Witnesses at Congressional Hearing Support LIHTC Income Averaging, MID Reform

On March 22, the House Financial Services Subcommittee on Housing and Insurance held a hearing to examine whether government regulations impact the cost of producing affordable housing. Some hearing witnesses testified that federal and state government policies drive up production costs, while others discussed why certain policies were needed and how new policies could promote future development. In particular, several witnesses endorsed allowing income averaging in the Low Income Housing Tax Credit (LIHTC) program so that the program can better serve poor families.

Vicki Been of the New York City Department of Housing Preservation and Development stated, “While the credit is a wonderful resource, it could be even more successful if the stagnant statutory cap on incomes for affordable units were modified. When a tax credit building is built, the developer must make a percentage available to families that earn either 50% or 60% of area median income. This creates two problems: first, the affordable units funded by the LIHTC are only available to families earning a narrow band of income; second, developments funded with LIHTC cannot serve extremely low-income or homeless families unless they secure another subsidy, such as Section 8.” By allowing income averaging, Ms. Breen said, the developer would be able to serve a wider range of incomes and create more mixed-income housing. “The higher-income units would cross-subsidize the lower-income units, and communities would be able to serve lower-income households without any additional cost to taxpayers or the developer.” Clyde Holland of the National Multifamily Council and the National Apartment Association also voiced support for income averaging.

NLIHC has proposed permitting LIHTC units in a property to serve households with an average income of 60%, allowing some units to serve households with incomes up to 80% of area median if at least 30% of the project’s units serve households with incomes at or below 30% of area median. Such developments would also receive a 50% basis boost.

Ms. Been also questioned the belief that development of housing that is unaffordable to poor families will trickle down and become affordable to them in the near future. In New York City, she said, “We see the trickle up. Homes are built for workforce, middle income folks, and then because the demand for housing, especially in urban areas, is so great, we see that housing actually being rented by wealthier renters rather than the renters it was intended for. So, the trickledown theory, at least in New York City, really hasn’t panned out because the homes that are built on the luxury market have all kinds of restrictions in terms of how much income you have to have in order to even rent that apartment that it becomes very difficult for it to sift down in any way except over decades.”

Mechele Dickerson of the University of Texas at Austin School of Law pointed to the unfairness of the mortgage interest deduction (MID) and its impact on overall U.S. housing policy. She stated, “Data show that higher-income taxpayers disproportionately benefit from the MID because most middle-income taxpayers do not itemize deductions. Despite the popularity of this housing subsidy, it is simply unrealistic to think that the federal government will ever be able to provide substantial tax subsidies to help make housing, especially rental housing, more affordable for middle-income households and also continue to provide this enormously expensive tax benefit.” NLIHC has proposed MID reforms that would generate $213 billion over ten years to be used for the National Housing Trust Fund.

Ms. Dickerson also spoke of the need for cities and states to enact inclusionary zoning policies to allow developers to build more affordable housing and show that they are committed to addressing the housing needs of their low income residents.

Read the witnesses’ testimony and watch the archived webcast at: http://1.usa.gov/1UA4gnz