Cantwell Bill Would Increase Private Investment in Nationwide Affordable Housing Program

Legislation would create Washington construction jobs, boost local economy

WASHINGTON, DC – U.S. Senator Maria Cantwell (D-WA) says her new Job Creation and Affordable Housing Act will create jobs and increase private investment in the nation’s premier affordable housing construction program. The bill, introduced yesterday by Cantwell and co-sponsored by Senators John Kerry (D-MA) and Barbara Boxer (D-CA), would jump-start private investment in the Low Income Housing Tax Credit (LIHTC), which finances 90 percent of affordable housing projects in the United States. The program suffered a setback when the market for tax credits – which are tradable financial instruments – evaporated as a result of the financial crisis. Dramatically reduced demand for the tax credits from banks and financial investors stalled thousands of projects due to a lack of capital.
According to a report by Ernst & Young, the legislation is expected to increase private investment by at least $5 billion over what the Housing Credit would be expected to raise without legislation. That increase will translate into an infusion of jobs and housing, especially in rural communities, where this type of investment has seen the sharpest decline in recent years. In Washington state alone, 5,590 new jobs would be created through 2011, and nationally, about 160,000 jobs would be created or preserved through 2011. Most of these jobs will be in the small business sector, particularly in the construction industries, including carpenters, roofers and other trades.
“In good times, we had a public-private partnership that worked,” Senator Cantwell said. “But in a severe recession, we have seen the private part of this partnership freeze up.  The result is thousands of stalled housing projects and the loss of tens of thousands of private sector jobs. This bill gets these projects moving again with an influx of private investment, stimulating our local economy and lessening the impact of the economic downturn on our most vulnerable populations.”
The legislation will expand a popular program for states to trade in tax credits for grants, allowing projects to secure a stable source of funding until the market for tax credits rebounds.  To address the private market, the legislation generates immediate investment capital and attracts a more diverse base of private investors. Specifically, the bill would increase the “carry-back” period for LIHTC from one to five years and require tax rebates received as a result of the longer carry-back period to be reinvested in new LIHTC properties. The bill also makes the Housing Credit a more competitive investment option by building in greater flexibility in utilizing credits and making the credit less dependent on vulnerabilities in the real estate market.
The Low-Income Housing Tax Credit, the nation’s primary mechanism for developing affordable rental housing, is a permanent fixture of the tax code that provides a 70 percent subsidy for the development of affordable rental housing. States leverage this funding to attract private investment and move forward on housing projects. Since the program was created in 1986, it has helped finance more than two million affordable apartments nationwide, including nearly 50,000 in Washington, and has created 140,000 construction jobs annually.
The effectiveness of the tax credit was severely hampered by the economic downturn in 2008 and 2009. The value of the credits depends on demand by the large corporate investors, and in the slumping economy, that demand dropped sharply. These large corporate investors included Fannie Mae and Freddie Mac. As a result, funding gaps arose, and tens of thousands of housing units stalled for lack of private investment capital.
Senator Cantwell insisted on including a solution in the 2009 American Recovery and Reinvestment Act (ARRA) to address this absence of LIHTC private capital. ARRA set up a one-year Tax Credit Exchange Program, which allowed stalled deals to go forward by making it easier for states to use their allocation of low-income housing tax credits. The Exchange allowed states to receive a direct payment in lieu of a tax credit. Because of the Exchange, Washington state has been able to go forward with 21 projects representing 971 housing units and thousands of jobs. Senator Cantwell fought to have the Exchange extended for an additional year with passage of the second Senate jobs bill, American Workers, State and Business Relief Act (AWSBRA). Her new legislation would expand the exchange program so that more credits would be eligible.
For more information on LIHTC, see the following:
See a press release (April 9, 2010) from a visit Senator Cantwell paid to Bakhita Gardens, an affordable housing development project in Seattle, when she first announced her intention to introduce this legislation.
See a press release (March 10, 2010) from when the second jobs bill, AWSBRA, passed the Senate.
Click here to see a breakdown of the affordable housing investment by Washington state county as of March 2, 2010.