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How Tax Reform Speculation Is Already Hurting Affordable Housing, And How Ben Carson Can Help

Executives throughout the real estate and business community have been eagerly awaiting corporate tax cuts now that the GOP controls the White House and Congress, but affordable housing developers are not so thrilled about the idea. 

DC Housing Finance Agency Executive Director Todd Lee and CohnReznick partner Winell Belfonte at a 2017 Bisnow event.

While passage of tax reform is likely still months away, real estate finance experts say that uncertainty around Trump's tax proposals is already hurting affordable housing development. Cutting corporate tax rates would bring down investor demand for the Low Income Housing Tax Credit, the main driver of affordable housing development, reducing the value of the credits.

Speculation around these impending tax cuts has already caused credits to be priced 15 to 20% lower, DC Housing Finance Agency executive director Todd Lee said, making it harder for developers to finance affordable housing deals.

"We’re starting to see some impact," Lee, speaking on the finance panel at Bisnow's Sixth Annual DC Region Affordable Housing event Thursday morning, said. "There have been some deals we’ve been working on for a number of months that post-election didn’t work when it used to work. The gap was a little bit wider."


Telesis general counsel David Godschalk, who works on structuring real estate tax credit financing, said this gap makes it harder to finance projects and will have a major impact on affordable housing supply. 

"We are really entering a period of significant uncertainty that I suspect is going to result in real reductions in affordable housing production, both here and nationally," Godschalk said, "at a time that we really need them most."

With fewer deals able to get done, Hunt Mortgage vice president Kristofor Peterson said it becomes important to prioritize the most vital ones. 

"The deals that are more needed will get pushed up to the front," Peterson said. "Maybe developers are working on five at the same time, but they have to allocate which one is most viable given the current environment and how can I get it there." 


The reduced value of tax credits comes from speculation over tax reform rather than policies the Trump Administration has already taken. Developers suggested some actions the Department of Housing and Urban Development, under Trump's nominee Ben Carson, could take to help alleviate this problem.

Dantes Partners managing principal Buwa Binitie said HUD should reform Qualified Census Tracts, the way the agency designates difficult development areas for LIHTC purposes.

"We’re in neighborhoods now where we are no longer in the qualified census tract, which doesn’t make sense," Binitie said. "That’s one of the big things we’ve been pushing on a national level, to get HUD to realize this is a simple fix for which they could really help us secure additional resources." 


Even though HUD won't have direct control over the level of funding for the LIHTC program, which Congress determines, Montgomery Housing Partnership president Robert Goldman said Carson has an important role to play.

"He should really be advocating for the tax credit program," Goldman said. "Not just more credits, but finding a way to prop up the value of the credits. You could tweak the program, maybe 30% boosts for all projects, or other things that can prop up the value, so you don’t have a gap." 

DC Department of Housing and Community Development director Polly Donaldson said the District is aiming to help fill the financing gap by leveraging private investment with its $100M trust fund program.

Washington, D.C., Mayor Muriel Bowser speaking at Bisnow's affordable housing event.

Mayor Muriel Bowser, who closed out the event, said her administration is examining ways to increase the District's investment beyond the $100M annual pledge. As for working with the new White House, Bowser is still in wait-and-see mode. 

"We want to see if the new tax policies or new and different ideas that come out of HUD will affect the District’s development," Bowser said. "It has been our position since election day to really scan the environment, look into the policies that have been discussed over the last year and get ready for what might be presented, especially where we see vulnerabilities. We also see some opportunities, but we do see vulnerabilities."