As Congress continues to consider an overhaul of the federal tax code, a key priority must be to protect and expand federal support for the Low-Income Housing Tax Credit.
The Housing Credit has been our nation’s most successful affordable rental housing production program. Since 1986, it has supported the construction and preservation of some 2.5 million affordable units, including more than 60,000 units here in Illinois. With rental demand increasing and rents rising throughout the country, the need for a robust Housing Credit program has never been greater.
Like other states, Illinois is in the midst of a rental affordability crisis: Nearly 52 percent of the state’s renters pay more than 30 percent of their monthly incomes just on housing costs. Even more disturbing is the fact that nearly 29 percent of Illinois renters pay more than half their incomes on housing.
These housing cost burdens hit lower-income families particularly hard. With rental costs consuming so much of their household budgets, these families have fewer resources to spend on necessities like food, clothing, and health care or to save. Many are forced to live in substandard housing or seek lower-cost options in locations far removed from their place of employment.
While years of stagnating incomes and lackluster economic growth have contributed to the affordability crisis, another critical factor is the severe shortage of affordable rental homes. According to U.S. Department of Housing and Urban Development, there are only 65 affordable and available units for every 100 “very low-income” renters. For families at the bottom of the income ladder, the scarcity problem is even worse. A major cause of this supply shortfall is the fact that the number of affordable rental homes has remained unchanged over the past decade.
Adding to the affordable rental stock is therefore an urgent national priority. To respond to this pressing need, the best starting point is to build on the success of the Housing Credit program.
A key feature of the Housing Credit is that it engages private market forces in support of affordable housing, while minimizing risk to the federal government and taxpayers. It is a true public-private partnership that has leveraged more than $100 billion in private investment since its creation twenty-seven years ago.
Despite the thousands of properties the Housing Credit has financed over the years, the aggregate foreclosure rate experienced by the program is less than six-tenths of one percent. This remarkable track record is superior to any other investment in real estate.
As members of the Bipartisan Policy Center Housing Commission, we have heard first-hand from citizens around the country about how the Housing Credit has responded to the unique needs of their communities, including spurring job creation. The Housing Credit is adaptable, supporting housing for families with special needs, the elderly, persons with disabilities, veterans, and the homeless. More recently, state and local governments have utilized the Housing Credit to rebuild communities in the wake of natural disasters.
Unfortunately, at current funding levels, the Housing Credit program is inadequate to match the scope of what is needed. Today, about half of all Housing Credit allocations support the preservation of existing federally-assisted housing. In the near term, we expect a growing share of Housing Credits to be used to recapitalize public housing. With so much of the Housing Credit going just to maintain the existing stock of affordable housing, there is little left over to support the construction of new, sorely needed, affordable rental homes.
Adding to the concern is the fact that the demand for rental housing is likely to grow considerably in the coming decade. According to Harvard’s Joint Center for Housing Studies, the number of renter households could rise by as many as 4.7 million over the next ten years. This upward demand pressure will likely push rents even further out of reach for many families.
For these reasons, we recommend increasing federal support for the Housing Credit by 50 percent over current funding levels. We estimate that this recommendation, if adopted, would support the construction and preservation of an additional 400,000 affordable rental units over the next ten years, including thousands of new rental homes in communities throughout Illinois.
The rental affordability crisis is very real, affecting millions of families. Congress should strengthen and expand the Housing Credit program, recognizing its exceptional role in meeting our nation’s affordable rental needs and its potential to do even more.