Multifamily Builders Back Homeownership Tax Credit
Multifamily developers with extensive experience producing affordable rental apartments using the Low Income Housing Tax Credit (LIHTC) program have voiced support for the enactment of the proposed Homeownership Tax Credit (HOTC), a top legislative priority of NAHB.
NAHB policy supports both the tax credits as two independent and viable tax programs that are needed to foster the creation of affordable rental and homeownership opportunities across the country.
The Homeownership Tax Credit is designed to boost the availability of quality housing and homeownership opportunities in distressed neighborhoods that are generally located in Census tracts where average incomes are not more than 80% of area median income and residents would be unable to afford the market value of newly constructed or renovated homes.
The homeownership credit would lower construction costs by providing a tax credit equal to the present value of 50% of the eligible basis of a qualified residence. Detached single-family homes, row houses, condos, co-ops and manufactured homes would all qualify for the credit. The goal is to produce 50,000 new and rehabilitated homes annually with the credit.
“Multifamily developers are supportive of the Homeownership Tax Credit,” said Bob Nielsen, president of Shelter Properties in Reno, Nev., and a member of NAHB’s Housing Credit Group, the specialty membership group within NAHB Multifamily that serves LIHTC developers, owners, managers and investors. “The tax credit program has been the primary catalyst for affordable rental housing in this country for almost two decades,” he said. “The Housing Credit Group is confident that the HOTC will be just as effective in producing for-sale homes that are affordable to America’s working families.”
Although the HOTC is modeled on the Low Income Housing Tax Credit, it does have some fundamental differences. In contrast to the LIHTC, which is paid out over a 10-year period, the HOTC is paid out over a five-year period to the developer or to investors who purchase the credit from the developer. Once the home is sold to a qualified buyer, only that buyer would be subject to a possible recapture or loss of tax benefits if the property is sold or converted to a rental property during a required holding period.
As a result of these differences between the credits, there is more risk associated with investments in the LIHTC than the HOTC. Rates of return are expected to reflect the risk differences.
The congressional Joint Tax Committee estimates that the HOTC will have a substantial impact on federal tax revenues, with a projected tax revenue loss of $16.4 billion over 10 years. However, NAHB calculates that the 50,000 new and rehabilitated homes produced annually under the credit would generate $2 billion of private equity investment and $6 billion in total investment and produce an estimated 122,400 jobs, $4 billion in wages and $2 billion in taxes and fees. More than half of the jobs (66,150) would be in industries other than construction.
During the last Congress, there was widespread support for the HOTC. More than 300 members of the House of Representatives cosponsored the proposal. In the Senate, 54 Senators sponsored the legislation, which was introduced in three different bills. The Administration also has consistently supported creating a credit, as indicated in its budget proposals.
The credit is expected to get renewed consideration in the new Congress, along with other tax proposals.
Don't Miss the 2005 NAHB Multifamily Pillars of the Industry Conference
Attend the NAHB Multifamily Pillars of the Industry Conference, the premier industry event for the multifamily industry, on April 3-6 in Miami, Fla. Pillars sessions were developed by multifamily executives for multifamily executives. To register or for more information, click here.