Housing Credit Provisions Included in Build Back Better Legislation
This week, the House Rules Committee released amended text for President Biden’s Build Back Better bill. In addition to the $150 billion in proposed housing investments that were part of the draft released on October 28, the legislation now also contains several tax priorities, including the Low-Income Housing Tax Credit (Housing Credit) and the Neighborhood Homes Tax Credit. The bill also includes $9.925 billion for the HOME program and $14.925 billion for the Housing Trust Fund program, which had been included in last week’s draft. Specifically, the draft legislation includes:
- Housing Credit cap increase. The bill would provide a cap increase of 10 percent plus inflation each year for three years from 2022 to 2024, amounting to approximately a 41 percent total increase over 2021 levels. In 2025, the Housing Credit volume cap would decrease again to $2.65 per capita or $3,120,000. In 2026 and years thereafter, the volume cap would be the 2025 amounts adjusted for inflation. The table below provides the specific amounts in each of the following four years.
- Reduction of bond financing threshold. The bill would reduce the bond financing threshold from 50 percent to 25 percent for calendar years 2022 to 2026.
- Basis boost and set-aside for extremely low-income (ELI) properties. The bill would allow states to provide a basis boost of up to 50 percent for properties in which at least 20 percent of the units are rent restricted and designated for households earning no more than the greater of 30 percent of area median income or 100 percent of the federal poverty line. At least 8 percent but no more than 13 percent of each state’s Housing Credit volume cap must be allocated to such properties. The ELI basis boost and set-aside would be permanent.
- Closing the qualified contract loophole. The bill would repeal the qualified contract option for properties receiving an allocation of Credits or, in the case of bond-financed projects, the 42(m) letter after January 1, 2022. Properties that received their allocation of Housing Credits or 42(m) letter prior to that date would still be able to go through the qualified contract process, if the owner has not otherwise waived that right; however, the qualified contract price would be fair market value as affordable as determined by the state Housing Credit agency. This change to the program would be permanent.
- Protecting nonprofit sponsors’ ability to purchase properties at Year 15. The bill would replace the nonprofit Right of First Refusal (ROFR) with a purchase option for newly financed properties. It also clarifies for existing properties that the ROFR applies to all partnership interests, including assets relating to the building such as reserve funds, and that the nonprofit sponsor may exercise its ROFR with or without the approval of the limited partner and in response to any offer, including that of a related party. The provision does not supersede express language in any existing partnership agreement. This change would be permanent.
- Coordination of Housing Credit and renewable energy credit. The bill would allow Housing Credit developers to take advantage of the Section 48 Investment Tax Credit for renewable energy equipment without a corresponding reduction in Housing Credit eligible basis.
- Neighborhood Homes Credit. The bill would establish the Neighborhood Homes Credit (NHC) to promote new construction or substantial rehabilitation of affordable, owner‐occupied housing located in distressed neighborhoods. The NHC would allow project sponsors to claim a credit to cover the difference between the costs to rehabilitate a home in a distressed neighborhood, or build a new home on an empty lot, and the price for which the home is sold. As with the Housing Credit, the program would be overseen by the Treasury Department and Internal Revenue Service, which would allocate credit authority to each state. Each state would be required to designate a single agency to award the credits, and each agency would be expected to develop a Qualified Allocation Plan for their NHC program. Each state’s NHC allocation would be equal to its state population times $3, with a small-state minimum of $4 million, except for in 2025 when the cap would be $6 times the state population or $8 million. In years 2023 to 2025, those amounts would be adjusted upward for inflation. The program would sunset after 2025.
- HOME Investment Partnerships. The bill would provide $9.925 billion for HOME available through fiscal year (FY) 2026. The bill exempts these funds from HOME’s 24-month commitment deadline, match requirements, and Community Housing Development Organizations set-aside. It also provides broad waiver authority to the HUD Secretary, other than for requirements related to tenant rights and protections, fair housing, nondiscrimination, labor standards, and environmental review.
- Housing Trust Fund. The bill would provide $14.925 billion for the Housing Trust Fund through FY 2026. Because of the way the bill is crafted, certain HOME program requirements, such as Davis-Bacon requirements and HOME’s environmental review requirements, would apply to these funds (as opposed to the different environmental review requirements that otherwise apply to the Housing Trust Fund).
With the release of the draft legislation and following months of negotiations amongst lawmakers and administration officials, Congress and the White House have taken one step closer to enacting President Biden’s agenda. The House will now have to vote on both Build Back Better and the bipartisan infrastructure package in the coming days, sending the bipartisan deal to the President’s desk for signature and Build Back Better to the Senate for a full vote.