CEO at Lincoln Avenue Capital, one of the nation’s fastest-growing developers, investors, and operators of affordable housing.
As the nationwide coronavirus vaccination campaign gains momentum, many Americans have begun to eagerly plan for a post-pandemic world. Yet, in many communities across the country, there is little nostalgia for the pre-pandemic status quo, which for many was defined by housing insecurity, economic disinvestment and limited educational opportunities.
Reinvesting in America’s communities is inseparable from providing access to safe, high-quality and affordable homes. Today, housing insecurity looms large over families, affecting their mental and physical health. For instance, according to Bloomberg City Lab, a recent study found that “being evicted or falling behind on rent takes a toll on the amount of sleep people get.”
America is primed for a once-in-a-generation policy reset. As policymakers steward through Congress a range of legislative ideas to strengthen communities for the next half-century, addressing the nation’s affordable housing crisis must be top of mind.
Tackling this challenge should begin with synchronizing federal housing finance policies, which now operate in opposition to one another. Currently, the development of affordable housing in the United States is driven by the interplay between low-income housing tax credits (LIHTCs), in the form of 4% and 9% credits, and private activity bonds (PABs). These are the two primary mechanisms public agencies use to encourage the private development of affordable units.
Congress recently fixed the value of the LIHTC — which previously floated in accordance with market conditions — at a 4% floor. Experts project that this change alone could help create more than 130,000 units of affordable housing over the next decade.
While this is an important step forward in confronting our nation’s housing deficit, another major regulatory obstacle remains. An outdated federal regulation from 1989 requires most affordable housing developers seeking LIHTCs to finance at least 50% of their projects with PABs.
Known informally as the “50% test,” this requirement has constrained the development of affordable units in many markets. Volume caps limit the number of PABs states can issue each fiscal year. In many states, developers’ demand for PABs — often required for the project to qualify for LIHTCs — quickly outstrips the state’s supply, forcing developers to shelve additional affordable housing projects and communities to go without the units they need.
LIHTCs and PABs are intertwined; to reform one without addressing the other makes for inefficient policy. To establish synchronization, Congress can reform the 50% test and help create an opening for communities to get the affordable units they need. If the current 50% baseline were reduced to 25%, for example, researchers estimate this would help build or preserve more than 1.4 million units of affordable housing over the next 10 years.
However, developing affordable properties involves more than simply reforming policies. Notorious misconceptions about affordable housing are also harmful. Developers, lawmakers, community leaders and other stakeholders must work together to actively educate Americans about the significant communal, environmental and societal benefits that quality affordable units confer.
Affordable housing, for example, increases local job creation and economic security for families. It helps reduce homelessness and gets Americans off the streets, a significant challenge in many of the country’s metropolitan hubs. It has been found to leave property values in surrounding communities unchanged, and in some cases increases the value of nearby homes. It allows folks to live near their workplaces or schools, taking cars off the road, reducing commutes and carbon emissions and potentially countering the effects of climate change.
The pandemic has created an opening for bold action that could recalibrate America’s housing institutions for the better part of the coming century. But this opening will not last forever — and we must leverage this opportunity to get it right for all Americans.
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