The Senate Finance Committee on August 1, 2017, held a hearing, "America's Affordable Housing Crisis: Challenges and Solutions," that largely focused on the bipartisan Affordable Housing Credit Improvement Act of 2017 (S. 548). The bill would make modifications to the Low-Income Housing Tax Credit (LIHTC) that include increasing state allocations, revising tenant eligibility requirements, and increasing the credit for projects to serve extremely low-income households.

Witnesses at the hearing were:

— Daniel Garcia-Diaz, Director, Financial Markets and Community Investment, United States Government Accountability Office
— Grant S. Whitaker, President, National Council of State Housing Agencies
— The Honorable Katherine M. O'Regan, PhD, Professor Of Public Policy And Planning; Faculty Director, Furman Center For Real Estate And Urban Policy, Robert F. Wagner Graduate School Of Public Service, New York University
— Kirk McClure, PhD, Professor, Urban Planning Program, School Of Public Policy And Administration, College Of Liberal Arts And Sciences, University of Kansas
— Granger MacDonald, Chairman of the Board of Directors, National Association of Home Builders

Garcia-Diaz reported on GAO's conclusion that IRS oversight of LIHTC allocating agencies is minimal and that Congress should consider designating HUD as a joint administrator of the program responsible for oversight due to its experience and expertise as an agency with a housing mission.

MacDonald, a builder, said the best solution to the affordable housing crisis is to pass S. 548, which he said provides needed additional resources and other reforms to promote the construction of affordable housing. Whitaker discussed the benefits of the bill, which he said would increase Housing Credit authority, facilitate Housing Credit development in challenging markets and for hard-to-reach populations, support the preservation of existing affordable housing, and simplify program requirements. O'Regan discussed how the bill would increase the LIHTC's flexibility and feasibility in a broader set of market conditions, streamline the credit, and more effectively meet policy goals.

McClure recommended LIHTC changes that include more rigorous market analysis, favoring rehabilitation over new construction, and favoring mixed-income development.

Chairman Orrin Hatch (R-UT) said he supports the LIHTC because it keeps decisions away from a government agency and within the communities where the housing is needed, while involving the private sector. He asked how the public-private partnership aspect of the program promotes more spending in affordable housing. Whitaker said governmental entities and the private sector work to maximize scarce resources. MacDonald said credits are allocated based on state needs, factoring in economic, housing, and demographic trends, and through a well-balanced process with lots of public and private input.

Ranking Member Ron Wyden (D-OR) said because the LIHTC is often claimed by corporate partners, reducing the corporate tax rate under tax reform could reduce the credit's value and investor demand. He also asked how the credit could be used to tie affordable housing to the location of services, like transportation, schools, and health care. O'Regan said some states have been able to focus allocations to neighborhoods that have good access to transit and good schools, and acknowledged that there should be discussion of both "the cost of housing and transportation when we think about what it is that families pay in order to make their life work."

Senator Debbie Stabenow (D-MI) talked about the loss of home equity associated with the mortgage crisis, and expressed concern about the potential for tax reform to limit the value of the mortgage interest deduction in favor of an increase in the standard deduction. MacDonald said it is important that the mortgage interest deduction be preserved and possibly augmented, and that a first-time buyer home assistance purchase program is important too.

In response to questions from Senator Maria Cantwell (D-WA), a sponsor of S. 548, MacDonald said post-election discussions of tax reform and a potential 15% tax rate have had an extreme impact on credit prices. S. 548's provision for a fixed 4% minimum credit rate for certain projects is a good way to address the problem, he said.

Senator Tim Scott (R-SC) asked about testimony regarding a lack of qualified workers in the home building industry, which prevents housing inventories from keeping pace. MacDonald discussed NAHB sponsorship of apprenticeship programs and said the high average ages for skilled labor is a "recipe for disaster" that could be reversed by parents and school counselors encouraging kids to go to trade schools, and the development of more technical programs in high schools.

Senator John Thune (R-SD) said the issue of cost recovery has surfaced in tax reform discussions, and that the current recovery period of 27-1/2 years can impede residential housing investment. MacDonald said shortening the recovery period could reduce the cost of producing affordable housing and is a widely supported idea.

Testimony from the hearing is attached.

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ATTACHMENTS

Garcia-Diaz statement

MacDonald statement

McClure statement

ORegan statement

Whitaker statement