In response to a shortage of affordable middle-income housing in the United States, legislators recently introduced the Workforce Housing Tax Credit Act, which includes significant financial incentives for developers, to help boost the production of affordable rental homes.
US Senators Ron Wyden (D-OR) and Dan Sullivan (R-AK) and US Representatives Jimmy Panetta (D-CA) and Mike Carey (R-OH) recently introduced the bipartisan Workforce Housing Tax Credit Act (WHTCA). As of 2021, more than 28% of renting households in the middle quintile have been cost burdened or severely cost burdened by spending more than 30% or 50%, respectively, on rent. The WHTCA would benefit Americans with significantly higher income restrictions than the Low-Income Housing Tax Credit (LIHTC), as the WHTCA is aimed at individuals with an income that is 100% or less of area median income (AMI).
If passed, the WHCTA would provide significant financial incentives to develop housing for Americans underserved by existing programs and opportunities for people to live in the communities where they work.
Credits would be awarded through a competitive process, whereby state housing credit agencies would award tax credits to developers. If the WHTCA is passed, developers could receive credits with a present value as high as (1) 50% of the eligible basis (i.e., cost) of new construction or (2) 20% of the eligible basis of rehabilitated buildings or buildings financed with tax-exempt bonds.
Each of the credits under the WHTCA would be amortized over a 15-year period. In exchange for receiving the credits, at least 60% of the building’s units must be leased and occupied by residents with incomes that are 100% or less of the applicable AMI.
While the credit would be applied over a 15-year period under the WHTCA, the income restrictions would remain in place for an extended use period that is the longer of (1) a period specified in the agreement with the awarding agency or (2) an additional 15 years after the credit period; however, subject to certain notice and other conditions, there would be certain proposed exceptions in the event of foreclosure. Curiously, there is no explicit recapture provision (as with the LIHTC). The WHTCA contemplates 30 years of compliance, but it is not clear what the consequences would be for noncompliance (there is no explicit recapture provision as with the LIHTC).
Modeled after the LIHTC program, the WHTCA provides for each state housing agency to allocate its tax credits with the amount available as determined by the population recorded during the decennial census. Each state would receive $1 per capita, with a floor of $1.5 million for states with lower populations.
If it had been enacted for calendar year 2023, the WHTCA would have provided approximately $13 million in available credits per year in Pennsylvania and approximately $7 million in Massachusetts. While those are significant amounts, they are still less than what was available under the LIHTC in 2022, which provided for approximately $36 million worth of tax credits in Pennsylvania and $18 million in Massachusetts.
Following the legislation’s announcement, a number of industry groups announced their support. The Commercial Observer reported that the National Association of Home Builders, the National Multifamily Housing Council, and the National Apartment Association have all signaled their support of the legislation. Public opposition appears to be limited, with the National Low Income Housing Coalition pushing for reforms to the LIHTC.
If passed, the WHTCA could lead to a significant increase in the supply of affordable housing. Novogradac & Co. LLP, an accounting, valuation, and consulting firm, estimates that the WHTCA could finance as many as 344,000 affordable rental units over a 10-year period.
At this stage, the legislation has just been introduced and there are no pending votes. It remains to be seen whether Congress is serious about subsidizing housing for middle-income Americans.
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