While our society is still reeling from a devastating pandemic, we need to think about rebuilding a more sustainable, resilient and socially just economy than the one we had before COVID-19. This goal cannot be achieved without confronting the overwhelming shortage of affordable and safe housing in our country’s economic engines like New York and California, and across our country.
Over the next few weeks, Congress has a unique opportunity to tackle a major obstacle to building more affordable housing – the bottleneck caused by the limit on housing bonds that states and cities can issue each year. As our nation faces a growing housing and homelessness crisis, New York and California are among a growing number of states whose affordable housing pipelines exceed their bond volume cap.
In California and New York, more than 70% of very low-income households pay more than half their income in rent. Additionally, the two states collectively had more than 250,000 homeless people before the pandemic.
Congress has a rare chance to tackle this problem head-on by including key provisions of the Affordable Housing Credit Improvement Act (AHCIA) in the infrastructure budget reconciliation package. This action would create an additional 1.5 million affordable homes across the country over the next 10 years.
One of the most significant provisions is a change in federal law that would lower the housing bond limit — the so-called 50% test — to 25%. Reducing the amount of Private Activity Bonds required for each affordable housing project to access valuable 4% Low-Income Housing Tax Credits (LIHTC) would directly address one of the biggest constraints to the financing more affordable housing. Instead of competing for funding that could go to other programs, this legislative change allows states to make the most of existing resources, and high-volume issuers like New York City could roughly double the amount of much-needed affordable housing produced with housing bonds. .
To make this change particularly significant, there are two additional considerations. First of all, the lowering of the bond limit should be enacted permanently, or at least for a significant duration. This will allow the industry to adapt to the new funding model. Second, it is important that Congress couple the lower benchmark with an expanded ability for issuers to reuse or “recycle” old bond allocations.
These proposed changes to some will seem difficult to understand, but sometimes very specific policy adjustments can make a big difference. On the other hand, some might think this is too big a change, but these proposals have broad bipartisan support. The 50% test lowering and bond recycling expansion are included in the AHCIA, and the 2020 version of the AHCIA was co-sponsored by more than half of the House of Representatives and more than 40 senators. Given that political will and the fact that housing bonds and the LIHTC are the most powerful federal tools we have to build affordable housing, this congressional action is the most effective way to spur production and preservation. of the housing supply which is sorely lacking in our country.