Photo: Oran Viriyincy/Flickr
Affordable housing advocates in Seattle have raised concerns that Donald Trump’s campaign promise to cut corporate taxes from 35 percent to 15 percent may have a serious impact on low-income housing development. For the past 30 years the Low-Income Housing Tax Credit (LIHTC) has financed millions of rental housing units that are affordable to low-income Americans. With a lower tax burden under Trump, investors may have less of an incentive to fund affordable housing in exchange for tax credits.
“LIHTC’s role is huge. Anybody that does affordable housing development any place in the United States depends on LIHTC for all of their projects,” Chris Persons, CEO of Capitol Hill Housing, a Seattle affordable housing developer told Next City.
Here’s how it works: The LIHTC program disburses federal income tax credits to affordable housing developers through state housing finance agencies. The developers work with investors such as insurance companies, banks or other corporate entities for funding in exchange for the tax credits. Developers receive funding for their rent-restricted housing projects, and the corporations get to reduce their tax burden. Even better than a tax write-off, the tax credits provide a dollar for dollar tax reduction. As Next City explains, “a dollar of LIHTC purchased is a dollar off the tax bill.”
In Seattle, affordable housing developers have been receiving as much as $1.15 of investor capital for every $1 of tax credit offered. The program has helped to fund more than 78,000 affordable housing units in Washington over the past 30 years, according to the Washington State Housing Finance Commission. That number was 2.4 million nationally as of 2014, according to the federal Office of the Comptroller of the Currency.
Persons of Capitol Hill Housing told Next City that because Seattle is such a hot real estate market, affordable housing developers will be in a good position to handle the reduction in LIHTC funding. Washington Senator Maria Cantwell introduced a bill last year that would expand the LIHTC program by 50 percent over five years. Affordable housing developers are watching to see how congress votes.
Other cities may not fair as well as Seattle. The impact of Trump’s campaign promise has already been felt. As National Low Income Housing Coalition President Diane Yentel told Next City, “the prospect of lowered corporate tax rates is either causing investors to hold off on investments altogether, or to provide less equity per dollar of the credit. In either case, it means less money available for the development of affordable housing.”