a Federal agency that jointly administers the program. 

We stated that Congress should consider designating HUD as a joint administrator of the program responsible for oversight given its experience and expertise 

as the Nation’s lead housing agency. Specifically, applying HUD’s experience in administering affordable housing programs to address areas such as QAP review, Federal fair housing goals, and tenant income and rent issues would provide information, analysis, and potentially guidance on issues that apply across all allocating 

agencies. We also stated that HUD has processes, procedures, and staff in place for 

program evaluation and oversight of State and local agencies that could be built 

upon and strengthened. IRS would retain certain key responsibilities consistent 

with its tax administration mission. 

Strengthening Data Collection and Noncompliance Reporting. We found in 

2015 that the data on credit allocation and certification information were not sufficiently reliable to determine if basic requirements for the LIHTC program were 

being achieved. For example, we could not determine how often LIHTC projects 

were placed in service within required time frames. We concluded that without improvements to the data quality of credit allocation and certification information, it 

was difficult to determine if credit allocation and placed-in-service requirements had 

been met by allocating agencies and taxpayers, respectively. Thus, we recommended 

that IRS should address weaknesses identified in data entry and programming conVerDate Sep 11 2014 20:17 Jul 27, 2018 Jkt 000000 PO 00000 Frm 00051 Fmt 6601 Sfmt 6621 R:\DOCS\30902.000 TIM
48 

3GAO, ‘‘Federal Housing Administration: Agency Should Assess the Effects of Proposed 

Changes to the Manufactured Home Loan Program,’’ GAO–07–879 (Washington, DC: Aug. 24, 

2007); ‘‘Manufactured Housing Standards: Testing and Performance Evaluation Could Better 

Ensure Safe Indoor Air Quality,’’ GAO–13–52 (Washington, DC: Oct. 24, 2012); and ‘‘Manufactured Housing: Efforts Needed to Enhance Program Effectiveness and Ensure Funding Stability,’’ GAO–14–410 (Washington, DC: July 2, 2014). 

trols to ensure reliable data are collected on credit allocations. As we stated in the 

testimony, this recommendation remains open. 

We found that select allocating agencies we visited for our 2016 report had varying practices for monitoring and submitting noncompliance information to IRS using 

the Form 8823 (report of noncompliance or building disposition). For example, the 

Illinois and Massachusetts allocating agencies had both inspected about 200 properties in 2013, but Illinois filed only one Form 8823 with IRS in that year, while 

Massachusetts had filed almost 100 forms in the same year. As a result, in order 

to receive more consistent information on LIHTC noncompliance, we recommended 

the IRS Commissioner should collaborate with the allocating agencies to clarify 

when allocating agencies should report such information on the Form 8823. Additionally, IRS should collaborate with Treasury in drafting such clarifications to help 

ensure that any new guidance is consistent with Treasury regulations. As we stated 

in the testimony, this recommendation remains open. 

Tracking and Analyzing Development Cost Information. We are conducting 

a review of development costs under the LIHTC program, including reviewing development cost data and allocating agencies’ approaches to managing these costs. Because there is no national database of project costs, we are currently building a 

database of nearly 2,000 projects (from 12 different allocating agencies) that were 

completed from 2011 through 2015. This effort has required discussions with allocating agencies to determine standard definitions of variables, consolidation of data 

across allocating agencies, and manual entry of data into the database. While our 

work on development costs is ongoing, we have observed variation in how allocating 

agencies manage development costs. For example, some of the allocating agencies 

we spoke to incorporate several types of cost management measures into their 

project selection criteria, while others incorporate fewer. These cost management 

measures include cost or credit limits by region or development type, competitive 

points for lower-cost or more cost-efficient projects, and cost-based tie breaker criteria. As we mentioned earlier, our 2016 report found that allocating agencies had 

procedures to assess costs, but determined award amounts for projects differently 

and used various cost limits and benchmarks to determine reasonableness of costs. 

The demand for affordable housing among low-income renters far exceeds the 

amount of assistance available. Thus, understanding and managing costs are important in ensuring that scarce Federal resources are used as efficiently and effectively 

as possible. 

QUESTION SUBMITTED BY HON. TIM SCOTT

Question. Manufactured housing is a topic that often goes unmentioned in the affordable housing discussion. One in five homes in South Carolina are prefabricated. 

That’s the highest percentage of any State. At the same time, the average household 

income for a manufactured home owner is $30,000 versus the $52,000 national average. The folks that buy manufactured housing are the least equipped to deal with 

rising costs. A 2014 GAO study found that ‘‘high financing costs often keep these 

homes from being even more affordable.’’ 

What conclusions did the GAO reach on improving manufactured housing affordability? 

Answer. GAO has published three reports on manufactured housing in the last 

several years.3 As you note, in our 2014 report, we found that owners of manufactured homes tended to have both lower incomes than other homeowners and lower 

monthly housing costs than site-built owners and apartment renters. However, high 

financing costs often keep these homes from being even more affordable. Our report 

stated that owners of manufactured homes are more likely to have higher-priced financing than owners of site-built homes. Unlike site-built homes, which are titled 

as real property and usually financed through a mortgage, a manufactured home 

may be financed as either personal or real property. When a home buyer purchases 

a manufactured home without tying the purchase to land, the home is generally conVerDate Sep 11 2014 20:17 Jul 27, 2018 Jkt 000000 PO 00000 Frm 00052 Fmt 6601 Sfmt 6621 R:\DOCS\30902.000 TIM
49 

sidered personal property, or chattel—that is, it is a movable, ‘‘personal’’ possession, 

much like an automobile. 

We found there are several reasons for the high cost of financing for manufactured homes. Manufactured homes are sometimes grouped together in communities 

where residents may either own or lease the home, but lease the land. When a manufactured home is attached to the underlying land by a permanent foundation and 

the home and the land are treated as a single real estate title under State law, the 

home is considered real property. In such instances, the borrowers can obtain a conventional real estate loan or a government-guaranteed mortgage through traditional 

mortgage lenders. HUD’s Federal Housing Administration (FHA) has two insurance 

programs for manufactured home loans. Although most manufactured homes are titled or owned as personal property, HUD’s programs primarily insure loans on manufactured homes financed as real estate. 

We found that another reason for high financing cost of manufactured homes was 

related to the securitization of manufactured housing on the secondary market. In 

our 2014 report, we discussed limited liquidity options for lenders through the secondary market. Ginnie Mae offers a mechanism to securitize manufactured home 

loans. Although the agency had experienced losses in the past, a Ginnie Mae official 

explained that the agency had conducted outreach to lenders to increase participation in the program. Further, we noted that Fannie Mae and Freddie Mac (the enterprises), which guarantee and purchase loans from mortgage lenders, play less of 

a role in providing liquidity to lenders of manufactured home loans than they do 

in providing liquidity to lenders of loans on other single-family properties. One lender of manufactured home loans cited certain underwriting constraints that limited 

their participation in Fannie Mae and Freddie Mac programs. For example, Fannie 

Mae requires an appraisal of the manufactured home with comparable local manufactured homes titled as real estate, a requirement that can be challenging, particularly in rural areas with relatively few homes and where many manufactured homes 

are titled as personal property. Fannie Mae and Freddie Mac do not purchase loans 

for manufactured homes titled as personal property. Because of these constraints, 

most financing for manufactured homes, whether chattel or real property, is provided through private lenders. 

Finally, we found that HUD had not developed a plan to review the effectiveness 

of the FHA programs for manufactured homes. Noting that the higher cost of financing manufactured homes can limit their potential affordability, we concluded that 

such reviews would allow HUD to identify (1) potential changes to its mortgage insurance programs that would further promote the affordability of manufactured 

homes or (2) efforts to determine the potential for the enterprises and Ginnie Mae 

to actively develop and implement better secondary market securitization programs 

for manufactured home loans. We concluded that without analysis and research into 

the financing mechanism as it relates to the affordability of manufactured housing, 

HUD had little assurance that its loan programs and the securitization programs 

of Ginnie Mae and the enterprises were appropriately promoting the availability of 

affordable manufactured homes. As a result, GAO recommended that HUD develop 

a plan to assess how FHA financing might further promote the affordability of manufactured homes and identify the potential for better securitization of manufactured 

housing financing. As of August 2017, we are still awaiting an update from HUD 

on the recommendation. Therefore, this recommendation remains open. We plan to 

continue to follow up with HUD on the status of this recommendation. 

PREPARED STATEMENT OF HON. ORRIN G. HATCH, 

A U.S. SENATOR FROM UTAH

WASHINGTON—Senate Finance Committee Chairman Orrin Hatch (R–Utah) today 

delivered the following opening statement at a hearing to examine effective ways 

to increase access to affordable housing: 

This is an important issue, and this hearing will allow the committee to hear from 

experienced and well-educated witnesses who can provide more context on our affordable housing policies and the sections of the tax code that were written with the 

intent of mitigating this long-time problem in our society. 

As many of you are aware, the last time we underwent a national, comprehensive 

revision of the tax code was in 1986, with the passage of the Tax Reform Act. At 

that time, affordable housing tax incentives were baked into statute, with the LowIncome Housing Tax Credit being chief among them. 

50 

Since then, this important section of the tax code has enjoyed bipartisan support. 

Still, it is worth examining the law as we continue to ramp up our work on tax reform. 

Throughout today’s hearing, I want each member to keep in mind some guiding 

principles for tax reform. I’ve repeated these principles quite a bit in recent years. 

But, for those in the audience who may not have heard me mention them, the principles are: fairness, efficiency, simplicity, and American competitiveness. 

These principles are important within the context of affordable housing tax policy 

because they should be able to help us improve upon what is currently in the code. 

I know the prospect of more oversight can be seen as a challenge, but I think we 

should all view this examination as an opportunity to determine where we can improve. 

While some sections of the tax code have undergone changes in the past three decades, solutions on affordable housing remain as elusive as ever. 

There seem to remain many households facing cost burdens associated with renting, with perhaps as much as 26 percent of renter households having paid more 

than half of their incomes in rent in 2015, for example. And the burdens seem to 

fall heavily on lower-income households. 

And this is not just simply a problem of arithmetic. In 2015, 25 million children 

lived in households in which rent comprised a fairly large share of household income. 

This is a problem that should be ready for a bipartisan solution. We’ve already 

introduced bipartisan legislation to address some of these issues. And, many are 

hopeful that cooperation on these efforts will continue. I believe they will. 

With that, I would just like to thank everyone for attending today and I look forward to hearing from our distinguished panel of witnesses. 

PREPARED STATEMENT OF GRANGER MACDONALD, CHAIRMAN, BOARD OF DIRECTORS, 

NATIONAL ASSOCIATION OF HOME BUILDERS

On behalf of the approximately 140,000 members of the National Association of 

Home Builders (NAHB), I appreciate the opportunity to testify today. 

My name is Granger MacDonald, and I am CEO of the MacDonald Companies 

based in Kerrville, TX. I am a proud second-generation builder with 40 years of experience in real estate development. I run the business my parents founded in the 

mid-1950s to meet post-war demand for affordable housing. My son Justin serves 

as president of our business, continuing our family legacy. 

Our company specializes in the construction and management of affordable rental 

housing, and we currently own and manage 4,700 units in 41 communities in 25 

Texas cities. I have constructed affordable rental housing with the Low-Income 

Housing Tax Credit (LIHTC) since 1997. I am proud to have committed my life’s 

work to providing safe, decent, affordable housing to thousands of Texans. 

NAHB is a Washington, DC-based trade association focused on enhancing the climate for housing, homeownership and the residential building industry. We represent builders and developers who construct many types of housing—including 

single-family for-sale homes, affordable and market-rate rental apartments, and remodelers. About one-third of our members are builders and remodelers; the other 

two-thirds work in closely related specialties, such as sales and marketing, insurance, and financial services. 

NAHB is a member of the A Call To Invest in Our Neighborhoods (ACTION) 

Campaign, a grassroots coalition of over 2,000 national, State, and local organizations and businesses calling on Congress to protect, expand and strengthen the LowIncome Housing Tax Credit. 

While the housing industry continues to recover slowly from the Great Recession, 

housing affordability in both the single and multi-family markets has become a rising challenge in the industry. Multifamily housing affordability has reached crisis 

proportions. The number of renter households considered ‘‘severely cost burdened,’’ 

meaning they spend more than half of their monthly income on rent, is at an allVerDate Sep 11 2014 20:17 Jul 27, 2018 Jkt 000000 PO 00000 Frm 00054 Fmt 6601 Sfmt 6621 R:\DOCS\30902.000 TIM
51 

1 Harvard University Joint Center for Housing Studies (JCHS), ‘‘The State of the Nation’s 

Housing 2016.’’ 2 ‘‘America’s Rental Housing: Meeting Challenges, Building on Opportunities,’’ Joint Center for 

Housing Studies of Harvard University, 2011. Page 23. 3Page 23 and 21. 

4Page 24. 

5Page 5. 

time high of 11.4 million.1 That translates to more than one in four of all U.S. renters. 

I am grateful to the committee for focusing today’s hearing on this important 

issue. The tax code plays a major role in multifamily development, most visibly 

through the Low-Income Housing Tax Credit. 

The best solution to this crisis is to pass S. 548, the Affordable Housing Credit 

Improvement Act of 2017. This bipartisan bill provides needed additional resources 

and includes other reforms to promote the construction of affordable housing nationwide. 

AFFORDABLE HOUSING DEVELOPMENT REQUIRES POLICY SUPPORT

To understand what is needed to address the affordable housing crisis, you need 

to understand the challenges facing the development community. 

Let me be direct. Where there is housing demand, as a businessman, I want to 

supply that demand. But there is no magic wand to erase basic development costs. 

Fees, regulatory compliance, modern building and energy codes, building materials, 

land and labor costs determine whether a project is financially viable. If we want 

to provide affordable rental housing for lower-income households, it is financially 

impossible to do so without a subsidy. 

A 2011 study from the Harvard University Joint Center on Housing Studies reiterates this point: ‘‘[t]he rising costs of construction make it difficult to build new 

housing for lower-income households without a subsidy.’’ 2

In 2009, the median asking rent for new unfurnished apartments was $1,067; for 

minimum-wage workers, an affordable monthly rent using the 30% of income standard is just $377.3 The study calculated that to develop new apartments with rents 

affordable to households with incomes equivalent to the full-time minimum wage, 

the construction costs would have to be 28% of the current average.4

Without Federal assistance, it is financially infeasible to construct new, unsubsidized affordable rental units. The LIHTC is a critical program, and as noted in 

the study, ‘‘[a]t present, the Low-Income Housing Tax Credit (LIHTC) program is 

nearly alone in replenishing the affordable stock, supporting both new construction 

and substantial rehabilitation of existing properties including older assisted developments.’’ 5

We also need to recognize the important role affordable housing plays in our communities. There are meaningful social effects, which can be seen as middle- and 

lower-income Americans try to make ends meet. I see how affordable housing creates stability for my tenants and their families. My properties help to revitalize 

neighborhoods. Breaking the cycle of poverty starts with access to stable and affordable housing. 

The housing affordability crisis affects our economy as well. It costs us jobs, productivity and economic growth. I challenge everyone in this room to ask the owners 

of the small businesses you frequent about labor shortages. Housing affordability is 

critical in areas of the country experiencing robust economic growth. As the number 

of open, unfilled jobs grows, the operation of the housing market plays a key role 

in allowing individuals to relocate to areas where jobs need to be filled. And if we 

don’t address this issue, where do our employers find their workers? How do we 

grow the economy? 

And for our fellow citizens who want to realize the American dream, if they cannot afford to live where the economic opportunities are, we are just creating an economic divide based on housing ‘‘haves’’ and ‘‘have nots.’’ 

This isn’t complicated economics here. Simple supply and demand. To address it, 

we need to commit to increasing supply. That is why I respectfully ask you to support and pass S. 548. 

52 

6http://eyeonhousing.org/2016/12/top-posts-of-2016-regulation-is-24-3-percent-of-the-averagenew-home-price/. 7http://eyeonhousing.org/2017/06/duties-on-lumber-now-enough-to-threaten-thousands-of-u-sjobs/?_ga=2.116462790.1957391554.1501190622-192765943.1501190622. 8http://eyeonhousing.org/2016/06/more-builders-report-laborsubcontractor-shortages/. 

DEVELOPMENT COSTS ARE INCREASING: FACTORS DRIVING UP COSTS

Regulation 

Increasing costs due to regulation are a significant challenge for the residential 

construction industry. For example, regulatory costs at all levels of government now 

make up roughly 25% of the price of a home and have increased by one-third since 

2011.6 Costs incurred in the development stage alone account for over half of the 

cost of a finished site sold to a builder. At the local level, jurisdictions may charge 

permit, hook-up, and impact fees, and establish development and construction 

standards that either directly or indirectly increase costs to builders and developers. 

The Federal Government can also affect the price of a home. For example, the government may require permits for stormwater discharge on construction sites, which 

may lead to delays in addition to permit costs. 

Building Materials 

Building material price increases continue to outpace inflation by a wide margin, 

significantly increasing development costs nationwide. For example, since the start 

of this year, the industry average price of framing lumber has increased 18%. The 

cost of many softwood lumber products has risen well over 30% in the same period, 

and lumber futures suggest that prices are expected to keep climbing. The increase 

in softwood lumber prices adds nearly $500 to the development and acquisition cost 

of a typical multifamily unit.7

The costs of other materials used in residential construction have also risen significantly. Oriented strand board (OSB), commonly used as sheathing in walls, flooring, and roof decking, is nearly 30% more expensive than in August 2016. The price 

of drywall has also increased 9% over the same period. 

Labor Shortages 

Labor costs and availability remain large problems. In 2012, only 21% of builders 

reported labor cost or availability problems. That figure rose to 46% in 2014 and 

increased to 56% in 2016. The rate of construction job openings has risen substantially in the past year, meaning builders have available jobs but cannot find people 

to fill them.8 This translates into higher prices and/or construction delays, both of 

which increase project costs. 

Lot Shortages 

Another significant problem is the availability and supply of sites ready for construction. In a recent NAHB survey, 64% of builders cited site availability as ‘‘low’’ 

or ‘‘very low.’’ Unsurprisingly, the price of sites has gone up as well, with 65% of 

builders saying prices were ‘‘substantially’’ or ‘‘somewhat’’ higher than they were a 

year ago. Taken together, the cost and availability of sites was cited as a significant 

problem by more than 60% of builders in 2016, a nearly threefold increase from 

2011, when only 21% of builders identified site supply as an issue. 

There are many inputs that go into developing a multi-family project, and they 

have all increased in price in the past few years. This adds to the strain of the existing affordable housing resources. Put simply, projects require additional financial 

support, yet financial resources remain either flat or have been significantly reduced, as in the case of Federal programs like HOME. 

THE LIHTC IS A SUCCESS STORY, BUT DEMAND EXCEEDS RESOURCES

The Low-Income Housing Tax Credit (LIHTC) was created during the Reagan administration as part of the Tax Reform Act of 1986 as a more effective mechanism 

to produce affordable rental housing. It is the most successful affordable rental 

housing production program in U.S. history. Since its inception, the LIHTC has produced and financed more than 2.9 million affordable apartments. As LIHTC properties must generally remain affordable for 30 years or longer, they provide longterm rent stability for low-income households around the country. But the demand 

for affordable housing is acute and exceeds the availability of financing through the 

LIHTC program. 

The LIHTC is a unique private-public partnership. The benefits of this structure 

are evident in the quality of the projects. Moreover, NAHB estimates that the 

53 

9 ‘‘America’s Rental Housing: Meeting Challenges, Building on Opportunities,’’ Joint Center for 

Housing Studies of Harvard University, 2011. Page 6. http://www.jchs.harvard.edu/publications/rental/rh11_americas_rental_housing/AmericasRentalHousing-2011.pdf. 10 2014 NCSHA State FHA Factbook. Page 111. 11Page 94. 12State HFA Factbook: 2008 NCSHA Annual Survey Results. Page 92. 13State HFA Factbook: 2006 NCSHA Annual Survey Results. Page 88. 

LIHTC program in a typical year supports 95,000 new, full-time jobs, adds $7.1 billion to the economy, and generates approximately $2.8 billion in Federal, State, and 

local tax revenue. Unfortunately, the supply of private, affordable housing stock is 

rapidly shrinking. According to a 2011 Harvard study: 

. . . the private low-cost stock is rapidly disappearing. Of the 6.2 million vacant 

or for-rent units with rents below $400 in 1999, 11.9% were demolished by 

2009. Upward filtering to higher rent ranges, conversions to seasonal or nonresidential use, and temporary removals because of abandonment added to the 

losses. On net, more than 28% of the 1999 low-cost stock was lost by 2009.9

And the private marketplace needs a subsidy to build new construction to replace 

those lost units. 

While no program is perfect, the LIHTC works incredibly well. Its public-private 

partnership model is one that frankly should be replicated in other government programs. When I start a LIHTC project, my investors and I assume all the risk. If 

the project fails, the taxpayer is protected, as the IRS can and will reclaim the tax 

credits. Since the investors cannot claim the credits until after the project is placed 

in service, it is the rare public program where the taxpayer gets what they are paying for, or the taxpayer does not pay. 

A key component to the LIHTC’s success is the flexibility the State agencies have 

to target specific types of affordable housing developments. For example, a State 

with a large population of seniors may offer a developer bonus points on an application for focusing on senior housing. Nationally, in 2014, approximately 27% of 

LIHTCs were directed to senior housing.10 Other targeted projects include assisted 

living; family housing; homeless; and housing for the disabled. This flexibility allows 

each State to determine what types of affordable housing are best suited to the demographics of their State, rather than applying a single, national standard. Ultimately, however, a lot of needs are not being met as demand simply outstrips the 

availability of credits. 

As the map below shows, every State has a large population of rent-burdened 

households. Correspondingly, demand for credits greatly outstrips the resources 

available. According to the most recent annual survey released by the National 

Council of State Housing Agencies (NCSHA), State housing finance agencies generally receive more than $2 in requests for every $1 in LIHTCs available. In 2014, 

State agencies received applications for $1,836,172,240 in credits. Total allocations 

were $775,844,195. This means that for every tax credit allocated, there was a demand for approximately 2.4 tax credits.11

But this does not tell the whole story. As an experienced developer, I will not submit applications for viable projects when there are inadequate resources to support 

it. So there is a shadow demand for credits not reflected in the above data. 

Nationally, demand varies somewhat from year to year but generally remains 

high. It is useful to compare the 2014 national numbers against 2008, 2008 was the 

height of the financial crisis, and multifamily development was at a low point. Many 

traditional LIHTC project investors were not investing, which made putting together deals much more challenging. Nationally, there were applications for 

$1,873,311,018 in credits. Credits allocated were $939,924,853.12 Even in one of the 

most challenging times for real estate development, demand was still double the 

amount of available credits. 

Looking back to better times in 2006, there were applications for $1,509,779,928 

in credits. Credits allocated were $691,073,326,13 2006 had approximately $2.20 in 

credit requests for every $1 available. We can see over several years and in different 

economic environments, demand for tax credits remained steady at double or more 

of the available credits. 

54 

14 ‘‘The Low Income Housing Tax Credit: Assessment of Program Performance and Comparison to Other Federal Affordable Rental Housing Subsidies,’’ by Novogradac and Company, LLP, 

2011, page 4. https://www.novoco.com/sites/default/files/atoms/files/special_report_lihtc_ 

assessment_program_performance_052313.pdf. 

LIHTC development remains stable because the need for affordable housing is significant. Consistent demand for credits also reflects the advantage of creating this 

credit in the tax code. Investors have confidence in the predictability of the tax code, 

which allow LIHTC developments to continue even during economic downturns. The 

LIHTC enables a fairly constant supply of affordable housing, as well as a financing 

mechanism that ensures long-term operation of affordable housing. In fact, LIHTC 

tax credit projects outperform the rest of the multifamily housing sector in one key 

measure: the annualized foreclosure rate. This rate is less than one-tenth of a percent 14 and a third of the rate for other multifamily properties. The success of these 

projects partially reflects the ever-present threat that the government can recapture 

tax credits if the project fails. 

To start meeting the growing and significant demand for affordable rental housing, we must increase resources supporting production. S. 548 takes a significant 

and needed step to boost supply by increasing LIHTC allocations by 50%. NAHB 

estimates that based on the estimates of the bill’s sponsor that enacting 

S. 548 would result in an additional 400,000 LIHTC units over the next 10 years, 

the economic effects from that construction would increase Federal tax revenue by 

$11.4 billion and State and local revenues by $5.6 billion over 10 years. 

Failure to take action now will only deepen the crisis. Rental housing demand remains solid, and more housing is needed to help address growing affordability challenges. For example, the peak age of the Millennials is approximately age 27. While 

historically the typical age of a first-time home buyer is just above age 30, we can 

expect continued demand for rental housing in the years ahead. Absent new supply, 

this demand will increase rents and worsen existing affordability issues. 


080117.001
55 

COST CONTAINMENT: EFFECTIVELY UTILIZING EXISTING RESOURCES

Reducing and containing LIHTC development costs is a critical, yet difficult, balancing act. For starters, there are simply more fees associated with LIHTC development, which can account for 10% of the cost of a project. These fees are associated 

with compliance and necessary to ensure that the program is fulfilling its intended 

goals. Other trends which have understandable policy goals, such as locating affordable housing near transit hubs or in higher-income neighborhoods, result in higher 

development costs. Land costs tend to be significantly higher when constructing 

near transportation centers, and wealthier communities may require more expensive 

exterior architectural details to blend into the surrounding neighborhood. 

But we have also seen a growing trend towards gold-plating Qualified Allocation 

Plans (QAPs). Every State housing finance agency develops a QAP, which establishes the criteria used by the State for awarding tax credits. States have significant 

latitude to write a QAP to ensure that resources are meeting the unique affordable 

needs of each State. As mentioned earlier, a State QAP may steer more investment 

into affordable seniors housing, for example. This flexibility is important, but should 

have some limits. One troubling trend we are seeing is QAPs pushing energy efficiency requirements significantly above the current code requirements, which can 

greatly increase project costs. Pennsylvania, for example, is pushing for ‘‘net zero 

energy’’ projects, which is not even common in high-end single-family homes. 

A more cost-effective means of promoting energy efficiency is through tax incentives. While a number of energy efficiency tax credits, such as section 45L, the New 

Energy Efficient Home Tax Credit, have been allowed to expire, they were not utilized for LIHTC development because they required a basis adjustment. Because the 

total basis in a property determines the amount of LIHTCs a project can be awarded, using an energy tax credit that requires reducing basis in the project had the 

effect of reducing the amount of LIHTCs the project received—offsetting any gains 

from the energy efficiency tax credit. Section 311 would remove this barrier by 

eliminating the LIHTC basis adjustment requirement when using energy tax credit. 

NAHB strongly supports section 311 and also urges the committee to restore the 

section 45L tax credit and section 179D deduction. 

QAPs should weigh the cost and benefit of various development requirements to 

produce as much affordable housing with the limited resources we have, but unfortunately that does not always occur. As an example, Texas briefly considered, and 

fortunately rejected, a proposal to require LIHTC projects to include a carport. At 

the time, it made me wonder if we were housing cars or people. The quality of affordable housing built under the LIHTC is part of the program’s 31-year success 

story, but we cannot lose sight that this program’s goal is to produce and preserve 

as much affordable housing as possible. We must strike a reasonable balance between development requirements and cost. 

Local governments may also impose costly requirements on development, which 

apply whether the project is market-rate or affordable. In one Texas community, I 

was required to plant 200 trees, which probably doubled the number of trees in this 

community. Sadly, the community also had water restrictions due to a drought, so 

while the trees were planted as required, I could not water them, and most died. 

This is simply the reality of developing housing in this country. While academics 

may offer assorted ideas on how affordable development should work, until you have 

actually done a deal, you cannot possible understand the challenges developers face. 

Some criticize the program for not directing more affordable housing to higherincome communities. This is an interesting academic debate, but let me shed light 

on the challenges I face as a developer working in higher-income communities. The 

Texas QAP awards bonus points, without which receiving an allocation is nearly impossible, for LIHTC projects that are endorsed by the appropriate State legislator 

and the local community, even if that project is otherwise permitted under the municipality’s comprehensive plan and zoning rules. In other words, if I was building 

a market rate project, I could simply pull the permits and start construction. But 

for tax credit projects, developers are subject to a special review process that oftentimes results in community opposition. 

Any affordable housing developer in Texas has many stories of battling community opposition simply because the project would serve lower-income residents. The 

problem is so acute that The New York Times recently highlighted the challenges 

56 

15 ‘‘Program to Spur Low-Income Housing Is Keeping Cities Segregated,’’ New York Times, 

July 2, 2017. 

Texas developers face when building in higher-income areas.15 The article quoted 

a resident who is opposing an affordable housing project in the Houston, Texas, 

area: ‘‘I will fight very hard before I give up that privilege and dignity to those who, 

either from lack of initiative or misfortune, don’t deserve to be there.’’ If we are 

going to break the cycle of poverty and ensure all Americans have equal opportunity 

to succeed, we must reject the notion that only some people ‘‘deserve’’ to live in welloff communities. I can assure the committee that this reaction is not unique and 

is often associated with racial undertones. Nonetheless, this is a real-world challenge that developers of affordable housing across the country face on a daily basis. 

Fortunately, relief is possible. Section 308 of S. 548 would prohibit State QAPs 

from requiring special local approval of LIHTC developments. This will ensure that 

if the zoning allows it, I will be able to develop affordable housing on the same 

terms as a market-rate project. 

IMPROVING UTILIZATION OF EXISTING RESOURCES: 

CREATE A MINIMUM FLOOR FOR 4% CREDITS

Under the Low-Income Housing Tax Credit (LIHTC) program, affordable housing 

developments receive tax credits that are used to attract equity capital. There are 

two types of tax credits: one credit provides 70% of the financing cost and is used 

for new construction and substantial rehabilitation; and a second credit that provides 30% of the financing cost and is used to acquire an existing property for rehabilitation. These are often referred to as the 9% and 4% credits, respectively, because that was the original credit amount when the program was created in 1986. 

The Tax Reform Act of 1986 did not fix those credit rates at 9% and 4%, but rather created a floating rate system where the credit rates are adjusted on a monthly 

basis. The IRS calculates the monthly values of the credits based on the cost of borrowing by the Federal Government. As a result, today’s low Federal borrowing costs 

produce very low credit rates, which reduces the amount of private equity invested 

in LIHTC development. For August 2017, the 9% credit was only worth 7.52%; the 

4% credit was worth 3.22%. These low rates reduce the amount of equity properties 

could receive by more than 15%, making it more difficult to do LIHTC developments, particularly as State and Federal governments cut back on direct spending 

that is used to fill financing gaps for LIHTC properties. The ‘‘floating rate’’ system 

also creates uncertainty for owners and investors, and complicates State administration of the program. 

In response to the declining rates, the Housing and Economic Recovery Act of 

2008 (HERA) set the rate for new construction and substantial rehab credits from 

each State’s allocation at no less than 9%, which was the rate when the program 

was created. The provision was then extended for credits allocated by the end of 

2013 through the American Taxpayer Relief Act of 2012 (ATRA). The 9% minimum 

floor was made permanent in the Protecting Americans from Tax Hikes Act of 2015 

(PATH ACT). 

Unfortunately, while the Finance Committee has favorably reported legislation 

that included a minimum 4% credit floor for acquisition, the legislation enacted into 

law (HERA, ATRA and the PATH Act) failed to address the 4% credit. S. 548 will 

correct this by creating a minimum floor for 4% credits. Applying the minimum floor 

rate for 4% credits would similarly remove the uncertainty and financial complexity 

of the floating rate system, simplify State administration, and increase the number 

of units that can be preserved and developed into affordable housing. As our housing stock ages—the first LIHTC projects are now over 30 years old—preservation 

and rehabilitation is a cost-effective tool. 

INCOME AVERAGING

The LIHTC serves tenants with an area median income (AMI) of no more than 

60%. Many tax credit projects target significantly lower-income individuals. It is important to recognize that the tax credit only partially covers development costs. 

LIHTC projects also rely on other sources of financing, including a mortgage. The 

amount of debt a project can take on is determined by rental income. As rent is 

based on the tenant’s income, projects targeting lower-income residents cannot assume as much debt, which may affect the financial viability of a project. 

57 

16See: https://www.novoco.com/notes-from-novogradac/how-congress-could-offset-effects-affordable-housing-production-reduced-corporate-rate. 

Section 201 of S. 548 would allow for income averaging, providing States with the 

flexibility to target lower-income tenants while also ensuring the financial viability 

of the project by allowing a limited number of units to serve tenants with incomes 

up to 80% of AMI. This is an excellent solution for achieving income targeting below 

the current 60% AMI minimum while ensuring that the project is viable and can 

be built. However, the entire project must still maintain an average income of 60% 

or below. 

IMPROVE RURAL AFFORDABLE DEVELOPMENT OPPORTUNITIES

My company specializes in rural affordable housing development, which has 

unique challenges. Although housing costs tend to be lower in rural areas, these 

areas are often plagued with lower incomes and high poverty rates. Nearly half of 

rural renters are rent-burdened, paying more than 30% of their income in rent. 

Rural areas also often have limited rental options. 

S. 548 includes a number of provisions that will enhance rural development opportunities. They include income averaging, discussed above, but also standardizing 

rural income limits. The bill also provides a basis boost for projects serving extremely low-income tenants. This is an important provision considering that rural 

residents’ income tends to be lower than in urban areas. The bill would also encourage development in Native American communities, which are home to some of our 

most vulnerable rural residents. 

TAX REFORM AND THE LIHTC: PRESERVING PRODUCTION LEVELS IN THE

NEXT GENERATION TAX CODE

NAHB believes that lower rates, simplification, and a fair system will spur economic growth and increase competitiveness. And that’s good for housing, because 

housing not only equals jobs, but jobs mean more demand for housing. As the committee moves forward on tax reform, NAHB wants to be a constructive partner and 

help the committee with this important issue. 

Corporate tax reform poses a unique challenge to syndicated tax credits such as 

the LIHTC. Investor valuation of a tax credit is based on how much tax liability 

that credit offsets. As the committee considers lowering the corporate tax rate, 

NAHB also recommends the committee consider options to ensure that tax credit 

equity remains stable. We believe that a lower corporate rate and a robust LIHTC 

are both possible to achieve. 

Earlier this year, we saw a significant drop in tax credit pricing throughout the 

country as investors began to assume a drop in the corporate tax rate. In some 

cases, projects were unable to move forward. We believe the effects of the lower corporate tax rate on LIHTCs can be mitigated through two policy changes. 

The first recommendation is to update the discount rate formula used to calculate 

the 9% and 4% credit rates. The basis of that formula reflects the cost of borrowing 

for the Federal Government, which is not a reflection of investor return in the private market. The formula can also be adjusted based on the final corporate tax rate 

to ensure that tax credit equity remains stable.16

The second recommendation is to expand the investor base. Greater demand for 

credits will increase pricing. Currently, most tax investors are financial institutions, 

as tax credits also help banks meet their Community Reinvestment Act obligations, 

as well as other large C-Corps with stable and constant profits. Individuals, passthrough businesses, and S-Corp banks are largely shut out of the tax credit market 

due to the current passive-loss rules. While C-Corps can fully claim passive losses, 

and are therefore willing to pay a higher price for tax credits, individuals and passthroughs are limited to a $25,000 deduction. NAHB does not recommend a complete 

repeal of the passive loss rules, but rather suggests that additional flexibility for individual investors and pass-throughs investing in LIHTCs should be considered. 

We believe a targeted tweak of the passive-loss rules would also enhance deals 

in smaller communities, particularly rural areas, where tax credits can be marketed 

to local professionals. 

58 

CONCLUSION

The challenges of housing affordability are increasing. In some communities, even 

middle-class households are feeling the financial strain of today’s housing costs. The 

problem is simple: we lack enough affordable housing. The only effective, long-term 

solution is to increase supply. S. 548 would greatly enhance our ability to increase 

the supply of affordable rental units, and NAHB urges the committee to mark up 

and favorably report out the bill. 

We also must recognize that without a sizable investment in our housing stock, 

particularly as older units reach obsolescence, we risk a worsening problem for middle-income Americans. We commend Senator Wyden for recognizing this emerging 

problem and his legislation last Congress to create a Middle Income Housing Tax 

Credit (S. 3384), modeled on the LIHTC. NAHB would also urge the committee to 

take up this legislation. Frankly, addressing these challenges now before they reach 

a national crisis point will be much cheaper in the long-run. 

NAHB greatly appreciates the overwhelming bipartisan Senate support to solve 

our affordable housing crisis. In this era of increasingly partisan political discord, 

I hope we can all unite around this issue and take action. Shelter is a basic human 

need, and we have an opportunity to do something that not only makes good economic sense, but will uplift the lives of millions of Americans. 

NAHB stands ready and willing to help. 

PREPARED STATEMENT OF KIRK MCCLURE, PH.D., PROFESSOR, URBAN PLANNING

PROGRAM, SCHOOL OF PUBLIC AFFAIRS AND ADMINISTRATION, UNIVERSITY OF KANSAS

REFORM OF THE LOW-INCOME HOUSING TAX CREDIT PROGRAM

How does the Low-Income Housing Tax Credit (LIHTC) program work? 

Tax credit authority is allocated annually from the Federal Government to each 

State which, through its Housing Finance Agency (HFA), awards the tax credits to 

development proposals. The annual allocations totaled to about $7.6 billion in fiscal 

year 2015 (Gramlich, 2015). 

Each developer sells the tax credits to investors who join into the ownership of 

the development with the proceeds from the sale of the tax credits used to pay for 

a portion of the development costs. In exchange for receiving the tax credits, developers agree to limit the rents on the housing units to levels affordable to low-income 

households and to maintain low-income occupancy in the tax credit supported units 

for a period of at least 15 years. 

How has the program performed? 

The program began in 1987 and produced about 2.6 million low-income units since 

its inception. Annually, the program typically produces about 90,000 units in 1,400 

projects. 

Who is served by the program? 

The income ceilings for participation in the LIHTC program vary with the metropolitan area or with the county if the location is outside of a metropolitan area. The 

maximum income for a household occupying a tax credit unit is a set percentage 

of the Area Median family Income (AMI). The LIHTC program limits the highest 

income of households who reside in LIHTC units at either 50 percent or 60 percent 

of the AMI, depending upon developer selection and State HFA preferences. In 2015, 

the national median family income was $66,011. Thus, the program tends to serve 

households with incomes below either $33,000 or $40,000. 

The U.S. Department of Housing and Urban Development (HUD) defines lowincome somewhat differently than does the LIHTC program, but the HUD definitions are helpful for understanding which households are served by the various lowincome housing programs. HUD defines any household as low-income if its income 

is below 80 percent of the AMI. HUD further defines two subsets of the low-income 

households as: (1) Very low-income, those with income between 30 and 50 percent 

of AMI; and (2) Extremely low-income, those with income below 30 percent of AMI. 

These distinctions are important because markets very widely in terms of which category of low-income renter households suffer from shortages of units. 

O’Regan and Horn (2013) find that about 45 percent of LIHTC households have 

incomes below 30 percent of AMI, and 55 percent have incomes between the 30 percent and the 60 percent ceiling level. Low-income households with income in the 

59 

upper tier, between 60 and 80 percent of AMI, are not permitted into the units as 

their income is too high. Households with incomes in the lowest tier, below 30 percent of AMI, can usually afford the rents charged in LIHTC developments only if 

they have additional subsidy through the Housing Choice Voucher (HCV) program. 

Williamson (2011) found that about 10 percent of Florida LIHTC households had 

vouchers. Thus, most non-voucher LIHTC households tend to have income at the 

middle tier of the low-income levels or about $20,000 to $40,000. For comparison, 

public housing and the HCV programs serve the poorest tier of the low-income 

renter population, households with an average income of about $14,000 (calculated 

from HUD data for 2015). 

Does the LIHTC program produce units in a price range where there is a need? 

If the LIHTC program tends to serve households with incomes in range of $20,000 to $40,000, does this income segment suffer from a shortage of rental units priced 

so that they can afford the units? 

Figure 1 divides the rental housing stock of the Nation into market segments. 

Renter households are divided into income categories from the American Community Survey, 2015. Rental units are divided into categories based on gross rents 

(rents plus utilities). These rent categories correspond to the renter income categories assuming that these households spend 30 percent of income on housing, 

which is about the median level of spending for renters nationwide. 

For example, a household with income of $25,000 per year can afford a unit with 

rent at $625, and a household with and income of $35,000 can afford rent of $875. 

Thus, the rental units with gross rents from $625 to $875 can be compared to the 

numbers of households with incomes from $25,000 to $35,000. In rent categories 

where the number of units exceeds the number of renter households, a surplus exists, and where households exceed units, a shortage exists. 

The segment of the rental housing market served by the LIHTC program has a 

large surplus of units. There are many more units renting in the price range of $625 

to $875 per month than there are households with incomes in the range of $25,000 


080117.002
60 

to $35,000, the households who can afford units in this price range. This is the market segment where the LIHTC is adding units. 

It is a very different story in the rental housing market segment served by the 

HCV program. This program assists households with incomes below $20,000. Households in this market segment can only afford rental units with much lower rents, 

averaging about $350 per month. All the market segments with rents below $500 

have fewer units than there are households. 

Thus, the LIHTC program is adding units to a market segment with a large surplus of units indicating a lack of need in most markets. 

Does the LIHTC program locate units in tracts with a shortage of units? 

What is true for the Nation as a whole is not necessarily true for individual markets. While the Nation may have a surplus of units in the market segment with 

rents from $625 to $875, many individual markets may have a shortage. The LIHTC 

could be the right form of governmental intervention to resolve this problem if it 

is targeting those locations with shortages. 

Table 1 indicates that LIHTC units are being located in census tracts that do not 

have a shortage of rental units in the price range serving low-income renter households. Table 1 categorizes the 73,000 census tracts in the Nation by comparing the 

number of renter households with income between $25,000 to $35,000 to the number 

of rental units with rents between $625 and $875. If the LIHTC program is working 

well, it should be locating units in tracts with a shortage of units in this price range 

compared to the number of households in the income range. 

Table 1. Low-Income Housing Tax Credit Units by Tract Rental Market Need 

Number of rental units with rents $625 to $875 minus renter households with income of $25,000 to $35,000 

Rental market need category Tracts (Percent) LIHTC Units (Percent) 

Shortage 200 or more units 231 (0.3%) 18,013 (0.7%) 

Shortage 50 to 199 units 5,102 (7.0%) 190,868 (7.9%) 

Balanced ¥49 to +49 units 39,033 (53.4%) 687,597 (28.3%) 

Surplus 50 to 199 units 21,966 (30.1%) 929,850 (28.3%) 

Surplus 200 or more units 6,724 (9.2%) 603,944 (24.9%) 

Total 73,056 (100.0%) 2,430,272 (100.0%) 

Source: American Community Survey, 2015, 1-year estimates; HUD LIHTC Database, 2017. 

Fewer than 9 percent of LIHTC units are located where there is a shortage. This 

is not entirely surprising as fewer than 8 percent of all the tracts in the Nation have 

a shortage suggesting that the need for units in the price range served by the 

LIHTC program is small. Over one-half of all LIHTC units are in tracts with a surplus of more than 50 units. One-fourth of all LIHTC units are in tracts with a surplus of 200 or more units. 

Does the LIHTC add new units to tight markets and rehabilitate existing units in 

soft markets? 

It would be expected that the program would add new construction units to tight 

markets, those with low vacancy rates, and rehabilitate existing units in soft markets, those with high vacancy rates. 

Table 2. LIHTC Units by Construction Type in Tracts by Rental Vacancy Rate 

Rental Vacancy Rate 

LIHTC Units 

New Construction Units Rehabilitation Type Known 

Tight 0% to 4.9% 440,692 305,227 745,919 

59% 41% 100% 

Normal 5.0% to 6.9% 155,153 113,323 268,476 

58% 42% 100% 

Soft 7.0% to 9.9% 207,558 139,446 347,004 

60% 40% 100% 

Very soft 10%+ 357,266 232,960 590,226 

61 

Table 2. LIHTC Units by Construction Type in Tracts by Rental Vacancy Rate—Continued 

Rental Vacancy Rate 

LIHTC Units 

New Construction Units Rehabilitation Type Known 

61% 39% 100% 

Total 1,160,669 790,956 1,951,625 

59% 41% 100% 

Source: American Community Survey, 2015, 1-year estimates; HUD LIHTC Database, 2017. 

The LIHTC program favors new construction over rehabilitation in all markets. 

Nine percent credits are awarded against new construction costs, and 4 percent 

credits are awarded against rehabilitation costs, independent of market conditions. 

Developers have responded by developing 47 percent more new construction units 

than rehabilitation units. There is a strong tendency for the program to produce 

new construction units over rehabilitation units without regard to the rental vacancy rate. 

Does the LIHTC program support mixed-income housing? 

Research demonstrates that projects wholly populated by the poor are not good 

for the households, the developments or the surrounding neighborhoods (Smith 

2002). Mixed-income housing is a more beneficial format for everyone involved (Kleit 

2005). 

The LIHTC program does not provide any incentives to developers to generate 

mixed-income housing. Rather, the program sets minimums, rather than maximums, on the percentages of households with incomes below 50 percent and 60 percent of AMI. As a result, 76 percent of all LIHTC developments are occupied entirely by low-income households. Fewer than 3 percent are configured with marketrate units comprising more than one-half of all units. 

Conclusions and recommendations 

It can be concluded that the LIHTC program is: 

• Serving a segment of renters with a surplus of units and not serving the lowestincome segment with a shortage of units. 

• Adding units to neighborhoods with a surplus of units and failing to add units 

where there are shortages. 

• Favoring new construction over rehabilitation independent of market condition. 

• Not promoting mixed-income housing. 

It is time to rethink how the LIHTC program works. Four changes are recommended: 

More rigorous market analysis: State Housing Finance Agencies should have to 

justify each LIHTC allocation by demonstrating a market need. Each HFA should 

have to show that both neighborhood and metropolitan vacancy rates justify production subsidies. The HFA should have to find that vacancy rates are low and that 

a shortage of units exists at the price point to be served by the proposed LIHTC 

development. There is little value in adding units to a market that has a high rental 

vacancy rate or in adding units to a market segment that is saturated. 

Exchange tax credit authority for voucher authority: Currently, housing authorities 

can convert up to 20 percent of tenant-based voucher contract authority into projectbased voucher authority. HFAs should be permitted the same latitude to convert 

project-based LIHTC funding into vouchers. These vouchers could be tenant-based 

vouchers, permitting extremely low-income households to rent apartments in the 

market if market conditions suggest this to be the preferred approach. These vouchers could also be project-based vouchers that could be layered on top of LIHTC subsidy to serve households who could not otherwise afford the tax credit units. These 

vouchers would help the LIHTC program both serve households with extremely low 

income as well as permit these households to pay a rent based on their incomes, 

rather than a flat rent now used in the LIHTC program. This approach prevents 

a high housing cost hardship among these households. 

Favor rehabilitation over new construction: The LIHTC program should be modified so that it favors the appropriate type of development for each market. The highVerDate Sep 11 2014 20:17 Jul 27, 2018 Jkt 000000 PO 00000 Frm 00065 Fmt 6601 Sfmt 6621 R:\DOCS\30902.000 TIM
62 

er 9 percent credits should be given for rehabilitation and the lower 4 percent credits should be given to new construction developments. The higher 9 percent credits 

would only be available to new construction units if the market is truly tight (the 

rental vacancy rate is very low) or the new units are replacing severely deteriorated 

units. 

Favor mixed-income development: The LIHTC should mandate mixed-income occupancy in most developments. A majority of the units in each tax credit supported 

development should be set-aside for market-rate occupancy. A development that is 

configured with a majority of units for low-income occupancy should be permitted 

only in a highly distressed area where mixed-income housing is not feasible and the 

tax credit development contributes to a community revitalization strategy. 

References 

Gramlich, Ed. (2015). Low-Income Housing Tax Credits. 2015 Advocates Guide. National Low-Income Housing Coalition. At: http://nlihc.org/sites/default/files/ 

Sec5.10_LIHTC_2015.pdf. 

Kleit, Rachel Garshick. (2005). ‘‘HOPE VI New Communities: Neighborhood Relationships in Mixed-Income Housing.’’ Environment and Planning A 37(8): 1413– 

1441. 

O’Regan, Katherine M. and Horn, Keren M. (2013). ‘‘What Can We Learn About the 

Low-Income Housing Tax Credit Program by Looking at the Tenants?’’. Housing Policy Debate 23(3): 597–613. 

Smith, Alastair. (2002). Mixed-Income Housing Developments: Promise and Reality. 

NeighborWorks and the Joint Center for Housing Studies. 

U.S. Census Bureau, 2011–2015 American Community Survey-Year Estimates. Tables B25119 and B25063. At: https://factfinder.census.gov/faces/tableservices/jsf/ 

pages/productview.xhtml?src=bkmk. 

U.S. Department of Housing and Urban Development. (2017). LIHTC Database. At: 

https://lihtc.huduser.gov. 

Williamson, Anne R. (2011). ‘‘Can They Afford the Rent? Resident Cost Burden in 

Low-Income Housing Tax Credit Developments.’’ Urban Affairs Review 47(6): 775– 

799. 

QUESTIONS SUBMITTED FOR THE RECORD TO KIRK MCCLURE, PH.D. 

QUESTIONS SUBMITTED BY HON. ORRIN G. HATCH

Question. Are there State and local issues we should consider, or at least keep 

in mind, such as zoning requirements and land use regulations, that are working 

against us in that they make housing artificially more expensive or otherwise limit 

its availability? 

Are there ways we can and should account for that, such as by applying certain 

requirements to Federal incentives for affordable housing? 

Answer. One of the great success stories of the Low-Income Housing Tax Credit 

(LIHTC) program has been its ability to locate units in low-poverty suburban neighborhoods. The LIHTC program is able to do this on par with the Housing Choice 

Voucher program. The voucher program would be expected to perform better due to 

the mobility granted to participating households. However, the LIHC developers 

have managed to overcome many of the barriers that suburban communities so 

often use to stop affordable housing from locating in their midst. 

S. 548 includes a provision that would prohibit States from requiring local approval of LIHTC developments. This much-needed reform to the LIHTC program 

would remove a barrier that communities use to limit the availability of affordable 

housing and will help the program perform even better. 

Question. In your testimony you noted that the LIHTC program does not produce 

units in price ranges where there are shortages of units; that it is not very efficient 

at adding new units to tight markets and rehabilitating existing units in soft markets; and that it does not support mixed-income housing. 

How would you recommend that the program be reformed to address these issues? 

63 

Answer. The LIHTC program needs reforms that will cause it to better fit housing 

market conditions. The program needs improvements in terms of: 

• Reaching the poorest renters confronting the greatest need for affordable 

housing; 

• Promoting development of mixed-income housing; and 

• Emphasizing rehabilitation in soft markets and new construction in tight 

markets. 

Reaching Extremely Low-Income Renters Who Are the Population Most in Need 

The LIHTC program tends to serve the least worst off among low-income renters, 

those with income ranging from 30 to 60 percent of each market’s Area Median family Income (AMI). The program tends not to serve the poorest population, those with 

income from 0 to 30 percent of AMI, because the LIHTC rents are too high to be 

unaffordable for them. Yet, in most markets across the Nation, the renters in the 

30 to 60 percent of AMI enjoy more than ample numbers of rental units, while renters in the 0 to 30 percent of AMI face shortages. 

S. 548 includes income averaging which is a step in the right direction toward 

serving the poorer renter households. Income averaging will permit property managers to admit households with incomes up to 80 percent of AMI to offset admission 

of households with lower incomes, as long as the average income of all households 

does not exceed 60 percent of AMI. However, this mechanism will not reach very 

far down the income spectrum. S. 548 also contains a provision to give greater credit 

amounts to developments serving the 0 to 30 percent of AMI population. Again, this 

is a step in the right direction, but the units will continue to have flat rents. If the 

LIHTC developments are to serve the extremely low-income renters households 

without creating high housing cost burdens, the integration of a voucher approach 

is needed. 

Housing credit agencies should have the capacity to exchange some portion of 

their LIHTC authority for housing vouchers for renter households who are extremely low-income (below 30 percent of AMI). These vouchers could be attached to 

a portion of the units in the LIHTC developments. This would permit the LIHTC 

developments to serve the extremely low-income households who could not otherwise 

afford to live in a LIHTC development. With the voucher format, the tenant would 

pay 30 percent of income toward the cost of the housing, rather than a flat rent. 

The voucher would pay the portion between the tenant’s contribution and the rent 

on the unit, eliminating high housing cost burden in these units. 

A very similar arrangement now exists with Public Housing Authorities (PHAs) 

who operate the Housing Choice Voucher (HCV) program. PHAs can convert up to 

20 percent of its voucher authority into project-based vouchers. This procedure is 

helping developers include units that serve extremely low-income households in 

mixed-income developments. The LIHTC program would benefit from a similar provision incentivizing the generation of mixed-income developments that provide a 

portion of units for extremely low-income households. 

Promote Mixed-Income Developments 

Serving a poorer renter population, those with income below 30 percent of AMI, 

is only one of the needed reforms. These households are best served of housed in 

mixed-income developments. Developments that are entirely occupied by extremely 

low-income households tends to exacerbate the problems of concentrated poverty. 

Unfortunately, the LIHTC program does not foster mixed-income housing as 76 percent of all LIHTC developments are occupied entirely by low-income households. 

Fewer than 3 percent of developments are configured with market-rate units comprising more than one-half of all units. 

Where market conditions permit mixed-income housing to be successful, the 

LIHTC program should promote this form of housing. The program now sets minimums on the percentages of low-income units in the development. To obtain any 

credits, the development must have at least 20 percent of units designated for 

households with income no higher than 50 percent of AMI or at least 40 percent 

of units designated for households with income no higher than 60 percent of AMI. 

Instead of these minimums, the program should set maximums such as no more 

than 20 percent of units would be for extremely low-income households and no more 

than an additional 20 percent of units would be for very low-income households with 

the remainder for moderate- and middle-income households. 

64 

Unfortunately, mixed-income housing will not work in all marketplaces. Middleincome households often cannot be attracted to distressed neighborhoods with high 

concentrations of poverty. Where rigorous market analysis establishes that mixedincome housing cannot be successfully marketed but that a LIHTC development 

would contribute to neighborhood revitalization, exceptions could be made. State 

housing finance agencies should be required to perform this market analysis, and 

HUD should provide oversight to ensure that the market analysis is rigorous. 

Better Market Analysis So That the Right Type of LIHTC Is Developed in Each Market 

The LIHTC program also needs tools to ensure that it is adding new units only 

where there is a shortage of units and rehabilitating units where there is no shortage. 

As currently structured, the LIHTC program gives more lucrative 9 percent tax 

credits to new construction projects and less lucrative 4 percent tax credits to rehabilitation projects. This arrangement encourages developers to pursue new construction, independent of the type of construction appropriate to a market. 

Most rental markets in the Nation have normal to high rental vacancy rates indicating no need for additional units through new construction. A minority of rental 

markets are tight with low vacancy rates. The LIHTC program should be restructured to reflect this condition. Rehabilitation should receive the 9 percent tax credits, and new construction would receive the 4 percent tax credits. This would shift 

the emphasis of the program from building new units to preserving the stock of 

older housing units. New construction should receive the 9 percent credits only 

where local market conditions indicate that the market has a very low vacancy rate 

or where the new construction units replace a larger number of deteriorated units 

demolished as part of a redevelopment plan. 

State housing finance agencies should be required to perform rigorous market 

analysis to determine whether the use of 9 percent credits for new construction is 

appropriate. Oversight is needed to ensure that this market analysis is performed 

properly, and the U.S. Department of Housing and Urban Development is wellequipped to take on this role. 

QUESTION SUBMITTED BY HON. MICHAEL F. BENNET

Question. I am interested in the research you’ve done on the extent to which housing policies, including vouchers, can help low-income families move closer to opportunity or, on the other hand, further socioeconomic and racial segregation. 

Could you comment on what the most effective steps would be to reform our current housing policies to better help more low-income families live in places with access to opportunity? 

Answer. The Federal Government has two rental assistance programs that are actively placing low-income households in new locations, the LIHTC program and the 

Housing Choice Voucher (HCV). Neither program strongly promotes movement to 

high-opportunity neighborhoods. 

The HCV program only minimally promotes the notion of helping assisted households locate in high-opportunity neighborhoods through a provision of the technique 

used to monitor the performance of the administering Public Housing Authority. 

The LIHTC program does not mandate that States give priority to developments 

located in neighborhoods offering high levels of opportunity. A few States have 

taken steps in this direction, but the process in not widespread. 

For either the LIHTC program or the HCV program, the criteria used to identify 

high-opportunity neighborhoods should be locally defined. The research agrees that 

these neighborhoods should have low concentrations of poverty, low exposure to 

crime, high-performing schools, and access to gainful employment. Beyond these, the 

research has yet to identify criteria that can be applied universally. It appears that 

each metropolitan area will need to adopt its own criteria appropriate to individual 

markets. For example, access to public transit may be an important issue in some 

markets but not in others. 

The HCV could be modified to mandate that a portion of vouchers be set aside 

for households who would be willing to accept the voucher on the condition that it 

be used only in a high-opportunity neighborhood. 

65 

1 Joint Center for Housing Studies. The State of the Nation’s Housing 2017. 2 Joint Center for Housing Studies, The State of the Nation’s Housing 2017. 3 Joint Center for Housing Studies. Rental Housing Affordability 2015, Appendix Tables and 

Additional web-only Tables, A–5. 4Smaller metro and non-metro areas. Joint Center for Housing Studies, The State of the Nation’s Housing 2017. 5 Joint Center for Housing Studies. Rental Housing Affordability 2015. 

The LIHTC program could be modified to mandate that States give priority to developments located in high-opportunity neighborhoods. 

Program administrators should engage in opportunity mapping to identify, at the 

metropolitan level, high-opportunity neighborhoods as targets for voucher households or for tax credit units. The U.S. Department of Housing and Urban Development is especially skilled in this type of work and should be charged with overseeing the opportunity mapping process. 

PREPARED STATEMENT OF HON. KATHERINE M. O’REGAN, PH.D., PROFESSOR OF PUBLIC POLICY AND PLANNING, ROBERT F. WAGNER GRADUATE SCHOOL, AND FACULTY

DIRECTOR, FURMAN CENTER FOR REAL ESTATE AND URBAN POLICY, NEW YORK

UNIVERSITY

Chairman Hatch, Ranking Member Wyden, and members of the committee, thank 

you for inviting me to appear today to discuss America’s affordable housing crisis, 

challenges and solutions. I am speaking today from my perspective as a researcher, 

particularly on affordable housing policy, and from my experience at the Department of Housing and Urban Development, where I chaired the cross-agency Rental 

Policy Working Group (RPWG) which specifically focused on alignment of Federal 

rental programs and rental affordability. 

AMERICAN’S AFFORDABLE HOUSING CRISIS

As has been reported widely and frequently in the press, and documented well 

by the researchers at Harvard’s Joint Center, the Furman Center and many others, 

we have a housing affordability crisis in this country that is not going away. Let 

me start with just some facts. 

Housing Cost Burdens Are Extremely High, Particularly for Renters 

Using the affordability standard of spending no more than 30 percent of income 

on housing, in 2015 nearly 39 million households were ‘‘cost-burdened.’’ 1 This is 

about a third of all households in America. And renters are much more likely to 

face cost burdens. Nearly half (48.3 percent) of all renters were cost burdened in 

2015. More than a quarter (25.6 percent) face severe cost burdens, spending at least 

half of their income on housing. 

These Rates Remain Far Above Pre-Housing Crisis Levels 

While rent cost burdens have declined slightly since their peak in 2011, they remain considerably above pre-housing crisis levels. Focusing on those most burdened, 

11.1 million renter households were severely cost burdened in 2015, nearly 4 million 

more than in 2001. 

Affordability Challenges Are Widespread—Beyond Highest Cost Cities and Lowest 

Income Households 

Affordability issues are not limited to highest-cost markets or a handful of States. 

With more than 30 percent of its renters experiencing severe cost burdens, Augusta, 

GA is among the 10 metropolitan areas with the highest rates of severe burdens 

for renters, for example.2 While Florida, California and Hawaii had the highest 

shares of renters facing cost burdens, at least 37% of renter households in every 

State across the Nation were cost burdened in 2014.3 High levels of cost burdens 

are also not confined to larger metropolitan areas. Almost 12 million households living outside the top 100 metropolitan areas are cost burdened, about half of whom 

are severely burdened.4

The sharpest growth in cost-burdened shares over the past decade and a half has 

been among middle-income households: burdened households within the middle 

quintile of the income distribution increased from 13 percent in 2001 to 25 percent 

in 2014.5

66 

6 Joint Center for Housing Studies, The State of the Nation’s Housing 2017. Chapter 7—Appendix Tables. 7 Joint Center for Housing Studies, The State of the Nation’s Housing 2017. 8 Joint Center for Housing Studies, The State of the Nation’s Housing 2017. 9 Joint Center for Housing Studies, The State of the Nation’s Housing 2017. 

Looking specifically at cost burdens for renters by their income levels, in 2015:6

• For renter households with incomes below $15,000—comparable to full-time 

work at the Federal minimum wage—more than 80 percent were cost-burdened 

in 2015, with 70 percent facing severe cost burdens (spending more than half 

of income on housing). 

• Sixty-four percent of renters with incomes between $15,000 and $30,000 were 

cost-burdened in 2015, 32 percent severely so. 

• Over 40 percent of renters earning between $30,000 and $45,000 were costburdened in 2015. 

Housing Supply Is Not Keeping Up With Demand 

The country has experienced 7 consecutive years of growth in new construction, 

with 1.17 million housing units added to the national stock in 2016.7 Even with this, 

construction is well below the historical annual rates of 1.4 to 1.5 million experienced during the 1980s and 1990s. Housing completions in the last 10 years are 

lower than any other 10-year period since the late 1970s. 

Despite the gains in multifamily construction, rental markets remain extremely 

tight. Based on the Housing Vacancy survey, the Joint Center reports that rental 

vacancy rates continued to decline for the 7th year in a row.8 In 2016, the rental 

vacancy rate fell to its lowest level in 30 years, 6.9 percent. Throughout the country, 

rent increases continue to far exceed inflation. 

Meanwhile, over the past 15 years, there has been a shift in the rental stock toward the higher end. Nearly half of the 100 largest metropolitan areas reported absolute declines in the number of low rent units, even as their housing stocks increased.9

CONSEQUENCES OF HIGH HOUSING COSTS

There are obvious reasons to be concerned about the escalating costs of housing 

and the myriad of ways it affects people. Households spending large portions, even 

half or more of their incomes on housing, face difficult tradeoffs in how to meet their 

basic needs with what remains. For example, severely cost-burdened families with 


080117.003
67 

10 Hsieh, C., and Moretti, E. (2017). ‘‘Housing Constraints and Spatial Misallocation’’ (Working 

Paper). Berkeley, CA: National Bureau of Economic Research (NBER). 11Ganong, P., and Shoag, D. (2015). ‘‘Why Has Regional Income Convergence in the U.S. Declined?’’ (Working Paper). Cambridge, MA: Harvard Kennedy School. 12Schleicher, D. (2017). ‘‘Stuck! The Law and Economics of Residential Stability.’’ Yale Law 

Journal, 127 (forthcoming). 13https://www.huduser.gov/portal/datasets/lihtc.html. 14 ‘‘Understanding Whom the LIHTC Program Serves: Data on Tenants in LIHTC Units as 

of December 31, 2014. HUD USER.’’ 2017. Accessed April 19. https://www.huduser.gov/portal/ 

publications/LIHTCTenantReport-2014.html. 

children who are in the bottom quartile of income spend 75 percent less on health 

care than non-burdened families in the same income quartile. Low-income and severely burdened seniors also cut back drastically on health care, spending 60 percent less than other low-income seniors. 

High housing costs affect where people live, and may constrain families with children to neighborhoods and locations that do not support healthy child development, 

or upward economic mobility. 

There may also be aggregate consequences if people are priced out of a high cost 

but highly productive markets, and choose to live in another area altogether. This 

affects the wages of that worker, and overall productivity in the Nation. Recent 

work by Berkeley economists estimates that had higher housing costs not inhibited 

the movement of workers and capital over the past four decades, national output 

would have been 10 percent higher in 2009.10 Higher cost housing may be a greater 

obstacle for low-wage earners, exacerbating inequality and locking in economic differences across States.11 The differential mobility also may have very long term effects on inequality, because many of the areas to which more highly educated workers may move have higher levels of intergenerational mobility than the areas in 

which less educated workers remain.12

THE FEDERAL ROLE: LOW-INCOME HOUSING TAX CREDIT

In terms of Federal response, Tax Policy plays a key role in housing markets. For 

affordable rental housing, this is primarily through the Low-Income Housing Tax 

Credit (LIHTC), the largest source of Federal financing for the private production 

and rehabilitation of affordable rental housing in the country.13 I will focus my policy comments on LIHTC. 

REFORMING AND STREAMLINING LIHTC

We now have more than 30 years of LIHTC experience to inform reforms—to increase the credit’s flexibility and feasibility in a broader set of market conditions, 

to streamline, and to more effectively meet key policy goals. I would like to highlight 

three areas for improvement that are also part of S. 548 (the Affordable Housing 

Credit Improvement Act of 2017). 

(1) Working in a Broader Set of Markets, Across a Broader Set of Incomes 

LIHTC’s Federal income and associated rent limits are tied to either 50 or 60 percent of area median income during the application process. Since 2000, States are 

to prioritize developments reaching lowest income tenants, and indeed, nearly half 

(47.5 percent) of LIHTC tenants have incomes below 30 percent of Area Median Income (AMI), and 58 percent have annual incomes below $20,000.14 Serving such 

households with extremely low incomes (ELI) generally requires some form of additional rental assistance, such as project-based or tenant-based vouchers, or other 

development-level subsidies. Without those additional subsidies, reaching lowest income households is not economically feasible in most markets. Yet those additional 

subsidies are in decreasing supply, may not be within the control of the HFA or developer, and even if available require coordination and layering across funding 

streams. 

Income Averaging (section 201) can help address these challenges as well as improve economic feasibility in different market settings. 

Income averaging permits developments to employ an ‘‘average income’’ cap of 60 

percent of AMI, with no household’s income exceeding 80 percent of AMI. Rents set 

for 80 percent of AMI can be used to offset the lower rents for those at 30 (or 40) 

percent of AMI. This means a broader set of incomes can be served in a development, where the additional resources needed to reach lower income households 

comes from within the finances of the development itself. This ‘‘cross-subsidy’’ will 

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15 Chetty, R., Hendren, N., and Katz, L.F. (2016). ‘‘The Effects of Exposure to Better Neighborhoods on Children: New Evidence From the Moving to Opportunity Experiment.’’ American Economic Review, 106(4), 855–902. 16Diamond, R. and McQuade, T. 2016. Who Wants Affordable Housing in Their Backyard? An 

Equilibrium Analysis of Low-Income Property Developments. 17 26 U.S.C. § 42(m)(1)(A)(ii). 

income community revitalization plans. It also addresses some of the issues in rural 

markets, where it may be necessary to serve a broader set of income ranges to be 

economically feasible. This greater flexibility is one of the most important LIHTC 

reforms. 

Permitting States to increase the maximum basis boost for serving ELI tenants 

(section 309) adds a similar flexibility in terms of identifying resources within 

LIHTC for reaching lowest income households, avoiding additional layering of financing and the associated complexities. Finally, broadening the definition of Difficult Development Areas (DDAs, section 402) to automatically include Indian areas 

(along with the increased DDA cap, section 311) also enable the credit to work in 

a different, high need environment that it has historically underserved. 

(2) Achieving Locational Goals 

Over time and in practice, at least two (potentially conflicting) locational goals 

have emerged. On the one hand, there is a desire to avoid locating subsidized housing in neighborhoods in which poverty rates are already high, as this may further 

concentrate poverty. An additional concern is that high poverty neighborhoods may 

lack conditions conducive to self-sufficiency and economic mobility. Recent work by 

Raj Chetty and his co-authors, looking at the adult outcomes for children in assisted 

housing affirms that neighborhoods matter; children provided access to lower poverty neighborhoods were more likely to go to college and had higher earnings as 

adults.15

On the other hand, the desire to preserve existing affordable housing might drive 

investments to higher poverty neighborhood, and it is argued that such investments 

might spur broader community revitalization. This community reinvestment goal 

was made explicit in 2000, when the Community Renewal Tax Relief Act of 2000 

required States to give preference to applications for LIHTC developments in area 

of lower income/higher poverty (Qualified Census Tracts or QCTs) with concerted 

community revitalization plans. Recent research provides compelling evidence that 

LIHTC developments in low-income neighborhoods do indeed have positive effects 

on the surrounding neighborhood, increasing property values, lowering crime, and 

attracting a more racially and economically diverse population.16

How States are to balance these competing goals remains a live debate. To 

achieve either locational goal, however—siting LIHTC in higher income/higher opportunity neighborhoods or contributing to neighborhood improvement through 

LIHTC investments, requires two reforms contained in S. 548. 

In terms of accessing higher income neighborhoods, section 308 would prohibit 

local approval and contribution requirements. Beyond the Federal requirement that 

agencies provide notice to local government and a reasonable opportunity to comment on planned LIHTC developments,17 some States also require proof of local 

support or provide other competitive points for such support. Such local approvals 

can, in essence, give jurisdictions the ability to veto developments. Considerable anecdotal evidence from developers and States suggest such ‘‘veto power’’ creates sizable location barriers in some States. 

In terms of prioritizing developments in QCTs with concerted community revitalization plans, no guidance has been provided on who is to define what constitutes 

such a plan. In the absence of clarity, some States have provided the same prioritization to all developments proposed in QCTs, regardless of evidence of a plan. Clarification that States have the authority to determine the definition of community revitalization plan (section 307) would encourage States to employ prioritization that is 

consistent with Federal intent. 

Preservation of Existing Affordable Housing 

LIHTC is also used for the preservation of existing affordable housing, primarily 

through the so-called 4-percent credit. Preserving existing affordable housing is a 

key (and potentially cost-effective) strategy for narrowing the gap between demand 

and supply. Due to how the credit formula is calculated, its value actually fluctuates, adding uncertainty to credit deals. While a permanent minimum has been 

69 

18Protecting Americans from Tax Hikes Act of 2015 (PATH). 19The American Recovery and Reinvestment Act of 2009. 20https://www.novoco.com/notes-from-novogradac/how-congress-could-offset-effects-affordable-housing-production-reduced-corporate-rate. 21 Capps, Kriston. 2017. ‘‘Tax Reform Hasn’t Started Yet, but Affordable Housing Is Already 

Taking a Hit.’’ CityLab. Accessed May 1. http://www.citylab.com/housing/2017/01/uncertainty-over-tax-reform-is-already-hurting-affordable-housing/514235/. 1Glaeser, Gyourko, and Saks, 2005; Glaeser and Ward, 2009; Malpezzi, 1996; Quigley and 

Raphael, 2005; Saks 2008. 2Glaeser and Gyourko, 2003; Gyourko and Molloy, 2015. 

3Furman, 2015; Gyourko, Saiz, and Summers, 2008; Mullen, 2015. 

established for the 9-percent credit,18 section 301 would establish a permanent minimum for the 4-percent credit. Along with modifying building repurchase rights (section 303), this would improve the ability of the tax credit to be used for preserving 

existing affordable housing. 

Additional Reform 

Housing markets and needs vary greatly across jurisdictions and States. LIHTC 

is a Federal credit, but implemented by States to permit tailoring to local conditions. 

It is possible to add additional flexibility to the credit that could improve costeffectiveness by permitting a portion of the value of the credits, or of any credit expansion, to finance State (HFA)-issued vouchers. Perhaps modeled on the Tax Credit Assistance Program (TCAP) 19 in which States could apply to provide grants in 

lieu of credits, the funding in this case would support a set of State-issued vouchers, 

likely time limited to match the timing of the funding. For those markets in which 

there is an adequate supply of quality housing across a range of price points, it may 

be more cost effective to permit States to utilize tenant-based vouchers. 

LIHTC RESOURCES

Finally, I want to end by making a point about the level of resources for LIHTC. 

Due to the nature of how investors in LIHTC properties receive tax benefits— 

through both the credit and through losses, any decrease in corporate tax rates also 

lowers the amount of equity raised by the credit. LIHTC funding is predicted to decline by up to 17 percent under expected decreases in the corporate tax rate if percapita allocations are not increased to keep pace.20 Uncertainty over future corporate rates has already led to delays in deal closing and decreases in the price investors are willing to pay for the credit.21

This means failure to increase the per-capita allocation is equivalent to cutting 

LIHTC resources relative to its funding in recent years. This also means that some 

amount of increase in the per-capita allocation is budget neutral relative to past 

years. Given the breadth and depth of affordability issues in the country, now does 

not seem a time to withdraw Federal resources for affordable housing, particularly 

for LIHTC. 

It is, however, an opportune time to make substantive improvements in LIHTC, 

making it a more effective and efficient program as the Nation grapples with a serious and persistent rental affordability crisis. 

QUESTIONS SUBMITTED FOR THE RECORD TO HON. KATHERINE M. O’REGAN, PH.D. 

QUESTION SUBMITTED BY HON. ORRIN G. HATCH

Question. Are there State and local issues we should consider, or at least keep 

in mind, such as zoning requirements and land use regulations, that are working 

against us in that they make housing artificially more expensive or otherwise limit 

its availability? 

Are there ways we can and should account for that, such as by applying certain 

requirements to Federal incentives for affordable housing? 

Answer. Local zoning requirements and regulations provide a number of benefits 

to communities, including increased health and safety for residents. But local zoning 

and regulatory constraints play a significant role in impeding housing production 1

and increase the costs of housing.2 There is also growing evidence that the prevalence and intensity of land use regulations have increased over time, as housing affordability declines.3

70 

4 Hsieh and Moretti, 2017; Ganong and Shoag 2015. 

5The HUD proposal requires matching funds from State, local, or private sources, presumably 

to indicate serious commitment on the part of applicants. 6Massachusetts Association of Regional Planning Agencies, 2007. 

7There has been some exploration of the feasibility of such model codes. See APA (1996) for 

a set of useful articles. 

To the extent that land use regulations restrict the supply of housing and raise 

prices, they also make it more difficult for workers to move to the cities with more 

productive businesses, potentially contributing to slower productivity growth and increased economic inequality.4

While zoning and land use restrictions are locally determined, the effect of their 

use on housing costs is felt beyond the borders of local jurisdictions and could be 

addressed by higher levels of government. 

The Federal Government could provide incentives directly to localities 

specifically to decrease regulatory barriers through a newly created competitive 

grant program or similar vehicle. 

The Obama administration, for example, proposed $300 million in competitive 

grant funds for localities and regional coalitions that embrace reforms to zoning and 

land use regulations that create a ‘‘more elastic and diverse’’ supply of housing 

(HUD, Local Housing Policy Grants).5 The proposal would have allowed local governments to use the funding to support infrastructure expansion or any activities 

that would facilitate the regulatory reforms, such as market analyses and assistance 

with identifying reform options. 

To add some specifics, any such competitive grant program might: 

• Offer technical assistance and funding to encourage local building authorities 

and departments to redesign and simplify their permitting systems. To become eligible for funds, localities might, for example, commit to promising approvals within a certain time window, or adopt procedural reforms to help 

streamline the process, such as establishing a single, standard, application for 

all needed permits, combining public hearings, or creating an on-line application and tracking system for permit requests.6

• Encourage localities and/or regional coalitions to adopt more relaxed land use 

regulations, such as upzoning certain areas to allow for more residential density, or perhaps removing restrictions on multifamily housing development. 

Similar to the Massachusetts Chapter 40R law, the program might also require that some minimum percentage of the additional units built be set aside 

as affordable to low-income households. In this case, incentive funds could be 

used to offset the development costs of those units. 

• Finally, the Federal Government might issue a model zoning code (or a set 

of zoning provisions to allow for more flexibility), which localities could adopt 

in order to be automatically eligible for these funds.7

Alternatively, or in addition, the Federal Government might include incentives in 

existing funding streams. Those funding sources need not be limited to housing programs per se. 

For example, the Department of Transportation (DOT), which already offers competitive grants to State and local governments for capital investments in transit, is 

a natural source of support. Indeed, the DOT’s New Starts program already gives 

priority to projects built in areas with high population density and relatively high 

shares of affordable housing. Specifically, the program regulations require that in 

rating alternative proposals, Federal officials must consider the population density 

around proposed stations, and the ratio of the proportion of ‘‘legally binding affordability restricted’’ housing within a half mile of the proposed station to the proportion of ‘‘legally binding, affordability restricted’’ housing in the counties through 

which the route travels. These criteria could be expanded to cover population density and affordable housing in a jurisdiction as a whole, or measures to reform local 

zoning, and the criteria could be given more weight in selection. Additional points 

could be granted to applications that involve regional coalitions that aim to collectively permit more building. 

Finally, a particularly promising approach is for the Federal Government to 

provide incentives to States which have much greater direct authority over 

local zoning powers. While the degree of local autonomy varies across States, it 

has long been established that local governments are ultimately ‘‘creatures of the 

71 

8Most States follow the judicial rule of interpretation embodied by ‘‘Dillon’s Rule.’’ Even in 

States that do not, John Dillon’s deeper argument that cities only have the powers that States 

give them (even if a State decides that a city has expansive powers that cannot be limited by 

the State except through State constitutional amendment) has been widely accepted. See David 

J. Barron, ‘‘Reclaiming Home Rule,’’ 116 Harv. L. Rev. 2255 (2003); Gerald E. Frug, ‘‘The City 

as a Legal Concept,’’ 93 Harv. L. Rev. 1057 (1980). 9https://malegislature.gov/Bills/189/House/H4140/. 

10Pendall paper provided summary of existing State laws, http://www.jchs.harvard.edu/ 

sites/jchs.harvard.edu/files/rr07-11_pendall.pdf. 11http://www.cbo.gov/sites/default/files/cbofiles/attachments/44434-HighwayTrustFund_ Testimony.pdf and http://www.pewtrusts.org/en/research-and-analysis/analysis/2015/02/24/ 

funding-challenges-in-highway-and-transit-a-federal-state-local-analysis. 12https://www.transit.dot.gov/funding/grant-programs/capital-investments/about-program. 

State.’’8 Thus, even in ‘‘home rule’’ States where local governments have relatively 

high levels of autonomy, State legislatures have considerable authority over what 

local governments can and cannot do. As cities derive their very power to zone from 

States’ zoning enabling acts, the latter’s authority over the former very much extends to the ability to condition, restrict, or otherwise alter their land use power. 

There are numerous examples of State actions that could be encouraged. For example: 

• Massachusetts Chapters 40R and 40S tie State aid of some form to local construction in higher demand areas. 

• A bill is working its way through the Massachusetts legislature to require 

every jurisdiction to include at least one district that allows MF housing construction as of right.9

• About half of States require comprehensive plans, which could be broadened. 

Five States require affordable housing as part of that planning.10 Minimum 

parking restrictions, which drive up the cost of housing, could be reduced or 

eliminated by States (though it is unclear if any have). 

The Federal Government could offer a pool of funds to States that adopt measures 

to check local zoning or incentivize residential development in localities, such as 

those highlighted above. Such State incentive programs might arguably be more effective than direct incentives to localities, given the greater political distance States 

have from homeowners concerned about growth and development in their communities. The scale of the potential funds to States is enormous. Consider that the Federal Government granted $51 billion to States in highway funds in 2014, which 

amounted to about 25 percent of spending on highways and transit.11 While State 

highway funds are allocated through a statutory formula (see 23 U.S.C. § 104), Congress could potentially alter the formula and set aside some amount to be allocated 

through competitive grants. Alternatively, Congress could allocate additional funds 

that could be allocated through a competitive process that would reward States that 

enact laws to check local zoning or incentivize localities to allow greater density. Finally, it could add checks on local zoning as a condition or a criterion for existing 

competitive funding for capital investment (about $2.3 billion per year) that goes to 

States and localities.12

QUESTIONS SUBMITTED BY HON. ROBERT P. CASEY, JR. 

HIGH HOUSING COSTS AND LACK OF ACCESS TO AFFORDABLE HOUSING

Question. I know you touched on this somewhat in your testimony, but can you 

elaborate on how high housing costs and lack of access to affordable housing can 

negatively impact families, seniors, worker wages, economic mobility and access to 

health care for children? Can you discuss how the Low Income Housing Tax Credit 

has and can be used to mitigate those outcomes? 

Answer. There are (at least) three channels through which the high cost of housing negatively impacts families and individuals: by decreasing resources for other 

crucial spending; by lowering the quality of housing consumed; and by lowering the 

quality of the neighborhoods the selected housing is in. 

Cost of Housing 

The high cost of housing results in households spending large portions of their incomes on housing. More than a quarter of renters in the United States are spending 

72 

13 Joint Center for Housing Studies. The State of the Nation’s Housing 2017. 14 Joint Center for Housing Studies. The State of the Nation’s Housing 2017. 15For details, see summaries of the housing/health and housing/education nexus, see Center 

for Housing Policy, http://docs.wixstatic.com/ugd/19cfbe_c1919d4c2bdf40929852291a57e5246f. 

pdf and http://www2.nhc.org/HSGandHealthLitRev_2015_final.pdf. 16Leventhal and Newman (2010). ‘‘Housing and child development.’’ Children and Youth Services Review, 32(9), 1165–1174. 17 Also see summaries of the housing/health and housing/education nexus, see Center for 

Housing Policy http://docs.wixstatic.com/ugd/19cfbe_c1919d4c2bdf40929852291a57e5246f.pdf 

and http://www2.nhc.org/HSGandHealthLitRev_2015_final.pdf. 18 Chay and Greenstone, ‘‘The Impact of Air Pollution on Infant Mortality: Evidence from Geographic Variation in Pollution Shocks Induced by a Recession,’’ Quarterly Journal of Economics 

118 (2003): 1121–67. Currie, Neidell, and Schmieder, ‘‘Air Pollution and Infant Health: Lessons 

from New Jersey,’’ Journal of Health Economics 28 (2009): 688–703. Currie, Greenstone, and 

Moretti, ‘‘Superfund Cleanups and Infant Health,’’ Working Paper 16844 (National Bureau of 

Economic Research, Cambridge, MA, 2011). Currie and Walker, ‘‘Traffic Congestion and Infant 

Health: Evidence from E-ZPass, ’’ Working Paper 15413 (National Bureau of Economic Research, 

Cambridge, MA, 2009). 19Ludwig et al., ‘‘Neighborhoods, Obesity, and Diabetes—a Randomized Social Experiment,’’ 

New England Journal of Medicine 365 (2011): 1509–19, doi: 10.1056/NEJMsa1103216, https:// 

www.nejm.org/doi/pdf/10.1056/NEJMsa1103216. 

half or more of their income on their housing,13 facing difficult tradeoffs in how to 

meet their basic needs with what remains. This results in cutting back on food, particularly nutritional food, and medical care. 

For example, 

• Severely cost-burdened families with children who are in the bottom quartile 

of income spend 40 percent less on food and 75 percent less on health care 

than non-burdened families in the same income quartile. 

• Low-income and severely burdened seniors also cut back drastically on health 

care, spending 60 percent less than other low-income seniors.14

• The stresses associated with living in unaffordable housing could also undermine mental health. 

Lack of access to affordable housing also means households face difficult tradeoffs 

and limited options in the housing they do get to live in. In particular, households 

are more likely to end up in lower quality housing and in neighborhoods that do 

not support the health, well-being, and economic mobility of residents. 

Housing Quality 

In terms of housing quality, there is evidence of negative effects on both health 

and education from living in low quality or crowded housing. In particular, the literature suggests:15

• Substandard housing puts residents at greater risk for exposure to lead paint 

and other toxins, and to injuries. 

• The health benefits of living in structurally sound homes that are free of toxins are likely largest for children as they develop, and for seniors, who spend 

more of their time in their homes and are also most vulnerable to injuries 

and falls. 

• To the extent that living in higher quality housing improves children’s health, 

children will then be less likely to miss school or fall behind in classwork. 

• Living in adequately sized housing, with space for studying, may also directly 

affect children’s performance in school.16

Neighborhood Characteristics and Quality 

Research finds that neighborhood characteristics are also quite important for the 

health and educational outcomes, the physical and social aspects of the neighborhood itself, and the schools, health care, and jobs that may be proximate to the 

neighborhood. Some relevant findings include:17

• Low air quality, car emissions, and proximity to hazardous waste increase 

negative health outcomes for children, such as increased children hospitalizations, premature births, low weight births, and infant mortality.18

• As documented rigorously in HUD’s Moving to Opportunity Demonstration 

(MTO), getting to live in lower poverty, safer neighborhoods leads to significant reductions in obesity and diabetes among mothers, as well improvements 

in mental health, as least among adults and girls.19

73 

20Patrick Sharkey, ‘‘Acute Effect,’’ http://www.pnas.org/content/pnas/107/26/11733.full. 

pdf; Sharkey et al., ‘‘High Stakes,’’ https://www.sociologicalscience.com/download/volume%201 

/may(3)/high-stakes-in-the-classroom-high-stakes-on-the-street.pdf. 21 Chetty, Raj, Nathaniel Hendren, and Lawrence Katz. 2016. ‘‘The Effects of Exposure to Better Neighborhoods on Children: New Evidence from the Moving to Opportunity Project.’’ American Economic Review 106 (4). 22 Hsieh and Moretti. (2017). ‘‘Housing Constraints and Spatial Misallocation’’ (Working 

Paper). Berkeley, CA: National Bureau of Economic Research (NBER). 23 Ganong and Shoag. (2015). ‘‘Why Has Regional Income Convergence in the U.S. Declined?’’ 

(Working Paper). Cambridge, MA: Harvard Kennedy School. 24Schleicher (2017). ‘‘Stuck! The Law and Economics of Residential Stability.’’ Yale Law Journal, 127 (forthcoming). 25https://www.huduser.gov/portal/datasets/lihtc.html. 26 HUD considers households with income at or below 50 percent of AMI as ‘‘very low income’’ 

and those with incomes between 50 and 80 percent of AMI as ‘‘low income.’’ 27 ‘‘Understanding Whom the LIHTC Program Serves: Data on Tenants in LIHTC Units as 

of December 31, 2014. HUD USER.’’ 2017. Accessed April 19, https://www.huduser.gov/portal/ 

publications/LIHTCTenantReport-2014.html. 

• Lack of safety in a neighborhood, particularly exposure to violent crime, has 

been shown to significantly undermine children’s ability to focus and cognitive 

functioning.20

• Finally, as documented by more recent assessments of the adult outcomes of 

children in HUD’s MTO, being raised in low poverty/safer neighborhoods increases the likelihood of going to college, quality of college attended, and 

earnings as an adult.21

Worker Productivity and Inequality 

There may also be aggregate consequences if people are priced out of high cost 

but highly productive markets, and choose to live in another area altogether. This 

affects the wages of that worker, and overall productivity in the Nation. 

• Work by Berkeley economists estimates that had higher housing costs not inhibited the movement of workers and capital over the past 4 decades, national 

output would have been 10 percent higher in 2009.22

• Higher cost housing may be a greater obstacle for low-wage earners, exacerbating inequality and locking in economic differences across States.23

• This differential mobility may also have very long term effects on inequality, 

because many of the areas to which more highly educated workers may move 

have higher levels of intergenerational mobility than the areas in which less 

educated workers remain.24

MITIGATING THESE NEGATIVE EFFECTS THROUGH

THE LOW-INCOME HOUSING TAX CREDIT (LIHTC)

LIHTC can and does affect the three channels already mentioned: affordability of 

housing, its quality, and the associated neighborhoods. As the largest source of Federal funding for the production and rehabilitation for affordable rental housing in 

the United States, LIHTC plays a critical role in the provision of quality affordable 

housing, including the rehabilitation of potentially substandard housing. I will focus 

on a few key aspects here. 

Housing Affordability 

Nearly 3 million housing units have been placed in service through LIHTC as of 

2015.25 In terms of affordability, LIHTC’s Federal income and associated rent limits 

are tied to either 50 or 60 percent of area median income. Broadly, this means the 

Federal limits would make LIHTC units affordable to households whose incomes 

were no greater than $28,258 to $33,910 in 2015. While there is great need for housing affordable to these low- and very low-income households,26 households with extremely low incomes (30 percent of AMI or below) face the greatest affordability 

challenge. Since 2000, States are to prioritize developments reaching lowest income 

tenants, and indeed, nearly half (47.5 percent) of LIHTC tenants have incomes 

below 30 percent of Area Median Income (AMI), and 58 percent have annual in- comes below $20,000.27 Serving such households with extremely low incomes generally requires additional subsidy to be economically feasible. This is done with 

some form of additional rental assistance, such as project-based or tenant-based 

vouchers, or other development-level subsidies. This requires coordination and layering across funding streams. 

There are several ways in which LIHTC could be modified to be more effective 

or efficient at reaching lowest income households, increasing its affordability for 

those most in need. Such as: 

74 

28 Ellen, O’Regan, and Voicu. (2009). ‘‘Siting, spillovers, and segregation: A reexamination of 

the Low Income Housing Tax Credit program,’’ McClure (2006). ‘‘The low income housing tax 

credit program goes mainstream and moves to the suburbs.’’ Housing Policy Debate. 29 Ellen and Mertens. ‘‘Points for Place: Can State and Local Governments Steer Private Investments in Subsidized Housing to New Neighborhoods?’’ Working Paper. 30Deluca, Rosenblatt, and Wood. ‘‘Why Poor People Move (and Where They Go): Residential 

Mobility, Selection, and Stratification.’’ Working Paper, http://www.law.nyu.edu/sites/default/ 

files/ECM_PRO_074751.pdf 

• Income averaging (permitting an average income cap of 60 percent of AMI, 

with an overall income cap of 80 percent of AMI). The higher rents received 

for units set above 60 percent of AMI can provide the subsidy for units at 

40 or 30 percent of AMI. • Increase the maximum ‘‘basis boost’’ for developments targeting those with 

extremely low incomes. 

The common theme here is for the additional subsidy needed to reach the lowest 

income households to come from within LIHTC or the development, and avoiding 

complicated and cumbersome layering of multiple funding streams. 

An additional means of increasing affordability would be to permit a portion of 

the credits, or of any credit expansion, to finance State (HFA)-issued vouchers. For 

those markets in which there is an adequate supply of quality housing across a 

range of price points, it may be more cost effective to permit States to utilize tenantbased vouchers. This would permit States to either reach deeper down the income 

distribution or to serve a greater number of households, for any given amount of 

resources. 

Neighborhood Quality 

Studies show that Low-Income Housing Tax Credit (LIHTC) units are generally 

located in lower poverty neighborhoods than other forms of project-based, subsidized 

rental housing.28 That said, LIHTC units are more likely to located in high poverty 

tracts than the rental stock overall, though research on most recently funded units 

shows some decline in the share of units in higher poverty tracts.29

There are two proposed LIHTC reforms that would improve locational outcomes, 

the first by improving the ability for developments to be built in higher opportunity 

neighborhoods, and the second by increasing the likelihood that neighborhoods 

around LIHTC properties improve after the development is constructed. 

• Prohibiting local approval and contribution requirements. Some States require proof of local support or provide other competitive points for such support. Such local approvals can, in essence, give jurisdictions the ability to veto 

developments. Considerable anecdotal evidence from developers and States 

suggest such ‘‘veto power’’ creates sizable location barriers in some States, 

specifically for building in lower poverty, higher opportunity areas. 

• Clarification that States have the authority to determine the definition of 

community revitalization plan. The Federal requirement that States prioritize 

developments in Qualified Census Tracts with concerted community revitalization plans is meant to foster the redevelopment of those neighborhoods. 

Yet, in the absence of any Federal guidance on what constitutes such a plan, 

some States have provided the same prioritization to all developments proposed in QCTs, regardless of evidence of a plan or whether that development 

is likely to contribute to neighborhood improvements. 

Finally, there are numerous small ‘‘fixes’’ that have been proposed, that would 

ease the use of LIHTC with other funding streams, such as employing a uniform 

income eligibility for rural projects and a consistent definition of student status. 

Simplifying the use of LIHTC with other funding streams lowers the administrative 

costs of creating affordable housing. 

Question. Can you discuss the importance of having stable housing, in addition 

to affordable housing, and how lack of stable and affordable housing may affect children and childhood development? 

Answer. Housing affordability and stability are obviously quite linked, with instability being a fourth channel through which the high cost of housing can negatively 

affect families and children (see response above). Lack of affordability can lead to 

‘‘reactive’’ moves, as families unable to make the rent need to quickly find alternative housing.30 Such moves put families under great stress, don’t allow for a careful housing search process, and may be poorly timed for the school year. Even absent actual moves, insecure housing tenure may cause both parents and children to 

75 

31Section largely builds from: Center for Housing Policy, http://docs.wixstatic.com/ugd/ 

19cfbe_c1919d4c2bdf40929852291a57e5246f.pdf. 32For example, see Grigg, ‘‘School Enrollment Changes and Student Achievement Growth: A 

Case Study in Educational Continuity,’’ Sociology of Education, October 2012 (85): 4 388–404. 

Alexandra Beatty, Rapporteur; Committee on the Impact of Mobility and Change on the Lives 

of Young Children, Schools, and Neighborhoods, National Research Council and Institute of 

Medicine; ‘‘Student Mobility: Exploring the Impact of Frequent Moves on Achievement: Summary of a Workshop’’ (Washington, DC: The National Academies Press, 2012). 33 Cohen and Wardrip, Should I Stay or Should I Go? Exploring the Effects of Housing Instability and Mobility on Children (Washington, DC: Center for Housing Policy, 2011); Scanlon and 

Devine, ‘‘Residential Mobility and Youth Well-Being: Research, Policy, and Practice Issues,’’ 

Journal of Sociology and Social Welfare 28(1) (2001): 119–138; Vandivere, Hair, Theokas, Cleveland, McNamara, and Atienza, How Housing Affects Child Well-Being (Coral Gables, FL: 

Funders’ Network for Smart Growth and Livable Communities, 2006). 34Ziol-Guest and McKenna, ‘‘Early Childhood Housing Instability and School Readiness,’’ 

Child Development 85(1) (2014): 103–113. 35Leventhal and Newman. 2010. ‘‘Housing and Child Development.’’ Children and Youth Service Review 32(9): 1165–1174. 36Desmond and Kimbro. 2015. ‘‘Eviction’s Fallout: Housing, Hardship, and Health’’ Social 

Forces, Volume 94, Issue 1, September 1, 2015, pages 295–324, https://doi.org/10.1093/sf/ 

sov044. 37https://pdfs.semanticscholar.org/7764/698bc0817371fd7ae26c6a05d144654f86e2.pdf. 38https://www.huduser.gov/portal/sites/default/files/pdf/FamilyOptionsStudySummary 

Report.pdf. 39 Centers for Disease Control, Adverse Childhood Experiences Study, https://www.cdc.gov/ 

violenceprevention/acestudy. 

feel acute levels of stress, making it more difficult for children to focus on school 

and parents on their parenting. 

Some key findings from the literature on housing stability and children:31

• Changing schools is associated with declines in education achievement, particularly if mobility is frequent or occurs during key developmental stages.32

• Frequent residential mobility, regardless of whether changing schools, also 

are associated with negative effects for students.33 For example, poor children 

who move three or more times before turning six years old are more likely 

to demonstrate behavior and attention problems.34

• Residential instability among children and adolescents may negatively affect 

behavior and mental well-being, particularly for families with limited social 

connections or other key supports.35

• Families forced to move through formal or informal evictions report worsened 

health for the mothers and children.36

At the extreme, housing instability can result in homelessness. In this country, 

a person is most likely to spend a night in a homeless shelter, when they are an 

infant, in their first year of life.37 A recently completed randomized trial, assessing 

the efficacy of three common homelessness interventions, provides perhaps some of 

the most rigorous and compelling evidence to date on how children are affected by 

housing instability that leads to homelessness. 

HUD’s Family Options Study followed more than 2,000 homeless families in 12 

communities, for 3 years.38 The top-line finding is that providing homeless families 

with access to long term housing subsidies significantly reduced all forms of housing 

instability, with greatly reduced emergency shelter stays, doubling up, and housing 

mobility. Stable, affordable housing outperformed all other interventions. 

Perhaps as important, were the effects on non-housing outcomes: 

• The offer of stable affordable housing—usually through a voucher, resulted in 

reductions in adult psychological distress, intimate partner violence, economic 

stress, school mobility, and food insecurity. 

• There were also positive impacts in the child well-being domain, including reductions in behavior and sleep problems, and an increase is pro-social behavior. 

• Within 20 months of random assignment, families assigned to receive the subsidy, experienced significant reductions in three of the seven categories of Adverse Childhood Experiences (ACES). These adverse experiences have been 

linked to negative health and mental health outcomes as adults.39

It is increasingly my view that as a country, we cannot make headway on breaking the intergenerational transmission of poverty without addressing the housing 

needs of families with young children. Housing is the foundation for healthy child 

development, through all four dimensions mentioned here. Without affordable, staVerDate Sep 11 2014 20:17 Jul 27, 2018 Jkt 000000 PO 00000 Frm 00079 Fmt 6601 Sfmt 6621 R:\DOCS\30902.000 TIM
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40 Chetty, Hendren, and Katz. 2016. ‘‘The Effects of Exposure to Better Neighborhoods on 

Children: New Evidence From the Moving to Opportunity Project.’’ American Economic Review 

106(4). 41https://www.cbpp.org/housing-choice-voucher-fact-sheets. 42https://www.cbpp.org/research/housing/realizing-the-housing-voucher-programs-potentialto-enable-families-to-move-to. 43 Cook County, IL; Mamaroneck, NY; Chattanooga, TN; Long Beach, CA; Laredo, TX. 

ble, quality housing in neighborhoods that support child development and upward 

mobility, children born into low-income families will continue to face a steep uphill 

climb to escape poverty as adults. 

Question. In your testimony, you mentioned that studies have shown children 

have better outcomes, higher earnings, and receive higher education when they live 

in low poverty neighborhoods. Can you elaborate on this research and how it may 

be used to inform Federal policymaking? 

Answer. The recent work by Raj Chetty and his co-authors provides the best evidence to date on the role of a child’s neighborhood in their adult outcomes.40 The 

work builds from HUD’s Moving to Opportunity Demonstration (MTO), in which 

families living in public housing were offered different forms of vouchers, one form 

that could only be used in low poverty neighborhoods. A key strength of this study 

is that it was a randomized trial; whether a family was offered a voucher that would 

more likely lead them to a low poverty neighborhood was random and not determined by the participants. 

By linking data from the original study to IRS data, Chetty extended this work 

to look at the adult outcomes of the low-income children in the demonstration. The 

main finding is that young children in families offered vouchers more likely to get 

families to low poverty, safer neighborhoods did much better as adults than otherwise similar children. Specifically, they were more likely to go to college, to go to 

a higher quality college, and to earn more as adults. It is important to note that 

these positive effects were found for children who were 12 years old or younger at 

the time of the demonstration. There were no effects, or even negative effects, for 

children who were older at the time the voucher was offered. This may shed some 

light on the potentially negative effect of residential moves; older children may 

mainly experience the ‘‘down side’’ of a disruptive move, while having less time living in the low poverty neighborhoods, so less of the ‘‘up side.’’ 

This work highlights that Federal policy needs a heightened emphasis on the 

neighborhood context of families, particularly those with young children. Federal 

policy also needs to be cognizant of the disruptive effect of moves. Federal efforts 

need to focus on improving choices, including the choice to remain in one’s community, among existing support networks. 

Let me highlight two policy approaches where this evidence is particularly useful: 

improving neighborhood options for families with vouchers, and improving the 

neighborhoods where so many low income families lives. 

IMPROVING NEIGHBORHOOD OPTIONS IN HUD’S HOUSING CHOICE VOUCHER PROGRAM

More than 2 million children live in families receiving HUD rental assistance 

through tenant-based vouchers.41 Those vouchers should provide households with 

relief on housing affordability, and the ability to choose across better neighborhoods. 

Many believe the voucher program has been less successful on this second goal. For 

example, less than 13 percent of voucher households with children live in neighborhoods of low poverty (less than 10 percent of the population being poor).42 In some 

jurisdictions, the share is much lower than this. 

While many factors affect where families receiving a voucher ultimately live, one 

factor may be how HUD determines Fair Market Rents (FMRs), which bound allowable rental payments to landlords. HUD’s Metropolitan-wide FMRs (set at the 40th 

percentile of rents in the metropolitan area) may not be sufficient in some markets 

to help voucher holders access high opportunity/high rent areas—and thus voucher 

holders end up highly concentrated in a few high poverty areas. Given the importance of neighborhood quality for a child’s life outcomes, HUD determined it needed 

to consider alternatives to metropolitan-wide FMRs. 

HUD initiated a Small Area Fair Market Rent (SAFMR) demonstration to test the 

effects of setting FMRs at the ZIP code level within a metropolitan area, rather than 

metropolitan-wide (in 2010 via court settlement in Dallas and in 5 PHAs in 2012).43

This permits FMRs/payment standards to be higher in high rent/low poverty areas, 

77 

44 Collinson and Ganong, September 2014, ‘‘The Incidence of Housing Voucher Generosity,’’ 

NBER. 45https://portal.hud.gov/hudportal/HUD?src=/press/press_releases_media_advisories/2016/ 

HUDNo_16-173. 46https://www.housingonline.com/2017/08/23/hud-suspends-mandatory-implementationsmall-area-fair-market-rents/. 47https://www.huduser.gov/portal/sites/default/files/pdf/SAFMR-Interim-Report.pdf. 48https://web.stanford.edu/∼diamondr/LIHTC_spillovers.pdf. 

and lower in low rent/high poverty areas. Early evidence from Dallas was quite 

promising—suggesting SAFMRs led to de-concentration to lower poverty, lower 

crime neighborhoods at essentially the same cost per voucher as using the 40th percentile metropolitan FMR.44

Based on that evidence, and two rounds of public comments, HUD issued a final 

SAFMR rule in November of 2016, mandating the use of SAFMRs in a limited number of metropolitan areas in which voucher households are disproportionately concentrated in high poverty census tracts.45 Implemented in January of 2017, the rule 

would first affect FMRs announced in the fall of 2017. 

Yet on August 15, 2017, HUD announced that it was suspending the mandatory 

SAFMR for at least 2 years.46 HUD’s letter to affected Public Housing Agencies 

noted several reasons for the delay, including an interim report on the demonstration.47 The letter noted particular concern over potential increases in rent burdens 

and stated further analysis was warranted. However, concern over possible effects 

on household rent burdens were raised during the public comment period, and led 

HUD to include multiple tenant protections in the final SAFMR rule. Meaning, the 

final rule differs substantially from how SAFMRs were implemented in the demonstration sites, specifically in terms of protecting tenants from large increases in 

rent burden. 

Interestingly, the interim report confirms key findings from the earlier research: 

using SAFMRs, voucher households were more likely to move to lower poverty, higher opportunity neighborhoods, at somewhat lower average voucher costs. The outcomes documented in the report are, of course complicated and quite varied. They 

do not, however, appear to contradict the key expectations HUD had when it finalized the SAFMR rule. It is unclear why HUD would provide a blanket 2-year delay 

for all newly-designated SAFMR areas, for one of the few policies proven to help 

voucher households reach better neighborhoods. 

IMPROVING WHERE FAMILIES ALREADY LIVE AND LIHTC

Most low-income families do not have vouchers, and many families do not want 

to move from their communities in order to access decent schools and be safe at 

home. Reinvesting in the neighborhoods where families already live also needs to 

be part of the Federal approach. There are a variety of Federal programs meant to 

spur community redevelopment. Programs aimed at comprehensive community development, however, can be difficult to evaluate, due to numerous data and methodological challenges. 

Recent research by Stanford economists has filled one important knowledge gap, 

specifically whether developing LIHTC in a neighborhood fosters—or hinders— 

neighborhood improvements.48 Using extensive data on the property values of nearby homes before and after LIHTC housing is created, the authors provide compelling 

evidence that LIHTC developments in low-income neighborhoods do help revitalize 

those neighborhoods. Creating LIHTC developments in low-income neighborhoods 

increases property values by over 6%, lowers crime, and attracts a more racially and 

economically diverse population. The authors estimate that a LIHTC development 

in a low-income area ‘‘improves welfare by $23,000 per local homeowner and $6,500 

per local renter, with aggregate welfare benefits to society of $115 million.’’ 

States and localities need the continued flexibility to use LIHTC as part of redevelopment strategies. Along with such flexibility should come more clarity in what 

constitutes a concerted community revitalization plan in order for a LIHTC application in a qualified census tract to qualify for additional basis boost. 

QUESTION SUBMITTED BY HON. MICHAEL F. BENNET

Question. Reporters in places like Milwaukee have highlighted a troubling trend: 

some landlords set up Limited Liability Company—or LLC—structures to avoid payVerDate Sep 11 2014 20:17 Jul 27, 2018 Jkt 000000 PO 00000 Frm 00081 Fmt 6601 Sfmt 6621 R:\DOCS\30902.000 TIM
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49https://patch.com/new-york/prospectheights/flippers-playbook-how-nyc-slumlords-terrorizetenants-get-away-it. 50http://registries.opencorporates.com/. 51https://sunlightfoundation.com/2014/08/14/washington-a-better-practices-state-for-llctransparency. 

ing property taxes and fines, allowing them to abandon properties more easily. LLCs 

obscure landlords’ personal information and assets, making it difficult to hold them 

accountable. 

Are you aware of this practice? How widespread do you believe this LLC problem 

to be? What changes to the tax code or other policies might address this issue? 

Relatedly, some landlords buy up cheap properties, ‘‘milk’’ them by charging rents 

until they deteriorate, and then abandon them. What can we do to deter this activity and instead incentivize long-term landlord investment in communities? 

Answer. The ability of investors to hide their identity or assets behind Liability 

Corporations—or LLCs— makes it very difficult for local governments and community groups to track who is acquiring property. This limits the ability to detect 

trends that might warrant attention, or to deter inappropriate behavior by landlords. The extent of the problem likely varies by context and the LLC registration 

requirements of the State. 

In New York City, for example, LLCs have been implicated by affordable housing 

advocates and the media in the ‘‘flipping’’ of rent-stabilized apartments to luxury 

apartments.49 The inability to easily identify landlords accused of harassment tactics impedes policy efforts to support housing market functions. This includes identifying landlords who may be misusing the eviction process as part of harassment. 

A starting point for deterring counter-productive behavior by landlords is more 

transparency in the corporate structure. According to a cross-country comparison of 

corporate transparency, the U.S. ranked below at least 28 other countries, with a 

score of 31 out of 100.50 Some States within the U.S., however, scored much more 

highly. Washington State, for example, has adopted their own LLC registration requirements that greatly increase LLC transparency, and could provide a model for 

a Federal requirement.51

The Federal tax code could require that all LLCs provide and keep current the 

name and address of the founders, members, and managers of any LLC to the local 

government in any municipality in which they hold real property. 

PREPARED STATEMENT OF GRANT WHITAKER, PRESIDENT, 

NATIONAL COUNCIL OF STATE HOUSING AGENCIES

Mr. Chairman, Ranking Member Wyden, and members of the committee, thank 

you for this opportunity to testify on behalf of the National Council of State Housing 

Agencies (NCSHA) on our Nation’s critical need for affordable housing, the roles the 

Low-Income Housing Tax Credit (Housing Credit) and tax-exempt private activity 

Housing Bonds (Housing Bonds) play in responding to that need, and how Congress 

can seize the opportunity of tax reform to further strengthen these programs. 

I am Grant Whitaker, president and chief executive officer of the Utah Housing 

Corporation. I also have the privilege to serve as president of NCSHA, which is a 

nonprofit, nonpartisan, national organization created by the Nation’s State Housing 

Finance Agencies (HFA) more than 40 years ago to coordinate and leverage their 

Federal advocacy efforts for affordable housing. In addition to NCSHA’s advocacy 

work, the organization provides HFAs with education and training on the Housing 

Credit, Housing Bonds, and other Federal housing programs. 

HFAs are governmental and quasi-governmental, nonprofit agencies that address 

the full spectrum of affordable housing need, from homelessness to homeownership. 

HFAs effectively employ the Housing Credit and Housing Bonds, entrusted by Congress to State administration, to advance their common public-purpose mission of 

providing affordable housing to the people of their jurisdictions who need it. 

Thank you, Mr. Chairman, for your steadfast leadership in support of the Housing 

Credit and Housing Bonds over many years. I also want to thank Senator Maria 

Cantwell (D–WA), who too has been a true champion of these crucial housing programs and a tireless advocate for low-income households who need housing help. Together, you have introduced the most important housing legislation Congress has 

79 

considered in many years, S. 548, the Affordable Housing Credit Improvement Act. 

NCSHA strongly supports your bill, which would increase Housing Credit authority, 

facilitate Housing Credit development in challenging markets and for hard-to-reach 

populations, support the preservation of existing affordable housing, and simplify 

program requirements. 

NCSHA also thanks committee Ranking Member Ron Wyden (D–OR) and committee members Dean Heller (R–NV), Michael Bennet (D–CO), Rob Portman (R– 

OH), and Johnny Isakson (R–GA) for their cosponsorship of this legislation. We urge 

all Senators to become cosponsors. 

The Housing Credit has long enjoyed strong bipartisan, bicameral support, and 

this bill is no exception. Already, approximately one-third of the Senate has either 

cosponsored the Affordable Housing Credit Improvement Act or declared their intention to do so. Its House companion legislation, H.R. 1661, also enjoys significant bipartisan backing in that chamber, including cosponsorship by over half of the Ways 

and Means Committee, with near equal numbers of Republicans and Democrats. 

In addition to strong support in Congress, more than 2,000 local, State, and regional organizations and businesses nationwide support this legislation as members 

of the A Call To Invest In Our Neighborhoods (ACTION) Campaign. NCSHA is 

proud to co-chair this important grassroots coalition, which advocates in support of 

protecting, expanding, and strengthening the Housing Credit. 

Given this broad support, we urge the committee to include this important bill 

in any tax legislation it considers. 

THE NEED FOR AFFORDABLE HOUSING IS GREAT AND GROWING

The need for affordable housing across the country has reached crisis proportions, 

and is growing substantially. Nearly half (48 percent) of renters in the United 

States pay an excessive share of their income for housing. The crisis is most acute 

for those earning the least. Of those renter households with annual incomes of 

$15,000 or less—approximately equivalent to working full-time at the minimum 

wage—83 percent pay more than 30 percent of their income for housing, and 70 percent devote more than half of their income to housing. This leaves little money left 

over for other critical necessities like food, transportation, childcare, health care, 

and utilities. 

The housing crisis affects both homeowners and renters. For many low- and 

moderate-income borrowers, purchasing a home is by far their best opportunity to 

build wealth, yet these families face significant challenges as they seek to achieve 

homeownership. Even as the housing market strengthens, many creditworthy home 

buyers, especially first-time buyers, struggle to obtain mortgages they can afford. 

According to the most recent data from the National Association of REALTORS®, 

first-time home buyers accounted for only 33 percent of home purchases in May and 

32 percent of home purchases in June, compared to the 40 percent historical average. 

As more and more people turn to the rental market, they find a severe shortage 

of affordable homes. Those available to extremely low-income (ELI) households, 

those earning 30 percent or less of Area Median Income (AMI), are especially scarce. 

Nationwide, there are 11.4 million ELI renter households, but only 4 million rental 

homes affordable and available to them, leaving a gap of 7.4 million needed homes. 

The rental shortage is exacerbated as hundreds of thousands of new renter households enter the market each year, while the Nation loses countless affordable units 

from the housing stock due to conversion to market rate rentals or condominiums, 

demolition, or obsolescence. 

The housing crisis impacts working families, seniors, people with disabilities, and 

so many more across the country—those living in high-cost cities, in suburban 

neighborhoods, and in rural communities. Coastal cities like New York, San Francisco, and Seattle are well known for their extreme housing costs. 

But, I speak from experience when I say that low-income households in Utah face 

immense struggles to find affordable housing, too. Over 58,000 renter households 

living in Utah pay more than half of their income for housing. Those most in need 

are extremely low-income renters, for whom there is an estimated affordable rental 

housing shortage of over 38,000 units. 

I know from my conversations with my colleagues at HFAs across the country 

that what we face in Utah is not unique. Every State confronts this challenge. 

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This crisis will only get worse unless we act. According to research by Harvard 

University’s Joint Center for Housing Studies and Enterprise Community Partners, 

if current rent and income trends continue, the number of severely cost-burdened 

renters—those paying 50 percent or more of their income for rent—will reach 14.8 

million nationwide by 2025. That is 25 percent more severely cost-burdened households than we have today. 

While the Housing Credit and Housing Bond programs are extraordinarily successful, the resources devoted to them are woefully insufficient to meet the Nation’s 

affordable housing needs of today, let alone those of tomorrow. 

THE HOUSING CREDIT AND HOUSING BONDS: OUR NATION’S MOST EFFECTIVE RESPONSE

TO THE AFFORDABLE RENTAL HOUSING CRISIS

The Housing Credit and Housing Bonds are the most important tools we have to 

address the affordable housing shortage. These programs are highly successful 

public-private partnerships that draw on State HFAs’ sophisticated underwriting, 

asset management, and oversight capacity as well as private sector expertise and 

investment. Without question, the Housing Credit and Housing Bonds are the most 

effective means of targeting limited affordable housing resources to the people and 

places that need them, while transferring risk to private sector investors. 

Since the Housing Credit’s establishment in the Tax Reform Act of 1986, it has 

financed roughly 3 million affordable rental homes for low-income families, seniors, 

veterans, and those with special needs. Approximately 40 percent of these rental 

homes are financed with 4 percent Housing Credit authority, which is triggered by 

the use of multifamily Housing Bonds and therefore is not subject to the Housing 

Credit volume cap. These homes would not exist were it not for those bonds. In addition to the rental homes financed with both the 4 percent Credit and Housing 

Bonds, HFAs also finance affordable rental housing properties with multifamily 

Housing Bonds alone. 

These programs transform lives by creating quality, affordable living environments that lift up families; help children thrive; support seniors, people with special 

needs, and veterans; and permanently house persons at risk of or experiencing 

homelessness. They contribute to community revitalization by inspiring business 

growth, infrastructure advances, transportation solutions, and much more. 

State HFAs are proud, not only of the high quality, sustainable housing we help 

produce with the Housing Credit and Housing Bonds, but also of our strong program administration. We take very seriously our responsibility for program operation and oversight, as entrusted to States by Congress. We steadfastly enforce Federal program rules, developing statewide allocation plans with extensive public 

input; allocating to developments only the amount of Credit necessary to ensure 

their feasibility and long-term viability; serving only income-qualified households 

and the lowest income people we can possibly reach; ensuring the financial and 

physical health of the properties for the duration of their affordability periods 

through regular and thorough inspections; and reporting noncompliance to the IRS. 

States often exceed Federal requirements, collaborating on the development 

through NCSHA of national recommended practices in Housing Credit administration that set very high standards, while preserving the genius of the program’s devolved design that allows States to determine their highest and best use of Credit 

authority within broad and appropriate Federal mandates. Strong State administration has been cited by the U.S. Government Accountability Office in the past and 

in its most recent Housing Credit study on State administration released in 2016. 

AFFORDABLE HOUSING SUCCESSES AND CHALLENGES IN UTAH

We have had significant success in Utah using the Housing Credit and Housing 

Bonds. I am pleased to say that, with these programs, we have made considerable 

progress in reducing our chronically homeless population. Just last week, my board 

voted to devote 30 percent of our 2018 Housing Credit authority to supportive housing projects that will move us closer to the goal of ending chronic homelessness in 

Utah. 

We are particularly proud of projects such as the Kelly Benson Apartments, a 

supportive housing development for seniors in Salt Lake County. Many of its residents are formerly homeless veterans who have struggled with physical and mental 

health challenges and drug and alcohol addictions. This property serves seniors 

earning 35 percent of the AMI or less and offers supportive services to those who 

81 

need extra help getting through the day or night. Resisted by the community at 

first, the project is now considered a neighborhood jewel. 

But, we still have significant work ahead as we seek to tackle family homelessness and help the many other low-income households in our State who are housed, 

but pay more than they can afford for rent. The fact is we simply do not have 

enough resources to meet our affordable housing needs. In 2017, Utah Housing Corporation received 22 proposals for Housing Credit developments in our competitive 

9 percent Housing Credit round, requesting a total of $14,631,181. But, with our 

limited Housing Credit authority, we were able to fund just 12 of them. 

AFFORDABLE HOUSING IS A VITAL PART OF A PRO-GROWTH TAX CODE

Congress is embarking upon one of the most significant and challenging endeavors of recent decades—reform of the Federal tax code to create a tax system that 

better promotes economic growth. As it pursues this goal, we urge Congress to consider how it can strengthen our Nation’s housing infrastructure, as housing is the 

foundation for an economically vibrant country. 

The use of the tax code to provide affordable housing—both through the production and preservation of affordable rental properties with the Housing Credit and 

multifamily Housing Bonds and through the provision of lower cost mortgages for 

working families with single-family Housing Bonds (under the Mortgage Revenue 

Bond (MRB) and Mortgage Credit Certificate (MCC) programs)—has been one of the 

singular successes of the current system. 

The housing stability that can be achieved through the Housing Credit and Housing Bonds creates better health outcomes, improves children’s school performance, 

and can help low-income individuals gain employment and keep their jobs. And, the 

production and preservation of affordable housing helps drive economic growth, 

through job creation and the generation of tax revenues at all levels of government. 

Sadly, the affordable housing crisis we face now is exacting an economic toll on 

our Nation. Homelessness and hypermobility suffered by unassisted low-income 

families have dire consequences for children’s educational attainment. Numerous 

studies show that children who move frequently—as they often must without stable 

housing—are more likely to drop out of school, repeat grades, perform poorly, or 

have numerous school absences compared to those with stable housing. The social 

and economic cost of this effect on children’s lives is immeasurable. Sadly, there 

were nearly 25 million children living in households with cost burdens as of 2015. 

Affordable housing also can promote economic mobility. A recent Harvard University study, The Equality of Opportunity Project, found that moving younger children 

from a high-poverty neighborhood to a more integrated, lower poverty neighborhood 

improves their chances of going to college, lowers their risk of becoming a single 

parent, and increases their expected income as an adult by as much as 30 percent. 

Housing production programs, such as the Credit and Bonds, which build and preserve affordable housing in lower poverty neighborhoods, are critical to achieving 

these results. 

Affordable housing sited near transportation and areas with employment opportunities as part of larger redevelopment plans provides low-income households with 

better access to work, which increases their financial stability and may help them 

eventually achieve independence from government assistance. It also provides employers in those areas with needed labor. 

Not only do affordable housing programs deliver immeasurable benefits to the 

low-income households for whom they provide homes, they also have an enormous 

immediate impact on the economy through the creation of jobs and generation of 

tax revenue. The Housing Credit supports approximately $3.5 billion in Federal, 

State, and local taxes; $9.1 billion in wages and business income; and 95,700 jobs 

across various U.S. industries every year. The National Association of Home Builders estimates that in its first year, a typical 100-unit Housing Credit property on 

average provides $8.7 million in additional wages for local workers and business 

profits; creates $3.3 million in additional Federal, State, and local tax revenue; and 

supports 116 jobs. 

Housing Bonds also have a profound economic impact. According to models formulated by the National Association of Home Builders and the National Association 

of REALTORS®, in the 10-year period from 2006 to 2015, State HFA MRB homeownership programs generated almost 50,000 jobs annually. Multifamily Housing 

Bonds also spur important economic growth. Over the same period of time, State 

82 

construction and rehabilitation of apartments financed with HFA multifamily Housing Bonds generated approximately 27,000 jobs and added over $2 billion to GDP 

annually on average. 

PRESERVE, EXPAND, AND STRENGTHEN THE HOUSING CREDIT

Since the Housing Credit’s creation over 30 years ago, Congress has acted several 

times to strengthen and refine it so that the program is equipped to meet new and 

changing housing challenges. As you now consider changes to the current tax structure, NCSHA urges you to use this opportunity to build on what works, not only 

by preserving the Housing Credit program, but also by expanding Credit resources 

so that we can better address the Nation’s severe affordable rental housing shortage, and by enacting policy modifications to strengthen this already highly successful program. 

Passing Senator Cantwell and Chairman Hatch’s Affordable Housing Credit Improvement Act, S. 548, is essential to addressing the affordable housing crisis. The 

lynchpin provision of this legislation would expand the Housing Credit authority 

each State receives by 50 percent over 5 years. This cap increase would allow States 

to make meaningful progress towards meeting the housing needs of their lowincome residents. We know that Congress faces extraordinary pressure as it directs 

limited Federal resources to so many priorities. However, we strongly believe that 

investing new resources in the Housing Credit makes sense, even in this time of 

budget austerity. 

Each year, State Housing Credit allocating agencies receive applications requesting nearly three times more Housing Credit resources than agencies have to allocate. Yet even this does not quantify the extent to which demand for affordable rental housing outstrips the supply of Credits, as many developers with worthwhile 

projects do not even bother applying because the competition for Credit is so fierce. 

State Housing Credit allocating agencies face difficult choices—not just whether 

to direct their limited Credit resources to preservation as opposed to new construction, but also whether to commit them to rural rather than urban areas or to neighborhood revitalization rather than to projects in high-opportunity areas. Agencies 

must balance whether to finance supportive housing for persons experiencing homelessness against assisted living for the elderly, housing for needy families, and 

projects for veterans—all of which serve populations with extraordinary housing and 

service needs. 

Reliance on the Housing Credit to meet the needs of so many populations has only 

grown as Federal resources for housing programs funded through the appropriations 

process have shrunk. Funding for the HOME Investment Partnerships (HOME) program has been cut by nearly half since 2010. HOME has long been a critical source 

of gap financing in Housing Credit developments, and without adequate funding for 

it we must rely even more on Housing Credit equity to build those properties. 

Moreover, the Federal Government in recent years has turned to the Housing 

Credit time and again to achieve other Federal priorities such as transforming the 

Nation’s public housing through the Rental Assistance Demonstration (RAD) program and producing housing for persons with disabilities in conjunction with the 

section 811 Project Rental Assistance program. Congress has already raised the cap 

on public housing units eligible for RAD multiple times, and the administration this 

year proposed to eliminate that cap entirely. Moreover, Congress is now considering 

allowing section 202 elderly housing properties with Project Rental Assistance Contracts also to become eligible for RAD. Those public housing and section 202 properties will likely need to rely on the Housing Credit for the equity necessary to undertake the RAD transition. There simply are not enough Housing Credit resources 

to meet all these demands. 

In addition to the increase in authority, NCSHA strongly supports other provisions of the Affordable Housing Credit Improvement Act that would strengthen the 

bond-financed portion of the Housing Credit program; amend the Housing Credit income limits to allow for income averaging, thus allowing low-income families earning up to 80 percent of AMI access to Credit properties, while improving affordability for ELI households; provide parity in Housing Credit income rules for rural 

properties; simplify complex program rules, such as the Housing Credit student 

rule; and establish a State-determined basis boost of up to 50 percent for units in 

Housing Credit properties reserved for ELI households. These, and all of the bill’s 

other provisions, would make an already successful program even more so. 

83 

Lastly, we also ask that you be mindful of the impact other changes you may 

make to the tax code could have on the Housing Credit and Housing Bonds, and 

seek to prevent any unintentional negative effects those tax changes could have on 

these programs. 

PRESERVE THE TAX-EXEMPT PRIVATE ACTIVITY HOUSING BOND PROGRAM

For decades, the Housing Bond program—multifamily bonds for financing affordable rental housing and the MRB and MCC programs for financing affordable firsttime, modest home purchases—has been an essential and successful tool in our affordable housing efforts. While these bonds are private activity bonds (PAB), Congress deemed that the affordable housing they make possible is worthy of a tax exemption, not just because of the direct housing benefits these bonds provide but also 

because of the positive effects the housing opportunities they create have more 

broadly on families, communities, and the economy. 

In recent years, a few tax reform proposals have been advanced, both in Congress 

and from outside experts, which would eliminate the tax deduction for interest on 

PABs while maintaining the exemption for other municipal bonds. This would be 

a mistake, and would drastically set back our efforts to provide affordable housing 

to those in need. 

While it is true PABs provide direct financing to private entities, the bonds fulfill 

a very important public purpose that the market is often unable to meet. This is 

certainly the case with Housing Bonds. In addition to affordable housing, PABs support many other critical public priorities, such as financing for airport renovations, 

sewage facilities, public power, and affordable student loans. Simply put, repealing 

or limiting the tax exemption for PABs would severely hamper State and local governments’ efforts to support affordable housing and other locally determined priorities. 

The Housing Bond market, like many financial markets, has not fully recovered 

from the financial, housing, and broader economic crises of recent years. The historically low interest rates we have experienced during the recovery have hampered further the Housing Bond market by greatly reducing the Housing Bond tax-exempt 

interest rate advantage. However, interest rates now are beginning to rise and are 

likely to continue to climb. 

As we enter a more typical interest rate environment, the tax exemption afforded 

to Housing Bonds will be even more critical to helping lower income home buyers 

purchase their first homes. Already, the market for Housing Bonds has strengthened. The most recent available data shows that in just 1 year—from 2013 to 

2014—State HFA bond issuance jumped by 39 percent, as demand for tax-exempt 

bond-financed housing grew. At this pace, we fully expect the PAB cap soon will be 

fully subscribed in most States—and oversubscribed in some—just as it has been 

historically. 

Given the considerable need for more bond authority in many States, we hope to 

explore with the committee a mechanism—not unlike that which already exists for 

the Housing Credit—for the redistribution of expiring bond authority to those States 

that are using all of their authority. 

In Utah, our Housing Bond programs are well oversubscribed. We could easily use 

3 times our allotment for MRBs, and demand for multifamily Housing Bonds has 

been staggering as well. 

STREAMLINE AND SIMPLIFY THE HOUSING BOND PROGRAM

NCSHA recommends Congress take a few modest steps to make the highly successful Housing Bond program even more effective. With tax reform, Congress has 

the opportunity to further strengthen Housing Bonds by making low or no cost 

changes to eliminate outdated rules and to give States more flexibility to respond 

to their unique needs and circumstances. For example, within the MRB program, 

the purchase price limit is no longer needed, as the income limits Congress later 

imposed much more effectively control the price of homes MRB borrowers can purchase. The considerable resources HUD and Treasury expend coming up with the 

purchase price limits annually could be deployed elsewhere. 

In addition, the MRB home improvement loan program, especially important now 

given the repair needs of foreclosed properties and the home maintenance families 

were forced to defer during the recession, would be much more useful if Congress 

increases its loan limit of $15,000 by an amount at least adequate to reflect the rise 

in construction costs since it was first established in 1980 and indexes that limit 

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to keep up with construction cost inflation annually. We also encourage Congress, 

as it did on a temporary basis from 2008 through 2010, to allow State HFAs to use 

MRBs for refinancing, so State HFAs can help otherwise qualified borrowers. 

In addition, we urge you to adopt proposals that would improve investor interest 

in the Housing Bond program. For example, NCSHA supports exempting interest 

earned on refunding Housing Bonds from the Alternative Minimum Tax. Conversely, we urge you to resist proposals that would undermine investor interest in 

Housing Bonds, such as limiting the value of the municipal bond interest deduction 

to a lower tax rate, as this would greatly diminish the value of Housing Bond investments and, consequently, investor interest in them. 

We also have several suggestions for simplifying the MCC program, which the tax 

code provides as an alternative to MRBs and which states utilize more when the 

Housing Bond rate advantage is limited, as it has been in recent years. MCCs help 

lower income families afford homeownership by allowing first-time home buyers who 

meet the MRB program’s income requirements to claim a dollar-for-dollar tax credit 

for a portion of the mortgage interest they pay each year, up to $2,000. Specifically, 

we urge you to simplify the MCC calculation; permit HFAs to recycle MCCs, as you 

allow them to recycle Housing Bonds; provide HFAs the flexibility to shorten the 

MCC term and/or ‘‘front load’’ its benefits; eliminate the $2,000 annual credit cap 

on MCC benefits; and provide HFAs the flexibility to structure the MCC assistance 

to respond to diverse home buyer needs. We would be happy to provide further detail on any of these proposals. 

Thank you for your commendable efforts to support affordable housing. I am honored to have had this opportunity to testify before the committee to provide 

NCSHA’s and my own State’s perspective on the effectiveness of the Housing Credit 

and Housing Bond programs, and on how the committee can strengthen these programs. NCSHA and its member HFAs stand ready to assist you in any way we can. 

QUESTIONS SUBMITTED FOR THE RECORD TO GRANT WHITAKER

QUESTION SUBMITTED BY HON. ORRIN G. HATCH

Question. Are there any best practices or other recommendations you have for requirements based on oversight done at the State housing agency level we could put 

in legislation for State housing agencies to follow? Would you recommend any requirements be put in legislation or are there other ways to address the oversight 

question? 

Answer. State Housing Finance Agencies (HFA) take their Low Income Housing 

Tax Credit (Housing Credit) oversight responsibilities very seriously. In fact, in 

many areas, HFAs exceed the requirements of Federal law and regulation, such as 

by requiring deeper income targeting, longer property affordability terms, and more 

stringent market study requirements. 

HFAs collectively through our national organization, the National Council of State 

Housing Agencies (NCSHA), have developed recommended practices in Housing 

Credit administration that support HFAs in their pursuit of the highest standards 

of administration while preserving their need to respond most effectively to their 

own housing needs and priorities. The U.S. Government Accountability Office (GAO) 

has recognized the value of NCSHA’s recommended practices in several of its reports on the Housing Credit. 

HFAs have revised and updated these recommended practices multiple times over 

the last three decades, and are currently engaged in an effort to further strengthen 

and expand them. This effort has been underway for the last year, and we expect 

the NCSHA board of directors to adopt the updated practices later this year. These 

recommended practices cover all areas of program oversight, including cost certification, cost containment, developer fee limits, and compliance during the extended 

use period. 

There are, however, steps we suggest Congress consider taking to further 

strengthen State oversight of the Housing Credit program through legislative 

changes. Our recommendations are as follows: 

• Foreclosure prevention: Congress should pass the Affordable Housing Credit 

Improvement Act, S. 548, sponsored by Senator Maria Cantwell (D–WA) and 

Senate Finance Committee Chairman Orrin Hatch (R–UT), which already has 

strong bipartisan support. Among the bill’s many provisions that would give 

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States stronger administrative authority and flexibility is the provision ensuring that affordability restrictions endure in the case of illegitimate foreclosures. Under current law, if a property is acquired by foreclosure (or instrument in lieu of foreclosure) during the extended use period, the affordability restrictions terminate unless the Secretary of the Treasury determines 

that the acquisition was part of an arrangement to terminate the affordability 

restrictions and not a legitimate foreclosure. In practice, it is difficult—if not 

impossible—for the Treasury Secretary to make such determinations about 

individual properties. S. 548 would transfer that responsibility from Treasury 

to the States, which already are tasked with ongoing compliance monitoring 

of Housing Credit properties. The legislation would further require the owner 

or successor acquiring the property to provide the State with 60 days written 

notice of its intent to terminate the affordability period so that States have 

time to assess the legitimacy of the foreclosure. 

• Underwriting of Housing Bond-financed Housing Credit properties: Congress 

should consider amending Internal Revenue Code section 42(m)(2)(D), which 

provides that the governmental unit that issues the Housing Bonds used to 

finance a 4 percent Housing Credit property must ensure that the Housing 

Credit amount provided to the property does not exceed that which is necessary for the property’s financial feasibility. Unfortunately, some local government entities that issue Housing Bonds do not have the capacity to underwrite properties and properly ensure that sufficient Credit authority is provided, while not over-subsidizing the property. Instead, we believe that underwriting bond-financed properties should be the responsibility of the State 

Housing Credit allocating agency, not only for the 9 percent Housing Credit, 

but also for bond-financed 4 percent Credit properties. State allocating agencies have the capacity and expertise to underwrite these deals, and in practice, they typically undertake this responsibility for bond-financed properties, 

even though the law does not require it of them, because of their interest in 

ensuring proper underwriting. However, it would be prudent for Congress to 

clarify in statute that this responsibility lies with the State allocating agency 

and not the local bond issuer. 

• Resources for IRS oversight: GAO’s reports on the Housing Credit have pointed to several areas where it believes increased federal oversight of the Housing Credit would be beneficial. NCSHA would support increasing the resources provided to the Internal Revenue Service (IRS) so that it is better 

able to achieve these goals, which would further support state oversight capacity. Specifically, we encourage Congress to increase resources for IRS so 

that it may improve internal protocols related to the Housing Credit and 

allow it to undertake community outreach to industry groups and taxpayers. 

More resources would also better equip IRS to determine if tax returns may 

warrant an audit and conduct those audits if necessary, assist it in reconciling Housing Credit forms from allocating agencies and taxpayers to identify 

potential inconsistencies, and populate and make necessary technical updates 

to IRS’s Low-Income Housing Credit database. Increased resources would also 

help the IRS Office of Chief Counsel in its provision of timely Housing Credit 

guidance. Lastly, IRS could use additional resources to develop and fund a 

whistleblower hotline at the IRS so that individuals who are aware of potential fraudulent activities can make reports to IRS. 

QUESTIONS SUBMITTED BY HON. ROBERT P. CASEY, JR. 

Question. This is a little out of scope, as it pertains to HUD’s section 202 Supportive Housing for the Elderly program, but I would welcome your thoughts. We 

all know the population of our country is growing rapidly, and there is an acute 

shortage of affordable senior housing. Thirty-eight percent of section 202 tenants are 

frail or near-frail, requiring assistance with basic activities of daily living. Without 

access to supportive housing, these individuals would be at high risk of institutionalization. Do you think funding section 202 as a means of keeping older adults 

out of nursing homes is a worthy public policy goal? If you are able to, can you share 

best practices for home modification programs that would help low-income elderly 

and/or disabled individuals stay in their existing homes? 

Answer. NCSHA supports the section 202 Supportive Housing for the Elderly program, which is a critical tool for meeting the needs of America’s aging population. 

However, section 202 cannot possibly meet the vast and growing needs of our senVerDate Sep 11 2014 20:17 Jul 27, 2018 Jkt 000000 PO 00000 Frm 00089 Fmt 6601 Sfmt 6621 R:\DOCS\30902.000 TIM
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iors on its own. As it is for all other populations of low-income renters, the Housing 

Credit is central to addressing seniors’ affordable housing needs. Of the 3 million 

affordable homes financed with the Housing Credit since its inception in 1986, more 

than 800,000 are headed by older adults. More than half of states provide additional 

points in their Housing Credit application process for developments that house persons over 55 or 62 years old or making other provisions that benefit seniors, such 

as providing services, using universal design components, or locating near a senior 

service center. 

Both the administration’s FY 2018 budget request and the Senate Appropriations 

Committee-passed Transportation, Housing, and Urban Affairs funding bill would 

make section 202 units eligible to participate in HUD’s Rental Assistance Demonstration (RAD) and lift the cap on total units eligible for RAD participation. The 

RAD program is highly dependent on the Housing Credit as a means of attracting 

the private capital to RAD developments. Therefore, should Congress implement 

this proposal, it would create additional demand for Housing Credit authority. 

Seniors’ dependence on the Housing Credit and the unmet need for affordable 

housing for seniors underscore the need for increasing Housing Credit authority. 

The Affordable Housing Credit Improvement Act would expand Housing Credit resources by 50 percent, phased in over 5 years. NCSHA believes that Congress 

should increase the Housing Credit cap by at least this much. 

In regards to Senator Casey’s question regarding home modification program best 

practices, many State HFAs administer successful emergency home repair programs 

that help elderly homeowners, among others. Often these repairs allow seniors to 

age in place and are critical for people on fixed-incomes, as so many seniors are. 

These programs frequently rely on HOME Investment Partnerships (HOME) program or Community Development Block Grant (CDBG) funding. 

In Utah, the Bear River Association of Governments, consisting of Utah’s three 

northern most counties, offers two essential CDBG-funded home repair programs. 

The Emergency HOME Repair Program provides grants of up to $2,000 for minor 

home repairs needed to correct hazardous situations and ensure safe living conditions. The Single Family Rehabilitation and Reconstruction Program provides low 

interest rate loans to households living in substandard housing in need of major repairs. 

In 2013, the Indiana Housing Development Authority won an NCSHA Annual 

Award for Program Excellence for a program it implemented to support home and 

community improvements designed to help seniors age in place. This program, and 

others like it across the country, are models for how State agencies can assist seniors with home modifications and repairs. 

Unfortunately, Federal tax law imposes a significant limitation on States’ abilities 

to finance home improvement loans for critical repairs by setting an exceptionally 

low limit on the home improvement loans States can finance with the Mortgage 

Revenue Bond (single-family private activity tax-exempt Housing Bond) program. 

The limit is set by statute at $15,000 and has not been increased since it was first 

established in 1980. Over that time period, inflation (as measured by the Consumer 

Price Index) has increased nearly 200 percent ($15,000 in 1980 is worth the equivalent of more than $43,000 today). Consequently, many of the critical repairs the program was designed to support are now too expensive to qualify for MRB financing. 

Therefore, we strongly encourage Congress to either raise the MRB home improvement loan limit to reflect the increase in construction cost since 1980 and index it 

to annually reflect cost increases or preferably, to just eliminate it entirely and 

allow States to set their own limits. 

Question. According to the Center for Budget Policy and Priorities, the cuts to 

HUD’s FY 2018 budget proposed by the White House would eliminate more than 

250,000 Housing Choice Vouchers next year. This comes at a time when public 

housing agencies across the country are already facing massive wait lists for these 

vouchers. Philadelphia alone projected 18,230 households on its HCV wait list at the 

beginning of FY 2017. With the need for HUD rental assistance far outpacing the 

available funds, can you discuss the challenges States face in prioritizing different 

high-need groups such as families with children, people with disabilities, and homeless veterans? 

Answer. NCSHA strongly opposes cuts in the voucher program. There simply are 

not enough affordable housing resources—both capital resources like the Housing 

Credit and operating or rental resources like the Housing Choice Voucher program—to meet the need. More than 11.2 million severely cost-burdened renter 

87 

households spend more than half their income on housing. Demand is increasing, 

as more and more low-income households enter the rental market each year, while 

we confront the loss of increasing amounts of our existing affordable housing stock. 

In Utah, we have seen a significant increase in the population of extremely lowincome (ELI) renters (those with incomes of 30 percent or less of area median income). In 2009, ELI households made up 20.7 percent of all renters in Utah, but 

by 2013 they comprised 22.5 percent of renters. More than three quarters of these 

households are severely cost-burdened, meaning they pay more than 50 percent of 

their income for rent 

Both the Housing Credit and Housing Choice Vouchers play a critical role in addressing the need. These programs have distinct and complementary purposes. Unlike the Housing Credit, the voucher program was not designed to address challenges such as expanding affordable rental housing supply in tight markets, producing housing for households with special needs, building properties in areas experiencing job growth, recapitalizing and preserving aging properties, and revitalizing 

low-income communities. Rather, vouchers are designed to make existing housing 

more affordable to low-income households. We need both to address our growing 

housing needs. 

Question. Can you discuss current mechanisms and best practices to ensure that 

units available to low-income renters continue meeting basic quality standards, particularly after the 15 year LIHTC period? 

Answer. One of the most important roles State agencies play in administering the 

Housing Credit is compliance monitoring, which includes inspecting properties to 

ensure quality standards are met throughout the full affordability period, including 

the extended use period after year 15. In its 2016 report on State administration 

of the Housing Credit program, GAO found that all the agencies it visited had processes in place for conducting compliance monitoring of properties consistent with 

law and regulations, including processes for monitoring properties after year 15, and 

many went above and beyond Federal statutory and regulatory requirements in 

their monitoring. 

In 2012, the U.S. Department of Housing and Urban Development published an 

extensive report titled What Happens to Low-Income Housing Tax Credit Properties 

at Year 15 and Beyond?, in which HUD found, ‘‘The vast majority of LIHTC properties continue to function in much the same way they always have, providing affordable housing of the same quality at the same rent levels to essentially the same 

population without major recapitalization.’’ 

While tax credits are no longer eligible for recapture by IRS after year 15, States 

still have a variety of means for enforcing affordability restrictions in the extended 

use period. These include helping owners to ensure property performance while still 

complying with rent and income limits, barring owners who fail to comply from receiving future Housing Credit allocations, and even pursuing legal action against 

owners who fail to comply with the extended use agreement. Sadly, Utah Housing 

Corporation has been forced to file suit recently against a project owner for failing 

to maintain project compliance. However, this underscores the fact that allocating 

agencies can and do take legal action when it is necessary to ensure compliance 

with the Housing Credit statute after year 15. 

Question. The HOME program and Community Development Block Grants are 

two of the most often-used Federal programs for gap financing for construction of 

affordable housing. President Trump’s FY18 budget proposes eliminating both of 

these programs. At the same time, housing agencies across the country are facing 

major low-income housing shortages. Philadelphia, for example, had nearly 40,000 

people on the Philadelphia Housing Agency’s public housing wait list in October 

2016. Can you discuss the anticipated impact of eliminating the HOME and CDBG 

programs on the supply of low-income housing? 

Answer. The elimination of HOME would be disastrous to the efforts to address 

our Nation’s severe housing needs. HOME is an essential and flexible housing resource that is critical not only to rental housing financed with the Housing Credit, 

but also to programs to help low-income creditworthy home buyers through down 

payment assistance and lower rate mortgages and homeowners through home rehabilitation programs. HOME funding already has been cut by nearly half since 2010. 

HOME funding is a critical ‘‘gap filler’’ resource in nearly 20 percent of Housing 

Credit properties nationwide. In 2015, Utah used HOME funding in over half of our 

Housing Credit units. The gap is the difference between the Housing Credit equity 

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for which a property is eligible and the actual cost of building or rehabilitating that 

property. It can either be filled with hard debt, such as a bank mortgage, or soft 

financing sources like HOME, which reduce or eliminate the amount of debt required to finance the property, thus making it possible to charge lower rents. HOME 

helps States serve ELI households, including families with young children, seniors, 

persons with disabilities, veterans, and other needy households, with the Housing 

Credit, sometimes even without rental assistance. Therefore, we strongly urge Congress to at least level fund HOME at $950 million in FY 2018, as the Senate Appropriations Committee has proposed. 

QUESTION SUBMITTED BY HON. MICHAEL F. BENNET

Question. According to the National Low-Income Housing Coalition, a worker in 

Colorado needs to make $22 per hour to make a modest two-bedroom apartment affordable. As is the case elsewhere, affordable housing is in short supply, and the 

crisis has disproportionately impacted low-income families. What do you believe are 

the causes for the shortage of affordable options, especially for low- and moderateincome households? 

Answer. The private market is unable to respond to the need for affordable housing absent an incentive such as the Housing Credit because it simply costs too much 

to build housing to rent it at rates low-income people can afford. Harvard’s Joint 

Center for Housing Studies states that, ‘‘to develop new apartments affordable to 

renter households with incomes equivalent to the full-time minimum wage, the construction cost would have to be 28 percent of the current average.’’ The fact is, that 

unlike many other tax expenditures, which subsidize activity that would occur at 

some level without a tax benefit, virtually no affordable rental housing development 

would occur without the Housing Credit. 

PREPARED STATEMENT OF HON. RON WYDEN, 

A U.S. SENATOR FROM OREGON

At the outset of this morning’s hearing, I want to begin by thanking Chairman 

Hatch and Senator Cantwell. They are leading the charge when it comes to affordable housing, particularly through smart tax policies the committee will discuss 

today, and I’m looking forward to working more with them on these issues. 

Our country’s housing policy needs an urgent remodel. Today millions of Americans struggle to pay the rent, and they can’t even dream of purchasing a home. 

To get into a bit of Introduction to Economics, a key housing challenge is increasing supply. When housing is scarce in the communities where people want to live 

and work, prices get bid up, and working people get pushed out. Rent increases faster than people’s incomes, even among people who earn a decent wage. There are 

few incentives to build affordable housing near schools, public transit and amenities 

like parks and retail. 

Oftentimes, the only places where people can afford housing are an hour or more 

from where they work or want their kids to go to school. Many people either spend 

a small fortune on train tickets and bus fares, or they spend eternities sitting behind a steering wheel on the daily commute. Many families wind up in food deserts 

where it’s next to impossible to get healthy, fresh meals. 

This crisis is a five-alarm fire across the country and all over my home State of 

Oregon—in Portland, Bend, Hood River, Astoria, Medford and so many other places. 

It’s evident in the faces of far too many Oregon children, veterans, and families living on the streets. 

On this committee, Senator Cantwell and Chairman Hatch have spent considerable time fighting this supply shortage. They’ve got an important bill that I cosponsored called the Affordable Housing Credit Improvement Act of 2017. Their proposal is all about supercharging the Low-Income Housing Tax Credit and wringing 

more value out of every dollar that goes into it. And it builds on what the three 

of us got in the 2015 tax bill, which made the expanded LIHTC credit permanent. 

In my view they’ve developed smart ways of attacking this scarcity problem, and 

that will mean more housing goes up in communities where people want to work 

and plant roots. 

89 

I’ll have other ideas to talk about in the days and weeks ahead—ideas about helping the middle class and first-time homebuyers, as well as better-linking services 

with low-income housing. 

But as for today’s hearing, I’m looking forward to talking with our witnesses 

about some of the ideas Senators Cantwell and Hatch have put forward, as well as 

how it’ll be possible to incentivize more housing construction near transit, schools 

and amenities. 

I’ll wrap up with one last thought. Senators Cantwell and Hatch are demonstrating how the two sides can work together on major economic challenges. After 

a heated few weeks in the Senate, I know both sides crave a return to bipartisanship and regular order, and for this committee that would mean tax reform is likely 

on the horizon. 

Senate Democrats outlined our principles for a tax overhaul in a letter to the majority this morning. It spells out what our caucus will bring to the debate. And in 

my view, it’s in the best tradition of this committee to tackle big issues like tax reform on a bipartisan basis, so it’s my hope that we’re able to bring the two sides 

together on this issue in the months ahead. 

(91) 

COMMUNICATIONS

A CALL TO INVEST IN OUR NEIGHBORHOODS (ACTION) CAMPAIGN

The A Call To Invest in Our Neighborhoods (ACTION) Campaign, representing over 

2,000 national, state, and local organizations and businesses, thanks the Senate Finance Committee for holding a hearing on ‘‘America’s Affordable Housing Crisis: 

Challenges and Solutions.’’ This hearing provided the Committee an opportunity to 

hear from expert witnesses about the scope of the affordable housing crisis and how 

Congress can strengthen critical housing programs administered through the tax 

code, namely the Low-Income Housing Tax Credit (Housing Credit) and tax-exempt 

private activity Housing Bonds, so that we can better address the significant and 

growing need for affordable housing nationwide. 

Much of the hearing focused on the Affordable Housing Credit Improvement Act, 

S. 548, which Senator Maria Cantwell (D–WA) and Senate Finance Committee 

Chairman Orrin Hatch (R–UT) introduced earlier this year. This crucial piece of legislation would increase Housing Credit authority, facilitate Housing Credit development in challenging markets and for hard-to-reach populations, support the preservation of existing affordable housing, and simplify program requirements. The 

ACTION Campaign is grateful to Senator Cantwell and Chairman Hatch for their 

leadership, and to the other Committee members—Ranking Member Ron Wyden 

(D–OR) and Senators Dean Heller (R–NV), Michael Bennet (D–CO), Rob Portman 

(R–OH), and Johnny Isakson (R–GA)—for their co-sponsorship support. We strongly 

urge the Committee to advance this critical bill as part of any tax legislation it considers. 

The Housing Credit Has a Remarkable Track Record 

President Reagan and the Congress showed remarkable foresight when they created 

the Housing Credit as part of the Tax Reform Act of 1986. The Housing Credit is 

now our nation’s most successful tool for encouraging private investment in the production and preservation of affordable rental housing, with a proven track record 

of creating jobs and stimulating local economies. For over 30 years, the Housing 

Credit has been a model public-private partnership program, bringing to bear private sector resources, market forces, and state-level administration to finance more 

than 3 million affordable apartments—nearly one-third of the entire U.S. inventory—giving more than 6.7 million households, including low-income families, seniors, veterans, and people with disabilities, access to homes they can afford. Roughly 

40 percent of these homes were financed in conjunction with multifamily Housing 

Bonds, which are an essential component of the program’s success. 

The Housing Credit Is a Proven Solution to Meet a Vast and Growing Need 

Despite the Housing Credit’s tremendous impact, there are still 11 million renter 

households—roughly one out of every four—who spend more than half of their income on rent, leaving too little for other necessary expenses like transportation, 

food, and medical bills. This crisis is continuing to grow. HUD reports that as of 

2015, the number of households with ‘‘worst case housing needs’’ had increased by 

38.7 percent over 2007 levels, when the recession began, and by 63.4 percent since 

2001. A study by Harvard University’s Joint Center for Housing Studies and Enterprise Community Partners estimates that the number of renter households who pay 

more than half of their income towards rent could grow to nearly 15 million by 

2025. 

Without the Housing Credit, there would be virtually no private investment in affordable housing. It simply costs too much to build rental housing to rent it at a 

level that low-income households can afford. In order to develop new apartments 

92 

that are affordable to renters earning the full-time minimum wage, construction 

costs would have to be 72 percent lower than the current average. 

The Housing Credit Creates Jobs 

Housing Credit development supports jobs—roughly 1,130 for every 1,000 Housing 

Credit apartments developed, according to the National Association of Home Builders (NAHB). This amounts to roughly 96,000 jobs per year, and more than 3.25 million since the program was created in 1986. NAHB estimates that about half of the 

jobs created from new housing development are in construction. Additional job creation occurs across a diverse range of industries, including the manufacturing of 

lighting and heating equipment, lumber, concrete, and other products, as well as 

jobs in transportation, engineering, law, and real estate. 

The Housing Credit Stimulates Local Economies and Improves Communities 

The Housing Credit has a profound and positive impact on local economies. NAHB 

estimates that the Housing Credit adds $9.1 billion in income to the economy and 

generates approximately $3.5 billion in federal, state, and local taxes each year. 

Conversely, a lack of affordable housing negatively impacts economies. Research 

shows that high rent burdens have priced out many workers from the most productive cities, resulting in 13.5 percent foregone GDP growth, a loss of roughly $1.95 

trillion, between 1964 and 2009. 

Housing Credit development also positively impacts neighborhoods in need of renewal. About one-third of Housing Credit properties help revitalize distressed communities. Stanford University research shows Housing Credit investments improve 

property values and reduce poverty, crime, and racial and economic isolation, generating a variety of socio-economic opportunities for Housing Credit tenants and 

neighborhood residents. 

Affordable Housing Improves Low-Income Households’ Financial Stability 

Affordable housing promotes financial stability and economic mobility. It leads to 

better health outcomes, improves children’s school performance, and helps lowincome individuals gain employment and keep their jobs. Affordable housing located 

near transportation and areas with employment opportunities provides low-income 

households with better access to work, which increases their financial stability and 

provides employers in those areas with needed labor. 

Families living in affordable homes have more discretionary income than low-income 

families who are unable to access affordable housing. This allows them to allocate 

more money to other needs, such as health care and food, and gives them the ability 

to pay down debt, access childcare, and save for education, a home down payment, 

retirement, or unexpected needs. 

The Housing Credit Is a Model Public-Private Partnership 

The Housing Credit is structured so that private sector investors provide upfront 

equity capital in exchange for a credit against their tax liability over 10 years, 

which only vests once the property is constructed and occupied by eligible households paying restricted rents. This unique, market-based design transfers the risk 

from the taxpayer to the private sector investor. In the rare event that a property 

falls out of compliance during the first 15 years after it is placed in service, the Internal Revenue Service can recapture tax credits from the investor. Therefore, it is 

in the interest of the private sector investors to ensure that properties adhere to 

all program rules, including affordability restrictions and high-quality standards— 

adding a unique accountability structure to the program. 

The Housing Credit Is State Administered with Limited Federal Bureaucracy 

The Housing Credit requires only limited federal bureaucracy because Congress 

wisely delegated its administration and decision-making authority to state government as part of its design. State Housing Finance Agencies, which administer the 

Housing Credit in nearly every state, have statewide perspective; a deep understanding of the needs of their local markets; and sophisticated finance, underwriting, and compliance capacity. States develop a system of incentives as part of 

their Qualified Allocation Plans (QAP), which drives housing development decisions, 

including property siting, the populations served, and the services offered to residents. States are also deeply involved in monitoring Housing Credit properties, including compliance audits and reviews of financial records, rent rolls, and physical 

conditions. 

93 

The Housing Credit Is Critical to Preserving Our Nation’s Existing Housing 

Investments 

The Housing Credit is our primary tool to preserve and redevelop our nation’s current supply of affordable housing. Without the Housing Credit, our ability to revitalize and rehabilitate our nation’s public housing and Section 8 housing inventory, 

decades in the making, would be significantly diminished. In addition to putting the 

residents of these properties at risk of displacement, we would lose these investments that taxpayers have already made. 

In rural areas, where direct funding for rural housing programs has been cut significantly, the Housing Credit is the backbone for preservation and capital improvements to the existing housing stock. Low-income rural residents’ incomes average 

just $12,960, and they are often living in areas with extremely limited housing options, making preservation of the existing housing stock crucial. 

The Demand for Housing Credits Exceeds the Supply 

Viable and sorely needed Housing Credit developments are turned down each year 

because the cap on Housing Credit authority is far too low to support the demand. 

In 2014—the most recent year for which data is available—state Housing Credit allocating agencies received applications requesting more than twice their available 

Housing Credit authority. Many more potential applications for worthy developments are not submitted in light of the intense competition, constrained only by the 

lack of resources. 

The scarcity of Housing Credit resources forces state allocating agencies to make 

difficult trade-offs between directing their extremely limited Housing Credit resources to preservation or new construction, to rural or urban areas, to neighborhood revitalization or developments in high opportunity areas, or to housing for the 

homeless, the elderly, or veterans. There simply is not enough Housing Credit authority to fund all of the properties needed, but with a substantial increase in resources, many more of these priorities would be addressed—and the benefits for 

communities would be even greater. 

Though the need for Housing Credit-financed housing has long vastly exceeded its 

supply, Congress has not increased Housing Credit authority permanently in 16 

years. 

We Urge Congress to Expand and Strengthen the Housing Credit 

To meaningfully grow our economy and address our nation’s growing affordable 

housing needs through tax reform, we urge Congress to increase the cap on Housing 

Credit authority by 50 percent. Such an expansion would support the preservation 

and construction of up to 400,000 additional affordable apartments over a 10-year 

period. We also call on Congress to retain the tax exemption on multifamily Housing 

Bonds, which are essential to Housing Credit production. 

S. 548, which would authorize such an expansion, has earned strong bipartisan support in the Senate and among Senate Finance Committee members. 

This legislation would increase Housing Credit allocation authority by 50 percent 

phased in over 5 years, and enact roughly two dozen changes to strengthen the program by streamlining program rules, improving flexibility, and enabling the program to serve a wider array of local needs. For example, S. 548 would encourage 

Housing Credit development in rural and Native communities, where it is currently 

more difficult to make affordable housing developments financially feasible; Housing 

Credit developments that serve the lowest-income tenants, including veterans and 

the chronically homeless; the development of mixed-income properties; the preservation of existing affordable housing; and development in high-opportunity areas. The 

legislation would also generate a host of benefits for local communities, including 

raising local tax revenue and creating jobs. 

An investment in the Housing Credit is an investment in individuals, local communities, and the economy. It transforms the lives of millions of Americans, many of 

whom are able to afford their homes for the first time—and it transforms their communities and local economies. The ACTION Campaign applauds the leadership the 

Senate Finance Committee has shown in support of the Housing Credit to date and 

urges the Committee to expand and strengthen the Housing Credit and multifamily 

Housing Bonds. 

ACTION Campaign Co-Chairs 

National Council of State Housing Agencies 

Enterprise Community Partners 

94 

ACTION Campaign Steering Committee Members 

Affordable Housing Tax Credit Coalition 

Council for Affordable and Rural Housing 

Council of Large Public Housing Authorities 

CSH 

Housing Advisory Group 

Housing Partnership Network 

LeadingAge 

Local Initiatives Support Corporation/National Equity Fund 

Make Room 

National Association of Affordable Housing Lenders 

National Association of Home Builders 

National Association of Housing and Redevelopment Officials 

National Association of REALTORS® 

National Association of State and Local Equity Funds 

National Housing and Rehabilitation Association 

National Housing Conference 

National Housing Trust 

National Low Income Housing Coalition 

National Multifamily Housing Council 

Stewards of Affordable Housing for the Future 

Volunteers of America 

For a full list of ACTION Campaign members, visit www.rentalhousingaction.org. 

AFFORDABLE HOUSING DEVELOPERS COUNCIL (AHDC) 

Chairman Hatch, Ranking Member Wyden, and Members of the Committee: 

The Affordable Housing Developers Council (AHDC) would like to thank you for 

holding a hearing on the critically important issue of affordable housing. AHDC is 

a CEO level member organization representing 19 of the top 50 affordable housing 

developers in the country. We are proud that our work not only produces affordable 

housing for families, but that the construction of our multi-family affordable housing 

communities also create jobs and tax revenue. Our mission is to increase federal resources for addressing affordable housing issues, support and defend existing affordable housing programs, and work to defeat changes to programs that would have 

a negative impact on the supply of affordable housing in the United States. 

This hearing comes at a crucial time. The lack of affordable housing in our country 

has reached a level of crisis, and projections show that the crisis will continue to 

get worse without a legislative fix. Furthermore, with discussions about comprehensive tax reform underway, there is both an opportunity to address some of these 

problems and a need to focus on protecting the successful programs already being 

utilized. We urge Congress to preserve the low-income housing tax credit 

(LIHTC) in any comprehensive tax reform package, and enhance LIHTC 

through legislation such as the Affordable Housing Credit Improvement 

Act (S. 548) and disaster tax relief including provisions to address housing 

shortages in impacted communities. 

Background 

The United States faces a severe housing affordability crisis. Working families 

across America including police officers, teachers, and nurses are spending far too 

much of their income on rent due to the affordable housing shortage, with more 

than half of all renters spending over 30% of their income on rent and over 11 million households spending more than half of their income on rent. This increase represents 4 million more renting families with a critical housing affordability problem 

than there were in 2001. Furthermore, almost 400,000 low-income and working family households are expected to enter the market each year for the next 10 years. 

We believe that LIHTC is a valuable tool in addressing the growing problem of affordable housing in this country. The tax credit encourages public-private partnerships designed to encourage the development of affordable housing nationwide. 

Signed into law in 1986 by President Reagan, the structure of the program ensures 

that private developers bear the financial risk instead of the government, taking advantage of using market forces and private sector resources to provide economic revitalization in both rural and urban communities. LIHTC is a critical program that 

provides low-income families, seniors, veterans, and people with disabilities access 

95 

to affordable housing, financing nearly 3 million rental units across the country 

since its adoption. 

Preserving the low-income housing tax credit 

LIHTC must be maintained in any deliberation on tax reform, especially as Congress grapples with the revenue neutrality of the legislation. This program is a documented long term success that attracts private at-risk investment and creates jobs 

that stay here in the United States, and resources for affordable housing must be 

maintained as low-income and working class Americans continue to struggle to 

make ends meet. 

As tax reform is considered, Congress should also be aware that lowering the corporate tax rate impacts and decreases the value of LIHTC. In other words, you 

could maintain LIHTC in its current form, but absent any enhancement to LIHTC, 

with a lower corporate rate there will be less equity to build affordable housing in 

the United States. These unintended consequences must be addressed in any lowering of the corporate tax rate. 

Expanding the credit 

LIHTC should not only be preserved and secured during negotiations over comprehensive tax reform, but strengthened by passing the Affordable Housing Credit 

Improvement Act of 2017 (S. 548) and comprehensive disaster tax relief to address 

affordable housing shortages in impacted communities throughout the country. 

The Affordable Housing Credit Improvement Act expands the annual allocation of 

the credit by 50 percent and includes key provisions to streamline the administration of the program. Several members of the Committee have already joined as cosponsors, and we thank you again for leader ship on this issue. We urge all committee members to support the legislation. As mentioned above, this program has 

a long record of success, and its expansion is a simple way to help alleviate the 

housing affordability crisis in America. 

We also support legislation that provides comprehensive natural disaster tax relief, 

including housing relief, in the wake of presidentially declared FEMA disasters. Affordable housing stock is even further reduced in the wake of the many natural disasters our country unfortunately endures on a yearly basis. Unfortunately, Congress 

has not acted to help communities with tax relief since Senator Roberts’ last major 

effort, the Heartland Disaster Tax Relief Act of 2008. Individuals, small businesses 

and housing need help to recover in the wake of a major natural disaster. We urge 

you to review this policy in the context of addressing our nation’s affordable housing 

challenges. 

Conclusion 

Despite the successes of LIHTC, it is important now more than ever to strengthen 

and secure the program, and take a critical step towards addressing the affordable 

housing supply gap. We urge Congress to preserve the program in the upcoming tax 

reform deliberations, and to enhance LIHTC through the Affordable Housing Credit 

Improvement Act of 2017 and comprehensive disaster tax relief. 

We thank you again for holding a hearing on this critically important topic. We look 

forward to being a resource to the Committee and are happy to answer any additional questions. 

The A.H.D.C. is bringing together the CEOs of the nation’s top affordable housing 

developers to advance federal policies that support the industry’s ability to meet the 

nation’s affordable housing needs. To date, the Founders Council includes: 

AU Associates Carleton Residential Properties 

Holly Weidmann Jeffrey Fulenchek 

President and CEO Partner and Director of Development 

http://auassociates.com/ http://carletonresidential.com/ 

The Commonwealth Companies Conifer 

Louie Lange Tim Fournier 

President Chairman and CEO 

http://commonwealthco.net/ http://coniferllc.com/ 

Dominum Hudson Housing Capital 

Paul Sween W. Kimmel Cameron 

Co-Managing Partner Vice President 

http://dominiumapartments.com/ http://hudsonhousing.com/ 

96 

Gorman and Company, Inc. Meta Housing Corporation 

Gary Gorman Kasey Burke 

CEO President 

http://www.gormanusa.com/ http://www.metahousing.com/ 

The Michaels Organization The NHP Foundation 

Gary Beuchler Richard Burns 

President President 

http://themichaelsorg.com/ http://www.nhpfoundation.org/ 

Norstar USA NYS/FAH 

Linda L. Goodman Jolie A. Milstein 

Senior Vice President President and CEO 

http://norstarcompanies.com/ http://nysafah.org/index.php 

Pennrose Preservation of Affordable Housing 

Mark Dambly Rodger Brown 

President Managing Director 

https://pennrose.com/ http://pokopartners.com/ 

RedStone Equity Partners Related 

Eric McClelland Jeff Brodsky 

President and CEO Vice Chairman 

http://redstoneco.com/ http://related.com/ 

Silver Street Development Corporation Sugar Creek Capital 

Roger J. Gendron Chris Hite 

President President 

http://silver-street.net/ http://sugarcreekcapital.com/ 

Winn Companies 

Larry H. Curtis 

President and Managing Partner 

http://winncompanies.com/ 

CAPITAL ONE FINANCIAL CORPORATION

1680 Capital One Drive 

McLean, VA 22102 

August 1, 2017 

Chairman Orrin Hatch 

Ranking Member Ron Wyden 

Senate Committee on Finance 

219 Dirksen SOB 

Washington, DC 20510 

Chairman Hatch and Ranking Member Wyden, 

Thank you for convening today’s hearing, ‘‘America’s Affordable Housing Crisis: 

Challenges and Solutions.’’ The United States faces a current shortage of 7.4 million 

affordable and available apartments for low-income households, and the Low-Income 

Housing Tax Credit is an essential tool to help us meet the growing need for affordable housing in communities across the country. 

Like many companies, Capital One joins in the bipartisan call for thoughtful and 

balanced reform of our corporate tax system, including improvements to the LowIncome Housing Tax Credit (LIHTC). As with most legislation, the most important 

part of tax reform will be in the details. The definitions, transition rules and timing, 

among other things, will be of extreme importance. 

Capital One Financial Corporation (www.capitalone.com) is a financial holding company whose subsidiaries, which include Capital One, N.A., and Capital One Bank 

(USA), N.A., had $239.8 billion in deposits and $350.6 billion in total assets as of 

June 30, 2017. Headquartered in McLean, Virginia, Capital One offers a broad spectrum of financial products and services to consumers, small businesses and commercial clients through a variety of channels. Capital One, N.A. has branches located 

primarily in New York, New Jersey, Texas, Louisiana, Maryland, Virginia and the 

District of Columbia. Capital One 360 is the nation’s preeminent digital bank, offering best-in-class products and services to customers across the country. A Fortune 

500 company, Capital One trades on the New York Stock Exchange under the symbol ‘‘COF’’ and is included in the S&P 100 index. 

97 

Founded in 1988, Capital One today employs over 41,000 associates primarily in the 

U.S., with small card operations in Canada and the United Kingdom. Because of 

Capital One’s significant domestic business and simple product offerings, we pay a 

high corporate tax rate. This year, our estimated effective tax rate is 32 percent, 

which equates approximately to a $2 billion tax bill. A lower corporate tax rate 

would enable Capital One to better lend to our customers, to reinvest in our company and our associates, and enable us to compete with international banks. 

Capital One joins with you in your call today to examine the difficulties and solutions to increasing access to affordable housing in America. Capital One is a strong 

supporter of increasing the number of available affordable housing units and supports S. 548, the Affordable Housing Credit Improvement Act, as an important step 

in providing increased affordable housing and strengthening the LIHTC program. 

The LIHTC is an essential tool to help us meet the growing need for affordable 

housing in communities across the country, and the program enjoys bipartisan support at the federal, state and local levels, and represents the best of what privatepublic partnerships can offer. The United States faces a current shortage of 7.4 million affordable and available apartments for low-income households. The first attachment to this letter is a national infographic intended to provide greater detail 

on the $8.7 billion in loans and investments Capital One has been fortunate to provide since 2007, with another $1.1 billion planned through the end of 2017. 

Attached to this letter are two state specific infographics providing details on affordable housing in Utah and Iowa. Capital One is proud to be a part of $51 million 

in investments in Utah, which represents 844 housing units in the state. In Iowa, 

Capital One is partner to $169 million in investments, representing 2,148 affordable 

housing units. 

These investments represent real families in critical need of truly affordable housing. If not for these investments, the LIHTC and community-based partnerships, affordable housing and these families would suffer. Capital One stands with you to 

improve and strengthen the affordable housing inventory for America’s families. 

Capital One appreciates the opportunity to share our priorities for federal tax reform, including our strong support for the LIHTC. We look to serve as a resource 

to you and your staff. Please do not hesitate to contact Kate Bonner, Director of 

Government and Policy Affairs, (Katherine.Bonner@capitalone.com, or 571–663– 

8100), for any additional assistance Capital One can provide. We welcome the opportunity to meet with you to discuss this matter in greater detail. 

Sincerely, 

Laura Bailey 

Senior Vice President, Community Development Banking 

Attachment: Capital One’s Impact on Low-Income Housing; Affordable Housing: 

Utah; Affordable Housing: Iowa. 

98 


080117.004

Capital One's Impact 

w 

a 

$8.7 billion In bans and lrwestments :since2007 

~ 

I 

102,600+ 

safe, affordable units financed shce 200? 

What Sets Capital One Apart 

d 

Moreth•n 115,000 

Job$ <ft<lttd across OUt 

markets sh.e 200? 

through1V3112017 

$1.1 billion;nrutuftloons.n<Hn..,,_ts 

-3,000 unltslnthfplpt!lne 

Our comprthensl\ole approach to affordable housing investments is centered around building Malthy, thriving communities. In 

addition to construction loans, lnvestmer.ts and mortg-ages. we use an expanded rang~ of funding sourcM to help addrtss the 

brOider needs of rnklents and the community. 

SOCIAL PURPOSE GRANTS <h<OUgi>M .. ~017 

we see ~Pfopetty we kwest rn as tn01t than ~tar~ tstate 

dtwlopment. Through capital Ont's Social P\II"J))Se Pt09fa.Y\ wt 

pca.tde our nonp~ofit patt.nets -MI.h <Midi~ ~ts, func.f.ng and 

suppon o~ respond tocommlrilynoeeds. 1

29 grants 

totaling 

$5,935,000 

With the help of partner organtzatlons1 we JddrHs the var'itd Mtds of rtsidtntJ: 

Se-ntors 

Tri)tl$pOnaOOn Sttvicts 

Senior Yhtlness Centers 

~rent Support Sc:r'obs 

JobSftkers 

Woftforu Dewlopmeot 

Skill$ Training 

C:wttr PSacttnent 

High-Need Popt~ ions 

Substance Abuse Support 

MMt-al Health SC!tvi<ts 

o;s.blloy Advocacy 

Homd.s·On ~amets 

FI-Stoblti<Y.......,_ 

o.slgnlab 

Bil>lk>T<d>Oigl .. IUI><Ooy 

E3l1y Chu.ood Edutation and EM<hmeot Progr.wns 
99 


080117.005

, 

Capital One 

Affordable Housing: Utah 

Fund & Unit Data 

Capital One has nearly 

$51 million in investments in Utah 

through Its multi-lund platform. 

Fund Equity: $50.6 million 

capital One Portion: $7.5 million 

Number of Units: 844 

Capital One financed developments include: 

Riverwood Cove Apartments 

582 North Riverside Drive A & B Salt Lake City, UT 84116 & 

1616-1685 Northwood Avenue Salt Lake City, UT 84116 

Riverwood Ccwe ApartmentS is located in 5alt Lake City, Utah, and is 

operated by Utah Non Profit Housing (()(potation. The Property has a total 

of 981ow-income muJtifamify units. 

The Property has a Resident Assistant oo site and wetcomes COf'l'lpanion/ 

serviceS animats. 

lJSA lnstitulional Tax Credit Fund 72, LP. a multl·investot tax credit fund, has 

invested in the development of Riverwood Cove Apartments. capital One 

has invested S33.2MM in the lund, which equates to 30% of the f\rnd's total 

gross i,_,ment of $nQ.7MM, 

Bear Hollow Apartments 

550 Gramercy Avenue Odgen, UT 84404 

Bear Hollow Apanment.S is a multifamily property located In Garden City, 

Utah. and d....,loped by Alliance Capital The Property was constructed in 

2008 and has 24 low-income unitS. 

Tenants c.an relax and take in the views or mountains and the tropical blue 

Bear Lake. Bear Hollow is convenient to outdoor recreational activities. 

se:hoofs and a va.riety of restaurants. The Propeny also provides amenities 

for residents including a clubhouse, playground, fitn~s cooter and 24·1lout 

emergency mainteflance. 

USA Institutional Tax Credit Fund 67, LP, a multi~irwestor tax credit fund. 

has invested in the development of Bear Hollow. Capital One has Invested 

$275MM in the fund, which equates to ZS2'M> of tl1e Fund's total gross 

i""""ment of $109MM. 
100 

CENTER FOR FISCAL EQUITY

Statement of Michael G. Bindner 

Chairman Hatch and Ranking Member Wyden, thank you for the opportunity to 

submit these comments for the record to the Committee on Finance. As usual, we 

will preface our comments with our comprehensive four-part approach, which will 

provide context for our comments. 

• A Value-Added Tax (VAT) to fund domestic military spending and domestic discretionary spending with a rate between 10% and 13%, which makes sure every 

American pays something. 

• Personal income surtaxes on joint and widowed filers with net annual incomes 

of $100,000 and single filers earning $50,000 per year to fund net interest payVerDate Sep 11 2014 20:17 Jul 27, 2018 Jkt 000000 PO 00000 Frm 00104 Fmt 6601 Sfmt 6621 R:\DOCS\30902.000 TIM

080117.006
101 

ments, debt retirement and overseas and strategic military spending and other 

international spending, with graduated rates between 5% and 25%. • Employee contributions to Old Age and Survivors Insurance (OASI) with a 

lower income cap, which allows for lower payment levels to wealthier retirees 

without making bend points more progressive. • A VAT-like Net Business Receipts Tax (NBRT), which is essentially a subtraction VAT with additional tax expenditures for family support, health care and 

the private delivery of governmental services, to fund entitlement spending and 

replace income tax filing for most people (including people who file without paying), the corporate income tax, business tax filing through individual income 

taxes and the employer contribution to OASI, all payroll taxes for hospital insurance, disability insurance, unemployment insurance and survivors under age 

60. 

The Subtraction VAT/Net Business Receipts Tax is the relevant item for the purposes of this topic. Among the possible credits and deductions from this tax are the 

diversion of Social Security Old Age and Survivors tax revenue to employee stock 

grants, with a third of those traded into an insurance fund of similar companies. 

This is important, though not essential, because employee-owned firms can spend 

cooperatively as well as manage cooperatively. Current employee-owned firms could, 

of course, pursue these options immediately. A second credit could be for education, 

collegiate, trade and remedial. This credit would include both tuition and living expenses, including both pay and housing. 

Larger firms would have larger apartment buildings ‘‘on campus’’ or would pay for 

campus housing from universities, trade schools and remedial education providers 

(both public and religious—religious adult education would fill in a whole in their 

product portfolio—one that is sorely lacking). 

Student housing would not be ‘‘one size fits all.’’ Students with children would also 

get $10,000 per child per month, payable with stipends. Students would not be one 

size fits all either. They could be teens, young adults or middle-aged learners who 

have never before had a chance at literacy or workers who have lost their jobs to 

automation, as well as the disabled who need skills to enter the workforce. 

At some points, employee-owned cooperatives may dominate a local economy without employing all members. In such cases, in lieu of land value taxes, cooperatives 

could house and pay a citizens’ dividend to non-workers. 

Work and student rules will require that rented housing be kept neat. Longer-term 

workers will receive permanent housing (possibly with indoor gardening capabilities 

made possible by Mars exploration research) which they will be responsible for 

maintaining, but with maintenance and repair services so no one need let problems 

go unfixed. Ownership and responsibility both guard against bad landlords and bad 

tenants. This plan will maximize both, but only if you think outside the box. 

Thank you for the opportunity to address the committee. We are, of course, available for direct testimony or to answer questions by members and staff. 

COUNCIL FOR AFFORDABLE AND RURAL HOUSING (CARH) 

116 S. Fayette Street 

Alexandria, Virginia 22314 

(703) 837–9001 

(703) 837–8467 Fax 

carh@carh.org 

www.carh.org 

Statement of Tanya Eastwood, President 

Chairman Hatch, Ranking Member Wyden and members of the Committee, as 

President of the Council for Affordable and Rural Housing (‘‘CARH’’), and on behalf 

of CARH and their membership, I would like to submit written testimony in support 

of efforts to address the affordable housing crisis, especially in rural America. 

CARH, the leading national trade association headquartered in Alexandria, Virginia, represents the interests of both for-profit and non-profit builders, developers, 

management companies, and owners, as well as financial entities and suppliers of 

goods and services to the affordable rural rental housing industry. 

Among other organizations I am involved with, I am also President of Greystone Affordable Development, whereby I am responsible for the strategic growth and implementation of Greystone’s affordable housing preservation efforts. In that role, I work 

closely with non-profit and for profit owners and developers in meeting the chalVerDate Sep 11 2014 20:17 Jul 27, 2018 Jkt 000000 PO 00000 Frm 00105 Fmt 6601 Sfmt 6621 R:\DOCS\30902.000 TIM
102 

1 NRHC, ‘‘A Review of Federal Rural Rental Housing Programs,’’ Policy and Practices; April 

2017. 2 Id. 

3 HAC Rural Research Brief, June 2012. 

4 New York Times, ‘‘A Tax Credit Worth Preserving,’’ December 20, 2012. 

lenges associated with the preservation, recapitalization and rehabilitation of their 

affordable housing across the U.S. To date, we have successfully recapitalized and 

rehabilitated approximately 256 apartment communities (over 9,000 housing units) 

in the USDA Rural Development (‘‘RD’’) Section 515 multifamily rural rental housing programs; and we are currently in the process of preserving an additional 85 

Section 515 properties (approximately 3,700 units) across multiple states using 

Housing Bonds and the Affordable Housing Credit. 

Rural Americans: Great Hardships Compared With Non-Rural Areas 

During the August 1, 2017 Senate Finance Committee hearing, Senator John Thune 

(R–SD) accurately noted the affordable housing crisis is not just an urban community concern but also greatly affects rural communities across the country. Lower 

incomes and higher poverty rates often make housing options simply unaffordable 

for many rural residents, even though housing costs are generally lower in the rural 

communities. In fact, rural renters are more than twice as likely to live in substandard housing compared to people who own their own homes. USDA’s 2016 

Multi-Family Housing Occupancy Report published December 6, 2016 revealed the 

average household living in RD’s Section 515 housing with rental assistance lives 

on only $10,732 per year of income and $12,960 for tenants that do not receive rental assistance. 

While the demand for rental housing in rural areas remains high, the supply, particularly of new housing, has significantly decreased. According to a recent report 

published by the National Rural Housing Coalition (‘‘NHRC’’), the Section 515 Rural 

Rental Housing Loan program was once the principal source of financing for new 

rural rental housing development.1 Since its peak in the mid-1980s, program levels 

have been cut by more than 96 percent from $954 million to just $35 million today 

(with further proposed cuts in the FY18 budget). Since 2012, the program has largely halted financing the construction of new rental housing; hence, the need for preservation of the existing (but aging) house stock is more critical today than any time 

in our nation’s history. USDA reports a reduction of 271 rural rental properties in 

just the past year, representing a loss of 4,220 much needed apartment units. 

Housing is particularly difficult to develop or preserve in the portions of rural America that are classified as ‘‘Persistent Poverty’’—defined by the Economic Research 

Service at USDA as those counties where 20% or more of their population was poor 

over the last 30 years. Of the 353 persistently poor counties, 301 or an astounding 

85.3% are rural counties.2 The demand is there and the need is there, but too many 

Americans are simply unable to afford basic decent housing. Areas that are particularly persistently poor include middle Appalachia, the lower Mississippi Delta, the 

southern Black Belt, border Colonias areas, and Native American lands. In fact, 21 

million people live in persistent poverty counties.3 High poverty counties with 17% 

or more living in poverty essentially exist in nearly every state. 

Housing instability has well-documented effects on the education and health of this 

country’s greatest asset—our children. Neither the private nor the public sector can 

produce affordable rural housing independently of the other; it must be a collaborative partnership. 

The Affordable Housing Credit—An Essential Tool 

The low-income housing tax credit (‘‘Affordable Housing Credit’’) is a model of success, implemented through a federal-state model that utilizes federal economies of 

scale, state and local decision making, and partnership with the private non-profit 

and for-profit sectors to deliver new and rehabilitated quality housing to elderly and 

low income Americans. It has been noted that 90% of affordable housing constructed 

in recent years is done in partnership with the Affordable Housing Credit and has 

provided more than 2.5 million rental units since its inception.4 The Affordable 

Housing Credit is likewise an essential tool for preservation of aging affordable 

housing that exist in high cost areas, or have been starved from the necessary capital to modernize. 

When the Affordable Housing Credit program was enacted as part of the Reaganera Tax Reform Act of 1986, it did not create a large new bureaucracy. Instead, it 

uses a small policy-setting staff at the Internal Revenue Service to coordinate fundVerDate Sep 11 2014 20:17 Jul 27, 2018 Jkt 000000 PO 00000 Frm 00106 Fmt 6601 Sfmt 6621 R:\DOCS\30902.000 TIM
103 

5 Jill Khadduri, Carissa Climaco, and Kimberly Burnett, ‘‘What Happens to Low-Income Housing Tax Credit Properties at Year 15 and Beyond,’’ U.S. Department of Housing and Urban Development, August 2012. 

ing to states, which in turn works with state Housing Finance Agencies or local 

agencies, depending on the local choices. These state and local agencies rigorously 

inspect and asset manage, but their job is made easier by the private investment 

system. Affordable Housing Credit investors are strongly motivated to require 

project owners and managers to consistently comply with housing requirements, 

even before government inspections. 

CARH Strongly Supports S. 548, Housing Bonds and Other Proposals 

CARH strongly supports S. 548, the Affordable Housing Credit Improvement Act, 

as we agree with the bipartisan expression of concern and support to find solutions 

to the affordable housing crisis. It has always been difficult to attract investors to 

transactions in rural areas. While land costs in rural markets are typically less than 

urban areas, there are offsetting concerns caused by greater transportation costs 

and fewer vendors from which to choose. Housing assistance programs are generally 

geared toward urban areas, with programs like the Community Development Block 

Grant largely unavailable to rural areas. This is why the Affordable Housing Credit 

has been even more important to rural areas—because it is truly the single largest 

path to preserving existing housing and constructing new affordable housing. S. 548 

would help facilitate preservation and new construction of this much needed affordable housing. Some of the key points we see in S. 548 are outlined below: 

• Rural areas often compete with larger urban properties for the Affordable Housing Credit. This competition has grown intense and seems to be crowding out 

rural needs. In fact, between 1995 and 2009, only 9 percent of Affordable Housing Credit financed rental properties were in rural markets utilizing Section 

515 funding.5 Congress has not increased Affordable Housing Credit authority 

in 17 years. This legislation would increase the Affordable Housing Credit by 

at least 50 percent. Such an expansion would support the preservation and construction of 350,000 to 400,000 additional affordable apartments over a 10-year 

period, undoubtedly many in rural areas. 

• S. 548 would permit income averaging in Housing Credit properties. However, 

to be fully effective in rural areas, there should be an added provision instructing Rural Development to permit income averaging in Section 514/515 rural 

rental multifamily programs. Currently, Rural Development does not permit 

such practices under their statutory authorities. Rents that households with incomes above 60% AMI (up to the max of 80% AMI) could afford have the potential to offset lower rents than households below 40% or even 30% AMI could 

afford, allowing developments to maintain financial feasibility while providing 

a deeper level of affordability. Furthermore, the diversification of rents within 

a given property would broaden the marketability, providing more flexibility 

and responsiveness to local needs. As such, projects with tiered rents would be 

more attractive to Affordable Housing Credit investors, potentially attracting 

more capital to rural affordable housing projects. 

• The legislation would base income limits in rural properties on the greater of 

area median income or the national non-metropolitan median income. This 

would make Housing Bond financed developments more feasible in rural areas 

while streamlining program rules. Housing Bonds have been an important tool 

for preserving and financing multiple properties into one transaction, capitalizing on the economies of scale. Many existing small 515 properties have been 

preserved as part of a portfolio financing that otherwise would not have a means 

for recapitalization and modernization. 

• The bill simplifies the current Affordable Housing Credit student rule and better achieves the intended targeting by replacing it with a new rule that is 

aligned with the Department of Housing and Urban Development’s (‘‘HUD’’) 

rule, which would simplify multiple subsidy compliance. Many rural residents 

seek to re-tool and to improve their employment status by pursuing university, 

college, community college and vocational school. CARH has recognized this 

need for skilled training and has created a scholarship fund for residents of affordable housing to assist with college and vocational school costs. 

• The proposed legislation would provide for a fixed floor rate for acquisition credits at no less than 4 percent and should similarly remove the uncertainty and 

financial complexity of the floating rate system, simplify state administration, 

104 

and facilitate preservation of affordable housing at little or no cost to the federal government. Acquisition credits are currently set by the floating rate system just like new construction and substantial rehab credits were before the 

Housing and Economic Recovery Act (HERA) of 2008. A floating rate makes it 

very difficult to plan and assemble capital necessary for development. This fixed 

rate would potentially provide additional private capital to preservation transactions, greatly reducing the funding gap now being created from reduced credit 

pricing provided by investors. 

• S. 548 provides up to a 50 percent basis boost of Affordable Housing Credits 

for developments serving extremely low-income families and individuals in at 

least 20 percent of the units, as well as allowing states to provide up to a 30 

percent basis boost for Housing Bond-financed properties. This provision will 

provide parity between Housing Bond-financed developments and those that use 

allocated Housing Credits. As noted above, rural properties tend to serve very 

low and extremely low income persons with the average annual household income in unsubsidized Section 515 properties of only $12,960. 

It is also important to note that Affordable Housing Credit properties can improve 

neighborhoods and property values. This very positive effect was discussed in ‘‘A 

Surprising Way to Increase Property Values: Build Affordable Housing,’’ Washington 

Post, July 6, 2017 by Tracy Jan, which pointed to the November 2016 study by Rebecca Diamond and Tim McQuade at Stanford University. Their conclusion, based 

on their research, is that the Affordable Housing Tax Credit revitalizes low-income 

neighborhoods, increases housing prices 6.5%, lowers crime rates and attracts racially and income diverse populations. 

Other Affordable Housing Credit Proposals 

While not part of S. 548, it is worth noting that rural housing providers and developers have discussed additional ways to potentially bring in capital with the Affordable Housing Credit in rural areas: 

(1) Affordable Housing Credits should be available to S Corporations, Limited Liability Companies, and closely-held C Corporations to the same degree Affordable Housing Credits are currently available to widely held C Corporations, 

to offset revenue with Affordable Housing Credits that would otherwise be 

taxable when passed through to the owners of these businesses. The Federal 

Internal Revenue Code restricts potential Affordable Housing Credit investors 

through passive loss limitations, limiting the ability of associations that are 

not real estate professionals from investing. To ensure high standards of oversight, such entities should have at least $10 million in annual gross receipts, 

be formed for reasons other than just avoidance of Federal income tax, and 

have an expectation of reasonable asset management. This proposal is aimed 

at accessing substantial investment capital available from sophisticated financial institutions and businesses that happen not to be widely-held Schedule 

C corporations. Indeed, this change would allow the 1,954 commercial banks 

and 55 savings institutions to invest in low-income housing tax credits in the 

communities in which they operate. 

(2) Another barrier to preservation and tenant protection is an unintended one, 

resulting from a conflict between the tax code and market forces. Almost all 

Rural Development (RD) Section 515 properties were constructed through limited partnership arrangements whose structure makes it exceedingly difficult 

to introduce new capital into these properties, either through additional capital contributions from current owners or through the transfer of such properties to new owners. Most were also created before the 1986 Tax Reform Act. 

Because rent restrictions limit cash flow, new capital contributions would only 

generate additional passive losses that cannot be utilized by current investors. 

Yet, if the current owners sell a property it is almost impossible to generate 

sufficient cash to pay off the steep recapture taxes that would be owed. The 

best alternative for current limited partners is to hold the investment until 

death, enabling their heirs to acquire the property with a stepped up basis 

that avoids any recapture taxes. While that is a perfectly rational decision at 

the partner level, it is not consistent with sound housing policy and risks imposing far higher costs on the federal government, as these capital-starved 

properties either continue to deteriorate into substandard housing or are sold 

off as market rate housing as a means of generating cash on the sale to pay 

exit taxes for investors. 

A modest change in the tax rules must be adopted to preserve the stock of 

Section 515 affordable housing. This could be accomplished by waiving the deVerDate Sep 11 2014 20:17 Jul 27, 2018 Jkt 000000 PO 00000 Frm 00108 Fmt 6601 Sfmt 6621 R:\DOCS\30902.000 TIM
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preciation recapture tax liability where investors sell their property to new 

owners who agree to invest new capital in the property and to preserve it as 

affordable housing for another 30 years. Since very few investors subject 

themselves to recapture taxes today, opting instead to pass the property to 

their heirs at a stepped-up basis, the cost of this proposal should be modest 

while the benefit to the federal government of extending the affordability restrictions will be far-reaching. During the 111th Congress, legislation was introduced, H.R. 2887, the Affordable Housing Tax Relief Act of 2009, which if 

enacted, would have embodied this concept. 

Other Essential Tools Needed With the Affordable Housing Credit 

Rural housing is dependent on several sources of funding for construction and preservation of the existing housing stock. While much focus deservedly is on the Affordable Housing Credit, there needs to be a tool box with a variety of tools. Just like 

needs and resources can differ in different places, there must be a broad set of tools 

to mix and match to get the most effective solution. 

RD has the Section 538 guaranteed loan program, HUD has the HOME program, 

both widely used in rural rental housing. But the existing portfolio under stress is 

the Section 515 Rural Multifamily Housing and Section 514 Farm Labor Multifamily properties which are a lynchpin for affordable rural housing. These 514/515 

programs supply mortgages to more than 14,000 apartment communities. However, 

RD calculates 74 projects with 1,788 units are maturing out of the program each 

year over the next 12 years. This not only means a loss to the program, the project 

based Section 521 rental assistance (‘‘RA’’) provided to the tenant is also lost when 

the Section 514/515 mortgage matures because these programs are tied together by 

statute. 

The RA program has been adjusted solely through the appropriations process for 

about two decades. While we appreciate the hard work of appropriators in both the 

House and Senate, we believe it is time for a thorough review through the Congressional authorizing committees (the House Financial Services and the Senate Banking, Housing and Urban Affairs Committees), and that hearings on the Agency programs and proposals should be a priority for the Congress. 

Congressional review should also include program updates such as the ability to utilize flexible rents and longer term rent incentives to more efficiently occupy vacant 

units at turnover. Another simple improvement to make RA more efficient is to provide 20 year contracts, subject to annual appropriations. Not only would this reduce 

the costs associated with reprocessing contracts on an annual basis without increased appropriations, it would also create a more reliable subsidy. This will help 

attract potential investors and lenders to Section 514 and 515 properties. Most of 

these properties are 35+ years old and are ready for modernization. 

Affordable Rural Housing Is Part of a Healthy Economy and Provides Jobs 

In 2002, RD estimated that 4,250 Section 515 properties with 85,000 units ‘‘will 

physically deteriorate to the point of being unsafe or unsanitary within the next 5 

years.’’ At that time, RD estimated it would need $850 million to maintain just this 

portion of the portfolio, and that as much as $3.2 billion will be required for portfolio-wide rehabilitation. Little progress has been made since 2002. Adjusted for inflation, the 2002 $3.2 billion estimate is now approximately $5.5 billion. Due to RD’s 

policies over the past 6 years, the RD multifamily portfolio is under 15,000 projects 

for the first time in 20 years. In 2016, RD contracted for its own study, which confirmed the existence of significant deferred maintenance. At this rate of lost properties, we encourage preservation prioritization of existing properties ahead of new 

construction, as it is much more cost effective to complete a substantial rehabilitation compared to the cost of building new. 

Providing for this portfolio will not only care for the extremely low income families 

and elderly residents, but will improve infrastructure and create jobs. For each 100 

apartment units, 116 jobs (plus an additional 32 recurring local jobs) are created, 

generating more than $3.3 million in federal, state and local revenue. Moreover, 

many rural areas are facing worker shortages due to the lack of available affordable 

housing near rural jobs. 

In conclusion, affordable housing plays a critical role in rural communities across 

America. There is not a single solution to this national affordable housing crisis. It 

takes a village. And thus, we encourage and support the continued Congressional 

efforts to do your part in prioritizing the protection of the essential housing stock 

in rural areas. 

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Thank you for this opportunity to provide written testimony to the Committee. 

COUNCIL OF LARGE PUBLIC HOUSING AUTHORITIES (CLPHA) 

455 Massachusetts Avenue, NW, Suite 425 

Washington, DC 20001–2621 

phone: 202–638–1300 

fax: 202–638–2364 

web: www.clpha.org 

Statement of Sunia Zaterman, Executive Director 

The Council of Large Public Housing Authorities (CLPHA) is pleased to submit the 

following statement for the record to the Senate Finance Committee and appreciates 

the opportunity to weigh in on this important topic. 

CLPHA is a non-profit organization committed to preserving, improving, and expanding the availability of housing opportunities for low-income, elderly, and disabled individuals and families. CLPHA’s members comprise more than 70 of the 

largest housing authorities, in most major metropolitan areas in the United States 

These agencies act as both housing providers and community developers, effectively 

serving over 1 million households, managing almost half of the nation’s multi-billion 

dollar public housing stock, and administering over one-quarter of the Section 8 

Housing Choice Voucher program. 

We are grateful to the Committee for calling attention to the deepening affordable 

housing crisis facing many American families. We applaud Finance Committee 

Chairman Orrin Hatch’s and Committee member Senator Maria Cantwell’s leadership in championing legislation to expand and strengthen the Low-Income Housing 

Tax Credit (LIHTC), our nation’s primary tool for encouraging private investment 

in affordable rental housing. 

America’s affordable rental housing crisis is growing. 

A lack of stable, affordable housing is one of the biggest threats to economic success 

that any American can face. Stagnating wages along with declines in homeownership rates have exacerbated the demand for rental housing to its highest level since 

the mid-1960s, driving up rents, especially in areas with low vacancies. Stable, affordable housing also plays a crucial role in improving outcomes for low-income families across sectors like health and education. Research has shown that housing stability is foundational to academic achievement for children; securing and maintaining employment for adults; and accessing health and prevention services. 

Currently, there are more than 11 million renter households—approximately one 

out of every four—who spend more than half of their income on rent. This leaves 

little room for other necessary expenses like transportation, food, medical bills, and 

education. Additionally, low-income renters that spend more than 50 percent of 

their rent on housing are at increased risk of becoming homeless. According to the 

Harvard University Joint Center for Housing Studies, the number of households 

spending more than 50 percent of their income on rent is expected to rise at least 

11 percent from 11.8 million to 13.1 million by 2025. This is coupled with the fact 

that the affordable housing supply is not keeping up with the demand. For every 

100 extremely low-income (ELI) renter households in 2015, there are only 31 available and affordable units, amounting to a shortfall of 7.2 million available and affordable homes. This trend is further confirmed in HUD’s recently released Worst 

Case Housing Needs 2017 Report to Congress which found that ‘‘despite continued 

signs of a strengthening national economy . . . severe housing problems are on the 

rise.’’ 

Public housing and the Low-Income Housing Tax Credit are vital tools to 

address the nation’s affordable housing needs and bolster economic activity. 

As one of the nation’s largest sources of affordable housing, public housing plays a 

central role in providing stable housing to America’s most vulnerable citizens; connecting low-income workers to economic opportunities; and spurring regional job creation and economic growth. A multibillion dollar public asset for local communities; 

public housing is home to over 1.1 million low-income families, including 800,000 

children. Over half of public housing households are elderly or disabled, and more 

than half of non-elderly, non-disabled households consist of working families. 

Despite the growing need for and proven benefits of affordable housing, federal appropriations for the maintenance and capital repair of public housing has declined 

107 

severely over the past several years, making it impossible even to keep up with the 

new repair needs that arise each year for public housing properties. This adds to 

the backlog of capital needs, which currently stands at over $26 billion nationwide. 

Increased disinvestment has led to the substantial loss of over 300,000 public housing units since 1990, and approximately 12,000 units each year, resulting in fewer 

and fewer people served by the program. 

The Low-Income Housing Tax Credit (LIHTC) program, authorized in 1986, has become the nation’s primary source of funds for the production and rehabilitation of 

affordable housing. As a model private-public partnership program, LIHTC has employed private sector resources, market forces, and state-level administration to finance more than 3 million affordable apartments—nearly one-third of the entire 

U.S. inventory. Particularly as federal appropriations for the public housing capital 

funds have decreased, LIHTC has proven to be an essential tool in leveraging private investment to redevelop distressed public housing across the country. 

Since the federal Capital Fund dollars appropriated are insufficient to redevelop 

public housing, housing authorities heavily depend upon tax credit investment to 

improve and rehabilitate their properties. Important platforms such as the Choice 

Neighborhoods Initiative (CNI), the Moving to Work (MTW) program, mixed financing, and most recently, the Rental Assistance Demonstration (RAD) program, have 

been the only mechanisms available to housing authorities to partner with non-profit and private developers in using tax credits to revitalize much-needed public housing properties. Through these platforms, housing authorities are able to combine 

scarce public housing capital funding with private and other public resources, including tax credits, in a layered financing process in order to rehabilitate properties 

and revitalize communities. Under the RAD program, housing authorities have been 

able to rehabilitate and convert over 61,000 public housing units to date, leveraging 

approximately $4 billion in new private and public funds, which equates to a 9:1 

ratio of private dollars to public housing dollars. 

Additionally, the revitalization of public housing provides positive economic benefits 

to families and communities. Research has shown that for every $1 spent on rehabilitation funding for public housing, an additional $2.12 is generated in regional 

economic activity, contributing to local tax revenue and supporting job creation and 

retention. Per $1 million spent, public housing outpaces other sectors when it comes 

to job creation and generating economic activity. 

However, a lack of affordable housing has been shown to negatively impact economies. Researchers estimate that the growth in GDP from 1964–2009 would have 

been 13.5 percent higher if families had better access to affordable housing. This 

would have led to a $1.7 trillion increase in total income, or $8,775 in additional 

wages per worker. Overall, the shortage of affordable housing in major metropolitan 

areas costs the American economy about $2 trillion a year in lower wages and productivity. 

Congress should expand and strengthen the Low-Income Housing Tax 

Credit. 

The LIHTC program continues to be an extremely important preservation tool for 

public housing and for the overall production and rehabilitation of affordable housing. CLPHA strongly supports the efforts of Senator Hatch and Senator Cantwell 

and others on the Committee to expand and strengthen the LIHTC program. Housing authorities have a long history of leveraging private equity through LIHTCs to 

fill the funding gap created by decreased federal appropriations. Housing authorities 

have acknowledged that without the LIHTC program, the preservation of their public housing stock would not be possible. 

To meaningfully grow our economy and address our nation’s growing affordable 

housing needs through tax reform, we urge the Committee to support Senator Cantwell and Senate Finance Committee Chairman Hatch’s Affordable Housing Credit 

Improvement Act of 2017 (S. 548). This legislation would increase LIHTC allocation 

authority by 50 percent phased in over 5 years, and enact roughly two dozen 

changes to strengthen the program by streamlining program rules, improving flexibility, and enabling the program to serve a wider array of local needs. 

CLPHA is well aware that competition for more valuable 9% LIHTC is fierce in 

many states and that there have been concerns within the affordable housing community about increased demand from the public housing portfolio. Increasing the allocation authority by 50 percent would support the preservation and construction of 

up to 400,000 additional affordable apartments over a 10-year period, including vital 

public housing units that are at-risk. Additionally, the legislation allows for an inVerDate Sep 11 2014 20:17 Jul 27, 2018 Jkt 000000 PO 00000 Frm 00111 Fmt 6601 Sfmt 6621 R:\DOCS\30902.000 TIM
108 

creased basis boost for projects serving extremely low-income households. This 

would be particularly beneficial to housing authorities, as 75% of public housing 

residents are extremely-low income. 

The legislation would also generate a host of benefits for local communities, including increased local tax revenue, local income, and jobs, all benefits that meet the 

Committee’s goals for tax reform. An investment in LIHTC is an investment in individuals, local communities, and the economy. CLPHA applauds the leadership the 

Senate Finance Committee has shown in support of LIHTC to date and urges the 

Committee to expand and strengthen the program. 

Thank you for the opportunity to submit our views for the record, and we ask that 

you give them your full consideration. 

LOCAL INITIATIVES SUPPORT CORPORATION (LISC) 

1825 K Street, NW, Suite 1100 

Washington, DC 20006 

The Local Initiatives Support Corporation (LISC) is pleased to provide a statement 

for the record with respect to the Committee’s hearing on ‘‘America’s Affordable 

Housing Crisis: Challenges and Solutions,’’ held on August 1, 2017. 

As one of the largest national nonprofit housing and community development organizations in the country, LISC often relies upon public-private partnerships to engage in the type of comprehensive community development work that is needed in 

low-income communities. The Low-Income Housing Tax Credit (Housing Credit) is 

the single most important federal resource available to encourage private sector investments in the development and rehabilitation of affordable housing for low, verylow and extremely low-income renter households. As discussed further below, Congress must act to preserve and strengthen this successful program; and should also 

consider enacting a new tax incentive, the Neighborhood Homes Tax Credit, to spur 

investments in single family homes in communities characterized by high rates of 

vacancy and low property values. 

Background on LISC 

Established in 1979, LISC is a national non-profit Community Development Financial Institution (CDFI) that is dedicated to helping community residents transform 

distressed neighborhoods into healthy and sustainable communities of choice and 

opportunity—good places to work, do business and raise children. LISC mobilizes 

corporate, government and philanthropic support to provide local community development organizations with loans, grants and equity investments; technical and 

management assistance; and policy support. 

LISC has local programs in 31 cities, and partners with 77 different organizations 

serving over 2,000 rural counties in 44 states throughout the country. LISC focuses 

its activities across five strategic community development goals: 

• Expanding investment in housing and other real estate; 

• Increasing family income and wealth; 

• Stimulating economic development; 

• Improving access to quality education; and 

• Supporting healthy environments and lifestyles. 

Background on the Housing Credit 

Supported on a broad bipartisan basis, the Housing Credit was enacted as part of 

the Tax Reform Act of 1986, the last major overhaul of the tax code. The Housing 

Credits are allocated to the states through a formula allocation, and then awarded 

through competition to developers of qualified projects. Developers sell the property 

to investors to raise equity capital for construction of their projects, thus reducing 

the debt service and allowing the projects to provide affordable rents to low-income 

families. Investors claim the credits over a 10-year period, and are at risk of tax 

credit recapture for an additional 5 years if the property does not remain in compliance with the rules. 

To date, the Housing Credit has financed the development of approximately 3 million affordable homes across the nation with projects in every state, leveraged more 

than $100 billion in private capital, and helped to create well over 3 million jobs 

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1 ‘‘Low-Income Housing Tax Credit Impacts in the United States,’’ Affordable Rental Housing 

ACTION Coalition. 2 Harvard University Joint Center for Housing Studies (JCHS), ‘‘America’s Rental Housing,’’ 

(2011). 3 U.S. Department of Housing and Urban Development, Office of Policy Development and Research, ‘‘Data on Tenants in LIHTC Units as of December 31, 2013’’ (2016). 4 ‘‘The Low-Income Housing Tax Credit at Year 30: Recent Investment Performance (2013– 

2014).’’ 

in the construction and property management industries.1 It is the country’s most 

successful affordable housing production program. 

LISC, through its subsidiary the National Equity Fund (NEF), is one of the nation’s 

largest syndicators of Housing Credits. To date, NEF has invested $13.3 billion in 

close to 2,500 housing properties, creating approximately 159,000 affordable homes 

for low-income families in 46 states, and spurring the creation of an estimated 

194,000 jobs. In recent years, LISC has been able to use the credit to support disaster recovery efforts, a veterans housing initiative, and an initiative to link housing 

to critical community health services. 

Successful Attributes of the Housing Credits 

The Housing Credit has achieved tremendous success in financing affordable housing in rural, urban and suburban communities throughout the country. Some of the 

more noteworthy characteristics that have led to the success of these credits include: 

1. The credits correct market failures. The potential financial return achieved 

via the tax credit enables investment in projects that would not otherwise 

produce profitable returns. This is clearly evidenced with respect to Housing 

Credit investments, where it’s been demonstrated that a typical housing project 

would have to reduce its construction costs by 72 percent to be able to serve a 

low-income family at an affordable rent.2

2. The credits are responsive to locally determined needs. The Housing Credits are allocated by state housing finance agencies, which determine the state’s 

affordable housing priorities in annual funding rounds. Based on the needs within the states and localities, priorities in any given year could include elderly 

housing, veterans housing, units serving homeless families, workforce housing, 

rural housing, etc. 

3. The competition for credits produces better outcomes. Applications for the 

Housing Credit typically outpace availability by 3 to 1, and in some states this 

ratio is as high as 7 to 1. This competition drives applicants to achieve better 

outcomes than are minimally required in program regulations. Most notably: 

» Housing Credit properties must satisfy affordability requirements for 30 years 

after completion, but state allocating agencies often require much longer affordability periods as a condition of allocation. 

» Housing Credit units must be affordable to persons making less than 60 percent of area median income (AMI), but states set higher goals to achieve deeper 

income targeting. As a result, the most recent Department of Housing and 

Urban Development (HUD) data indicate that 48 percent of Housing Credit 

units are occupied by families making less than 30 percent of AMI and 82 percent are occupied by families making less than 50 percent of AMI.3

4. The tax credit structure allows for more efficient program administration. Investors—with their own capital at risk—impose underwriting and asset 

management oversight. The investor due diligence leads to a more robust and efficient compliance monitoring system, and results in projects that are financially 

strong. For instance, Housing Credit properties far outperform other real estate 

classes, with occupancy rates topping 96 percent nationwide and a cumulative 

foreclosure rate of just 0.66 percent over the program’s history.4

In addition, investors and developers—not taxpayers—assume the financial risks 

of these projects. If projects are not in compliance with statutory requirements, 

tax credits are forfeited back to the Treasury. In the case of the Housing Credit, 

investors cannot even begin claiming credits until the apartments are occupied 

by low-income families at affordable rents. This is in stark contrast to most federal grant-making programs, in which grants are advanced and an agency must 

seek a return of funds (often after they are already spent) in the case of program 

noncompliance. 

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5. The credits provide a great return on investment for the Federal government. The National Association of Homebuilders estimates that, on an annual 

basis, the Housing Credit produces 95,000 new, full-time jobs, adds $6.8 billion 

into the economy, and generates approximately $2 billion in federal, state and 

local tax revenues. 

Uniqueness Within the Tax Code 

The Housing Credit is distinct from almost every other type of tax credit, in at least 

two critical ways: 

1. It spurs activity that would not occur but for the tax incentive. Most federal tax benefits reward business behavior that already directly aligns with their 

operational interests. While these tax benefits may have some effect on business 

behavior, it is likely on the margins of activities in which they are already likely 

to engage even in the absence of the tax incentive. Conversely, the Housing Credit directs investments to activities in which companies would not otherwise invest 

in because: (a) it does not further their normal business operations; and/or (b) 

if not for the benefits provided in the tax code, they would not be profitable for 

the company. So if these credits were to disappear, so too would the investments. 

2. The benefits of the credit extend far beyond the investors to fulfill a 

broader public need. The Housing Credit fulfills a fundamental public purpose 

that most other credits do not. As with all tax credits and deductions contained 

within the tax code, the entity claiming the Housing Credit does achieve a financial benefit in the form of reduced tax payments. However, the Housing Credit 

is among one of very few tax benefits provided in the corporate tax code that 

focus exclusively on improving the lives of low-income persons and low income 

communities (the New Markets Tax Credit being the other most notable one). In 

other words, unlike most other provisions in the tax code which solely benefit a 

corporation’s bottom line, the ultimate beneficiaries of these credits are the end 

users: the low-income family that is paying significantly below-market rent, thus 

freeing up more resources for the family to cover other critical expenses and to 

save for education, retirement, homeownership or other activities that will better 

enable the family to escape the cycle of poverty. 

Priorities for Tax Reform 

Protect and expand the Housing Credit. The Housing Credit is a permanent 

part of the tax code, enacted in 1986 as part of the last major tax reform effort. 

However, despite its longevity and its track record of success, there may be some 

who would seek to scale back or even eliminate this credit to help offset a reduction 

to the overall corporate tax rate. To do so would put the future of the country’s 

strongest program for affordable housing development in great jeopardy at a time 

when demand for affordable housing continues to increase. 

It is noteworthy that the Bipartisan Policy Center’s Housing Commission, which 

was co-chaired by two former Secretaries of HUD (one a Democrat and one a Republican) and two former Senators (one a Democrat and one a Republican), released a 

report in 2013 not only citing the critical role of the Housing Credit in supporting 

affordable housing, but also calling for an expansion of the Housing Credit by 50 

percent over current funding levels. While LISC recognizes the importance of fiscal 

restraint as part of the tax reform exercise, we also believe that tax reform presents 

an opportunity for reflection on what truly has worked in the tax code, and every 

consideration should be given to expanding this vital initiative. 

In considering additional measures to protect and strengthen the Housing Credit, 

the best starting point is The Affordable Housing Credit Improvement Act (S. 548), 

the bi-partisan legislation introduced by Senator Hatch and Senator Cantwell which 

would, among other things: 

• Increase the formula for allocating the credit by 50% over 5 years; 

• Streamline program requirements and provide states with additional flexibility; 

• Facilitate Housing Credit development in challenging markets, including rural 

and Native American communities; 

• Increase the Housing Credit’s ability to serve extremely low income populations; 

• Better support the preservation of existing affordable housing; and 

• Enhance the ‘‘4% credit’’ and multifamily housing bond portion of the program. 

In addition, as the Committee undertakes efforts to reform the broader tax code, it 

needs to consider making adjustments to the applicable housing credit rate (i.e., the 

9% or 4% rate) to offset the impact that a lower corporate tax rate and/or changes 

to depreciation would have on utilization of the Housing Credit. It also needs to reVerDate Sep 11 2014 20:17 Jul 27, 2018 Jkt 000000 PO 00000 Frm 00114 Fmt 6601 Sfmt 6621 R:\DOCS\30902.000 TIM
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5 ‘‘One in Four U.S. Foreclosures are ‘Zombies’ Vacated by Homeowner, Not Yet Repossessed 

by Foreclosing Lender.’’ RealtyTrac. Feb. 5, 2015. 6http://www.communityprogress.net/filebin/CCP_BaltimoreTASP_Final_Report_102616.pdf. 

tain the multifamily housing private activity bonds, which are used in conjunction 

with the 4% credit and account for about 40% of all Housing Credit production annually. 

Create a new Neighborhood Homes Tax Credit. LISC, along with many other 

organizations, is calling for the creation of a Neighborhood Homes Tax Credit 

(NHTC). The NHTC is designed to attract private capital to support investment in 

single family homes in communities where the costs of developing and rehabilitating 

homes for sale exceed the appraised value of the home. The NHTC would provide 

the developer or investor with a tax credit to cover this ‘‘appraisal gap.’’ The tax 

credit would work as follows: 

• State allocating agencies (most likely the state Housing Finance Agencies) would 

be allocated a new tax credit authority and/or be given the flexibility to convert 

unused private activity bond authority or mortgage credit certificate authority 

into NHTCs. 

• The credits would be awarded by the state agencies to eligible entities through 

an annual competition. The eligible entity would identify a strategy for developing 

or rehabilitating properties in eligible communities, either for new homes, existing 

owner-occupied homes, or for homes that are vacant and will be brought to market. The eligible entities could be developers or financial institutions, including 

non-profit CDF is or other entities looking to capitalize a loan pool. 

• States would allocate only the tax credits reasonably needed for financial feasibility, determined both at the time of application and again when homes are sold 

or owner-occupied rehabilitations are completed. 

• Program limitations would ensure the credit is benefitting the right projects and 

communities. 

» The maximum value of the credit would be 35% of construction, substantial rehabilitation, and building acquisition and demolition costs. 

» The maximum cost basis for calculating the tax credits could not exceed the 

national median existing home sales price or four times the area MFI, whichever is higher. 

» The credits would generally only be available to support homeownership by low 

income and middle-income homebuyers. 

» Only those neighborhoods characterized by some combination of high poverty, 

low median family income and low home values would be eligible for investments. In addition, the states would be required to further define neighborhood 

eligibility requirements to ensure that the program is not targeting neighborhoods where there has been a recent influx of investment marked by improving 

property values, higher rents or a displacement of lower-income families. 

The NHTC addresses the need for neighborhood revitalization in communities hit 

with blocks of home foreclosures and vacant properties. Vacant properties inflict 

heavy costs on American communities: blight, crime, lowered home values, and decreased property tax revenue. There are mounting costs and difficulties associated 

with vacant and abandoned properties, especially when concentrated within neighborhoods. There are negative spillover effects ranging from crime and safety to reduced property values and increased costs for municipal governments. RealtyTrac 

found that 142,462 U.S. properties in the foreclosure process were vacant, representing 25 percent of all properties in the foreclosure process. The states with the 

most owner-vacated foreclosures were Florida with 35,903 (25 percent of the national total), New Jersey (17,983), New York (16,777), Illinois (9,358), and Ohio 

(7,360).5

Part of the reason property abandonment becomes contagious is because it lowers 

nearby home values making it more difficult to attract mortgage capital to an area. 

This makes it harder for people to sell their homes, in turn causing lenders to lower 

appraisals or to deny loans entirely. Vacant properties deteriorate and the underlying value of the property declines, causing neighboring property values to also decline.6 These neighborhoods are trapped in a cycle where low property values prevent the construction of new homes and the renovation of attractive of existing 

homes, and where the absence of these investments keeps property values unsusVerDate Sep 11 2014 20:17 Jul 27, 2018 Jkt 000000 PO 00000 Frm 00115 Fmt 6601 Sfmt 6621 R:\DOCS\30902.000 TIM
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7W. Scott Frame. ‘‘Estimating the Effect of Mortgage Foreclosures on Nearby Property Values: 

A Critical Review of the Literature.’’ Federal Reserve Bank of Atlanta, Economic Review, Nov. 

3, 2010. 

tainably low. Declining homeownership rates, property abandonment, the erosion of 

family assets, and concentrated poverty are too often the result. Studies attempting 

to quantify the effect of foreclosures on surrounding property values find that foreclosures depressed the sales prices of nearby homes by as little as 0.9 percent to 

as much as 8.7 percent.7

The NHTC would provide an effective and necessary tool for revitalizing blighted 

neighborhoods. As noted above, the NHTC would fill the gap between cost of construction and the appraised value of the property, with the private market bearing 

construction and marketing risks—much as is done with the Housing Credit. However, the Housing Credit, which was designed to create affordable rental housing 

for low- and very-low income families, cannot readily be utilized to support homeownership housing. And while tax exempt private activity bonds and mortgage credit certificates (MCCs) do support homebuyers by reducing mortgage interest costs, 

these incentives cannot fill the gap between development or renovation costs and 

appraised home values. 

Only those neighborhoods characterized by some combination of high poverty, low 

median family income, and low home values would be eligible for NHTC investments. In these neighborhoods, where inventory is high and appraisals are low, it 

is simply not possible for the private sector to invest in these properties without additional subsidy. By creating this incentive through the tax code, financial companies will now be able to participate in the recovery of these communities. 

Although legislation authorizing the NHTC has not yet been introduced in the 115th 

Congress, similar legislation was proposed by the George W. Bush administration 

and was introduced in the 108th Congress and received tremendous bi-partisan support. The Senate legislation (S. 875) had 46 co-sponsors, and the House legislation 

(H.R. 839, introduced by then Congressman Portman and Congressman Cardin) had 

304 co-sponsors. 

Conclusion 

The Housing Credit has a proven track record of success in producing affordable 

housing, is a unique fixture within the tax code that cannot readily be replaced by 

other public or private sources of capital. The corporate investors who will benefit 

from lower tax rates will not be negatively impacted by the elimination of these tax 

incentives, but lower income individuals and communities will. The scaling back or 

loss of this tax incentive would be felt immediately and could be irreversible. To this 

end, it should be the priority of Congress to preserve and strengthen these invaluable credits, and to support a new Neighborhood Homes Tax Credit to provide a 

needed incentive to spur homeownership in many of these same blighted communities. 

Thank you for your consideration of our comments. 

Matt Josephs 

Senior Vice President for Policy, LISC 

LOCUS 

1707 L St., NW, Suite 1050 

Washington, DC 20036 202–207–3355 www.locusdevelopers.org 

Chairman Hatch, Ranking Member Wyden, and Members of the Committee, thank 

you for holding today’s hearing on the pressing need for more affordable housing in 

communities across our country. 

LOCUS is a national coalition of real estate developers and investors who advocate 

for sustainable, equitable, walkable development in America’s metropolitan areas. 

Our members are among our nation’s leading developers—representing billions of 

dollars of investment annually—and they see every day the pent-up demand for attainable residential and commercial development in communities with a great sense 

of place. 

As you know, the primary policy for promoting the construction of affordable housing today is the Low-Income Housing Tax Credit (LIHTC). Many of our members 

113 

use this vital tool in their work and LOCUS strongly supports LIHTC. As evidenced 

by the unmet need though, we believe we can do more. 

First, LOCUS supports strengthening the existing LIHTC program. Legislation introduced by Senator Cantwell and Chairman Hatch, the Affordable Housing Credit 

Improvement Act of 2017 (S. 548), would increase LIHTC allocations by 50% and 

gives states and developers more flexibility to use credits in ways that reflect their 

local markets. 

Second, Ranking Member Wyden’s proposal to create a Middle-Income Housing Tax 

Credit (MIHTC) would help fill a critical gap between LIHTC-eligible projects and 

truly attainable housing. The reality is that many families that make too much for 

LIHTC eligible projects still struggle to find affordable housing. In addition, both 

the Cantwell Hatch bill and the Wyden proposal would promote more of the mixedincome housing that our members have seen is crucial for building vibrant communities. 

Finally, we also believe tax reform presents a unique opportunity to create an outcome based framework that encourages greater private capital investment in attainable housing and ‘‘making doing the right thing profitable’’ during neighborhood revitalization projects. 

Even though rehabilitating existing buildings and neighborhoods can increase the 

local tax base and save municipalities money by reusing and improving valuable 

public infrastructure, decades worth of deferred infrastructure maintenance can 

make neighborhood redevelopment projects cost-prohibitive. 

LOCUS believes the most effective way to accomplish this is to convert the existing 

Rehabilitation Tax Credit under Section 47 into a Neighborhood Rehabilitation and 

Investment Credit. 

Under the LOCUS proposal, the historic credit would not change, however the Rehabilitation Tax Credit in Section 47 of the Internal Revenue Code would be converted from a 10 percent credit into a scalable and in some cases refundable credit; 

broadening eligibility to include redevelopment and public infrastructure costs beyond those associated with a specific building; making residential buildings eligible 

for the credit; rewarding projects that include greater affordable housing and community services; and changing the age criteria so that any building over 50 years 

old would be eligible for the credit. Overall, credit would be applied to an entire redevelopment project instead of just an individual building, including adjacent new 

construction, infrastructure and community services. 

In its current form, the Rehabilitation Credit can only be claimed for buildings built 

before 1936, making a huge amount of development projects ineligible. In addition, 

the credit can only be claimed for individual buildings and not for larger projects. 

For many developers, this makes the credit too cumbersome to use. 

And finally, the credit right now can only be used for commercial development. This 

excludes residential properties, which could also obviously benefit from the credit, 

and also makes using the credit on mixed-use development—where part of the property is eligible and part is not—extremely challenging. 

Under the LOCUS proposal, there will be an incentive for all developers and investors to incorporate fiscally responsible and economically enhancing place-making 

principals of rehabilitation, transit orientation, mixed-use, affordability and walkability into their plans. 

We believe this proposal is consistent with tax reform principles of simplification, 

modernization and pro-growth job creation. But we also understand the need for 

trade-offs in tax reform. LOCUS has also endorsed reforms to elements of the federal tax treatment of real estate that have encouraged sprawling, drivable development over dense, walkable communities. For instance, we support further limitations on the mortgage interest deduction and the exclusion of gains from the sale 

of a primary residence. 

Thank you for your consideration, and we look forward to working with you and 

your staff. 

114 

NATIONAL AFFORDABLE HOUSING MANAGEMENT ASSOCIATION (NAHMA) 

400 North Columbus Street, Suite 203 

Alexandria, VA 22314 

(703) 683–8630 

(703) 683–8634 FAX 

www.nahma.org 

August 7, 2017 

Chairman Orrin Hatch Ranking Member Ron Wyden 

Senate Finance Committee Senate Finance Committee 

U.S. Congress U.S. Congress 

Dear Chairman Hatch and Ranking Member Wyden, 

On behalf of the National Affordable Housing Management Association (NAHMA), 

we greatly appreciate the opportunity to provide this Statement for the Record to 

the Senate Finance Committee for the hearing, ‘‘America’s Affordable Housing Crisis: Challenges and Solutions,’’ held on August 1, 2017. NAHMA would like to share 

our perspectives about tax reform and the importance of the Low-Income Housing 

Tax Credit (Housing Credit) with regards to affordable multifamily housing programs, which are critical to providing quality rental housing to families in need and 

to improving economic opportunity for all Americans. As a member of A Call To Invest in Our Neighborhoods (ACTION) Campaign, representing over 2,000 national, 

state, and local organizations and businesses, NAHMA submits the subsequent industry recommendations on how Congress can utilize tax reform to further strengthen the Housing Credit. 

NAHMA is the leading voice for affordable housing management, advocating on behalf of multifamily property managers and owners whose mission is to provide quality affordable housing. NAHMA supports legislative and regulatory policy that promotes the development and preservation of decent and safe affordable housing, is 

a vital resource for technical education and information and fosters strategic relations between government and industry. NAHMA’s membership represents 75 percent of the affordable housing management industry, and includes its most distinguished multifamily owners and management companies. 

We are especially grateful for the leadership of Finance Committee Chairman 

Hatch, Committee Ranking Member Wyden, and Committee Member Cantwell in 

championing legislation to expand and strengthen the Housing Credit, our nation’s 

primary tool for encouraging private investment in affordable rental housing. We 

strongly urge the Committee to advance the Affordable Housing Credit Improvement Act of 2017 (S. 548) this year, and to protect both the Housing Credit and multifamily Housing Bonds—a central component of the Housing Credit program—as 

part of any tax reform effort considered by Congress. 

The Housing Credit Has a Remarkable Track Record 

President Reagan and the Congress showed remarkable foresight when they created 

the Housing Credit as part of the Tax Reform Act of 1986. The Housing Credit is 

now our most successful tool for encouraging private investment in the production 

and preservation of affordable rental housing, with a proven track record of creating 

jobs and stimulating local economies. For over 30 years, the Housing Credit has 

been a model public-private partnership program, bringing to bear private sector resources, market forces, and state-level administration to finance more than 3 million 

affordable apartments—nearly one-third of the entire U.S. inventory—giving more 

than 6.7 million households, including low-income families, seniors, veterans, and 

people with disabilities, access to homes they can afford. Roughly 40 percent of 

these homes were financed in conjunction with multifamily Housing Bonds, which 

are an essential component of the program’s success. 

The Housing Credit Is a Proven Solution to Meet a Vast and Growing Need 

Despite the Housing Credit’s tremendous impact, there are still 11 million renter 

households—roughly one out of every four—who spend more than half of their income on rent, leaving too little for other necessary expenses like transportation, 

food, and medical bills. This crisis is continuing to grow. HUD reports that as of 

2015, the number of households with ‘‘worst case housing needs’’ had increased by 

38.7 percent over 2007 levels, when the recession began, and by 63.4 percent since 

2001. A study by Harvard University’s Joint Center for Housing Studies and Enterprise Community Partners estimates that the number of renter households who pay 

more than half of their income towards rent could grow to nearly 15 million by 

2025. 

115 

Without the Housing Credit, there would be virtually no private investment in affordable housing. It simply costs too much to build rental housing to rent it at a 

level that low-income households can afford. In order to develop new apartments 

that are affordable to renters earning the full time minimum wage, construction 

costs would have to be 72 percent lower than the current average. 

The Housing Credit Creates Jobs 

Housing Credit development supports jobs—roughly 1,130 for every 1,000 Housing 

Credit apartments developed, according to the National Association of Home Builders (NAHB). This amounts to roughly 96,000 jobs per year, and more than 3.25 million since the program was created in 1986. NAHB estimates that about half of the 

jobs created from new housing development are in construction. Additional job creation occurs across a diverse range of industries, including the manufacturing of 

lighting and heating equipment, lumber, concrete, and other products, as well as 

jobs in transportation, engineering, law, and real estate. 

The Housing Credit Stimulates Local Economies and Improves Communities 

The Housing Credit has a profound and positive impact on local economies. NAHB 

estimates the Housing Credit adds $9.1 billion in income to the economy and generates approximately $3.5 billion in federal, state, and local taxes each year. Conversely, a lack of affordable housing negatively impacts economies. Research shows 

that high rent burdens have priced out many workers from the most productive cities, resulting in 13.5 percent foregone GDP growth, a loss of roughly $1.95 trillion, 

between 1964 and 2009. 

Housing Credit development also positively impacts neighborhoods in need of renewal. About one-third of Housing Credit properties help revitalize distressed communities. Stanford University research shows Housing Credit investments improve 

property values and reduce poverty, crime, and racial and economic isolation, generating a variety of socio-economic opportunities for Housing Credit tenants and 

neighborhood residents. 

Affordable Housing Improves Low-Income Households’ Financial Stability 

Affordable housing promotes financial stability and economic mobility. It leads to 

better health outcomes, improves children’s school performance, and helps lowincome individuals gain employment and keep their jobs. Affordable housing located 

near transportation and areas with employment opportunities provides low-income 

households with better access to work, which increases their financial stability and 

provides employers in those areas with needed labor. 

Families living in affordable homes have more discretionary income than low-income 

families who are unable to access affordable housing. This allows them to allocate 

more money to other needs, such as health care and food, and gives them the ability 

to pay down debt, access childcare, and save for education, a home down payment, 

retirement, or unexpected needs. 

The Housing Credit Is a Model Public-Private Partnership 

The Housing Credit is structured so that private sector investors provide upfront 

equity capital in exchange for a credit against their tax liability over 10 years, 

which only vests once the property is constructed and occupied by eligible households paying restricted rents. This unique, market based design transfers the risk 

from the taxpayer to the private sector investor. In the rare event that a property 

falls out of compliance during the first 15 years after it is placed in service, the Internal Revenue Service can recapture tax credits from the investor. Therefore, it is 

in the interest of the private sector investors to ensure that properties adhere to 

all program rules, including affordability restrictions and high-quality standards. 

The Housing Credit Is State Administered with Limited Federal Bureaucracy 

The Housing Credit requires only limited federal bureaucracy because Congress 

wisely delegated its administration and decision-making authority to state government as part of its design. State Housing Finance Agencies, which administer the 

Housing Credit in nearly every state, have statewide perspective; a deep understanding of the needs of their local markets; and sophisticated finance, underwriting, and compliance capacity. 

The Housing Credit Is Critical to Preserving Our Nation’s Existing Housing 

Investments 

116 

The Housing Credit is our primary tool to preserve and redevelop our nation’s current supply of affordable housing. Without the Housing Credit, our ability to revitalize and rehabilitate our nation’s public housing and Section 8 housing inventory, 

decades in the making, would be significantly diminished. In addition to putting the 

residents of these properties at risk of displacement, we would lose these investments that taxpayers have already made. 

In rural areas, where direct funding for rural housing programs has been cut significantly, the Housing Credit is the backbone for preservation and capital improvements to the existing housing stock. Low-income rural residents’ incomes average 

just $12,960, and they are often living in areas with extremely limited housing options, making preservation of the existing housing stock crucial. 

The Demand for Housing Credits Exceeds the Supply 

Viable and sorely needed Housing Credit developments are turned down each year 

because the cap on Housing Credit authority is far too low to support the demand. 

In 2014—the most recent year for which data is available—state Housing Credit allocating agencies received applications requesting more than twice their available 

Housing Credit authority. Many more potential applications for worthy developments are not submitted in light of the intense competition, constrained only by the 

lack of resources. 

The scarcity of Housing Credit resources forces state allocating agencies to make 

difficult trade offs between directing their extremely limited Housing Credit resources to preservation or new construction, to rural or urban areas, to neighborhood revitalization or developments in high opportunity areas, or to housing for the 

homeless, the elderly, or veterans. There simply is not enough Housing Credit authority to fund all of the properties needed, but with a substantial increase in resources, many more of these priorities would be addressed—and the benefits for 

communities would be even greater. 

Though the need for Housing Credit-financed housing has long vastly exceeded its 

supply, Congress has not increased Housing Credit authority permanently in 16 

years. 

We Urge Congress to Expand and Strengthen the Housing Credit 

To meaningfully grow our economy and address our nation’s growing affordable 

housing needs through tax reform, we urge Congress to increase the cap on Housing 

Credit authority by 50 percent. Such an expansion would support the preservation 

and construction of up to 400,000 additional affordable apartments over a 10-year 

period. We also call on Congress to retain the tax exemption on multifamily Housing 

Bonds, which are essential to Housing Credit production. 

The Affordable Housing Credit Improvement Act of 2017 (S. 548), which would authorize such an expansion, has earned strong bipartisan support in the Senate and 

among Senate Finance Committee members. This legislation would increase Housing Credit allocation authority by 50 percent phased in over 5 years, and enact 

roughly two dozen changes to strengthen the program by streamlining program 

rules, improving flexibility, and enabling the program to serve a wider array of local 

needs. The legislation would also generate a host of benefits for local communities, 

including increased local tax revenue, local income, and jobs, all benefits that meet 

the Committee’s goals for tax reform. 

An investment in the Housing Credit is an investment in individuals, local communities, and the economy. It transforms the lives of millions of Americans, many of 

whom are able to afford their homes for the first time—and it transforms their communities and local economies. We applaud the leadership the Senate Finance Committee has shown in support of the Housing Credit to date and urges the Committee 

to expand and strengthen the Housing Credit and multifamily Housing Bonds. 

We look forward to working together with the Committee to preserve and improve 

the Low-Income Housing Tax Credit throughout tax reform; the Housing Credit and 

other multifamily housing programs are critical to providing quality rental housing 

to families in need and to improving economic opportunity for all Americans. Please 

don’t hesitate to direct any questions to NAHMA’s Director of Government Affairs, 

Larry Keys, at (703) 683–8630 ext. 111 or lkeys@nahma.org. 

Sincerely, 

Kris Cook, CAE 

Executive Director 

117 

1Department of Housing and Urban Development, Office of Policy Development and Research: 

LIHTC Database. (https://www.huduser.gov/portal/datasets/lihtc.html#about). Accessed on 

November 16, 2016. 2Department of Housing and Urban Development, Rental Assistance Demonstration Resource 

Desk: RAD First Component Data. (http://www.radresource.net/firstcomponent.cfm). Accessed 

July 27, 2017. 

NATIONAL ASSOCIATION OF HOUSING AND REDEVELOPMENT OFFICIALS (NAHRO) 

630 Eye Street, NW 

Washington, DC 20001–3736 

(202) 289–3500 

Toll Free: (877) 866–2476 

Fax: (202) 289–8181 

website: www.nahro.org 

e-mail: nahro@nahro.org 

Formed in 1933, NAHRO represents nearly 20,000 housing and community 

development professionals and agencies. Collectively, our members manage 

more than 950,000 public housing units, 1.6 million Housing Choice Vouchers, approximately 70,000 Low-Income Housing Tax Credit (LIHTC) units, and receive over 

$1.5 billion in Community Development Block Grant (CDBG) and HOME Investment Partnerships (HOME) Program funding to use in their communities. In all, 

NAHRO members provide housing for more than 7.9 million low-income people. 

NAHRO is unique in its ability to represent public housing agencies (PHAs), local 

redevelopment agencies (LRAs), and other HUD grantees of all sizes and geography. 

Many NAHRO members depend on LIHTC as a source of funding for their affordable housing projects. 

LIHTC is a critical tool for PHAs/LRAs preserving and creating affordable 

housing. PHAs own and operate over 1.1 million units of federally subsidized public 

housing, supporting low income families, the elderly, disabled persons, and veterans. 

Although the public housing inventory is an integral component of our nation’s infrastructure, chronic underfunding of the Capital and Operating Funds (the two primary funding mechanisms of public housing) has placed the inventory at risk, with 

a mounting capital needs backlog of well over $26 billion. PHAs turn to LIHTC to 

preserve and revitalize their distressed public housing inventory, and both PHAs 

and LRAs often take advantage of LIHTC’s leveraging power to secure other state, 

local, federal resources (e.g., CDBG) for affordable housing projects that revitalize 

their communities. 

Last March, the Housing Authority of Salt Lake gathered alongside their public and 

private partners to celebrate the opening of the 9th Lofts at Bennion Plaza—a 68- 

unit mixed-use LIHTC development that will help chip away at the city’s 7,500 unit 

affordable housing deficit. The project serves a mix of community low-income housing needs; a third of the units are reserved for residents with specific needs beyond 

affordability, including residents with physical disabilities, victims of domestic violence, military veterans, and those transitioning out of homelessness. Overall, 

NAHRO estimates that between 1984 and 2014, LIHTCs awarded to PHAs/LRAs 

have supported at least 53,200 low income housing units.1

The LIHTC is also important to the success of HUD’s Rental Assistance Demonstration (RAD). RAD allows PHAs to leverage public and private debt and equity to address the capital needs backlog of their public housing portfolios. For example, 

Home Forward (previously known as the Housing Authority of Portland) is currently 

in the process of converting 31 public housing properties, with a total of 1,063 units, 

into Project-based Vouchers. Of the 31 properties undergoing conversion, 30 of those 

projects would utilize LIHTCs in their financing to assist with necessary capital improvements. 

HUD data shows that the LIHTC has been essential in many of the RAD transactions closed by the Department thus far. Notably, 186 closed RAD conversions, 

amounting to almost 21,000 public housing units, had LIHTC in their financing.2

As a cost-neutral program, Congress has supported RAD by expanding its current 

cap on conversions to 225,000 units. Without additional action to strengthen the 

LIHTC, this support falls short of its intent. 

Currently there is a shortage of 7.2 million affordable and available rental units for 

the nation’s 11.4 million extremely low-income households (those earning below 30 

percent area median income [AMI]). One in four renter households is spending over 

half of their income on housing costs, and there is no state in the U.S. where a 

worker earning full-time minimum wage can afford a modest, two-bedroom apartVerDate Sep 11 2014 20:17 Jul 27, 2018 Jkt 000000 PO 00000 Frm 00121 Fmt 6601 Sfmt 6621 R:\DOCS\30902.000 TIM
118 

3 America’s Rental Housing: Expanding Options for Diverse and Growing Demand. Harvard 

Joint Center for Housing Studies, 2015. 4The ACTION Campaign, of which NAHRO is a Steering Committee member, is a national 

coalition of roughly 1,300 organizations and businesses calling on Congress to expand and 

strengthen LIHTC. Learn more at: http://rentalhousingaction.org/. 

ment. NAHRO urges the committee to support a greater investment in the LIHTC 

as part of any efforts to address the America’s affordable housing crisis. 

Additionally, the LIHTC program benefits middle-class families who struggle with 

high housing costs. While the lowest-income renters disproportionally make up the 

largest share of cost-burdened households (those spending over 30 percent of income 

on housing costs), the sharpest growth in cost burden shares have been among middle-income households. Between 2001 and 2014, the share of cost-burdened households in the $30,000–$44,999 income range increased from 37 percent to 48 percent, 

while households in the $45,000–$74,999 range nearly doubled from 12 percent to 

21 percent.3

NAHRO, along with the ACTION Campaign,4 urges the Committee to pass 

the Affordable Housing Credit Improvement Act of 2017 (S. 548). Provisions 

strongly supported by NAHRO include: 

• Expand the overall LIHTC allocation authority by 50 percent. NAHRO 

supports this expansion since 9 percent LIHTCs are highly competitive and difficult for PHAs/LRAs to secure. At a time where other federal housing resources 

are limited, expanding the volume cap by 50 percent will allow greater access 

for PHAs/LRAs, which would be a meaningful step towards addressing our nation’s growing affordable housing deficit. 

• Establish a minimum 4 percent credit rate. In 2015, Congress provided 

greater stability in the LIHTC market by establishing a minimum 9 percent 

LIHTC rate. However, NAHRO members often turn to 4 percent LIHTCs because they are non-competitive and more accessible. The current floating 4 percent rate is an impediment to projects. Establishing a permanent rate will make 

project financing more predictable and feasible. 

• Enable income averaging in LIHTC developments. Housing Credit projects 

currently serve renters with incomes up to 60 percent of AMI, and rents are 

comparably restricted. While states are encouraged to give preference to developments that serve the lowest-income populations, it can be difficult to make 

these developments financially feasible, especially in certain areas where many 

of NAHRO’s members are located. Examples include: rural areas with very low 

median incomes, economically depressed communities pursuing mixed-income 

revitalization, and high-cost markets. 

The LIHTC is the most successful tool for enabling and encouraging private sector investment in the production and preservation of affordable 

rental housing. It has been a critical source of equity for almost 3 million affordable apartments over the last 30 years (almost one-third of the entire U.S. inventory), providing over 6.7 million low-income households with access to homes that 

they can afford. 

The LIHTC spurs job creation and stimulates local economies. Since 1986, 

LIHTC developments have supported over 3.26 million jobs. The National Association of Home Builders (NAHB) estimates that for every 1,000 apartments developed 

by LIHTC, roughly 1,130 jobs are created—approximately 96,000 jobs per year. Additionally, LIHTC adds approximately $9.1 billion in income to the economy and 

generates about $3.5 billion in federal, state, and local taxes each year. 

The LIHTC requires limited federal bureaucracy. The original authorizers of 

LIHTC recognized the importance of local control in its administration and decisionmaking authority. State and local housing entities have a much greater understanding of the needs of their local markets and possess the sophisticated finance, 

underwriting, and compliance capacity necessary to administer LIHTC. 

By preserving affordable housing, producing new housing options, creating jobs, and 

helping struggling low- and moderate-income families across the country, LIHTC 

program is a common-sense approach to ensuring a stronger housing infrastructure. 

Mr. Chairman and members of the Senate Finance Committee, thank you for your 

interest in meeting the nation’s affordable housing needs and NAHRO welcomes 

your continued support of the LIHTC. 

119 

NATIONAL HOUSING CONFERENCE

1900 M Street, NW, Suite 200 

Washington, DC 20036 

p 202–466–2121 

f 202–466–2122 

www.nhc.org 

Members of the Senate Finance Committee, 

The National Housing Conference thanks the Senate Finance Committee for holding 

a hearing on ‘‘America’s Affordable Housing Crisis: Challenges and Solutions,’’ and 

appreciates your attention to the challenge of housing affordability which affect s 

too many American households. Much of the hearing focused on the Affordable 

Housing Credit Improvement Act, S. 548, which Senator Maria Cantwell (D–WA) 

and Senate Finance Committee Chairman Orrin Hatch (R–UT) introduced earlier 

this year. This crucial piece of legislation would increase Housing Credit authority, 

facilitate Housing Credit development in challenging markets and for hard-to-reach 

populations, support the preservation of existing affordable housing, and simplify 

program requirements. NHC is grateful to Senator Cantwell and Chairman Hatch 

for their leadership, and to the other Committee members—Ranking Member Ron 

Wyden (D–OR) and Senators Dean Heller (R–NV), Michael Bennet (D–CO), Rob 

Portman (R–OH), and Johnny Isakson (R–GA)—for their co-sponsorship support. 

NHC strongly urges the Committee to advance the Affordable Housing Credit Improvement Act as part of any tax legislation it considers. 

The Housing Credit is a proven, effective solution to producing affordable housing; 

strengthening and expanding it will help create and preserve more rental homes for 

families and individuals, revitalize neighborhoods, and spur private sector investment. 

• The Housing Credit has a remarkable track record, a model public-private partnership program that has financed more than 3 million affordable homes. 

• The Housing Credit is a proven solution to meet a large and growing need; 11 

million renter households are severely cost burdened and need affordable housing. 

• The Housing Credit stimulates local economies and improves communities; 

Stanford University research shows Housing Credit investments reduce poverty, 

crime, and racial and economic isolation. 

• The Housing Credit is state administered with limited federal bureaucracy. 

• The Housing Credit is our primary tool to preserve and redevelop our nation’s 

current supply of affordable housing. 

• The demand for Housing Credits exceeds the supply. In 2014, state Housing 

Credit allocating agencies received applications requesting more than twice 

their available Housing Credit authority. 

To meaningfully grow our economy and address our nation’s growing affordable 

housing needs as part of tax reform, NHC urges Congress to increase the cap on 

Housing Credit authority by 50 percent which would support the preservation and 

construction of up to 400,000 additional affordable apartments over a 10-year period. We also call on Congress to retain the tax exemption on multifamily Housing 

Bonds. S. 548 would authorize such an expansion and has strong bipartisan support 

in the Senate and among Senate Finance Committee members. This legislation 

would also enact roughly two dozen changes to strengthen the program by streamlining program rules, improving flexibility, and enabling the program to serve a 

wider array of local needs. 

An investment in the Housing Credit is an investment in people, communities, and 

the economy. It transforms the lives of millions of Americans, many of whom are 

able to afford their homes for the first time, and it helps transform their communities and local economies. NHC applauds the leadership the Senate Finance Committee has shown in support of the Housing Credit to date and urges the Committee 

to expand and strengthen the Housing Credit and multifamily Housing Bonds. 

To discuss any of these comments in further detail, please contact Rebekah King, 

Policy Associate, National Housing Conference, (202) 466–2121 ext. 248, 

rking@nhc.org. 

Sincerely, 

Chris Estes 

President and CEO 

120 

NATIONAL LOW INCOME HOUSING COALITION

1000 Vermont Avenue, NW, Suite 500 

Washington, DC 20005 

Diane Yentel, President and CEO 

Congress and the Trump administration should use tax reform to address one of the 

most critical issues facing extremely low-income families today: the lack of decent, 

accessible, and affordable housing. Through smart, modest reforms to the mortgage 

interest deduction (MID)—a $70 billion tax write-off that primarily benefits higher 

income households—Congress can reprioritize and rebalance federal spending on 

housing to make the deeply targeted investments in affordable rental housing that 

our nation needs for the economy, our communities, and families to thrive. All without increasing costs to the federal government. 

Access to an affordable rental home is essential to economic prosperity and job creation. An affordable home is necessary for families to participate fully in the economy, making it easier for adults to find and keep good jobs and contribute to economic growth. Living in an affordable home improves children’s health and education, increasing their economic success as adults. Moreover, federal investments 

in affordable homes boost local economies and create jobs. Despite the benefits of 

affordable homes, three out of four families eligible for rental assistance are turned 

away due to a lack of funding and half a million people are homeless on any given 

night. As a result, 71% of extremely low income households those earning less than 

the poverty guideline or 30% of the Area Median Income—pay at least half of their 

limited income on rent, leaving few resources to cover basic needs, like food, 

healthcare, childcare, and transportation. 

At the same time, three-fourths of the nearly $200 billion spent by the federal government to help Americans buy or rent their homes goes to higher income households. In fact, the federal government spends more to subsidize the homes of the 

7 million households with incomes above $200,000 than to assist the 55 million 

households with incomes below $50,000, even though they are far more likely to 

struggle to afford a place to live. 

Reprioritizing federal housing policy starts with reforming the MID and reinvesting 

the savings into affordable rental homes for people with the greatest needs. Experts 

from across the political spectrum are increasingly calling the MID what it is: a 

wasteful use of federal resources that encourages households to take on higher levels of debt, disrupts the housing market by increasing costs for everyone, and mostly 

benefits those who do not need federal assistance to live in a stable home. Research 

confirms that the MID has no impact on homeownership. 

The National Low Income Housing Coalition (NLIHC) and the United for Homes 

campaign proposes modest reforms to the MID to provide 25 million low and moderate income homeowners greater tax relief and to reinvest the $241 billion in savings over 10 years to provide affordable rental homes to people with the lowest incomes. 

President Trump has proposed indirect changes to the MID, including doubling the 

standard tax deduction. This could provide a greater tax break to low and moderate 

income households. However, because the resulting MID would become even more 

regressive, benefiting only the wealthiest homeowners with the largest mortgages, 

Congress should pair any proposal to increase the standard deduction with additional MID reforms and reinvest the savings into deeply targeted affordable rental 

housing. 

By reprioritizing federal housing policy, Congress and the Trump administration 

can help end homelessness and housing poverty once and for all, giving all families 

an opportunity to break through the cycle of poverty and climb the ladder of economic success. 

The Need for Affordable Housing 

The affordable housing crisis in America continues to reach new heights. Rents are 

rising, wages of the lowest income workers are flat, and more people are renting 

their homes than ever before. But the supply of affordable housing and rental assistance has not kept pace. As a result, record-breaking numbers of families cannot afford a decent place to call home. Every state and congressional district is impacted. 

Unless we increase investments in affordable housing to keep up with the need, 

121 

1Poethig, Erika C. ‘‘Better housing policy could save us all money. Why are we ignoring it?’’ 

The Washington Post. Oct. 11, 2016. https://www.washingtonpost.com/news/in-theory/wp/ 

2016/10/11/better-housing-policy-could-save-us-all-money-why-are-we-ignoring-it?utm_term=.74 

1ab09f87cf. Last visited July 28, 2017. 2 ‘‘Affordable Housing: An Investment in Kids and Their Future.’’ How Housing Matters. 2016. 

https://howhousingmatters.org/articles/affordable-housing-investment-kids-future/. Last visited 

July 28, 2017. 3 ‘‘Affordable Housing: An Investment in Kids and Their Future.’’ How Housing Matters. 2016. 

https://howhousingmatters.org/articles/affordable-housing-investment-kids-future/. Last visited 

July 28, 2017. 4Giannarelli, Linda et al. ‘‘Reducing Child Poverty in the US: Costs and Impacts of Policies 

Proposed by the Children’s Defense Fund.’’ Urban Institute. January 30, 2015. http:// 

www.urban.org/research/publication/reducing-child-poverty-us. Last visited July 28, 2017. 

these challenges will only get worse as demand for rental housing grows over the 

next decade.1

The greatest need for affordable housing—on the local, state, and national level— 

is concentrated among extremely low-income renters who earn no more than the 

poverty guideline or 30% of the area median income (AMI). NLIHC’s recent report, 

‘‘The Gap: The Affordable Housing Gap Analysis 2017,’’ found a shortage of 7.4 million affordable and available rental homes for the nation’s 11.4 million extremely 

low income renter households. Nationally, only 35 affordable homes are available for 

every 100 extremely low income renter households. As a result, 71% of the poorest 

families are severely cost burdened, spending more than half of their limited income 

on rent and utilities. These 8.1 million households account for 72.6% of all severely 

cost burdened renters in the country. They are forced to make difficult choices between paying rent and buying groceries or visiting their doctor. In the worst cases, 

these families become homeless. 

NLIHC’s report, ‘‘Out of Reach 2017: The High Cost of Housing,’’ shows the difference between wages and the price of housing in every state and county by estimating each locality’s ‘‘housing wage,’’ the hourly wage a full-time worker needs to 

earn to afford a modest, two-bedroom apartment. In 2017, the national housing 

wage was $21.21 per hour. A worker earning the federal minimum wage would need 

to work 117 hours a week—or 2.9 full-time jobs—to afford a modest two-bedroom 

apartment. While the housing wage changes from state to state and county to county, there is no jurisdiction in the United States where a full-time worker earning 

the prevailing minimum wage can afford a modest, two-bedroom apartment. And it’s 

not just minimum wage workers for whom rents are out of reach: the average renter 

in the U.S. earns $16.38 per hour—nearly $5 an hour less than the national housing 

wage. 

The public is looking to the White House and Congress for solutions. According to 

a recent How Housing Matters survey, 81% of Americans believe housing affordability is a problem in America, and 60% characterize the lack of affordable housing 

as a serious problem. Three out of four (76%) Americans believe it is important for 

federal elected officials to take action on housing affordability, and 63% believe the 

issue is not getting enough attention.2

Impact on Economic Mobility 

Affordable housing is a long-term asset that helps families and children climb the 

economic ladder. According to the How Housing Matters survey, 70% of Americans 

agree that ‘‘investing in affordable, quality housing is investing in kids and their 

future.’’ 3

Increasing the supply of affordable housing and rental assistance—especially in 

areas connected to good schools, well-paying jobs, health care, and transportation— 

helps families climb the economic ladder. In addition, children who live in stable, 

affordable homes have better health and educational outcomes, gain greater access 

to economic opportunities, enjoy better mental and physical well-being, and benefit 

from stronger communities. Research shows that increasing access to affordable 

housing is the most cost-effective strategy for reducing childhood poverty in the 

United States.4

Groundbreaking research by economist Raj Chetty offers persuasive evidence of the 

impact of affordable housing on upward mobility for children. Using new tax data, 

Chetty and his colleagues assessed the long-term outcomes for children who moved 

at a younger age to lower poverty neighborhoods. Chetty’s study found that children 

who were younger than 13 when their family moved to lower poverty neighborhoods 

saw their earnings as adults increase by approximately 31%, were more likely to 

live in better neighborhoods as adults, and less likely to become a single parent. 

122 

5 Newman, Sandra J. and C. Scott Holupka. ‘‘Housing Affordability and Child Well-Being.’’ 

Housing Policy Debate 25.1 (2014): 116–51. Taylor and Francis Online. http:// 

www.tandfonline.com/doi/abs/10.1080/10511482.2014.899261. Last visited July 28, 2017. 6 Newman, Sandra J. and C. Scott Holupka. ‘‘Affordable Housing Is Associated with Greater 

Spending on Child Enrichment and Stronger Cognitive Development.’’ How Housing Matters. 

MacArthur Foundation. July 2014. https://www.macfound.org/media/files/Affordable_Housing _Child_Enrichment_Stronger_Cognitive_Development.pdf. Last visited July 28, 2017. 7 America’s Rental Housing: Expanding Options for Diverse and Growing Demand. Rep. Joint 

Center for Housing Studies at Harvard University, 2015. http://www.jchs.harvard.edu/sites/ 

jchs.harvard.edu/files/americas_rental_housing_2015_web.pdf. Last visited July 28, 2017. 8 Hsieh, Chang-Tai and Enrico Moretti. ‘‘Housing Constraints and Spatial Allocation.’’ UC 

Berkeley and the National Bureau of Economic Research. May 18, 2017. http://faculty.chicagobooth.edu/chang-tai.hsieh/research/growth.pdf. Last visited July 28, 2017. 9The Economic Impact of Home Building in a Typical Local Area: Income, Jobs, and Taxes 

Generated. Rep. National Association of Home Builders, Apr. 2015. https://www.nahb.org/∼/ 

media/Sites/NAHB/Economic%20studies/1-REPORT_local_20150318115955.ashx?la=en. Last 

visited July 28, 2017. 

Other research shows that children living in stable, affordable homes are more likely to thrive in school and have greater opportunities to learn inside and outside the 

classroom. Children in low income households that live in affordable housing score 

better on cognitive development tests than those in households with unaffordable 

rents.5 Researchers suggest that that is partly because parents with affordable 

housing can invest more in activities and materials that support their children’s development.6 Having access to affordable housing allows the lowest income families 

to devote more of their limited resources to other basic needs. Families paying large 

shares of their income for rent have less money to spend on food, health care, and 

other necessities.7

Impact on the Economy and Job Creation 

Beyond the broad benefits to economic mobility, an investment in affordable housing 

for the lowest income households bolsters productivity and economic growth. By connecting workers to communities with well-paying jobs, good schools, and transit, investments in affordable housing can spur local job creation and increase incomes. 

Research shows that the shortage of affordable housing in major metropolitan areas 

costs the American economy about $2 trillion a year in lower wages and productivity. Without affordable homes, families have constrained opportunities to increase 

earnings, causing slower GDP growth.8 Moreover, each dollar invested in affordable 

housing boosts local economies by leveraging public and private resources to generate income—including resident earnings and additional local tax revenue—and 

supporting job creation and retention. Building 100 affordable rental homes generates $11.7 million in local income, $2.2 million in taxes and other revenue for local 

governments, and 161 local jobs in the first year.9

The Need to Reprioritize Federal Housing Policy 

Federal investments in affordable housing—at the U.S. Departments of Housing and 

Urban Development (HUD) and Agriculture (USDA)—have lifted millions of families 

out of poverty. Without these investments, many of these families would be homeless, living in substandard or overcrowded conditions, or struggling to meet other 

basic needs because too much of their limited income would go to paying rent. Despite their proven track record, HUD and USDA affordable housing investments 

have been chronically underfunded. Today, of the families who qualify for housing 

assistance, only a quarter will get the help that they need. Every state and congressional district is impacted. 

There is no silver-bullet solution. Housing challenges differ from community to community. Congress and the Trump administration, as well as state and local governments, must use every tool available to solve the problem. A comprehensive set of 

solutions to end housing insecurity in America includes preserving and rehabilitating our nation’s existing affordable housing stock, increasing investments in the 

production of affordable rental homes for low income families, and expanding rental 

assistance and other housing programs that help make housing affordable. 

Underlying all these solutions is the need to increase targeted federal investments 

in affordable housing to help families and communities thrive. This can be done— 

without increasing costs for the federal government—by reforming the MID, 

our nation’s largest housing subsidy that largely benefits higher income homeowners, and reinvesting the savings to serve those with the greatest needs. 

Most Federal Housing Resources Are Poorly Targeted to Serve People With 

the Greatest Needs 

123 

10Fischer, Will and Barbara Sard. ‘‘Chart Book: Federal Housing Spending Is Poorly Matched 

to Need.’’ Center on Budget and Policy Priorities. March 8, 2017. https://www.cbpp.org/research/housing/chart-book-federal-housing-spending-is-poorly-matched-to-need. Last visited July 

28, 2017. 11Fischer, Will and Barbara Sard. ‘‘Chart Book: Federal Housing Spending Is Poorly Matched 

to Need.’’ Center on Budget and Policy Priorities. March 8, 2017. https://www.cbpp.org/research/housing/chart-book-federal-housing-spending-is-poorly-matched-to-need. Last visited July 

28, 2017. 

Each year, the federal government spends almost $200 billion to help Americans 

buy and rent their homes. A full 75% of all these resources—including both program 

spending and tax expenditures—goes to subsidize higher income homeowners 

though the MID and other homeownership tax breaks. Targeted federal housing resources at HUD and USDA, which have seen deep funding cuts in recent years due 

to the low spending caps required by the Budget Control Act, amount to just a quarter of all federal spending on housing.10

Federal housing policy is so unbalanced, in fact, that we as a nation spend more 

to subsidize the homes of the 7 million highest income households with incomes 

above $200,000 than we do to help the 55 million households with incomes of 

$50,000 or less, even though these families are more likely to struggle to afford 

housing.11

The Center on Budget and Policy Priorities estimates households with incomes of 

$200,000 or more receive an average federal housing benefit of $6,076 per year— 

about four times the average annual benefit of $1,529 received by households with 

incomes below $20,000. 

MID Is a Wasteful Use of Federal Resources 

The MID is poorly targeted and largely benefits America’s highest income households. For this reason, experts from across the ideological spectrum criticize the 

MID as a wasteful use of federal resources that encourages households to take on 

higher levels of debt, disrupts the housing market by increasing costs for everyone, 

and mostly benefits those who do not need federal assistance to live in a stable 

home. Research confirms that the MID has no impact on homeownership. 

The MID Promotes Debt, Not Homeownership 

According to estimates by the congressional Joint Committee on Taxation, the MID 

primarily benefits households with the higher incomes. Households earning less 

than $100,000 represent two-thirds (68%) of all taxable returns. However, these 

households amount to one-third (36%) of all households that claim the MID, and 

they receive just 16% of all MID dollars. 

In comparison, households with incomes of more than $100,000 represent 32% of all 

taxable returns, but more than two-thirds (64%) of all households that claim the 

MID, they receive 84% of all MID dollars. And households with incomes above 

$200,000 file only 8% of all taxable returns. They amount to 21% of all households 

claiming the MID and they receive nearly half (46%) of all MID dollars. 

The nonpartisan Congressional Budget Office (CBO) reports that 75% of the benefits 

of the MID go to the top 20% of earners. In fact, 15% of the benefits of the MID, 

or nearly $11 billion each year, goes to the top 1% of earners, the wealthiest households in America. 

Everyone else gets almost nothing. Approximately 70% of all taxpayers do not receive the MID, including half of all homeowners who do not itemize their tax deductions and instead take the standard deduction. 

Economists agree that the MID does little to promote homeownership. Higher income households that benefit from the MID would likely choose to buy a home regardless of whether they receive a tax break. Instead, the MID incentivizes these 

higher income households to take on larger mortgages; greater mortgage debt results in more mortgage interest eligible for a tax break. Moreover, the value of the 

MID corresponds to a household’s marginal tax rate, so households in higher tax 

brackets receive more than households in lower tax brackets. 

For example, in the first comprehensive, long-term study of how tax subsidies affect 

housing decisions, the National Bureau of Economic Research found that the MID 

‘‘has a precisely estimated zero effect on homeownership,’’ even in the long term. Instead, the data show that the MID encourages homeowners to buy larger and more 

expensive houses and to take on increased levels of debt. 

124 

12 ‘‘Options to Reform the Deduction for Home Mortgage Interest,’’ Tax Policy Center, 2015. 13 ‘‘Reducing the Deficit: Spending and Revenue Options.’’ Congressional Budget Office. March 

10, 2011. https://www.cbo.gov/publication/22043. Last visited July 28, 2017. 14 ‘‘The Houses of Lobbyists.’’ The Wall Street Journal. May 6, 2017. https://www.wsj.com/ 

articles/houses-of-lobbyists-1494024305. Last visited July 28, 2017. 15Shapiro, Thomas. ‘‘Moyers and Company: How Our Tax Code Makes Inequality Worse.’’ 

United for Homes. May 18, 2017. http://www.unitedforhomes.org/news/moyers-company-taxcode-makes-inequality-worse/. Last visited July 28, 2017. 16Shapiro, Thomas. ‘‘Moyers and Company: How Our Tax Code Makes Inequality Worse.’’ 

United for Homes. May 18, 2017. http://www.unitedforhomes.org/news/moyers-company-taxcode-makes-inequality-worse/. Last visited July 28, 2017. 

Meanwhile, lower income homeowners receive little to no benefit from the MID. 

These households are far less likely to itemize their tax deductions; their mortgages 

tend to be smaller and, therefore, they have less mortgage interest eligible for a tax 

break. And even if they claim the mortgage deduction, because their marginal tax 

rate is lower, the value of the MID is significantly less than homeowners with higher incomes. 

Households earning more than $1 million receive an average annual MID benefit 

of nearly $9,000, while households earning between $40,000 and $50,000 receive an 

average MID benefit of $528 per year.12

Economists note that many developed countries without a MID have the same or 

higher homeownership rate as the U.S. As the CBO has reported, ‘‘Despite the favorable tax treatment that mortgage interest receives in the United States, the rate 

of homeownership here is similar to that in Australia, Canada, and the United 

Kingdom, and none of those countries currently offers a tax deduction for mortgage 

interest.’’13

The MID Distorts Markets and Increases Costs 

The MID distorts the housing and investment markets, increasing the cost of homeownership and dampening economic growth. By inflating home values, the MID 

largely benefits households that already own their homes at the expense of those 

who hope to become homeowners in the future. While higher income households can 

absorb higher housing costs without a significant impact on homeownership rates, 

this added expense makes it more difficult for low and moderate income families to 

buy a home. Others have also argued that the MID distorts the housing market by 

discouraging investment in one consumer good—homes—at the expense of other possibly more productive economic activity.14

The MID Increases Income Inequality and Fuels the Racial Wealth Gap 

Pulitzer prize-winning author and sociologist Matthew Desmond illustrated how the 

MID has become ‘‘the engine of American inequality’’ in his recent New York Times 

magazine article. Dr. Desmond notes that the federal government spends about 

$134 billion to subsidize the homes of higher income households through the MID 

and other homeownership tax breaks—more than the entire budgets of the U.S. Departments of Education, Justice and Energy combined and more than half the entire 

gross domestic product of countries like Chile, New Zealand and Portugal. At the 

same time, too few low income households that use more than half of their limited 

incomes for rent each month, leaving very little left to cover the cost of groceries, 

medicine, and other basic needs. 

In his new book, Toxic Inequality: How America’s Wealth Gap Destroys Mobility, 

Deepens the Racial Divide, and Threatens Our Future, sociologist Thomas Shapiro 

examines the role the MID has played in exacerbating growing income inequality 

and racial inequity. After noting that ‘‘we invest five times more public money in 

home ownership for families that can afford homes than in decent, affordable housing for those who cannot,’’ Shapiro argues that this public investment in homeownership ‘‘flows mostly to the best-off homeowners, redistributing wealth at the top, 

driving wealth inequality, and contributing to toxic inequality.’’15

While there is less direct data on the racial impact of the MID—largely because race 

and ethnicity data are not collected on tax forms—there is significant evidence that 

the MID negatively impacts households of color. Recently, the Tax Policy Center examined ZIP codes in which high rates of residents claimed the MID; it found that 

black households represent only 5.6% of the population in these areas, less than half 

their national proportion. By comparison, residents of ZIP codes with the highest 

rates of taxpayers claiming the MID are disproportionately white.16

Moreover, by examining MID beneficiaries by income bracket, the Tax Policy Center 

found that black households receive only 3.5% of tax expenditures in individual 

125 

17Shapiro, Thomas. ‘‘Moyers and Company: How Our Tax Code Makes Inequality Worse.’’ 

United for Homes. May 18, 2017. http://www.unitedforhomes.org/news/moyers-company-taxcode-makes-inequality-worse/. Last visited July 28, 2017. 18 If phased in over 5 years. 19 If phased in over 5 years. 

wealth building, which includes the MID, despite comprising 13.2% of the population. ‘‘African-American families would accumulate $35 billion more in wealth 

each year if their incomes were distributed according to their national representation—13.2% in each income bracket.’’17

Proposals to Reform the MID 

Congress has a clear opportunity to enact tax reform that addresses the growing affordable rental housing crisis facing millions of low-income people in every state and 

community. That starts with reforming the MID, our nation’s largest housing subsidy, and reinvesting these scarce resources to serve those with the greatest needs. 

Experts from across the political spectrum agree, including The Wall Street Journal 

editorial board, former President George W. Bush advisor Dennis Shea, the CATO 

Institute, the Ronald J. Terwilliger Foundation, former President Obama advisor 

Michael Stegman, former Labor Secretary Robert Reich, Pulitzer prize-winning author and sociologist Matthew Desmond, and many others. 

NLIHC’s United for Homes campaign—which has been endorsed by more than 2,300 

organizations, local governments, and elected officials—proposes to reform the MID. 

The changes are simple and modest. United for Homes calls for: 

1. Reducing the amount of mortgage eligible for tax relief from $1 million 

to the first $500,000, generating $87 billion in savings over 10 years.18

An analysis of 2013–2015 Home Mortgage Disclosure Data (HMDA) shows that just 

6% of new mortgages in the U.S. are over $500,000. And homeowners with large 

mortgages would still receive tax relief on the first $500,000 of their mortgage. For 

example, a homeowner with a mortgage of $600,000 would still benefit from a tax 

break on the first $500,000 of their mortgage. Lowering the cap would have ‘‘virtually no effect on homeownership rates.’’ Economist Edward Glaeser argues that 

capping the MID at the first $500,000 would have only ‘‘modest effects on home 

prices’’ in supply-constrained cities like San Francisco and virtually no effect in cities with plenty of available land, like Houston. ‘‘Most homeowners wouldn’t even 

feel it,’’ Glaeser says. 

2. Converting the deduction into a nonrefundable, 15% capped credit, 

generating $191 billion in savings over 10 years. 

Half of all homeowners receive no benefit from the MID because they do not itemize 

their tax deductions. By converting MID to a credit, an additional 15 million homeowners—99% of whom have incomes under $100,000—who currently get no benefit 

under the MID would receive a much-needed tax break. In total, 25 million low and 

moderate income homeowners would receive a greater tax break than they currently 

do under the MID. Converting the deduction to a credit has been proposed by several high-level bipartisan groups—President George W. Bush’s Advisory Panel on 

Federal Tax Reform, the Simpson-Bowles Deficit Commission established by President Barack Obama, and the Bipartisan Policy Center’s Debt Reduction Task 

Force—as a way to expand the tax break to more low and moderate income homeowners. 

3. Reinvesting the $241 billion in savings over 10 years into affordable 

rental homes for families with the greatest, clearest housing needs. 

The UFH reforms would generate $241 billion in savings over 10 years 19 to be reinvested into highly targeted rental housing programs that serve families with the 

greatest needs, including the national Housing Trust Fund (HTF), a new renters’ 

credit, Housing Choice Vouchers, and other solutions for the lowest income people. 

National Housing Trust Fund 

The national Housing Trust Fund is the first new housing resource in a generation, 

targeted to build, preserve, and rehabilitate housing for people with the lowest incomes. 

NLIHC led a national coalition that played a critical role in the creation of the 

Housing Trust Fund through the passage of the Housing and Economic Recovery 

Act of 2008. In 2016, the first $174 million in Housing Trust Fund dollars were alloVerDate Sep 11 2014 20:17 Jul 27, 2018 Jkt 000000 PO 00000 Frm 00129 Fmt 6601 Sfmt 6621 R:\DOCS\30902.000 TIM
126 

20 CBPP proposal: Sard, Barbara and Will Fischer. ‘‘Renters’ Tax Credit Would Promote Equity and Advance Balanced Housing Policy.’’ Center on Budget and Policy Priorities. August 21, 

2013. https://www.cbpp.org/research/housing/renters-tax-credit-would-promote-equity-and-advance-balanced-housing-policy. Last visited July 28, 2017. 

Terner Center proposal: Galante, Carol et al. ‘‘The Fair Tax Credit: A Proposal for a Federal 

Assistance in Rental Credit to Support Low-Income Renters.’’ UC Berkeley Terner Center for 

Housing Innovation. November 2016. http://ternercenter.berkeley.edu/fair-tax-credit. Last visited July 28, 2017. 

cated to states. This is an important step, but far more resources are necessary to 

meet the need. 

The Housing Trust Fund is the only federal housing program exclusively focused on 

providing states with resources targeted to serve households with the clearest, most 

acute housing needs. Because the Housing Trust Fund is administered by HUD as 

a block grant, each state has the flexibility to decide how to best use Housing Trust 

Fund resources to address its most pressing housing needs. Each state distributes 

the resources based on its annual Allocation Plan, which identifies the state’s priority housing needs. States decide which housing developments to support. 

The Housing Trust Fund is also the most targeted federal rental housing production 

and homeownership program. By law, at least 75% of Housing Trust Fund dollars 

used to support rental housing must serve extremely low income (ELI) households 

earning no more than 30% of the Area Median Income (AMI) or the federal poverty 

limit. All Housing Trust Fund dollars must benefit households with very low incomes earning no more than 50% of AMI. Most other federal affordable housing programs can serve families up to 60% or 80% of AMI. The statute requires that at 

least 90% of the HTF funds be used for the production, preservation, rehabilitation, 

or operation of rental housing. Up to 10% may be used for homeownership activities 

for first-time homebuyers: production, preservation, and rehabilitation, and down 

payment, closing cost, and interest rate buy-down assistance. 

Currently, the Housing Trust Fund is funded with dedicated sources of revenue outside of the appropriations process. The initial source of funding designated in the 

statute is an annual assessment of 4.2 basis points (0.042%) of the volume of business of Freddie Mac and Fannie Mae, 65% of which goes to the Housing Trust Fund. 

The statute also provides that the Housing Trust Fund can be funded by other 

sources of revenue, such as any appropriations, transfers, or credits that Congress 

may designate in the future. However, the Housing Trust Fund should be funded 

with dedicated revenues generated outside of the appropriations process so that it 

does not compete with existing HUD programs. 

Renters’ Credit 

NLIHC supports proposals to establish a tax credit to help make housing affordable 

for renters with the lowest incomes.20 Our nation has long provided mortgage tax 

relief for higher income homeowners, most of whom would be stably housed without 

assistance. A renters’ tax credit that could help ensure that the lowest income 

households can afford a safe, decent home is long overdue. 

A renters’ tax credit could complement the existing Low-Income Housing Tax Credit—which works well as a subsidy for affordable housing development, but is rarely 

sufficient on its own to push rents down to levels poor families can pay—and rental 

assistance programs, such as Housing Choice Vouchers—which are highly effective, 

but reach only a modest share of the families in need of such assistance. Any renters’ credit should benefit individuals with the lowest incomes and the greatest 

needs. Efforts to ensure that extremely low income households do not pay more than 

30% of their incomes on housing should be prioritized. 

Proposals to establish a renters’ tax credit offer a promising opportunity to address 

the affordable housing challenges of the many lowest income households who go 

without assistance and to help these families keep more of their incomes for other 

necessities. 

Housing Choice Vouchers 

Housing Choice Vouchers are a proven tool in reducing homelessness and housing 

insecurity, as well as helping families climb the economic ladder. Housing vouchers 

help people with the lowest incomes afford housing in the private market by paying 

landlords the difference between what a household can afford to pay in rent and 

the rent itself, up to a reasonable amount. Administered by HUD, housing vouchers 

comprise the agency’s largest rental assistance program, assisting more than 2.2 

million households. 

127 

21McLaughlin, Ralph. ‘‘How the Trump Administration’s Tax Plan Might Impact Homebuying.’’ May 16, 2017. https://www.trulia.com/blog/trends/trump-tax-proposal-may-17/. Last 

visited July 28, 2017. 22 Ventry, Dennis J., Jr. ‘‘The Hill: Trump’s Tax Plan Can Boost, Not Reduce, Homeownership.’’ United for Homes. May 23, 2017. http://www.unitedforhomes.org/news/hill-trumps-taxplan-can-boost-not-reduce-homeownership/. Last visited July 28. 2017. 23 Ventry, Dennis J., Jr. ‘‘The Hill: Trump’s Tax Plan Can Boost, Not Reduce, Homeownership.’’ United for Homes. May 23, 2017. http://www.unitedforhomes.org/news/hill-trumps-taxplan-can-boost-not-reduce-homeownership/. Last visited July 28, 2017. 

Despite the program’s proven success in ending homelessness and reducing housing 

insecurity, limited funding means that relatively few eligible families receive this 

needed assistance. Today, just one in four eligible families receives the rental assistance they need. 

Given the program’s effectiveness, we recommend that Congress significantly expand housing vouchers to provide families in need with housing choice. While housing vouchers offer families the prospect of moving to areas of opportunity, barriers 

to mobility prevent many from doing so. Many private-sector landlords refuse to accept housing vouchers—whether because of the administrative costs, because vouchers do not cover the full cost of rent in high-cost areas, or outright discrimination. 

There are a number of steps that can be taken to address these issues, including 

consolidating public housing authorities’ administration of vouchers within a housing market, directing HUD to adopt small area fair market rents (SAFMRs) with 

strong tenant protections, barring source-of-income discrimination, and funding mobility counseling pilot programs, among others. 

Proposals to Double the Standard Tax Deduction 

President Trump’s broad principles for tax reform includes indirect changes to the 

MID, including a proposal to double the standard deduction. 

If the standard deduction were doubled, many households would no longer claim the 

MID and instead would take the increased standard deduction. This change in the 

tax code could provide a greater tax break to many low- and moderate-income 

households and could lead to higher homeownership rates over the long-term. 

However, without additional reforms, Mr. Trump’s proposal would amplify the 

MID’s regressive effect; only higher income Americans with the largest mortgages 

would benefit. NLIHC agrees with the Wall Street Journal editorial board that if 

Congress doubles the standard deduction, it should also embrace other reforms to 

make MID less regressive—like reducing the amount of mortgage eligible for the 

MID from $1 million to the first $500,000. The savings from such a change must 

be reinvested into deeply targeted affordable rental housing. 

Doubling the Standard Deduction Could Boost Homeownership Rates and 

Home Values 

Economists argue that doubling the standard deduction could boost homeownership 

rates over the long-term. Trulia’s Chief Economist Ralph McLaughlin states, ‘‘While 

the tax benefits of homeownership will erode for some, it might help increase the 

ability of renters to save up for the all elusive down payment. In turn, this could 

boost home buying activity in the long run.’’21

Dennis Ventry from the American Enterprise Institute likewise suggests that doubling the standard deduction would increase demand for homeownership, especially 

among low and moderate income families because the proposal ‘‘subsidizes taxpayers on the margin between owning and renting rather than taxpayers who can 

purchase a home with or without a subsidy.’’22 Millions of current homeowners 

would see a greater tax break and so would first-time homeowners eager to jump 

into the homeownership market. 

Some industry groups have warned that doubling the standard deduction could 

dampen home values—a claim that experts dispute. While Ventry concedes that 

home prices may decrease initially, this effect would be temporary and would be 

outweighed by a longer-term increase in the demand for homeownership: ‘‘Positive 

effects on homeownership rates from lower home prices would more than offset negative effects from loss of the deductions, particularly in high-priced, spaceconstricted markets.’’ Ventry argues that, in most parts of the country, doubling the 

standard tax deduction would ‘‘have no negative effect on prices and might even 

raise prices due to the purchasing power of the new tax-free dollars.’’23

128 

24Gopal, Prashant and Joe Light. ‘‘25 Million Americans Could Find Mortgage Tax Break 

Useless Under Trump’s Plan.’’ Bloomberg. May 16, 2017. https://www.bloomberg.com/news/articles/2017-05-16/trump-tax-plan-would-make-mortgage-break-worthless-for-millions. Last visited July 28, 2017. 25Gopal, Prashant and Joe Light. ‘‘Trump Tax Proposal Would Make Mortgage Deduction 

Useless for Most Homeowners.’’ The Seattle Times. May 16, 2017. http://www.seattletimes.com/ 

business/real-estate/trump-tax-proposal-would-make-mortgage-deduction-useless-for-most-homeowners/. Last visited July 28, 2017. 1 NMHC tabulations of American Housing Survey microdata (1985–2015). 

Additional Reforms Are Needed if Congress Doubles Standard Deduction 

Today, about 70% of taxpayers do not benefit from the MID. This includes half of 

all homeowners who do not itemize their tax deductions. The National Association 

of Realtors estimates that if the standard deduction is doubled, as proposed by 

President Trump, 95% of taxpayers will choose to take the standard deduction. The 

higher standard deduction would provide them with a greater tax break than 

itemizing their tax deductions. As a result, only 5% of taxpayers—primarily higher 

income households with the largest mortgages would continue to claim the MID.24

Prashant Gopal and Joe Light estimate that a married couple would need a mortgage of at least $608,000 before it would make sense to itemize rather than use the 

standard deduction, assuming that the couple did not have any other itemizable deductions, which was proposed by the Trump administration.25 Only higher income 

Americans—those who would likely become homeowners without a tax break and 

who would likely have stable housing without federal assistance—would benefit 

from the MID. 

Because the resulting MID would become even more regressive after the standard 

deduction was doubled, Congress should pair any proposal to double the standard 

deduction with additional MID reforms, including reducing the amount of mortgage 

eligible for the MID from $1 million to the first $500,000 and reinvesting the savings into deeply targeted affordable rental housing. 

NATIONAL MULTIFAMILY HOUSING COUNCIL (NMHC) AND

NATIONAL APARTMENT ASSOCIATION (NAA) 

1775 Eye St., NW, Suite 1100 

Washington, DC 20006 

202–974–2300 

https://weareapartments.org/ 

The National Multifamily Housing Council (NMHC) and the National Apartment 

Association (NAA) respectfully submit this statement for the record for the Senate 

Finance Committee’s August 1, 2017, hearing titled ‘‘America’s Affordable Housing 

Crisis: Challenges and Solutions.’’ 

For more than 20 years, the National Multifamily Housing Council (NMHC) and the 

National Apartment Association (NAA) have partnered in a joint legislative program 

to provide a single voice for America’s apartment industry. Our combined memberships are engaged in all aspects of the apartment industry, including ownership, development, management and finance. NMHC represents the principal officers of the 

apartment industry’s largest and most prominent firms. As a federation of more 

than 160 state and local affiliates, NAA encompasses over 73,000 members representing nearly 9 million apartment homes globally. 

Rental Housing—The Supply-Demand Imbalance 

Housing affordability is a significant challenge facing many Americans today who 

seek to rent an apartment home. The number of families renting their homes stands 

at an all-time high and is still growing strongly, placing significant pressure on the 

apartment industry to meet the demand. This is making it challenging for millions 

of families nationwide to find quality rental housing that is affordable at their income level. 

Affordability has been a longstanding problem in housing. The total share of costburdened apartment households (those paying more than 30 percent of their income 

on housing) increased steadily from 42.4 percent in 1985 to 54.8 percent in 2015. 

Also during this period, the total share of severely cost-burdened apartment households (those paying more than half their income on housing) increased from 20.9 

to 29.2 percent.1 This housing cost burden also places pressure on a household’s 

129 

2 NMHC calculation based on U.S. Census Bureau, Survey of Market Absorption Detailed Tables, Table 2. 3 U.S. Census Bureau, Current Population Survey, 2015 and 2016 Annual Social and Economic Supplements. 4 NMHC tabulations of American Community Survey and Current Population Survey microdata. 5MPF Research. 

6 2015 Current Population Survey, Annual Social and Economic Supplement, U.S. Census Bureau, ‘‘America’s Families and Living Arrangements: 2015: Households’’ (H table series), table 

H3/Family groups (FG series), table FG6. 7 Annual Estimates of the Resident Population by Single Year of Age and Sex for the United 

States: April 1, 2010 to July 1, 2015, U.S. Census Bureau. Baby Boomers are defined as those 

born 1946 through 1964. 8 NMHC tabulations of 2016 Current Population Survey, Annual Social and Economic Supplement, U.S. Census Bureau. 9 Hoyt Advisory Services, Dinn Focused Marketing, Inc., and Whitegate Real Estate Advisors, 

LLC, U.S. Apartment Demand—A Forward Look, May 2017, p. 38. 10 NMHC tabulations of 2016 Current Population Survey, Annual Social and Economic Supplement, U.S. Census Bureau. 

ability to pay for basic necessities, including food and transportation, and ultimately 

impacts their future financial success. 

This issue is not unique to households receiving federal subsidies and, in fact, is 

encroaching on the financial well-being of households earning up to 120 percent of 

area median income. Consider that the median asking rent for an apartment constructed in 2015 was $1,396. For a renter to afford one of those units at the 30 percent of income standard, they would need to earn at least $55,840 annually.2 As a 

basis of comparison, the median household income in 2015 was $56,516.3 Accordingly, this is an issue also impacting those supporting the very fabric of communities nationwide, including teachers, firefighters, nurses and police officers. 

Setting aside that real (inflation-adjusted) incomes in the U.S. have been stagnant 

for the past three decades—clearly the key factor driving the affordability crisis— 

housing industry leaders agree that promoting construction, preservation and rehabilitation are three of the vital ways to meet the surging demand for apartment 

homes. 

Changing Housing Dynamics 

The U.S. is in the midst of a fundamental shift in our housing dynamics as changing demographics and housing preferences drive more people toward renting as 

their housing of choice. Today, demand for apartments is at unprecedented levels 

as the number of renters has reached an all-time high. Since 2010, the number of 

renter households has increased by an average of more than 800,000 annually—almost as much as 1.2 million a year, by some measures.4 Meanwhile, apartment vacancy rates as measured by MPF Research fell or remained the same for 7 straight 

years from 2009 to 2016.5

Changing demographics are driving the demand for apartments. Married couples 

with children now represent only 19 percent of households. Single-person households (28 percent), single parent households (9 percent) and roommates (7 percent) 

collectively account for 43 percent of all households, and these households are more 

likely to rent.6 Moreover, the surge toward rental housing cuts across generations. 

In fact, nearly 73 million Baby Boomers (those born between 1946 and 1964), as 

well as other empty nesters, have the option of downsizing as their children leave 

the house and many will choose the convenience of renting.7 Over half (58.6 percent) 

of the net increase in renter households from 2006 to 2016 came from householders 

45 years or older.8

Unfortunately, the supply of new apartments is falling well short of demand. Justreleased research by Hoyt Advisory Services, Dinn Focused Marketing, Inc. and 

Whitegate Real Estate Advisors, LLC, U.S. Apartment Demand—A Forward Look, 

commissioned by NMHC/NAA shows that the nation will need 4.6 million new 

apartments by 2030, or an average of 328,000 units a year.9 Just 244,000 apartments were delivered from 2012–2016.10

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Building more apartment homes will help improve the supply-demand imbalance 

that drives these affordability challenges, but developers and localities must work 

together to remove obstacles to development. Even if local officials and planning 

boards agree that new, affordable apartments must be built, land costs, entitlement 

expenditures, labor expenses, building materials and property taxes all contribute 

to making their construction extremely costly. 

Why Are Rents so High? 

As the discussion above demonstrates, the nation faces a significant shortage of affordable rental housing. Addressing this challenge will require new development 

and the preservation and rehabilitation of the existing housing stock. Barriers to 

these activities, described below, only serve to slow down the market response to 

our housing supply challenges. Before discussing these barriers, however, it is 

worthwhile to assess the reasons why Americans are facing high rents and why 

there is too little available rental housing that is affordable. 

First and foremost, America’s housing affordability issue is more than just a housing problem. It is not only that rental housing has gotten more expensive to produce 

and operate, but also that other economic factors have suppressed household income 

growth. On an inflation-adjusted basis, median renter household income today is little changed from its 1980 level. 

Because income stagnation is such a significant part of the equation, simply building more housing cannot be the sole solution to this affordable housing shortage. 

In fact, in many markets where demand is strongest, even if, hypothetically, developers agreed to take no profit, the cost to build still exceeds what people can afford 

to pay. 

Second, today’s strong rent growth is a temporary situation in what is a highly cyclical market driven by factors largely outside of the industry’s control. For example, 

the collapse of the U.S. financial markets in 2008 virtually shut down new apartment construction for a number of years, severely constricting supply right at a time 

when rental demand surged to levels not seen for decades. Development is only now 

beginning to meet the annual increase in apartment demand. 

Finally, as mentioned above, apartment construction has increased. As new units 

are delivered, rent growth will moderate. That said, even with more apartments in 

the pipeline, construction activity remains, at best, at the low end of the level needed to make up for supply deficits in previous years. Many non-financial obstacles 

to new development continue to stifle new construction and raise the costs of those 

properties that do get built, contributing to higher rents for our residents. Many of 

these are imposed by localities and have to be addressed by those jurisdictions. 

Barriers to Multifamily Development 

Developing real estate, whether it is multifamily, single-family or commercial, is difficult. Production of any kind has its natural barriers. Those are, for the most part, 

objective barriers that can, and often do, fluctuate, but are predictable enough to 

still meet a pro forma. Multifamily however, brings with it a level of entitlement 


080117.007
131 

subjectivity layered on top of these common barriers and is much more difficult to 

predict. 

Plainly stated, many municipalities have a development preference that works 

against multifamily housing production. Multifamily development often faces stiff 

community resistance, competes with other forms of real estate that produce sales 

tax revenue desired by municipalities, and is subject to increasing regulatory barriers. 

Community resistance to proposed multifamily developments typically takes the 

form of organized community resistance efforts commonly known as ‘‘Not In My 

Back Yard’’ or NIMBY. The narrative of NIMBY typically focuses on a handful of 

themes outside of the normal zoning approval process, including: 

➢ Traffic impact; 

➢ Homeowner property values; 

➢ School overcrowding; and 

➢ Community character. 

There is also a revenue subjectivity often found at the municipal level when it 

comes to multifamily versus other forms of real estate. Local governments faced 

with the annual task of balancing budgets feel obligated to derive as much tax revenue as possible from scarce developable land. This places multifamily in stiff competition with commercial real estate developments that produce sales tax revenue. 

All these factors contribute to the uncertainty of any multifamily development. In 

a speech before the Urban Institute in November 2015, Jason Furman, then chairman of The White House Council of Economic Advisers for President Obama, said 

that the U.S. could build a lot more apartments, but noted ‘‘multifamily housing 

units are the form of housing supply that is most often the target of regulation.’’ 

As an industry, we agree with this assessment. 

Below is a brief summary of the most notable barriers to development within several broad categories: location, time, bureaucracy, cost and environmental assessment. Also included is a brief review of affordability mandates, which can actually 

depress development of new multifamily homes. 

Location 

➢ Land Cost: In an attractive market—take any major metropolitan area as an 

example—land can account for a significant portion of total development costs. 

This cost increase can stretch or stress other financial assumptions and, in 

some extreme cases, even make the property impossible right out of the gate. 

➢ Zoning Laws: Zoning laws impact what is permitted to be built at a site. In 

some places, zoning requirements can make it extremely difficult to build new 

multifamily housing. Changing zoning can be onerous and expensive if it is 

even possible. 

Time 

➢ Entitlements: The entitlement process, which covers approvals, zoning and 

nearly everything in between, is an amalgam of outright costs, additional fees, 

land-use regulation and code compliance. During the navigation of this oftenlengthy process, an apartment developer bears both direct and indirect costs 

with no assurance of a successful outcome. The long lead time and significant 

upfront investment required to obtain entitlement on land is leading some investors to rethink continued interest in multifamily development. Reduced investor demand for multifamily development may lead to fewer units delivered 

in the future and increased cost per unit delivered as remaining investor capital becomes scarce. 

Bureaucracy 

➢ Regulations: Like all of real estate, the apartment industry is governed by 

a flood of regulations issued by many diverse federal agencies, as well as state 

and local governments. Excessive regulation and compliance uncertainty results in costly mandates that divert resources from the production and operation of multifamily housing. 

Regulations must have demonstrable benefits that justify the cost of compliance, and federal agencies should be aware that broad-stroke regulations often 

have disproportionate effects on various industries. Therefore, those rules and 

regulations affecting housing should reflect the industry’s diverse business and 

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operational structure and must rely on the latest scientific and/or economic 

evidence. 

Cost 

➢ Construction Costs: The cost of construction in terms of labor and materials 

is a critical component to the cost of building apartments. Depending upon 

market and materials used, these have a significant impact on the viability of 

a given project. 

➢ Cost of Capital: New regulatory regimes, such as Dodd-Frank and Basel III, 

are making access to capital more difficult and costlier. Increased capital requirements and conflicting new regulations are driving up the cost of borrowing from banks, as well as constricting lending in certain markets. 

➢ Labor Costs: Federal building programs, as well as some state level programs, require the use of prevailing Davis-Bacon wages that have proven to 

be difficult to manage, complex to accurately incorporate in preliminary planning and often do not reflect the going market. Additionally, as a result of the 

economic downturn, skilled labor migrated away from the construction industry, producing an environment today where wages have increased well in excess of inflation, which directly impacts the cost of development. 

➢ Impact Fees: Impact fees are payments required of new development by local 

governments to providing new or expanded public capital facilities required to 

serve that development. These fees typically require cash payments in advance 

of the completion of development, are based on a methodology and calculation 

derived from the cost of the facility and the nature and size of the development, and are used to finance improvements offsite from, but to the benefit 

of, the development. 

➢ Linkage Fees: A linkage fee is assessed on a development to pay for the cost 

of providing a public service. These fees are attributed to select developments 

to pay for a benefit deemed outside of what is recovered from property taxes. 

➢ Business License Taxes: These are additional municipal taxes assessed on 

property owners that are not assessed on other forms of housing. They are 

used to justify the cost of impacts not covered by property tax assessments. 

➢ Assessment and Inspection Fees: These are additional municipal fees assessed on property owners to inspect rental housing for habitability. While 

these fees are often assessed annually, the rental housing communities often 

do not realize additional benefits reflecting the cost. 

➢ Parking Space Requirements: The requirement to build or offer parking 

spaces, especially in urban settings, can significantly impact site use and cost. 

Environmental Assessment 

➢ Environmental Site Assessment: An environmental site assessment is a report that identifies potential or existing environmental contamination liabilities. In many local jurisdictions, each development site requires an environmental site assessment, the results of which could require costly remediation 

and/or project reconfiguration. Additionally, these assessments have been used 

by development opponents to frustrate planning and can serve to severely 

hamper or defeat the entitlement process. 

Affordability Mandates 

➢ Rent Control: There are various forms of rent control outside of the traditional version that most are accustomed to seeing: a rent control board that 

sets maximum rent for a unit or the maximum amount that rent can be raised 

annually. Rent control, in this context, is any mechanism that obligates a property owner to set rental rates for all or a portion of the units on a property. 

In any form, this policy works as a disincentive to investing and developing 

the diversity of housing units that a community requires. There are alternatives to rent control, such as mandatory inclusionary zoning, that take 

slightly different approaches but have the same effect. 

➢ Mandatory Inclusionary Zoning: Mandatory inclusionary zoning refers to 

municipal and county planning ordinances that require a given share of new 

construction to be affordable to people with low to moderate incomes without 

an investment from the municipality. It is normally a condition of approval of 

the development. Depending on the requirements, the overall feasibility of a 

project could be threatened. 

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Bottom Line for Policymakers 

The bottom line is that policymakers at all levels of government must recognize that 

addressing local housing affordability needs requires a partnership between government and the private sector. Municipalities have the difficult task of trying to most 

efficiently manage their resources to the greatest benefit of their constituents, often 

challenged with balancing shrinking budgets and growing needs. However, local 

governments also have a tool box of approaches they can take to support affordable 

housing production. They can do this by incentivizing for-profit entities to produce 

the necessary multifamily units at a price point that households can afford. 

Municipalities can defer taxes and other fees for a set period of time to help the 

developer reduce the price point. They also own tangible assets—buildings, raw land 

and entitled parcels—some of which can be leveraged to bring down the cost of construction or redevelopment. Finally, they can help streamline the development and 

approval processes with fast-tracking programs. 

As is outlined in the following section, however, the Federal Government also has 

a key role to play. When both the public and private sides bring all their tools and 

assets into play, there will be a greater likelihood of finding viable solutions to meet 

our rental housing challenges. 

Key Federal Solutions to the Nation’s Housing Challenges 

The nation’s challenge is to reduce the barriers and obstacles that inhibit the expansion of the housing stock. While the preceding section made it clear that new construction is often impeded at the local level, there are federal solutions that may 

be beneficial as well. At NMHC/NAA, we believe the solution at the federal level 

requires a three-pronged answer of new development, preservation and rehabilitation: 

1. New development is absolutely critical to address the scarcity of units 

available for the population of Americans whose household incomes 

are below the average for their areas—and the one receiving much of 

attention and criticism. 

2. Preservation means ensuring that the financing and subsidy programs 

that currently keep units available at below market rents continue to 

be there in the future, providing some degree of certainty in the affordable housing market. 

3. Rehabilitation is vital because it can keep existing apartment stock 

from dwindling further. 

Federal Initiatives and Programs Vital to Addressing Affordability 

Congress should play an integral role in addressing housing affordability. The Senate Finance Committee has jurisdiction over the Low-Income Housing Tax Credit 

(LIHTC), the nation’s singular tool for developing new affordable housing. The Finance Committee is currently also keenly focused on tax reform. In the sections 

below, NMHC/NAA make recommendations with regard to both the LIHTC and tax 

reform. We also then examine programs outside of the Finance Committee’s jurisdiction. 

Programs Within the Finance Committee’s Jurisdiction 

Expand and Enhance the Low-Income Housing Tax Credit (LIHTC) and 

Enact the Middle-Income Housing Tax Credit (MIHTC) to Support Workforce 

Housing 

The Low-Income Housing Tax Credit (LIHTC) has a long history of successfully generating the capital needed to produce low-income housing while also enjoying broad 

bipartisan support in Congress. This public/private partnership program has led to 

the construction of nearly 3 million units since its inception in 1986. It is the nation’s principal driver of new affordable housing. 

The LIHTC program also allocates units to low-income residents while helping to 

boost the economy. According to a December 2014 Department of Housing using and 

Urban Development study, Understanding Whom the LIHTC Program Serves: Tenants in LIHTC Units as of December 31, 2012, the median Income of a household 

residing in a LIHTC unit was $17,066 with just under two-thirds of residents earnVerDate Sep 11 2014 20:17 Jul 27, 2018 Jkt 000000 PO 00000 Frm 00137 Fmt 6601 Sfmt 6621 R:\DOCS\30902.000 TIM
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11Department of Housing and Urban Development, ‘‘Understanding Whom the LIHTC Program Serves: Tenants in LIHTC Units as of December 31, 2012,’’ December 2014, p. 23. 12 Robert Dietz, The Economic Impact of the Affordable Housing Credit, National Association 

of Home Builders, Eye on Housing, July 15, 2014. http://eyeonhousing.org/2014/07/the-economic-impact-of-the-affordable-housing-credit/. 13 NMHC tabulations of 2015 American Community Survey public use microdata, IPUMS– 

USA, University of Minnesota, www.ipums.org. 

ing 40 percent or less of area median income.11 Finally, the National Association 

of Home Builders reports that, in a typical year, LIHTC development supports approximately: 95,700 jobs; $3.5 billion in federal, state and local taxes; and $9.1 billion in wages and business income.12

Maintaining and bolstering the LIHTC’s ability to both construct and rehab affordable housing is critical given acute supply shortages. Indeed, the Harvard Joint 

Center for Housing Studies estimated that there were only 45 affordable units for 

every 100 very low-income households (those earning up to 50 percent of area median income) in the United States in 2015.13

First and foremost, Congress should retain the LIHTC as part of any tax 

reform legislation. In so doing, Congress must take care to offset any reduction 

in equity LIHTC could raise attributable to a reduction in the corporate tax rate. 

Furthermore, NMHC/NAA reminds Congress that tax-exempt private activity multifamily housing bonds are often paired with 4 percent tax credits to finance multifamily development, and that such tax-exempt bonds should be retained in any tax 

reform legislation as they play a critical role in making deals viable to investors. 

Second, Congress should also look to strengthen the credit by both increasing program resources so that additional units can be developed or redeveloped and making targeted improvements to the program to improve its 

efficiency. Congress could increase program authority by allocating additional tax 

credits. Further, program rules should be adjusted that require owners to either 

rent 40 percent of their units to households earning no more than 60 percent of area 

median income (AMI) or 20 percent to those earning no more than 50 percent of 

AMI. If program rules were revised to allow owners to reserve 40 percent of the 

units for people whose average income is below 60 percent of AMI, it could serve 

a wider array of households. 

In this regard, the multifamily industry strongly supports the Affordable 

Housing Credit Improvement Act of 2017 (S. 548) and commends Senator 

Cantwell and Chairman Hatch for its introduction. We also thank Finance 

Committee Senators Wyden, Bennet, Heller, Isakson and Portman for their cosponsorship. This legislation, which would increase tax credit allocations by 5.0 percent, 

would enable LIHTC to help build or preserve 1.3 million units over 10 years, 

400,000 more units than is possible under current law. The measure also includes 

the income averaging proposal. 

Finally, we would also urge the Committee to strongly consider the MiddleIncome Housing Tax Credit Act of 2016 (S. 3384) that Ranking Member 

Wyden introduced during the 114th Congress to address the shortage of 

workforce housing available to American households. A worthy complement 

of measures to expand and improve LIHTC, the Middle-Income Housing Tax Credit 

(MIHTC) takes over where LIHTC leaves off. LIHTC is currently designed to serve 

populations of up to 60 percent of area median income. MIHTC is designed to benefit populations earning below 100 percent of area median income. In fact, approximately 40 percent of renter households earning between $35,000 and $49,999 were 

cost burdened in 2015. This population is exactly the one Ranking Member Wyden’s 

legislation would serve. 

Tax Reform Must Not Disrupt the Industry’s Ability to Construct and Operate Housing Across All Income Levels 

Congress is rightly continuing to develop proposals to reform the nation’s overly 

complex tax code to foster economic competitiveness and economic growth. That 

said, much is potentially at stake for the apartment industry and its ability to meet 

the nation’s multifamily housing needs given that apartment firms pay tax when 

they build, operate, sell or transfer communities to their heirs. We believe that any 

tax reform legislation should not disrupt the industry’s ability to construct and operate affordable and, workforce housing and, therefore, must: 

➢ Protect Flow-Through Entities. The multifamily industry is dominated by 

‘‘flow-through’’ entities (e.g., LLCs, partnerships, S Corporations, etc.) instead 

135 

of publicly held corporations. This means that the company’s earnings are 

passed through to the partners who pay taxes on their share of the earnings 

on their individual tax returns. Accordingly, Congress must not reduce corporate tax rates financed by forcing flow-through entities to pay higher taxes 

through subjecting them to a corporate-level tax or by denying credits and deductions. 

➢ Maintain Like-Kind Exchanges. Like-kind exchange rules enable property 

owners to defer capital gains tax if, instead of selling their property, they exchange it for another comparable property. These rules encourage property 

owners to remain invested in the real estate market while providing them with 

the flexibility to shift resources to more productive properties, different geographic locations or to diversify or consolidate holdings. Any proposal to revise 

or restrict like-kind exchanges may have a significantly harmful effect on the 

value and trading of property. As a result, Congress should not change present 

law. 

➢ Ensure Depreciation Rules Avoid Harming Real Estate. Cost recovery 

rules should reflect the life of properties. Depreciation periods that overstate 

economic lives would reduce development and investment, leading to lower real 

estate values and stifling the industry’s role in job creation. Tax reform should 

reflect the critical role cost recovery plays in our ability to create new jobs. 

➢ Retain the Deduction for Business Interest. Efforts to prevent companies 

from overleveraging are leading to calls to scale back the current deduction for 

business interest expenses. Unfortunately, reducing this deductibility would 

greatly increase the cost of debt financing necessary for large-scale projects, 

curbing development activity when the nation is suffering from a shortage of 

apartment homes. 

Programs Outside of the Finance Committee’s Jurisdiction 

GSE Reform 

While outside of the Finance Committee’s purview, the first and foremost priority 

to addressing housing affordability is getting multifamily right in housing finance 

reform and recognizing its unique characteristics; it is the single most important 

factor to ensuring that the apartment industry can meet the nation’s growing rental 

housing demand. 

The very successful multifamily programs of the Government-Sponsored Enterprises 

(GSEs), Fannie Mae and Freddie Mac, were not part of the 2008 financial meltdown 

and have actually generated over $26 billion in net profits since the two firms were 

placed into conservatorship. Preservation of the mortgage liquidity currently provided by the GSEs in all markets during all economic cycles is critical. NMHC/NAA 

urge lawmakers to recognize the unique needs of the multifamily industry. 

We believe the goals of a reformed housing finance system should be to: 

➢ Maintain an explicit federal guarantee for multifamily-backed mortgage 

securities available in all markets at all times; 

➢ Ensure that the multifamily sector is treated in a way that recognizes the 

inherent differences of the multifamily business; and 

➢ Retain the successful components of the existing multifamily programs in 

whatever succeeds them. 

These principles can be achieved through a reformed structure that preserves the 

high quality and value of the current multifamily secondary mortgage market’s activities. 

Multifamily Federal Housing Administration (FHA) Programs 

FHA Multifamily is best known for offering an alternative source of construction 

debt to developers that supplements bank and other private construction capital 

sources. It also serves borrowers with long-term investment goals as the only capital 

provider to offer 35–40 year loan terms. FHA lending is essential to borrowers in 

secondary markets, borrowers with smaller balance sheets, new development entities, affordable housing developers and non-profit firms, all of which are often overlooked or underserved by private capital providers. 

It is important to the apartment industry that FHA continues to be a credible and 

reliable source of construction and mortgage debt. FHA not only insures mortgages, 

but it also builds capacity in the market, providing developers with an effective 

source of construction and long-term mortgage capital. The FHA Multifamily ProVerDate Sep 11 2014 20:17 Jul 27, 2018 Jkt 000000 PO 00000 Frm 00139 Fmt 6601 Sfmt 6621 R:\DOCS\30902.000 TIM
136 

grams provide a material and important source of capital for underserved segments 

of the rental market, and do so while maintaining consistently high loan performance standards. NMHC/NAA encourage Congress to continue funding FHA’s Multifamily Programs. 

Finally, we believe a special note is warranted regarding the 221(d)(4) program. Providing flexible loan terms, is beneficial in supporting the development of workforce 

and affordable housing. However, we note that the program includes a bevy of restrictions, including loan size, allowable prevailing Davis-Bacon wage requirements, 

and other associated fees and disbursement restrictions. We ask to have a dialogue 

with Congress regarding feasible ways to make modest modifications to this program to make it even more effective in encouraging the production of workforce and 

affordable housing. 

Funding for Affordable Housing Programs 

Housing costs continue to grow, demand for rental housing continues to escalate, 

but incomes for many low-income families remain stagnant. Given these realities, 

demand for subsidized affordable housing has increased dramatically through the 

economic crisis and into the recovery years since, However, federal funding for the 

primary programs serving low income households has been virtually flat or declining. 

Programs like Tenant Based Section 8 and Project Based Rental Assistance allow 

low income families to rent market rate housing, taking advantage of the broad offering of privately owned and operated properties in a given market. Meanwhile, 

programs like HOME and CDBG allow developers to address financing shortfalls 

often associated with affordable housing properties, and stimulate meaningful development and preservation activity as a result. To address housing affordability challenges for all Americans, across the income spectrum, adequate funding for these 

programs is essential. 

Section 8 Housing Choice Voucher Program 

This public-private partnership has the potential to be one of the most effective 

means of addressing our nation’s affordable housing needs and supporting mixedincome communities. However, the program’s potential success is limited by too 

many inefficient and duplicative requirements, which discourage private providers 

from accepting vouchers. These include a required three-way lease between the provider, resident and the public housing authority; repetitive unit inspections; resident 

eligibility certification; and other regulatory paperwork. Collectively, these make it 

more expensive for a private owner to rent to a Section 8 voucher holder. 

It is also imperative for lawmakers to reinforce the voluntary nature of the program. 

Congress specifically made participation voluntary because of the regulatory burdens inherent in the program. However, state and local governments are enacting 

laws that make it illegal for a private owner to refuse to rent to a Section 8 voucher 

holder. Recent examples include ‘‘source of income discrimination’’ provisions passed 

by a number of cities. While often well intentioned, such mandates are self-defeating 

because they greatly diminish private-market investment and reduce the supply of 

affordable housing. 

Rental Assistance Demonstration (RAD) Program 

NMHC/NAA support RAD, which was established in 2011 as an affordable housing 

preservation strategy for public housing authorities (PHAs). The program allows 

PHAs to convert public housing properties at risk of obsolescence or underfunding 

into project-based vouchers or rental assistance contracts under the Section 8 program. Once the units are re-designated from public housing (Section 9 of the 1937 

Housing Act) to Section 8 housing, housing authorities are able to leverage private 

capital to address capital needs. This allows housing authorities to work with private sector developers and managers to preserve their affordable housing stock. 

RAD is designed to reverse the trend of lost affordable units by accessing private 

capital to make up for related funding shortfalls. 

Government-Supported Preferred Equity 

Investor equity for development transactions is the most expensive type of capital. 

Reducing the required return for this portion of capital would reduce the cost of developing multifamily units and could help spur the construction of additional workforce housing. NMHC/NAA would like to work with Congress on a plan that would 

enable a federal entity to provide developers with preferred equity to help offset the 

cost of workforce housing production. NMHC/NAA believe that such a program 

137 

could be integrated into the very successful multifamily programs run by Fannie 

Mae and Freddie Mac and implemented at minimal cost. 

Modifying the Community Reinvestment Act 

The CRA could be modified to include greater incentives for banks to provide loans 

for multifamily apartments that include workforce and affordable housing. CRA 

guidelines currently allow banks to obtain Community Development (CD) credit for 

multifamily units serving occupants with incomes of up to 80 percent of area median income. While this level captures a significant portion of workforce and affordable households, the rules themselves make it difficult to obtain the CD credit due 

to a requirement to report incomes, information that is not captured. 

Davis-Bacon Wage Determination 

Under current law, developers must adhere to Davis-Bacon wage rates for construction financed by federal dollars. Unfortunately, the Department of Labor’s methodology of determining these so-called prevailing wages suffers from structural defects 

related to the availability of data. For example, the methodology frequently produces wage rates that exceed prevailing market-based wages, which only exacerbates the cost of developing multifamily housing. NMHC/NAA request that Congress urge the Department of Labor to reexamine and modify its methodology. 

Conclusion 

In closing, NMHC/NAA look forward to working with the Finance Committee and 

the entire Congress to address the nation’s affordable workforce housing challenges. 

On behalf of the apartment industry and our 38.8 million residents, we stand ready 

to work with Congress to ensure that every American has a safe and decent place 

to call home at a price that enables individuals to afford life’s necessities. 

NATIONAL TRUST FOR HISTORIC PRESERVATION, NATIONAL TRUST COMMUNITY

INVESTMENT CORPORATION, AND HISTORIC TAX CREDIT COALITION

The Watergate Office Building 

2600 Virginia Avenue, NW, Suite 1100 

Washington. DC 20037 

E info@savingplaces.org P 202–588–6000 

F 202–588–6038 https://savingplaces.org/ 

The Honorable Orrin Hatch The Honorable Ron Wyden 

Chairman Ranking Member 

Committee on Finance Committee on Finance 

U.S. Senate U.S. Senate 

Washington, DC 20510 Washington, DC 20510 

Re: Affordable Housing Crisis: Challenges and Solutions 

Dear Chairman Hatch and Ranking Member Wyden: 

The National Trust for Historic Preservation (‘‘National Trust’’), the National Trust 

Community Investment Corporation (‘‘NTCIC’’), and the Historic Tax Credit Coalition (‘‘HTCC’’) are pleased to submit joint comments to the Senate Finance Committee noting the role the federal Historic Tax Credit (‘‘HTC’’) plays in the production of affordable housing for inclusion in the record for the hearing titled, ‘‘Affordable Housing Crisis: Challenges and Solutions’’ that occurred on August 1, 2017. 

The National Trust is a private, nonprofit organization chartered by Congress in 

1949 to facilitate public participation in the preservation of our nation’s heritage. 

With headquarters in Washington, DC, 9 field offices, 27 historic sites, more than 

1 million members and supporters, and a national network of partners in states, territories, and the District of Columbia, the National Trust works to save America’s 

historic places and advocates for historic preservation as a fundamental value in 

programs and policies at all levels of government. 

NTCIC is a wholly owned for-profit subsidiary of the National Trust and enables 

tax credit equity investments that support sustainable communities nationwide. 

NTCIC places qualified tax credits for federal and state historic (HTC), new markets 

(NMTC), solar (ITC) and low-income housing (LIHTC). Since its inception in 2000, 

NTCIC has provided tax credit financing of over $1 billion in capital for HTC, 

NMTC, ITC, and LIHTC investments for 142 transactions with over $4 billion in 

total development costs. 

138 

The HTCC is a nonprofit organization comprising 78 member firms including leading historic tax credit developers, investors, syndicators, tax attorneys, accountants 

and preservation consultants who came together in 2009 to advocate for the modernization of the HTC. It works to educate Congress, engage with the IRS and the 

National Park Service on regulatory issues and conduct research on the economic 

impact of the HTC. 

Communities throughout the nation demonstrate time and again the value of historic buildings and neighborhoods in community-strengthening efforts, whether it be 

producing homes for low-income residents or housing small businesses that are important to a neighborhoods economic vitality. Old and historic buildings are resources that already exist in many communities and can serve as a foundation for 

an area’s housing program. Rehabilitation and maintenance of existing building 

stock is a key factor in breaking the cycle of deterioration, disinvestment, and loss 

that reduces our affordable housing supply. Outlined below are several ways of analyzing the value the HTC adds to existing programs that seek to address the lack 

of affordable housing for too many Americans. 

Twinning the HTC With the Low-Income Housing Tax Credit (LIHTC) 

A primary way of measuring the impact the HTC has on the production of affordable housing is to examine data on how often the HTC and LIHTC are used together to make an affordable housing transaction feasible when the building is historic. According to the most recent National Council of State Housing Agencies 

(‘‘NCSHA’’) statistical report (2014), approximately 95,000 affordable units were 

completed that year with 5.5 percent of those transactions also utilizing the HTC. 

That equates to 5,525 affordable units created in historic buildings in 2014. 

While statistics on the types of historic properties that are repurposed as affordable 

housing are not readily available, we know anecdotally that many of these projects 

involve the rehabilitation of vacant historic schools. These schools are often located 

in the heart of their communities. The effect of rehabilitating historic schools into 

affordable housing, as one example, is not only that these residential units are in 

high demand because of their unique character, but also because of the memories 

that community residents have of attending these schools. Developers take advantage of these factors to market these properties to local residents while creating a 

sense of renewal and continuity for the surrounding communities. 

It is important to note that twinning the HTC with the LIHTC helps make historic 

affordable housing developments possible that likely would not occur using just one 

of the credits. If only the LIHTC were available, historic properties would likely be 

passed over or razed in favor of new construction, while if only the HTC were available, most of the housing in historic properties would be unaffordable to low-income 

families. Each tax credit advances an important public policy objective in its own 

right, but the ability to twin tax credits enables communities to preserve their heritage and provide needed affordable housing on the same property resulting in reduced NIMBY opposition. 

Rutgers University Research on the HTC and Affordable Housing Outcomes 

Another way of understanding the HTC’s impact on the nation’s affordable housing 

supply is to look the annual analysis conducted by Rutgers University Center for 

Urban Policy Research for the National Park Service. The FYI 6 report on the economic impact of the HTC indicates that over the life of the federal historic tax credit, roughly half of all HTC transactions produced housing. From 1978 through 2016, 

the HTC was used to create 549,005 housing units. Of the total units, 153,255, or 

28 percent, were affordable to low- and moderate-income families. Further, the 2017 

report reflects an increase in the number of affordable units created with HTC financing. Of the 21,139 housing units created utilizing the HTC in 2017, 7,181, or 

34 percent, were affordable. 

National Park Service Statistical Reports 

Another key source of information about the role of the HTC in producing affordable 

housing comes from NPS’s Statistical Reports. The above data indicates the average 

annual affordable housing production by the HTC is roughly 4,400 units over the 

past 39 years. However, this number is less than the NCSHA estimate of 5,525 for 

2014 alone, which only includes twinned HTC/LIHTC transactions. A look at the 

National Park Service’s statistical reports over the last 5 years shows that the 

amount of affordable housing units produced in buildings that utilize the HTC is 

trending up significantly. The NPS data is summarized in the graph below. 

139 

The graph indicates that annual affordable housing units associated with the HTC 

is now in the 7,000–8,000 range. Some of these units result from combining the 

HTC and LIHTC. Others, however, are financed through a combination of federal 

and state HTCs and the twinning of historic tax credits with the New Markets Tax 

Credits in mixed-use buildings. 

In summary, historic buildings are well-suited to help meet the nation’s affordable 

housing needs. The units produced are highly attractive in the market place due to 

the special historic features that are retained as part of the National Park Service’s 

program requirements. As older structures, they are typically found in communities 

well-served by existing public transit, job centers, utilities and local schools—benefits that are essential for low- and moderate-income households. These developments spur a cycle of renewal in communities that have been left behind. Links to 

three illustrative case studies from the National Park Service’s website can be found 

below: 

https://www.nps.gov/tps/tax-incentives/case-studies.htm#riverside-plaza. 

https://www.nps.gov/tps/tax-incentives/case-studies.htm#toms-brook-school. 

https://www.nps.gov/tps/tax-incentives/case-studies.htm#rockville-mill. 

Thank you for the opportunity to submit these comments. For further information, 

please contact us at ssprague@savingplaces.org, jlith@ntcic.com, ormhoopengardner 

@ntcic.org. 

Sincerely, 

Shaw Sprague John Leith-Tetrault 

Senior Director, Government Relations Chairman 

National Trust for Historic Preservation Historic Tax Credit Coalition 

Merrill Hoopengardner 

President 

National Trust Community Investment 

Corporation 


080117.008
140 

NEW YORK CITY DEPARTMENT OF HOUSING PRESERVATION AND DEVELOPMENT AND

NEW YORK CITY HOUSING DEVELOPMENT CORPORATION

Testimony of 

Maria Torres-Springer, Commissioner 

New York City Department of Housing Preservation and Development 

100 Gold Street 

New York, NY 10038 

and 

Eric Enderlin, President 

New York City Housing Development Corporation 

110 William Street 

New York, NY 10038 

Chairman Hatch, Ranking Member Wyden, and Members of the Committee: thank 

you for holding a hearing on one of the most critical issues facing our country—the 

insufficient supply of safe, decent and affordable housing. We appreciate the opportunity to submit the following comments for the record regarding America’s affordable housing crisis and potential solutions. 

The New York City Department of Housing Preservation and Development (HPD) 

and Housing Development Corporation (HDC) are the largest municipal housing 

agency and leading local housing finance agency in the nation, respectively. Together, HPD and HDC finance the preservation and new construction of affordable 

housing, enforce housing quality standards to promote the health and safety of all 

New Yorkers, and ensure sound management of the City’s affordable housing stock. 

As we pursue the goal of connecting people to opportunity through affordable housing, we strongly urge the Committee to protect the Low-Income Housing Tax Credit 

(Housing Credit) and private activity tax exempt bonds for housing as part of any 

tax reform effort considered by Congress. Additionally, we offer our comments on 

the potential benefits of the Affordable Housing Credit Improvement Act, S. 548, 

which would mark the first meaningful expansion of affordable housing resources 

in decades. 

The Affordable Housing Crisis 

The affordable housing crisis is a bipartisan issue impacting cities, states, and rural 

areas across the country. In New York City, more than half of all renters are costburdened, meaning they pay more for rent than they can afford, often at the expense of other necessities like food and healthcare. We know that it is not just renters in high-cost cities like New York facing these terrible tradeoffs. A recent report 

by the National Low-Income Housing Coalition found only 12 counties nationwide 

where a minimum wage worker can afford a modest two-bedroom apartment. Nationally, one in four renter households pay more than half of their income on housing costs, leaving more than 11 million families one paycheck away from homelessness. 

Ongoing trends in the rental housing market further perpetuate the housing crisis. 

In New York City in 2011, there were approximately 400,000 homes affordable to 

the more than 900,000 extremely and very low income households. The shortage in 

supply of affordable housing drives up rents. Meanwhile, wages haven’t kept pace 

and federal rental subsidy resources are shrinking. To reverse this tide, we need to 

build more affordable housing. To do that, we must protect and expand the Housing 

Credit and private activity tax-exempt bonds for multifamily housing. 

Benefits of the Housing Credit and Tax-Exempt Bonds 

The Housing Credit—including both the 9 percent credit, as well as the 4 percent 

credit paired with private activity tax-exempt bonds—is the strongest driver of affordable housing in the United States, financing nearly 90 percent of all new construction and preservation. As one of our country’s longest standing public-private 

partnership models, the Housing Credit leverages private investment at a rate of 

three to one, supports 96,000 jobs per year, and has financed nearly 3 million affordable rental homes nationwide. In New York City alone, Housing Credits and taxexempt bonds have helped to create or preserve more than 160,000 safe, quality affordable homes for working families and vulnerable populations, such as seniors and 

homeless families. 

Despite this incredible track record, the Housing Credit is in need of expansion and 

refinement in order to keep up with demand, and to provide housing agencies and 

141 

their development partners with maximum flexibility in serving the needs in their 

communities. Each year, viable and much needed affordable housing developments 

go unbuilt due to the shortage of Housing Credits available and constrained bond 

cap authority. 

Enhancing the Housing Credit: Key Provisions in the Affordable Housing 

Credit Improvement Act 

S. 548 builds upon the most productive aspects of the Housing Credit while proposing changes to strengthen the program by streamlining rules, improving flexibility, and enabling the program to serve a wider array of local needs. Among the 

many significant improvements included in the bill that HPD and HDC strongly 

support are: 

• A 50 percent increase in per-capita and small state minimum allocations, 

phased in over 5 years, which is estimated to support production and preservation of an additional 400,000 units nationally over a 10-year period. 

• A permanent minimum 4 percent rate for Housing Credits used to finance the 

acquisition of property or generated by tax-exempt bonds. Minimum credit rates 

are needed in order to increase the predictability and financial feasibility of affordable housing development and would allow developers to target more units 

to the lowest income households. 

• A new income-averaging election, allowing the current 60 percent of Area Median Income (AMI) ceiling to apply to the average of all apartments within a 

property, as long as no apartment exceeds a maximum of 80 percent AMI. The 

higher rents that households with incomes above 60 percent of AMI could afford 

have the potential to offset lower rents for households below 30 or 40 percent 

of AMI, allowing developments to maintain financial feasibility while providing 

a deeper level of affordability. 

• A provision that gives housing agencies discretion to provide basis boosts for 

tax-exempt bond financed developments, allowing more of these developments 

to be financially feasible, and for developments serving very low income households. 

We strongly support all proposed enhancements to the Housing Credit in S. 548 as 

ways to help meet the growing need for affordable housing. In addition, we are 

pleased to share additional proposals to complement the Housing Credit. 

Proposals to Increase Private Activity Tax-Exempt Bond Volume Cap 

Private activity tax-exempt bonds are essential to the success of the Housing Credit, 

helping to finance roughly 40 percent of Housing Credit properties nationwide. In 

states like New York, affordable housing development is constrained by insufficient 

private activity bond cap and limits on the use of recycled bonds. 

New York State uses essentially all private activity bond volume cap allocated to 

it each year. With ambitious housing plans at the city and state level, and an aggressive preservation plan for the City’s Public Housing Authority, increased demand for volume cap creates challenges in meeting the City’s affordable housing 

pipeline’s financing needs. Two ways to increase volume cap in order to meet these 

important priorities are making technical changes to bond recycling and creating a 

national reallocation pool for unused private activity bond volume cap. 

Bond Recycling 

As of the passage of the Housing and Economic Recovery Act of 2008 (HERA), taxexempt, multifamily housing revenue bonds can be recycled to finance new development activity without the need for new private activity bond volume cap. Under the 

law, if a loan that was financed by new volume cap bonds is repaid within 4 years 

from the original issue date of the bonds, then a housing finance agency such as 

HDC has 6 months to recycle the bonds and use the proceeds to make a new loan 

for another housing project. Unlike new volume cap bonds, recycled bonds do not 

generate 4 percent Housing Credits. 

HDC currently issues more than $300M per year in recycled bonds. It is estimated 

that the following changes would allow for $100M–$200M more in recycled bonds 

in New York State each year. Additionally, these changes will allow for most, if not 

all, new volume cap to be used for multifamily housing (thus generating 4 percent 

Housing Credits) without reducing other eligible private activity financings such as 

industrial development and single family mortgage revenue bonds: 

• Permit recycled bonds to finance economic development projects in addition to 

multifamily rental housing. 

142 

*This paper reflects the views of its author. It does not represent the official position of the 

University of Virginia. The University does not have an official position on low-income housing 

policy. It is a revised version of a paper presented at a conference on housing affordability at 

• Extend the period during which tax-exempt, multifamily housing revenue bonds 

can be recycled from 6 months to 1 year after repayment, as it is often difficult 

to close a new project’s financing within the current window. • Allow housing agencies to recycle more than once within the existing 4-year 

time limit from original issue. • Permit recycled bonds to be used in conjunction with 9 percent Housing Credits 

in order to help finance projects where bank debt is too expensive. 

National Reallocation Pool for Unused Bond Volume Cap 

A growing list of states use the entire private activity bond cap allotted to them 

every year, leaving shovel ready affordable housing developments unbuilt. Meanwhile, other states burn off unused bond cap. Creating a National Reallocation Pool 

for unused volume cap assures that critical housing resources are efficiently redeployed to areas with the most immediate need and capacity for affordable housing 

development and preservation efforts. 

Under current law, unused private activity bond volume cap either expires or may 

be carried forward for just 3 years, after which it expires. Unused volume cap and 

carryforward is not available for projects in other states, and approximately $10B 

in volume cap is burned off nationally each year. To induce more private investment 

to help meet the growing demand for affordable rental housing, and to more efficiently and effectively utilize federal resources, we propose creating a private activity bond cap national reallocation pool for affordable housing. This pool would allow 

states and localities with affordable housing projects in their pipeline to recapture 

unused cap from other locations. The reallocation of cap could be similar in structure to the reallocation of the national pool of unused Low Income Housing Tax 

Credit authority and the competitive allocation process for the Housing Credit dollar 

amount. 

We look forward to partnering with Congress and our housing colleagues nationwide 

to pursue these and other innovations that could provide additional support in addressing the affordable housing crisis. 

Importance of Additional Federal Housing Resources 

As Congress continues with federal budget negotiations, it is crucial to note the importance of funding for affordable housing programs of the Department of Housing 

and Urban Development (HUD) and the Department of Agriculture. Without adequate funds for public housing, rental assistance, HOME Investment Partnerships, 

rural development and Community Development Block Grants, we cannot fully address housing needs across this country. In fact, these programs serve as an essential complement to the Housing Credit, as most affordable housing is financed 

through a combination of HUD program resources and credits. 

Asset Management and Oversight 

As affordable housing practitioners, we share the Committee’s commitment to transparency and oversight in the Housing Credit Program. State allocating agencies, 

syndicators and local housing agencies already adhere to the strict requirements of 

the program and, in many cases, exceed those with even more stringent local standards. We applaud the work of organizations like the National Council of State Housing Agencies (NCSHA) in sharing best practices across the industry to ensure the 

program is managed properly and all commitments to affordability are honored 

throughout the life of the projects under our purview. 

In closing, we again thank the Committee for keeping affordable housing at the center of ongoing discussions around comprehensive tax reform and consideration of 

federal spending commitments in the coming years. 

EDGAR O. OLSEN

DEPARTMENT OF ECONOMICS, UNIVERSITY OF VIRGINIA,* CHARLOTTESVILLE, VA 

Does Housing Affordability Argue for Subsidizing the 

Construction of Tax Credit Projects? 

The Low-Income Housing Tax Credit (LIHTC) is the largest and fastest growing 

low-income housing program. It subsidizes the construction and renovation of more 

143 

the American Enterprise Institute on April 6, 2017 sponsored by the American Enterprise Institute, Bank of Israel, Board of Governors of the Federal Reserve System, Tel Aviv University, 

and UCLA. 1https://www.congress.gov/bill/115th-congress/senate-bill/548. 

2https://www.cantwell.senate.gov/imo/media/doc/Senator%20Cantwell%20LIHTC%20Report 

.pdf. 3https://www.hudexchange.info/resources/documents/2015-AHAR-Part-1.pdf. 

https://fred.stlouisfed.org/series/ERENTUSQ176N. 

4https://www.huduser.gov/portal/sites/default/files/pdf/Family-Options-Study-Full-Report.pdf. 5Olsen (2008, pp. 9–15) summarizes the evidence. 

units each year than all other government programs combined. The tax credits 

themselves involved a tax expenditure of about $6 billion in 2015 and new commitments of about $7.5 billion. However, these projects receive additional development 

subsidies from state and local governments, usually funded through federal intergovernmental grants, accounting for one-third of total development subsidies (Cummings and DiPasquale 1999). Therefore, the total development subsidies associated 

with the new commitments were about $11 billion. Furthermore, many tax credit 

projects involve substantial renovations of older HUD and USDA housing projects 

that continue to receive deep subsidies from the programs involved, and many tax 

credit units are occupied by households with tenant-based housing vouchers that 

provide owners with additional revenue. GAO (1997) found that owners of tax-credit 

projects received subsidies in the form of project based or tenant-based rental assistance on behalf of 40 percent of their tenants. More recent evidence for 10 states suggests an even higher fraction (O’Regan and Horn 2015). To the best of my knowledge, the magnitude of these subsidies has never been documented. If their per-unit 

cost were equal to the per-unit cost of tenant-based housing vouchers in 2015, they 

would have added about $7.5 billion a year to the cost of the tax-credit program. 

A program of this magnitude merits much more critical scrutiny than it has received to date. 

Proposed legislation in the Senate would greatly expand the tax credit program, indeed, increase the number of units built or renovated by 50 percent.1 This is billed 

as a solution to a housing affordability problem described in terms of the many 

households that devote a large fraction of their income to housing. The report that 

attempts to justify the expansion also argues that the expansion is necessary to 

house the homeless who clearly have a housing affordability problem.2 Neither argument holds water. 

Building new projects is a very expensive solution to the housing affordability problem described. We don’t need to build new housing projects to help households that 

spend a large fraction of their income on housing. They are already housed. If we 

think that their housing is unaffordable, the cheapest solution is for the government 

to pay a part of the rent. HUD’s housing voucher program does just that at a much 

lower cost than the tax credit program. 

Furthermore, it’s neither necessary nor desirable to construct new units to house 

the homeless. The number of people who are homeless is far less than the number 

of vacant units—indeed, far less than the number of vacant units renting for less 

than the median. In the entire country, there are only about 600,000 homeless people on a single night and more than 3 million vacant units available for rent.3 Even 

if all homeless people were single, they could easily be accommodated in vacant existing units, and that would be much less expensive than building new units for 

them. The reason that they are homeless is that they don’t have the money to pay 

the rent for existing vacant units. A housing voucher would solve that problem. A 

major HUD-funded random assignment experiment called the Family Options Study 

compared the cost and effectiveness of housing vouchers and subsidized housing 

projects for serving the homeless.4 Transitional housing projects were far less effective and much more expensive than short-term housing vouchers. 

The evidence indicates that the tenant-based housing voucher program is by far the 

most cost effective approach to delivering housing assistance.5 The best study of 

HUD’s largest program that subsidized the construction of privately owned projects 

indicated the total cost of providing housing under this program was at least 44 percent greater than the total cost of providing equally good housing under the housing 

voucher program (Wallace and others 1981). This translated into excessive taxpayer 

cost of at least 72 percent for the same outcome. It implies that housing vouchers 

could have served all the people served by this program equally well and served at 

144 

6http://www.pbs.org/video/3000723710/. 

7http://www.npr.org/2017/05/09/527046451/affordable-housing-program-costs-more-shelters-less. 

https://www.justice.gov/usao-sdfl/pr/seven-defendants-sentenced-federally-their-role-36-million-fraud-scheme-involving-low. 

http://www.miamiherald.com/news/local/community/miami-dade/article29949909.html. 

8https://www.justice.gov/usao-sdfl/pr/seven-defendants-sentenced-federally-their-role-36-million-fraud-scheme-involving-low. 9Since LIHTC has subsidized the construction and renovation of more than 40,000 projects, 

it is reasonable to believe that fraud has accounted for a substantial sum over the program’s 

history. 10http://www.latimes.com/local/lanow/la-me-ln-housing-indictment-20160205-story.html. 

https://www.justice.gov/usao-edny/pr/real-estate-developer-sentenced-6-months-imprisonment-soliciting-300000-kickbacks-nyc. 

https://www.justice.gov/archive/usao/txn/PressRel10/DCC_potashnik_brian_cheryl_sen_pr. 

html. 

http://www.pressherald.com/2016/04/14/maine-man-admits-embezzling-80000-in-low-income-housing-funds/. 

https://www.bizjournals.com/southflorida/news/2017/06/16/federal-investigation-widensinto-affordable.html. 

least 72 percent more people with the same characteristics without any increase in 

public spending. 

We don’t have a cost-effectiveness study of this quality for the LIHTC program. The 

best evidence available suggests that tax credit projects cost 16% more than the 

voucher program to provide units with the same number of bedrooms in the same 

metro area (GAO 2001). This is almost surely an underestimate because it omits 

some of the public subsidies to developers of tax credit projects such as land sold 

to them by local governments at below-market prices, local property tax abatements 

received by some developers, and later subsidies for renovating the projects. 

The best evidence available also indicates that occupants of tax credit projects capture a small fraction of the subsidies provided to developers. Burge (2011, p. 91) 

finds that the present value of the rent saving to tenants (the difference between 

the market rent of the unit and the rent paid by its tenant) is only 35% of the 

present value of the tax credits provided to developers. Combining this result with 

Cummings and Di Pasquale’s finding that tax credits account for about two-thirds 

of development subsidies for tax credit projects leads to the conclusion that tenants 

capture at most 24% of the development subsidies. 

A recent PBS Frontline documentary called ‘‘Poverty, Politics, and Profit’’ illustrates 

one of the reasons for this outcome, namely, LIHTC fraud.6 A follow-up piece with 

NPR, Department of Justice news releases, and articles in The Miami Herald provide more details.7 One investigation of several developers revealed excess subsidies 

of $36 million for 14 projects.8 Because subsidies are proportional to development 

cost, developers have an incentive to overstate them. In the fraud uncovered in this 

investigation, the developer who was awarded tax credits persuaded contractors to 

provide inflated bids for their work on the projects combined with kickbacks to the 

developers. Due to the difficulty of determining true development cost and lax enforcement by state housing agencies, developers succeed in greatly overstating them. 

Because the fraud involved is difficult to detect, the few cases uncovered so far are 

surely the tip of the iceberg.9 Recent investigations have uncovered fraud in Los Angeles, New York City, Dallas, and Maine, and other investigations are underway.10

The reasons for the excess cost of tax credit projects go beyond fraud. The combination of programs that provide subsidies to them offer excess profits to honest developers (that is, much larger profits than can be earned in the unsubsidized market) 

and distortions in the combination of inputs used to provide housing (specifically, 

expensive new buildings that are built on inexpensive land and poorly maintained). 

The excess profits explain why many more developers submit proposals than can be 

funded with the tax credits allocated to the state. It’s why developers of tax credit 

projects spend so much on their proposals. It’s why almost all commit all of the 

units in their buildings to the tax credit program. It’s why some pay bribes to get 

their projects approved. The layering of subsidies on tax credit projects makes it 

particularly difficult to prevent excess profits. 

Clearly, Congress should not authorize the expansion of the tax credit program unless existing evidence on the cost-effectiveness of the tax credit program is far from 

the mark. If Congress wants to serve additional households, it should expand the 

much more cost-effective housing voucher program. Furthermore, given the large 

current public spending on tax credit projects, Congress should insist on, and approVerDate Sep 11 2014 20:17 Jul 27, 2018 Jkt 000000 PO 00000 Frm 00148 Fmt 6601 Sfmt 6621 R:\DOCS\30902.000 TIM
145 

11https://www.huduser.gov/portal/datasets/assthsg.html. 

priate the money for, independent analyses of the highest quality that compare the 

cost-effectiveness of housing vouchers with the various types of tax credit projects, 

including ones that renovate private and public housing projects built under HUD 

and USDA programs. The cost of these studies would be trivial compared with public spending on tax credit projects. 

It’s often argued that the large expense of subsidizing the construction of new tax 

credit projects is justified by low vacancy rates that prevent potential recipients 

from using housing vouchers. Table 1 shows that the location of new tax credit 

projects is inconsistent with this justification. The construction of tax credit projects 

is not focused on metro areas with low vacancy rates. Over the past decade, the majority of tax credit units were built in metro areas with vacancy rates in excess of 

8%. Almost 40% of all tax credit units were built in metro areas with vacancy rates 

in excess of 10%. The location of tax credit projects indicates that market tightness 

is not a serious argument for the tax credit program. 

Table 1. Tax Credit Units v. Vacancy Rates 

75 largest metro areas, HVS vacancy rates, 2005–2014 

Vacancy Rate (%) Tax Credit Units Placed in 

Service 

Tax Credit Units as % of Occupied Rental Units 

2.0–3.9 13,931 0.24 

4.0–5.9 117,729 0.20 

6.0–7.9 145,076 0.27 

8.0–9.9 84,894 0.21 

10.0– 223,220 0.25 

Total 584,850 0.24 

Note: Each observation refers to a single metro area in one year. 

Sources: Vacancy rates, https://www.census.gov/housing/hvs/data/ann15ind.html. 

Tax credit units placed in service, https://www.huduser.gov/portal/datasets/lihtc.html. 

Occupied rental units, http://factfinder.census.gov/faces/nav/jsf/pages/index.xhtml. 

Furthermore, there are good reasons to expect that subsidized construction will 

work poorly in tight housing markets because it crowds out unsubsidized construction to a considerable extent. When vacancy rates are low in a market, rents will 

be high. This is when unsubsidized construction will be most profitable. In the absence of subsidized construction, unsubsidized construction would be high, and unemployment among construction workers and equipment would be low. Subsidized 

construction would divert workers and equipment from unsubsidized construction. 

The evidence indicates that subsidized construction largely crowds out the unsubsidized housing stock to a considerable extent (Murray 1983, 1999, Malpezzi and 

Vandell 2002, Sinai and Waldfogel 2005, and Eriksen and Rosenthal 2010). In tight 

markets, it mainly crowds out unsubsidized construction. In markets with high vacancy rates, it mainly results in the withdrawal of existing units from the housing 

stock. 

It’s reasonable to believe that all subsidized housing programs lead to some increase 

in the number of dwelling units by increasing the demand for distinct units. The 

offer of housing assistance of any type induces some individuals and families living 

with others to live in their own units. Abt et al. (2006, pp. 23, 76) indicate that 

about 26 percent of the families on the housing voucher waiting list were living with 

friends or relatives and 2 percent were living in a homeless shelter or transitional 

housing, and voucher usage resulted in corresponding decreases in these numbers. 

Since doubling up and homelessness are more common among the poorest households, the programs that serve the poorest households will have the greatest net effect on the number of housing units. The voucher program serves somewhat poorer 

households than public housing and much poorer households than privately owned 

subsidized projects as judged by per-capita household income (Picture of Subsidized 

Households).11 Consistent with this explanation, Sinai and Waldfogel (2005) find 

that tenant-based vouchers lead to a larger increase in the housing stock than construction programs. This phenomenon also explains Eriksen and Rosenthal’s finding 

of almost complete crowd out for the LIHTC. This program serves families with 

much higher incomes than the other programs. 

146 

12Olsen and Zabel (2015, pp. 903–904) provide a brief account of the experiment and its main 

results. 

Contrary to popular perceptions, housing vouchers work reasonably well in tight 

housing markets. Many families offered vouchers already occupy apartments meeting the program’s standards. We don’t need vacant apartments for these families. 

They can participate without moving. Other families offered vouchers live in housing that doesn’t meet program’s minimum housing standards, but their landlords 

are willing to repair them to meet the standards. Similarly, vacant apartments that 

do not initially meet the program’s standards can be upgraded to meet them. About 

half of the units occupied by voucher recipients were repaired to meet the program’s 

minimum housing standards (Kennedy and Finkel 1994). The tenant-based voucher 

program substantially increases the supply of apartments meeting minimum housing standards without building new units for the households involved. 

The Housing Assistance Supply Experiment of the Experimental Housing Allowance 

Program (EHAP) provides additional evidence on the ability of tenant-based vouchers to increase the supply of apartments meeting minimum housing standards even 

in tight housing markets.12 The Supply Experiment involved operating an entitlement tenant-based housing allowance program in two metropolitan areas for 10 

years. During the first 5 years of the experiment, about 11,000 dwellings were repaired or improved to meet program standards entirely in response to tenant-based 

assistance (Lowry 1983, p. 24). This represented more than a 9 percent increase in 

the supply of apartments meeting minimum housing standards. 

Given the available evidence on program performance, we should certainly not expand the tax credit program. The existing evidence argues for terminating it or 

phasing it out. If we want to serve additional households, we should expand the 

much more cost-effective housing voucher program. lf the tax credit program is retained, Congress should insist on independent analyses of the highest quality that 

compare the cost-effectiveness of housing vouchers with the various types of lowincome housing tax credit projects. 

References 

Abt Associates Inc. 2006. Effects of Housing Vouchers on Welfare Families. Washington, DC: U.S. Department of Housing and Urban Development, Office of Policy 

Development and Research. 

Burge, Gregory S. 2011. ‘‘Do Tenants Capture the Benefits From the Low-Income 

Housing Tax Credit Programs?’’ Real Estate Economics 39(1): 71–96. 

Cummings, Jean L., and Denise DiPasquale. 1999. ‘‘The Low-Income Housing Tax 

Credit: An Analysis of the First Ten Years.’’ Housing Policy Debate 10: 251–307. 

Eriksen, Michael D., and Stuart S. Rosenthal. 2010. ‘‘Crowdout Effects of PlaceBased Subsidized Rental Housing: New Evidence from the LIHTC Program.’’ Journal of Public Economics 94 (11–12): 953–966. 

Kennedy, Stephen D., and Meryl Finkel. 1994. Section 8 Rental Voucher and Rental 

Certificate Utilization Study, Washington, DC: Office of Policy Development and 

Research, U.S. Department of Housing and Urban Development. 

Lowry, Ira S., ed. 1983. Experimenting With Housing Allowances: The Final Report 

of the Housing Assistance Supply Experiment, Cambridge, MA: Oelgeschlager, 

Gunn, and Hain. 

Malpezzi, Stephen, and Kerry Vandell. 2002. ‘‘Does the Low-Income Housing Tax 

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360–380. 

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WINKLER DEVELOPMENT CORPORATION

210 S.W. Morrison, Suite 600 

Portland, OR 97204–3150 

Tel: 503–225–0701 FAX: 503–273–8591 

On behalf of Winkler Development Corporation, a developer of affordable housing 

in Oregon, we ask that you prioritize the Low-Income Housing Tax Credit (LIHTC) 

and tax-exempt multifamily Housing Bonds as Congress considers comprehensive 

tax reform and investments in our nation’s infrastructure. 

Our firm has developed numerous award-winning affordable housing projects that 

measurably improve the lives of our community members, and we aim to continue 

building affordable housing that serves both families and seniors. However, from 

our vantage points as developers, LIHTC and similar programs have become increasingly difficult to implement as construction and other costs have increased 

while the value of the tax credits have declined. Additional policy measures are necessary to produce enough affordable housing supported by LIHTC. 

Every state in our country faces an affordable rental housing crisis. In Oregon, more 

than 10 percent of households (164,000) spend more than half of their monthly income on rent, leaving too little for other necessities like food, medical care, and 

transportation. 

The Housing Credit has financed nearly 3 million apartments nationwide since 

1986, which have provided roughly 6.7 million low-income families, seniors, veterans, and people with disabilities homes they can afford. It has provided affordable 

housing to all 50 states and all types of communities, including urban, suburban, 

and rural. More than one million of these apartments were financed using taxexempt multifamily Housing Bonds. 

As the 115th Congress and the new Administration consider tax reform and infrastructure investments, we call on Congress to: (1) ensure that the Housing Credit 

and Housing Bonds are held up as positive examples of the power of the tax code 

to improve communities by maintaining their viability under tax reform; and (2) expand and strengthen the Housing Credit to increase the availability of safe and affordable housing and revitalize local economies. 

The Housing Credit enjoys bipartisan support nationwide because of its proven ability to effectively and efficiently build affordable rental homes for low-income households. For 30 years, it has been a model public-private partnership program, bringing to bear private sector resources, market forces, and state-level administration 

in order to give low-income families, seniors, veterans, and people with disabilities 

access to homes they can afford. 

The Housing Credit has been so successful that Oregon Housing and Community 

Service, as well as housing agencies in other states, must turn down viable and 

sorely needed Housing Credit developments each year because the cap on Housing 

Credit authority is far too low to support the demand. 

For the families paying more than half of their income towards housing—choosing 

between paying the rent or their medical bills, making repairs to their cars, or enrolling in job training classes—your support of the Housing Credit and Housing 

Bonds is critical. 

148 

Sincerely, 

Julia Winkler 

Winkler Development Corporation, Principal 

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