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Republican Tax Plan Could Hurt Affordable Housing in Louisville

Affordable housing got a boost in this year's city spending plan.
Affordable housing got a boost in this year's city spending plan.

Affordable housing development could be a victim of the proposed $1.5 trillion tax cut currently working its way through the United States Congress.

Senate Republicans worked Friday to rally on-the-fence senators to reach the 50 votes they need to pass their version of the bill, with Vice President Mike Pence breaking a potential tie. If successful, the bill would need to be reconciled with a tax bill passed by the House of Representatives before it could head to President Donald Trump’s desk.

In Louisville, affordable housing advocates are concerned about the direct and indirect consequences the tax plan would have on government agencies and housing developers.

Loss Of Tax Credits Could Reduce Affordable Housing

One vulnerable — and valuable — tool is the Low Income Housing Tax Credit. With it, developers can purchase a credit toward their tax liability. This makes it more economical to build affordable housing.

Developer and architect Steve Kersey is behind theaffordable housing project that could open at Norton Commons later this month. Asked whether he would have pursued the project without low income housing tax credits, he said, “Absolutely not.”

Currently, developers can buy either nine percent or four percent credits. The four percent credits rely on the sale of so-called “private activity bonds,” which the House version of the bill eliminates. The Senate version retained those bonds, but if the bill passes and returns to the House, their future would be uncertain.

These credits lower developers’ costs, a savings that Kersey said is then passed on to renters. The monthly rent for most three-bedroom apartment in his development will be $850 a month, Kersey said. Similar units at Veranda at Norton Commons, a market-rate apartment complex, range from about $1,600 to $2,000 a month, according to its website.

Without the credits, Kersey said developers won’t be able to provide affordable housing in more affluent communities with amenities such as good schools and parks.

“It’s a terrible thought,” he said. “[Low-income residents] are already sort of the most vulnerable in society and here we are oppressing them even more by taking these options away. It’s just not a good idea in my view.”

'You Need That Extra Boost' From The Government

Cathy Hinko, executive director of the Metropolitan Housing Coalition in Louisville, said low income housing tax credits are not perfect, but they're what affordable housing developers currently have.

“Tax credits are very important right here in Louisville, right now,” she said.

Hinko said there are other things about the plan that worry her, too. Changes to the mortgage interest deduction would benefit only the wealthiest homeowners. The end of deductions for student loan debt interest would make it harder for individuals to rent or buy. And changes to the affordability of healthcare would also take a bite out of many people’s housing budgets, she said.

The tax plan also proposes dropping the corporate tax rate from 35 percent to 20 percent. If that succeeds, Hinko thinks developers will find the tax credits — and the projects they fund — less attractive.

“The overall lowering of corporate tax rate altogether, we think, will have a chilling effect on whether somebody wants to bother with low income housing tax credits,” she said.

Weyland Ventures CEO Mariah Gratz disagreed. She said as long as firms have a tax burden, the credits still have value.

Gratz said her Louisville development firm firm has previously used low income housing tax credits. It also uses historic tax credits, which would be eliminated in the House version of the bill and cut in half to 10 percent in the Senate version.

She said any hit to these tax credits would make it harder for developers to deliver affordable housing or to build in under-invested areas. The credits fill a financial gap for developer and investors who can’t get loans that cover the entire cost of  project, she said.

“In general, these are difficult projects to get done,” Gratz said. “Especially in areas that haven’t seen a lot of development in a long time, you need that extra boost and investment from the government in order to get it going.”

Local Housing Agencies Could See Cuts

Another looming question: If Congress passes tax cuts, how will the government pay for them?

Tim Barry, executive director of the Louisville Metro Housing Authority, said some federal agencies will pay the price. His agency is funded by the U.S. Department of Housing and Urban Development (HUD). If HUD’s funding gets cut, it could impact the Metro Housing Authority’s ability to rehabilitate and recondition housing units in Louisville, he said.

Barry said it will be a long time before HUD’s budget is known, perhaps even into the next fiscal year. For the Metro Housing Authority, that makes planning hard. He said the best barometer at the moment is the budget proposed by the Trump administration in May, which indicated cuts to both operating and capital budgets.

“The capital was the most significant, which was about 30 percent cut in the overall capital fund, which would impact us to the tune of about $2.5 million a year,” Barry said. He emphasized that there’s no way to know how the budget will turn out.

Barry said his agency is already under-funded. In a city where the waiting list for public housing already numbers more than 3,500, Barry said further cuts could impact a lot of citizens.

“The problem is we’ve got so many people that need housing,” Barry said. “There’s a huge absence of adequate affordable housing in this community and that’s the case everywhere.”

Amina Elahi is LPM's City Editor. Email Amina at aelahi@lpm.org.