[co-author: David W. Wright]
On November 19, 2021, the U.S. House of Representatives passed the Build Back Better Act (H.R. 5376), a bill that represents a large portion of the Biden-Harris Administration’s agenda. Among other spending and tax measures, the bill includes an unprecedented expansion of the Low-Income Housing Tax Credit (LIHTC) program. Four proposals are headlining this expansion:
- Increasing the 9% LIHTC allocation cap by 10% plus inflation annually from 2022 to 2024. With this increase, the 2024 LIHTC allocation cap will rise to $3.97 per capita and a small state minimum of around $4.58 million, constituting a 41 percent increase in allocable LIHTC over current levels. The allocation cap would then decrease to $2.65 per capita and a small state minimum of $3.12 million in 2025 and would thereafter be indexed to inflation from the 2025 baseline.
- Reducing the 50% threshold for 4% tax-exempt bond-financed projects to 25% for five years, beginning in 2022.
- Increasing the eligible basis of buildings designated to serve extremely low-income households by 50% and providing an 8% set-aside for properties utilizing this basis increase.
- Replacing the 42(i)(7) right of first refusal safe harbor with a purchase option and extending the option to investor partnership interests. In addition, the bill reduces the safe harbor purchase price by excluding exit taxes from the price formula. These changes are expected to aid in preserving the long-term affordability of projects.
According to the Biden-Harris Administration, these measures, along with other affordable housing initiatives in the bill, represent the single largest investment in affordable housing in U.S. history. In total, the bill will provide approximately $166 billion in housing aid, which is intended to help build or preserve more than one million affordable units. Within that sum:
- $10 billion is provided for the HOME Investment Partnerships Program to fund the construction, purchase, or rehabilitation of affordable homes for low-income people.
- $15 billion is dedicated to financing the preservation and creation of new rental homes for the lowest-income households.
- $65 billion is provided to fully address the capital needs backlog of public housing.
- $24 billion is provided to fund incremental Housing Choice Vouchers and supportive services.
Additional funds are included for rental and down payment assistance programs and programs to improve mobility in disadvantaged communities, among other priorities.
The bill now faces the scrutiny of the 50-50 Senate, with Democratic leaders pushing for a vote before the year-end.
Special thanks to Aimee Ghosh and James Chudy for contributing to the piece.