The Senate is moving to dramatically expand the housing tax credit programs responsible for virtually all new affordable housing in America.
In 2015, a quarter of renter households in the U.S. paid more than half their income toward their rent. That’s just one of the figures that define the affordable housing crisis, a slow-motion catastrophe that, by 2025, may consume more than 15 million Americans. The Senate Finance Committee just held a hearing to figure out what to do about it.
“Several people mentioned the 25 percent increase in renters over the last 10 years, which is the largest on record,” said Senator Maria Cantwell of Washington State during Tuesday’s hearing. “That is just unbelievable to me—unless you stop and think about the implosion of the economy during that time period, and then you realize, yes, those who were on the last rung of the ladder literally fell off the ladder.”
The hearing focused on a bill proposed by Cantwell that is designed to spur new affordable housing investment and construction. S. 548—the Affordable Housing Credit Improvement Act of 2017—would expand and reshape the Low Income Housing Tax Credit program, which is responsible for 90 percent of the new low-income housing built in America today. If passed, this bill could create or preserve some 1.3 million affordable homes over 10 years, about 400,000 units over the current projections.
First introduced by Cantwell and Utah Senator Orrin Hatch last year, the Affordable Housing Credit Improvement Act has the support of more than 2,000 housing organizations from all 50 states. More importantly, it has achieved something increasingly rare: participation from lawmakers on both sides of the aisle. The eleven co-sponsors for the 2017 version of the bill include Republicans Dean Heller, Lisa Murkowski, and Susan Collins as well as Democrats Charles Schumer, Cory Booker, and Patrick Leahy. Not every bill can claim as much!
After the hearing, CityLab spoke with the Washington senator about the state of affordable housing, political baseball in the Senate, and the different ways that Seattle and Spokane get things done. Our conversation has been edited and condensed.
First things first: The Affordable Housing Credit Improvement Act changes the name of the current credit mechanism, the Low Income Housing Tax Credit. Why the change in the frame?
Part of the issue is that, in this moment, affordability is ripe in everyone’s mind, but they don’t know how it’s affecting everyone. There’s a huge increase in the population that no longer is paying less than 50 percent of their income in rent—they’re paying more than 50 percent in rent. We really wanted to accentuate the demographic shift that’s happening. If we want to address the demographic shift, we’re going to have to do something in increasing the tax credit.
Can you explain the 50 percent basis boost, and how that will add to the value of the affordable housing credit?
In the simplest terms—and this is something that everybody knows about—there are a lot of people who’ve gotten a lot richer in America, and there are a lot of people who’ve gotten a lot poorer in America. Those people who have lost out are now struggling with paying for housing.
Understanding the lack of supply and the shift in the demographics is key to trying to figure out our way out of this situation. One of the things that’s most important to understand is this 90 percent issue. The majority of affordable housing is built with the tax credit. If you’re not going to increase the tax credit, I don’t know how we’re going to build any more. I do think Amazon and Paul Allen in Seattle are trying to help. But, in general, we’re not going to get through this without increasing the tax credit.
This bill aims to prohibit local approval, or really, disapproval, over where affordable housing credits can be used. Can you discuss this problem and what the bill’s solution is?
It doesn’t really prohibit it. It basically says, if the zoning allows it, it should take place. The issue isn’t whether locals still get to say. It means they can’t X it out once they’ve already approved it.
So a housing credit can’t be overturned when, say, a neighborhood decides they don’t want that affordable housing to be built there?
[Neighborhoods] can’t be a veto on something that already has zoning approval.
Signals from the Republican leadership in Congress that they plan to dramatically cut the corporate tax rate have already diminished the value of housing tax credits. Will expanding the basis for the affordable housing credit work if Congress cuts the tax rate from 35 percent to 20 or 15 percent?
You heard a little bit of that discussion today. I was asking about whether the discussion of tax reform had hurt access to capital in these markets, and people said that it had. Look, I don’t know how to predict what’s going to happen with tax reform or the twists and turns in the legislation. I just know that by 2025 we’re going to see an even larger number of Americans in this situation—15 million. That’s what I know. I’m going to focus on that. Clearly, there are discussions of tax reform that do suppress this.
This bill describes “difficult-to-develop” areas, with a focus on Native American populations. Is that category a new addition with this bill, or a change in the tax credit program?
Let’s say it this way: You could have projects that are brought to the state commissions by Native Americans, and there are projects that have gotten approved. This language allows for more flexibility and a higher rate of those projects being built. To me, I would go crazy here and invest even more, just because we have such dilapidated conditions in parts of Indian Country, and this is what it would do to push that forward and stabilize a lot of communities—I’d be for it.
But, when you have this much demand, what’s happening at the local level is that you have [for example] the YWCA pitted against the downtown mental health association—you’re just pitted against a lot of people. It’s very hard to make this small amount of capital that’s available work across so many groups. This is just one way of making sure those rural areas and more outlying areas keep getting investment.
Do you think the affordable housing credit basis should be expanded even further?
Oh—this 400,000 units would take care of maybe 20 percent of the problem.
So there’s more work to be done in expanding this credit?
I’m very convinced this is a very big problem that is costing us money. We’re spending the money; we’re just not dealing with the problem.
And if we could do so more cost effectively, then we also could also give a boost to the economy, because the housing investment and the development is a boost and a job creator in and of itself. And you’re helping put these individuals on a better par with their income and opportunities for the future, too. To me, I would do more.
I was just home this past weekend, and somebody said to me at one of our forums, “My gosh, we could be so go-go, if we just had health care and housing.” This was in southwest Washington where the crisis is so real. And she meant: The other barriers to us, and challenges we face, to my constituents don’t seem so real or challenging. How to build a product, how to ship a product, how to build overseas markets, how to win economically. My constituents aren’t sitting around fretting about that. But they are fretting about how you take a population and make sure they get access to health care and housing. They’re like, “If we take care of these things, we’re off to the races”—that’s their view.
To me, on housing, we could do even more. I’m just trying to be cognizant of where our colleagues are and how much they’re willing to do. The exacerbation of the problem is something people should not ignore. You can close your eyes, but this cost is not going away. I would say every one of my colleagues sees that when they go home and they walk around their states. They hear about it in one form or another.
In contrast with the health-care bill process especially, this affordable housing bill does seem to have a lot of bipartisan support. How close is this bill to being something workable that can go before the Senate?
The program itself has had bipartisan support for decades. That’s the good news. We have a crisis; we have something that we know is a known, bipartisan program that people believe in. The question is, can we deal with this problem?
I actually think [senators] see it a lot. They just didn’t know what was causing it, or they didn’t know the numbers. We were trying to get them to understand, this has been a huge shift in a 10-year period of time, both on the lack of production and on the increase in the population that has fallen out of affordability. These are huge demographic shifts. It’s only going to get worse by 2025, and we’re not going to get out of it, unless we do something.
In that regard I feel like we made some good progress in getting people to understand that, and I took the seriousness of the questions to be a good sign.
I wonder, though, with comprehensive tax reform looming in the future—which we know is a priority, even if we don’t know when or if Congress will come to it—can a tax bill like this move forward when there is a much larger tax question to be settled?
I had a chance to meet with the vice president [Mike Pence] earlier in the year, and I told him about this proposal. He said, “Maybe that’s something that can go into tax reform.” I said, “With all due respect, Mr. Vice President, I believe in base hits.” I know they want to swing for the fences on tax reform, but having a base hit is a good start to get where we need to go.
This question is more philosophical. I want to ask you how you think the incentive should be structured. Do you try to design the credits to only serve the most vulnerable families first—the extremely low-income households making below 30 percent of area median income? Or should the incentive be staggered to build some new affordable housing at different income levels from the start?
The challenge is, right now we feel like the states have a very good framework for dealing with the problems. We want them to figure out those issues and [we want to] not be as prescriptive at the federal level. We do want people to understand the current emerging need of the very lowest sector. In the state of Washington, we’ve seen great success here. It hasn’t been a problem in the context of the number of projects that we have seen address this [very low income] population.
I’m very proud of Seattle. I’ve seen unbelievable projects in downtown Seattle. I feel like the cities and the states really have a handle on these populations. Seattle has huge issues right now—huge. I would want them to have as much flexibility as possible to deal with that population the way they want to.
Spokane might deal with a little differently. It benefits both. There’s a big project that was just finished in Spokane. They took a dilapidated hotel that had been a landmark in the downtown area and turned it into affordable workplace housing. It’s different than what would happen in downtown Seattle. They have a facility [downtown] dealing with the senior population with mental-health issues. They wanted it to be right downtown, close to health care and other resources. You’ve got to give the cities a little flexibility, and use the state commission to figure out what they want to do.