Revise Rules to Boost Affordable Housing

WASHINGTON, DC - A nationwide credit crunch has dried up financing for affordable housing projects, even as the continuing mortgage crisis has increased the need for such rental units. Congress must act to ease the problem, preferably in the new stimulus package, until the economy improves. Federal tax credits for low-income housing drive the affordable housing market, here and around the country; about a third of all new multifamily construction is federally subsidized. To qualify for low-income housing tax credits, developers must rent to tenants earning 60 percent or less of the region's median income. Developers get money to pay for their projects by selling credits to investors, who use them as tax breaks.

Even before the current crunch, investors had begun demanding higher returns on those tax credits. But the bottom dropped out of the market late last year, bringing most affordable housing projects to a halt. The reason: Investors in tax credits like Fannie Mae, Freddie Mac, pension funds and banks, don't need the credits because profits are down.

Congress can enact two temporary measures, through amendments to the stimulus package, to make housing tax credits more attractive, even in a depressed market.

First, it can allow investors to carry over unused tax benefits for three years. Otherwise, investors have no incentive to buy credits in years when they have no profits to offset.

Second, Congress should temporarily exempt low-income housing tax credits from counting as income subject to the Alternative Minimum Tax. That would allow investors buying credits to earn additional income without tax liabilities.

Timothy Thorland, executive director of Southwest Housing Solutions, a nonprofit that has developed 400 affordable housing units in Detroit, said the economy, foreclosures and changing demographics will increase the need for affordable rentals in the next decade. Southwest, which closed its last deal in September, has an 18-unit project in a historic warehouse that it cannot finance. Neither America's cities nor its people can afford to stall such projects. Until the housing tax-credit market improves, Congress must prop it up.