A CRITICAL resource for affordable housing is at risk.
Housing tax credits and bonds are under threat as part of federal tax reform. In the Senate’s “blank-slate” approach, everything that touches the tax code has been stripped out and will have to earn its way back in.
Fair enough. Housing credits and housing bonds stand up to scrutiny as smart investments — and then some. These programs are used by nonprofit and for-profit developers, as well as lenders, to finance housing at below-market rates.
Unlike a direct-funding program, private investors, not the federal government, provide all the equity up front and bear the financial risk.
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As a result, in every area of Washington state, housing tax credits and bonds create affordable homes for lower-wage working families and our most vulnerable populations. They also create jobs and bring in revenue for local and state economies. And they do it all without touching local or state budgets.
Instead, developers sell the tax credits to investors, who in exchange provide a big share of the cash needed to build the housing: typically more than 60 percent of the total project cost. This is what enables developers to keep the rents affordable: If they had to get a mortgage for that 60 percent, they would have to charge much higher rents.
In exchange for the upfront cash, investors get a 6 to 8 percent break on their taxes for 10 years and the rents stay affordable for the long term, generally 40 years.
Housing-revenue bonds work in a similar way. They are sold to raise money that allows developers to borrow at lower interest rates. The property must stay affordable and safe for the term of the bond, 20 to 40 years.
The tax breaks do cost the federal government revenue. But that small sacrifice buys a great deal of private investment that keeps housing within reach and builds communities.
What are we getting? In the past 30 years, housing credits and bonds have allowed more than 275,700 Washington state individuals and families to live in safe, affordable homes in stable communities.
In King County alone, more than 33,000 affordable apartments have been created. With Seattle rents skyrocketing out of reach of anyone who makes less than $20 an hour, that’s significant.
At the same time, these programs have contributed 237,622 jobs and more than $42.5 billion in wages and material purchases to the state’s economy.
Housing credits and bonds are flexible tools that are successful in all settings — urban, suburban and rural. Just in the last year, these programs built 81 new supportive apartments in South Lake Union for homeless individuals and allowed a private developer to renovate a deteriorated apartment building near Pioneer Square.
The federal programs helped 25 households in Duvall come together as a cooperative and buy the land under their manufactured-home community. For seniors, they added 116 new apartments in Milton in Pierce County and modernized 92 apartments in rural Tenino, Thurston County; Centralia and Winlock, Lewis County.
In fact, in 2012 alone, more than 4,000 apartments were created for seniors, lower-wage working families, people with disabilities, formerly homeless people, farm workers and many more. Meanwhile, lower-rate mortgages helped hundreds of qualified borrowers buy their first homes.
That doesn’t mean we’ve filled the gap. Far from it. Affordable housing is still a critical need. Only 47 affordable homes are available statewide for every 100 extremely low-income households. About 132,000 people with extremely low incomes are spending more than half of their income on rent, putting them at high risk of homelessness.
We can’t afford to lose housing credits and bonds. This is our only significant source of new affordable-housing supply. Without these programs, we would face a severe loss of affordable homes, leading to fewer jobs, less revenue and more hardship for many already struggling communities.
By all means, let’s make everything in the tax code earn its place. But housing credits and bonds have more than proved their worth.
M.A. Leonard heads the Pacific Northwest market for Enterprise Community Partners. Kim Herman is executive director of the Washington State Housing Finance Commission.