Federal tax credits have become a less lucrative source of financing for affordable housing projects in Madison and elsewhere since the election of Donald Trump and a Republican Congress boosted the likelihood of a big corporate tax cut, new data show.
Low-income housing tax credits are awarded to states based on population. States award them to developers, and developers often sell them to investors to raise money for housing projects that can survive on below-market rents.
Buying the credits is a way for corporations to lower their tax liability, but a lower corporate tax rate could lower the demand, and thus the price, for the credits, according to Kurt Paulsen, an associate professor of urban and regional planning at UW-Madison.
That, in turn, would reduce the money available to developers of affordable housing.
“If the price of federal tax credits goes down,” municipalities “will have to dig into their own resources” to make up for funding gaps in affordable housing projects, such as with tax incremental financing or other help, Paulsen said.
As of Friday, the credit price stood at 89 cents on the dollar last month, down from $1.05 in November 2016, according to Novogradac, a San Francisco-based accounting firm that tracks their price and consults on transactions involving them.
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Work in Congress
Republicans are now trying to reconcile House and Senate versions of the tax overhaul bill approved within the last month; both would lower the top corporate rate to 20 percent from 35 percent, although the Senate bill would delay that reduction until 2019.
A spokesman for WHEDA declined to speculate on what the tax overhaul might mean for the value of the tax credits and their role in the creation of affordable housing, but Jacob Klein, president of Madison-based developer JT Klein, said he believes the likely corporate tax cut might have already been priced into the credits’ value.
In 2015, Madison launched an effort to use tax credits and other funding to build 1,000 units of affordable housing over five years, and Dane County communities in general have been struggling to make sure they have enough affordable housing for their workers.
This year, Madison was awarded $14.8 million in the tax credits over 10 years for three projects totaling 162 units on the East, Near West and West sides.