State issues

A critical moment in the housing tax credit program looms

Low Income Housing Tax Credit apartments

On August 14 the Texas Department of Housing and Community Affairs (TDHCA) hosted a “work group” to gather input on the options for implementing the components of the new housing bill.  The meeting focused on the changes in the law to the Low Income Housing Tax Credit (LIHTC) program and how to implement those changes in Texas.

The new housing law offers TDHCA an opportunity to make modifications in the rules and procedures in the LIHTC program that can dramatically effect the number of future rental apartments that get built, the location of the apartments within cities and the affordability of the apartments to low income renters.

These statutory changes come at a time of historically high levels of worst case housing needs on the part of very low income families who have traditionally not been able to afford the rents in the LIHTC program and a flurry of attention about the increasing segregation of low-income families in certain neighborhoods in major cities.  The new federal housing bill gives states the power to address both of these pressing problems.

Another factor in the mix is the financial pressure that LIHTC developers are experiencing due to high energy prices and the current crisis in housing finance. Some developers argued at the meeting that projects funded over the past two years be given the entire one time additional allocation of tax credits to make the developments more financially viable (or profitable).

This strikes housing advocates as unnecessary and a misuse of limited resources.  Many of the developers who received funding over the past two years moved forward with building what they promised.  Other developers are in financial trouble and stalled.  There is no compelling public purpose to bail out poorly underwritten developments just to get more apartments at traditional rent levels in traditional tax credit neighborhoods.  The additional, one-time money would be better spent on a new application round that provides the new credits and the necessary tax credit “boosts” to both build units affordable to lower income families and build them in better neighborhoods. We think it might be appropriate to provide added credits to new construction developments in small towns and rural areas that have proven financially difficult to get built in normal times.

The August 14 meeting was held in the auditorium of the Thompson Conference Center on the University of Texas at Austin campus.  More that 200 people filled the auditorium.  By our count only three people (TxLIHIS’ Karen Paup and Robert Doggett and Inclusive Communities Project Director Betsy Julian) did not represent tax credit developers and their associates.

A newcomer to the making of housing policy in Texas would be taken aback by the fact that the state’s “working group” to provide input on how to implement these changes was so disproportionately dominated by tax credit developers.  This would be especially troubling given how the financial interests of the developers are often at odds with the interests of low-income families over how TDHCA chooses to implement the changes in the new law.

As was to be expected, developers dominated the meeting with arguments about why TDHCA should implement changes to give them more tax credits for their existing projects.  The three consumer advocates argued for the positions that we have blogged about earlier: use the new law to create more apartments with lower rents, more affordable to lower-income working families and use the law to reward developers who build in desirable, “high opportunity” neighborhoods.

Despite this imbalance of interests in the state’s “working group” we have come to appreciate that the interests of developers and consumers are interdependent.  Consumers need the developers to build the housing.  Some developers understand that the future in major urban areas is in expanding their market by making a portion of the apartments affordable to lower income (40 percent of median family income) renters. Many developers would like to build apartments in high quality urban neighborhoods but fear their applications for tax credits will not score high enough to get funded in the wake of a loss of points dictated by state law when local officials and homeowners from higher income neighborhoods object.

The “working group” setting, adopted by TDHCA to assess the interests of the parties was not well conceived to promote an intelligent exploration of the mutual interests of consumers and developers.  The results were predictable in their polarization.  To set in an auditorium where your position is outnumbered 100:1 is a bit intimidating. As consumer advocates we predictably feel overwhelmed by the imbalance of interests at these sort of meetings.  We have to trust that TDHCA will consider the interests of the hundreds of thousands of low-income families even though they were not in the auditorium.

In a broader sense, we hope that TDHCA will move beyond trying to be a neutral referee and find a way to provide direction and leadership in guiding the LIHTC program to do more for those families that TDHCA consistently documents are in greatest need in the state low income housing plan.  The Texas Legislature has a role to play in giving TDHCA the authority and mandate to lead instead of refereeing.

In the mean time, we see TDHCA’s implementation of these changes as a critical test of whether the state chooses the interests of low-income families and taxpayers or the financial interests of tax credit developers.  TDHCA can pass through a windfall of financial assistance to developers to get more of the same type of housing or it can allocate the funds to create more housing for lower-income families who have massive worst case housing needs.  It is also up to TDHCA to prioritize housing developments built in non-segregated, high opportunity neighborhoods instead of those stacked on top of one another in lower income neighborhoods.

The decision will be made by the TDHCA board at their meeting in September.

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