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March 12, 2018 www.novoco.com
Game Changers for Affordable Housing
for National League of Cities’ Congressional Cities Conference
Peter LawrenceDirector of Public Policy and Government Relations
peter.lawrence@novoco.com
Novogradac & Company LLP
@NovocoPolicy
Agenda
Tax Reform?
Key Changes to Impact the Low-Income Housing Tax Credit
Impact on New Markets and Historic Tax Credits
Opportunity Zones
LIHTC Legislation
www.novoco.comMarch 12, 2018
Low-Income
Housing Tax
Credit
Private activity bonds retained (over half of
affordable housing production)
MORE
THAN
HALF
www.novoco.comMarch 12, 2018
Low-Income
Housing Tax
Credit
Inflation factor changed to:
“CHAINED CPI”Will reduce future 9% LIHTC and private activity bond
volume cap per-capita/small state minimum amounts.
www.novoco.comMarch 12, 2018
Low-Income
Housing Tax
Credit
Lower Corporate Rate
Interest Expense Limitation
• Most LIHTC partnerships expected to elect out and shift to Alternative Depreciation System (ADS) for rental housing
100% Expensing through 2022 for:
• Site improvements, and
• Furniture, Fixtures & Equipment
Likely negative impact of the Base Erosion and Anti-abuse Tax (BEAT)
www.novoco.comMarch 12, 2018
9 Percent Property
Assumes 4.5% – 5.0% investor level yield in all scenarios
Results may differ based on a change in underlying assumptions.
Property not eligible for 30% basis bonus
35%
21%
$0.95
$0.95
$0.82
$1.00
$1.00
$0.87
$1.05
$1.05
$0.90
$1.10
$1.10
$0.95
Price per Credit
www.novoco.com
4 Percent Tax Exempt Bond Property
35%
21%
$0.95
$0.95
$0.81
$1.00
$1.00
$0.86
$1.05
$1.05
$0.89
$1.10
$1.10
$0.93
Price per Credit
March 12, 2018
Effect of Tax Reform on LIHTC Equity Pricing
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Affordable housing community had already lost investment and production in 2017
March 12, 2018
www.novoco.comMarch 12, 2018
www.novoco.com/blog
www.novoco.comMarch 12, 2018
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BEAT
INCREASED
VOLUME OF
SECONDARY
MARKET
TRANSACTIONS
FANNIE MAE
FREDDIE MAC
REDUCED SIZE
OF ANNUAL
EQUITY
MARKET
CAULDRON OF
AFFORDABLE
HOUSING FUTURE
www.novoco.comMarch 12, 2018
New
Markets
Tax Credit
• No statutory changes to section 45D
• 2017, 2018 and 2019 rounds from the PATH Act in
2015 remain at $3.5 billion each
– House bill had originally eliminated 2018 and 2019
rounds
• Efforts to extend or make the NMTC an indefinite part
of the internal revenue code likely included in a future
extenders package
• Corporate AMT repealed
• Unlike LIHTC, lower corporate rate is a slight positive
for NMTC because investors pay taxes on gains at exit
March 12, 2018
Historic
Rehabilitation
Tax Credit
• House would have dropped the HTC entirely; Senate
bill prevailed
• The 10 percent non-certified rehabilitation credit (for
pre-1936 buildings) is repealed
• 20 percent historic rehab credit is claimed ratably over
5 years
• Pricing may drop 7% to 15% due to changes
March 12, 2018
Investing in Opportunity Act
• Allows investors with capital gains from sale of assets to defer those gains
– Similar in concept to Section 1031 “Like-Kind” exchanges
• Creates new incentive to invest capital gains in low-income communities
• Authorizes the designation of “opportunity zones”
• Governors (and DC Mayor) responsible for designating these zones by end of March
• Encourages investors to pool resources and risks in “Opportunity Funds” (O Funds).
Investors can temporarily defer capital gains recognition if they reinvest in these zones
• Incentivizes long-term investment by stepping up basis
– 10 percent step-up after 5-year hold, 15 percent step-up after 7-year hold
• Provides shallower subsidies per investment than the NMTC, but can be used on a
greater scale
March 12, 2018
More LIHTCs via
Affordable Housing Credit Improvement Act
50 percent increase
Income-averaging
Minimum 4 percent rate
CANTWELL HATCH
TIBERINEAL
RETIRED
Curbelo, R-FL-26
March 12, 2018
50 percent increase
Income-averaging
Minimum 4 percent rate
More LIHTCs via
Affordable Housing Credit Improvement Act
CANTWELL HATCH
TIBERINEAL Curbelo, R-FL-26
RETIRED
www.novoco.comMarch 12, 2018
More LIHTCs via
Affordable Housing Credit Improvement Act
CANTWELL HATCH
Curbelo, R-FL-26
www.novoco.com
TIBERINEAL
50 percent increase
Income-averaging
Minimum 4 percent rate
RETIRED
March 12, 2018
TIBERINEAL
More LIHTCs via
Affordable Housing Credit Improvement Act
CANTWELL HATCH
Curbelo, R-FL-26
50 percent increase
Income-averaging
Minimum 4 percent rate
RETIRED
Note these assumptions:
• Assumed that states will increase
their tax-exempt bond issuance for
multifamily by 25%
• Assumed the absolute amount of
soft subsidies going to tax exempt
bond properties would remain
unchanged
• To the extent that there is less
deferred developer fee, that is offset
with more taxable bond financing
Approximately 131,000 more units over 10 years
www.novoco.comMarch 12, 2018
More LIHTCs via
Affordable Housing Credit Improvement Act
Additional Resources
• Give states discretion to provide 30% basis boost for
bond-financed projects
• Increase DDA designation from 20 to 30%
• Repeal QCT population cap
• Relocation costs included in eligible basis
• No basis reduction for certain energy tax incentives
• Indian areas generally treated as DDAs
www.novoco.comMarch 12, 2018
More LIHTCs via
Affordable Housing Credit Improvement Act
Financial Feasibility
• 50% basis boost for ELI units
• Modify student occupancy rules
• Codify increased tenant income guidance
• Modify 10-year rule (limits apply to acquisition basis)
• Adopt uniform income eligibility for rural projects
www.novoco.comMarch 12, 2018
More LIHTCs via
Affordable Housing Credit Improvement Act
Other
• Modify voucher rent-setting rule in LIHTC
• Clarify the community revitalization plan
• Prohibit local approval or contribution requirements
• Add selection criteria for Native American areas
• Restriction of planned foreclosures
• Clarify casualty loss rule
• Convert ROFR to purchase option
• Change the official name of the LIHTC to Affordable
Housing Tax Credit
www.novoco.comMarch 12, 2018
www.novoco.com
FY16 Enacted FY17 EnactedPresident’s
FY18 Request
Senate
FY18 Bill
House
FY18 Bill
President’s
FY19 Request
Housing Choice Vouchers $19,628 $20,292 $19,317 $21,365 $20,486 $20,015*
Project-Based Section 8 $10,620 $10,816 $10,751 $11,507 $11,082 $10,866*
Public Housing Operating Fund $4,500 $4,400 $3,900 $4,500 $4,390 $3,141*
Public Housing Capital Fund $1,900 $1,942 $628 $1,945 $1,852 $0
Section 202 $433 $502 $510 $573 $576 $563*
Section 811 $150 $146 $121 $147 $147 $132*
HOPWA $335 $356 $330 $330 $375 $330
CDBG $3,000 $3,000 $0 $3,000 $3,010 $0
HOME $950 $950 $0 $950 $850 $0
Homeless Assistance $2,250 $2,383 $2,250 $2,456 $2,383 $2,383
Choice Neighborhood Initiative $125 $138 $0 $50 $20 $0
Overall (gross) $46,978 $48,055 $40,722 $49,942 $48,034 $41,240
Note: amounts in millions
HUD Budget
*Administration FY19 “addendum” proposes to add $1 billion to vouchers, PBS8, Public Housing Operating Fund, Section 202 and Section 811 rental assistance for seniors and people with disabilities.
March 12, 2018
March 12, 2018 www.novoco.com
Game Changers for Affordable Housing
for National League of Cities’ Congressional Cities Conference
Peter LawrenceDirector of Public Policy and Government Relations
peter.lawrence@novoco.com
Novogradac & Company LLP
@NovocoPolicy
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