The Party of Affordable Housing
Last year’s Ohio Housing Conference, cosponsored by the Ohio Housing Finance Agency (OHFA) and Ohio Capital Corporation for Housing (OCCH), for better or worse, occurred during the 2016 national elections, with the housing policy plenary taking place the morning after the election results were announced. (Thanks again to our panelists Michael Novogradac, Paul Weech and Bill Faith who had to rewrite their comments based on the unexpected results.)
To the thousand or more people in the room, who I am sure like the rest of America, were divided in their happiness or displeasure with the presidential election results, I stated that whatever our political differences were, we were all members of the Party of Affordable Housing.
Now that the new reality of a President Trump, his cabinet and leadership in the House and Senate are set, what does the future hold for the Party of Affordable Housing? There are certainly risks but also some opportunities. Though it is very early and much is unknown, let’s look at likely developments.
- Domestic spending and federal appropriations for housing and community development. No way to sugar-coat it, the HUD budget, along with all domestic spending, will be under incredible pressure as tax cuts, increased military spending and an infrastructure initiative collide with deficit hawks in Congress. As has been the case for years, the increasing portion of the HUD budget dedicated to Section 8 project-based subsidies competes with CDBG, HOME and others in a budget control cap and sequester environment. It is not fair, but it is what it is. And public housing, never fully funded to address capital and operating needs, will be at risk too. Hopefully the Rental Assistance Demonstration (RAD) Program will continue and grow since it is the only low cost/no cost way to address the ballooning backlog of capital needs of the public housing portfolio.
- Tax Reform. Corporate and individual tax reform will be fast-tracked. It has been 30 years since the last major overhaul of the tax code. The Tax Reform Act of 1986 gave us the Low Income Housing Tax Credit Program, now the major federal multi-family affordable housing production program. How will LIHTC fare in tax reform? We can take NOTHING for granted but there appears to be significant support for the program on tax writing committees. But even if this critical program survives, we need to be aware of the following:
- A reduction in the corporate tax rate dilutes the value of the credit since corporate investors price passive losses into their LIHTC investment. The lower the tax rate, the lower the investment for the same amount of credits. Indeed, since the election, the anticipation of tax reform has disrupted the LIHTC equity market with economic investors pulling out and many CRA motivated banks pausing or repricing deals by 10-12 cents. This increases the need to pass the Cantwell-Hatch bill which would increase credits by 50%. Some of that 50% is needed to replace the capital lost through a reduction in the corporate rate. Increased interest rates and constructions costs are not helping either.
- If the LIHTC program survives will there be technical changes made that unintentionally gut it? A tax reform policy paper issued by then Ways and Mean Chair Dave Camp preserved the program, while other credits did not, but contained significant alterations that would have greatly harmed the program.
- What will happen with Historic Tax Credits and New Market Tax Credits? At OCCH we work on many combined LIHTC and HTC projects in Cincinnati, Cleveland and other Ohio cities in transformative neighborhood developments.
OK fellow members of the Party of Affordable Housing, now that we have got the two biggies (spending and tax policy) out of the way, let’s talk about some other factors that will affect us.
- Community Reinvestment Act (CRA). Again, take NOTHING for granted, but in all of this talk about rolling back or amending Dodd-Frank, there seems to be little discussion about attacking CRA. On the wish list of regulatory relief banks have, amending CRA is not a high priority and to be fair many banks embrace, at varying levels, their CRA obligations. This is very important because as public capital is reduced, access to private capital is essential for our business.
- Certified Community Development Institutions (CDFIs). CDFIs are leveraging huge amounts of private capital around the nation. OCCH’s CDFI affiliate, Ohio Capital Finance Corporation, has -loaned over $400 million. The federal CDFI Fund within the Treasury Department makes grants and NMTC awards to CDFIs. In addition, they administer the Fannie/Freddie funded Capital Magnet Program. How will this agency and this program fare in a new administration?
- Government Sponsor Enterprise (GSE) Reform. Since the financial meltdown, there have been numerous proposals to restructure Fannie Mae and Freddie Mac. Will this finally happen? And what will happen to the National Affordable Housing Trust Fund which, like the Capital Magnet Fund, currently receives it money from these two GSEs.
All of the above items relate to existing agencies, programs and regulations. But we are potentially looking at a seismic shift that can and will result in big changes on the ways decision makers in power address issues of poverty and inequality, including housing. Speaker Ryan, in particular, has led an effort to lay the policy framework for a way forward titled “A Better Way”. If you have not done so, you should visit his website: http://abetterway.speaker.gov/.
Major themes of this document and other discussions include:
- The primacy of a job as a path out of poverty
- Eliminating current policies that discourage work and institute new policies that reward individuals as they become employed
- Align housing and TANF programs for families that can work
- Increase opportunity with increased portability of housing assistance as families move to where the jobs are
- Empowering residents
- Accountability and evidence based programs
This will be the new vocabulary in housing policy for the next few years, and I believe represents opportunities for certain initiatives that tap into these strains of thought. As a wise man once told me, fellow party members, “Democrats bring money, Republicans bring demonstration programs”. And we definitely need to be open to new ways of doing things given the huge need with the admission that the status quo of programs is not perfect.
Another phrase we must add to our vocabulary is “housing as infrastructure” as we try to correctly position our housing stock as a critical part of America’s infrastructure. Housing rehabilitation and reconstruction is job-creating activity that fits well with the reconstruction of our bridges and roads.
There are many smarter than me on these issues. I am not a Washington lobbyist but run a small nonprofit in Columbus, Ohio. As is elsewhere discussed within the email blast, OCCH had the best year in our 27- year history in terms of funds raised and invested and other mission-related activities including lending through Ohio Capital Finance Corporation, property management and supportive services through Community Properties of Ohio, and philanthropy through Ohio Capital impact Corporation.
Thanks to our many partners who, whether they know it or not, are also members of the Party of Affordable Housing. And with our Party, the real works starts after each election.
Looking forward to working with you in 2017!!!