Which of the recommendations in the BPC Housing Commission’s report should receive highest priority?
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Among the Bipartisan Policy Center (BPC) Housing Commission’s proposals for creating a balanced housing policy, one stands out as the most critical in meeting the needs of low-income renters. The Low-Income Housing Tax Credit (Housing Credit) is responsible for virtually all affordable apartment development, and BPC’s recommendation to expand it by 50 percent recognizes its unmatched record of success and the increasing need for the program in today’s housing landscape.
According to Harvard’s Joint Center for Housing Studies, there is a 6.4 million-unit gap between the number of low-income renters who need affordable housing and the number of affordable apartments available. A recent HUD study also shows that a record 8.5 million very low-income families have worst case housing needs (paying over half of their incomes in rent and/or living in severely inadequate housing) in 2011, representing a steady increase since 2007. The BPC’s recommendation is our best hoping of narrowing this affordable supply gap by creating up to 400,000 new units over ten years.
BPC notes that “it is not economically feasible to develop affordable housing at restricted rents, so a subsidy is needed to make up the difference between what a property costs to develop and the income that can be generated to support such development costs.” There are three primary ways that the federal government makes up this difference – public housing, vouchers and the Housing Credit. Public housing is limited to the number of units that existed in 1999, and is now only constructed on a replacement basis. Vouchers are funded at a relatively constant level, but face appropriations cuts annually – most recently with a $1.4 billion cut via sequestration that may cost 125,000 families their assistance. At the same time, the Housing Credit produces close to 100,000 new affordable apartments each year. It is essentially the only way that the federal government continues to add to the affordable housing supply.
BPC also recognizes the more specific needs that an expanded Housing Credit program could meet: with more allocations, states would have more flexibility to award credits to different types of projects that meet local needs – for example, projects that provide stable housing for veterans or supportive services for the elderly.
Finally, BPC’s recommendation reflects the Housing Credit’s role in the success of other federal programs. The report notes that the Housing Credit has recently “been called upon to carry a larger load,” and that “as HUD expands its efforts to revitalize an aging public housing stock by tapping the private capital markets, Housing Finance Agencies will undoubtedly be asked to allocate an increasing share of Housing Credits for the conversion of public housing units.” As federally assisted housing moves towards a model of mixed-finance developments like those found in HUD’s Choice Neighborhoods Initiative and the Rental Assistance Demonstration, the Housing Credit has become an irreplaceable financing element for these projects.
Over its 26-year history, the Housing Credit has proven itself as a highly efficient mechanism for producing over 2.6 million affordable units, while leveraging well over $75 billion in private capital. And because private investors bear the up-front risk (instead of the federal government), the program has a high level of accountability – reflected in a remarkably low foreclosure rate of 0.62 percent over the program’s history, according to CohnReznick.
As Congress considers comprehensive tax reform, it must not only protect this vital tool, but expand it to meet the growing needs of low-income, cost-burdened renters.
Emily Cadik is a senior policy analyst at Enterprise Community Partners.
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