In 2016, the American people elected a president and Congress that campaigned on the promise of tax cuts and tax reform — a promise intended to create a more prosperous future for America. While lower corporate and individual taxes could benefit many Americans, the proposed legislation, which Republicans finalized Wednesday and plan to send to President Trump to sign next week, deals a significant blow to the affordable housing industry, and this will be anything but good for our country.
Our nation is in the throes of an affordable housing crisis, exacerbated by the housing bubble and crash of the last cycle, and South Florida is at the center of the storm. Miami is the most “cost-burdened” city in the country, with more than two-thirds of our residents spending more than 40 percent of their income on rent and utilities.
As a private business owner, I stand to benefit from the proposed GOP tax reform plan. As the largest affordable housing developer in Florida, however, I believe the plan will negatively impact Floridians. Here’s why:
The Low Income Housing Tax Credit (LIHTC), created by President Reagan and Congress in the Tax Reform Act of 1986, lies at the heart of how our nation finances affordable housing. This program — which has been responsible for the creation of over 3 million affordable apartments since it was enacted — allows developers to sell tax credits to private investors, who get a dollar-for-dollar offset on federal taxes, in order to raise equity to buy, build or renovate affordable housing. Around 80 percent of the financing for affordable housing comes from LIHTC equity.
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The GOP bill preserves the LIHTC program, but the lower corporate tax rate — a reduction from 35 percent to 21 percent — diminishes the value of the credit, effectively removing incentives for the private sector to invest in affordable housing. To give you a sense of the impact, analysis by real estate accounting firm Novogradac & Company estimated that a corporate tax rate reduction would translate into a loss of $1 billion to $2 billion annually to the affordable housing industry.
This would be disastrous for many low- and moderate-income Floridians, who are already struggling to find affordable housing. It would also be bad for the economy at large, as the affordable housing industry generates thousands of jobs each year.
Fortunately, the legislation that came out of committee on Wednesday does restore tax-exempt private activity bonds, which were eliminated in the House version of the tax bill. Used in conjunction with tax credits, these bonds help finance more than 40 percent of all affordable housing built today — communities like Courtside Apartments, an award-winning property in Miami’s historic Overtown neighborhood with below-market rents of $760 to $990 a month.
Join me in imploring our lawmakers to ensure that tax reform legislation protects incentives that have been successful over the past three decades in creating affordable housing. Furthermore, let’s ask Congress to make a bold and sustained commitment to addressing the affordable housing crisis by expanding successful affordable housing programs to offset the corporate tax rate reduction. Advancing legislation like the Affordable Housing Credits Improvement Act — a bipartisan bill now making its way through Congress that would expand the LIHTC program by 50 percent and create close to 400,000 additional affordable homes over the next decade — would be one way to do that.
The American people voted for tax cuts and reform in 2016 and we need to accept the political reality that the Republican Party must pass a bill in order to have any chance of retaining control of Congress in the 2018 mid-term elections. However, if America is going to truly be “great” again, we need to ensure more people have access to safe, clean and affordable housing. Now is the time to grow our supply of affordable housing — not shrink it.
Matthew Rieger is president and CEO of Housing Trust Group in Miami, the leading developer of affordable housing in Florida.