By Andy Medici | The Business Journals
Developers and builders could benefit from a new $2 billion tax credit to renovate or build affordable housing under recently introduced federal legislation.
The Neighborhood Homes Investment Act would create a tax credit to cover the value between the cost of buying and renovating or building a property in a low-income area and the sales price, potentially creating 500,000 affordable homes over the next 10 years.
The potential tax credit has the backing of the Neighborhood Homes Coalition, an umbrella group of 36 organizations that include the National Association of Realtors, the National Association of Affordable Housing Lenders, Habitat for Humanity and the Mortgage Bankers Association.
The tax credit, which would give states $2 billion in tax-credit authority annually, plus inflation, would be modeled after the Low-Income Housing Tax Credit, which supports affordable rental housing but is not designed to build or renovate owner-occupied housing of single-family homes or small multifamily properties.
A previous version of the legislation was introduced in the last session of Congress but did not advance. However, there’s renewed interest in a tax-reform package, especially in regards to the expiring provisions of the Trump administration’s Tax Cuts and Jobs Act passed in 2017, and that could provide an opening to advocates of the credit.
The Coalition has also seen some interest from newer members of Congress in both parties and has approached lawmakers with detailed data on how it could improve homeownership in each district.
Here’s how it would work:
- States would allocate tax-credit authority on a competitive basis.
- Project sponsors would raise money from investors to finance homebuilding and rehabilitation.
- For newly built homes, the tax credit would cover the gap between development costs and sales prices, up to 35% lesser of the eligible costs or 80% of the national median new-home sale price.
- Those purchasing the newly built homes would be required to have incomes at or below 140% of the area’s median income, and the homes would be sold for a maximum of four times the area’s median family income.
- For renovated homes, the tax credit would equal the lower of either 50% of the rehabilitation cost minus any homeowner repayments, or $50,000.
- Properties would have to be in areas with higher property rates, lower median family incomes and lower home values — although states would have some flexibility.
- Homeowners that sell a home purchased through this program within five years will have to repay part of the profit to the state to support additional similar efforts.
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