About this time last year, affordable housing advocates were concerned that the Republican tax reform plan would harm development around Louisville. But now some say the impact wasn’t as bad as expected.
The Low Income Housing Tax Credit is an important tool used to give investors an incentive to put capital into housing that charges lower rents. And, originally, there was worry that the Republican tax plan would do away with the lower-tier, four percent credits. Investors use both those and nine percent credits to offset their tax liability.
But the final bill saved those credits. Not only that, a subsequent omnibus spending bill boosted Low Income Housing Tax Credit allocations by 12.5 percent through 2021.
Edwin King is the executive director of the Kentucky Housing Corporation, the state’s housing agency, which typically administers about $10 million of Low Income Housing Tax Credits a year. He said the boost in credits helped offset something that made them less valuable: the lowering of the corporate tax rate.
“Some of the concerns originally were that tax reform might have an impact on the credit pricing, just because when you lower corporate rates, there’s less incentive for investors to go out and buy tax credits that are going to reduce their tax liability,” King said.
He said he’s seen some such activity, but not much, and that overall he thinks it has been a positive year for affordable housing.
But the full effects of these changes might not be felt until 2019, because developers apply for Low Income Housing Tax Credits a year in advance.
The spending bill also introduced an option for developers of affordable housing to serve tenants who have relatively higher average median incomes, as long as the overall average median income isn’t higher than 60 percent of the area median income.
Developer Andrew Hawes, of Louisville’s The Housing Partnership, said that option made it easier to create project applications for 2019.
“It gives more flexibility from a property management standpoint,” he said. “You’re not going to turn away someone who’s making 62 percent of area median income next year as you would have had to do this year,” he said.