game changers for affordable housing - national league of ... · section 811 $150 $146 $121 $147...
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March 12, 2018 www.novoco.com
Game Changers for Affordable Housing
for National League of Cities’ Congressional Cities Conference
Peter LawrenceDirector of Public Policy and Government Relations
Novogradac & Company LLP
@NovocoPolicy
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Agenda
Tax Reform?
Key Changes to Impact the Low-Income Housing Tax Credit
Impact on New Markets and Historic Tax Credits
Opportunity Zones
LIHTC Legislation
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Low-Income
Housing Tax
Credit
Private activity bonds retained (over half of
affordable housing production)
MORE
THAN
HALF
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Low-Income
Housing Tax
Credit
Inflation factor changed to:
“CHAINED CPI”Will reduce future 9% LIHTC and private activity bond
volume cap per-capita/small state minimum amounts.
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Low-Income
Housing Tax
Credit
Lower Corporate Rate
Interest Expense Limitation
• Most LIHTC partnerships expected to elect out and shift to Alternative Depreciation System (ADS) for rental housing
100% Expensing through 2022 for:
• Site improvements, and
• Furniture, Fixtures & Equipment
Likely negative impact of the Base Erosion and Anti-abuse Tax (BEAT)
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9 Percent Property
Assumes 4.5% – 5.0% investor level yield in all scenarios
Results may differ based on a change in underlying assumptions.
Property not eligible for 30% basis bonus
35%
21%
$0.95
$0.95
$0.82
$1.00
$1.00
$0.87
$1.05
$1.05
$0.90
$1.10
$1.10
$0.95
Price per Credit
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4 Percent Tax Exempt Bond Property
35%
21%
$0.95
$0.95
$0.81
$1.00
$1.00
$0.86
$1.05
$1.05
$0.89
$1.10
$1.10
$0.93
Price per Credit
March 12, 2018
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Effect of Tax Reform on LIHTC Equity Pricing
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Affordable housing community had already lost investment and production in 2017
March 12, 2018
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www.novoco.com/blog
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BEAT
INCREASED
VOLUME OF
SECONDARY
MARKET
TRANSACTIONS
FANNIE MAE
FREDDIE MAC
REDUCED SIZE
OF ANNUAL
EQUITY
MARKET
CAULDRON OF
AFFORDABLE
HOUSING FUTURE
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New
Markets
Tax Credit
• No statutory changes to section 45D
• 2017, 2018 and 2019 rounds from the PATH Act in
2015 remain at $3.5 billion each
– House bill had originally eliminated 2018 and 2019
rounds
• Efforts to extend or make the NMTC an indefinite part
of the internal revenue code likely included in a future
extenders package
• Corporate AMT repealed
• Unlike LIHTC, lower corporate rate is a slight positive
for NMTC because investors pay taxes on gains at exit
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Historic
Rehabilitation
Tax Credit
• House would have dropped the HTC entirely; Senate
bill prevailed
• The 10 percent non-certified rehabilitation credit (for
pre-1936 buildings) is repealed
• 20 percent historic rehab credit is claimed ratably over
5 years
• Pricing may drop 7% to 15% due to changes
March 12, 2018
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Investing in Opportunity Act
• Allows investors with capital gains from sale of assets to defer those gains
– Similar in concept to Section 1031 “Like-Kind” exchanges
• Creates new incentive to invest capital gains in low-income communities
• Authorizes the designation of “opportunity zones”
• Governors (and DC Mayor) responsible for designating these zones by end of March
• Encourages investors to pool resources and risks in “Opportunity Funds” (O Funds).
Investors can temporarily defer capital gains recognition if they reinvest in these zones
• Incentivizes long-term investment by stepping up basis
– 10 percent step-up after 5-year hold, 15 percent step-up after 7-year hold
• Provides shallower subsidies per investment than the NMTC, but can be used on a
greater scale
March 12, 2018
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More LIHTCs via
Affordable Housing Credit Improvement Act
50 percent increase
Income-averaging
Minimum 4 percent rate
CANTWELL HATCH
TIBERINEAL
RETIRED
Curbelo, R-FL-26
March 12, 2018
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50 percent increase
Income-averaging
Minimum 4 percent rate
More LIHTCs via
Affordable Housing Credit Improvement Act
CANTWELL HATCH
TIBERINEAL Curbelo, R-FL-26
RETIRED
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More LIHTCs via
Affordable Housing Credit Improvement Act
CANTWELL HATCH
Curbelo, R-FL-26
www.novoco.com
TIBERINEAL
50 percent increase
Income-averaging
Minimum 4 percent rate
RETIRED
March 12, 2018
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TIBERINEAL
More LIHTCs via
Affordable Housing Credit Improvement Act
CANTWELL HATCH
Curbelo, R-FL-26
50 percent increase
Income-averaging
Minimum 4 percent rate
RETIRED
Note these assumptions:
• Assumed that states will increase
their tax-exempt bond issuance for
multifamily by 25%
• Assumed the absolute amount of
soft subsidies going to tax exempt
bond properties would remain
unchanged
• To the extent that there is less
deferred developer fee, that is offset
with more taxable bond financing
Approximately 131,000 more units over 10 years
www.novoco.comMarch 12, 2018
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More LIHTCs via
Affordable Housing Credit Improvement Act
Additional Resources
• Give states discretion to provide 30% basis boost for
bond-financed projects
• Increase DDA designation from 20 to 30%
• Repeal QCT population cap
• Relocation costs included in eligible basis
• No basis reduction for certain energy tax incentives
• Indian areas generally treated as DDAs
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More LIHTCs via
Affordable Housing Credit Improvement Act
Financial Feasibility
• 50% basis boost for ELI units
• Modify student occupancy rules
• Codify increased tenant income guidance
• Modify 10-year rule (limits apply to acquisition basis)
• Adopt uniform income eligibility for rural projects
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More LIHTCs via
Affordable Housing Credit Improvement Act
Other
• Modify voucher rent-setting rule in LIHTC
• Clarify the community revitalization plan
• Prohibit local approval or contribution requirements
• Add selection criteria for Native American areas
• Restriction of planned foreclosures
• Clarify casualty loss rule
• Convert ROFR to purchase option
• Change the official name of the LIHTC to Affordable
Housing Tax Credit
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FY16 Enacted FY17 EnactedPresident’s
FY18 Request
Senate
FY18 Bill
House
FY18 Bill
President’s
FY19 Request
Housing Choice Vouchers $19,628 $20,292 $19,317 $21,365 $20,486 $20,015*
Project-Based Section 8 $10,620 $10,816 $10,751 $11,507 $11,082 $10,866*
Public Housing Operating Fund $4,500 $4,400 $3,900 $4,500 $4,390 $3,141*
Public Housing Capital Fund $1,900 $1,942 $628 $1,945 $1,852 $0
Section 202 $433 $502 $510 $573 $576 $563*
Section 811 $150 $146 $121 $147 $147 $132*
HOPWA $335 $356 $330 $330 $375 $330
CDBG $3,000 $3,000 $0 $3,000 $3,010 $0
HOME $950 $950 $0 $950 $850 $0
Homeless Assistance $2,250 $2,383 $2,250 $2,456 $2,383 $2,383
Choice Neighborhood Initiative $125 $138 $0 $50 $20 $0
Overall (gross) $46,978 $48,055 $40,722 $49,942 $48,034 $41,240
Note: amounts in millions
HUD Budget
*Administration FY19 “addendum” proposes to add $1 billion to vouchers, PBS8, Public Housing Operating Fund, Section 202 and Section 811 rental assistance for seniors and people with disabilities.
March 12, 2018
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March 12, 2018 www.novoco.com
Game Changers for Affordable Housing
for National League of Cities’ Congressional Cities Conference
Peter LawrenceDirector of Public Policy and Government Relations
Novogradac & Company LLP
@NovocoPolicy