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Designing to Close

3 min read

I’ve heard the current development environment described as playing whack-a-mole: as soon as one problem is solved, another crops up. While the challenges are many, I’m optimistic about collaboration and innovation within the affordable housing community to find a way to get to the closing table.  

Many states are issuing additional commitments of nine percent tax credits or private activity bonds to meet the 50 percent test in the face of rising costs. Robbing Peter to pay Paul will mean less resources are available in the next round, but it also creates a new urgency around passing the Affordable Housing Credit Improvement Act. I encourage you to use the August recess to invite Members of Congress and/or their staffs to your properties and help illuminate the challenges you’re facing as you try to build and preserve affordable housing.   

More states are implementing smart policies to make the best use of private activity bonds. Multifamily rental housing is the only use that generates the four percent tax credits. There are several funds to help deals close – be they funded with American Rescue Plan Act funds, by the housing credit allocation agencies or state appropriations. Developer fees generate basis and, under the right conditions, can be a powerful tool to serve as gap filler in states that may not have a legislature that allocates funding towards affordable housing.  

In the face of an estimated shortage of seven million affordable homes, we need to be focused on production and preserving the current stock. In a bear market, it’s worth reconsidering requirements within Qualified Allocation Plans to ensure scarce resources are producing as much housing as possible. And it’s not just housing credit allocating agencies. The National Association of Home Builders estimates that, on average, 40.6 percent of costs are driven by regulation. 

Cook County and Chicago passed a new tiered tax regime for affordable housing properties in which producing units targeted to certain area median incomes reduces or even eliminates a property tax liability. Check out the recording of the National Housing & Rehabilitation Association’s Property Tax Management & Mitigation Strategies webinar from November 2021 in the On-Demand Learning Center to learn more about the program. We hope this will be the first of many more similar initiatives to follow.  

For the better part of the last decade, we’ve been in a low interest rate environment. The Fed has already hiked rates four times this year with more on the horizon. Time has always been money, but now money (and time) costs more. The industry, as a whole, will have to relearn and reimplement some of the discipline higher interest rates bring. Focus on what’s truly necessary to evaluate a deal. Move away from sequential underwriting to simultaneous. Reduce duplication by sharing third-party reports, like market studies, environmental reviews and underwriting to save both time and money.  

The National Council of State Housing Agencies commissioned a report by Abt Associates to highlight creative solutions to Low Income Housing Tax Credit funding shortfalls. And NH&RA provided several recommendations. We’re excited that the topic is getting the attention it deserves and look forward to the final report.  

Kaitlyn Snyder is managing director of National Housing & Rehabilitation Association.