Virginia lawmakers want to make it easier for developers to secure financing for affordable housing projects by providing tax credits.
The bill, sponsored Delegate Jeff Bourne (D-Richmond) and Sen. Mamie Locke (D-Hampton), would create a housing opportunity tax credit program for new apartment or single-family home developments that serve low-income residents. Any development that qualifies for federal low-income housing tax credits would also qualify for the state-level credit. Virginia has a need for more than 150,000 homes for its poorest residents, according to the National Low Income Housing Coalition. A report on the bill says it could create 762 new units of affordable housing each year.
The goal of the tax credit program, Bourne says, is to address the ongoing affordable housing crisis.
“We’ve got a demand for affordable housing, but we don’t have the supply,” he said. “So we are getting hit from both sides of the spectrum.”
Tax credits are an important tool for affordable housing developers to leverage investment in a project. Many banks and other investors are wary of putting up money for a project that charges below market rent. Through syndicating or selling the tax credits to investors, affordable housing developers have access to a financing source that doesn’t need to be repaid.
Andrew Clark, vice president of government relations for the Home Builders Association of Virginia, said the federal low-income housing tax credit program has been one of the most effective policies for spurring affordable housing development, and he hopes the state program can be just as successful.
“They provide a way to fill the gap between what traditional lending can bring to the table and what it takes to actually get the project going,” Clark said.
The Home Builders Association of Virginia, along with affordable housing developers like the Better Housing Coalition, were part of a task force put together last year by the Virginia Department of Housing and Community Development. The work group was the product of HB810, also sponsored by Bourne, and drafted the language and regulations for the proposed program.
Greta Harris, CEO of Better Housing Coalition, said it is getting increasingly difficult to fund and build affordable housing projects.
“Land costs are going up,” Harris said. “Because of the pandemic, material cost has gone up. The cost of a 2x4 has almost doubled in the last year. And all of those things add up to make it more and more difficult to deliver a unit of affordable housing.”
Harris said the tax credits would allow developers to lower the amount of debt on a specific project, which then allows them to keep rents low. She said the typical private development of single- or multi-family homes is built on 70-90% debt, and those investors want their money back as soon as possible. Most affordable housing developments, meanwhile, are built with about 20-25% debt. The federal low-income housing tax credits can deliver up to 65% of the financing needed.
While developers and affordable housing advocates are excited about the proposed tax credit program, it may be a hard sell to lawmakers and state officials during a public health and economic crisis.
The final report issued by the Virginia Housing Opportunity Tax Credit Task Force in September puts the program’s price tag at $20 million annually in foregone revenue. Over the ten-year life of the tax credit, that would be $200 million in lost revenue.
But the report also argues that the job creation and new tax revenue created by development would make up the cost of the program and then some. In addition to new affordable housing units, the task force estimated that $200 million in tax credits would generate 4000 jobs mostly in construction and $228 million in earnings for the state.
Regardless of how the math works on paper, Bourne said he knows getting any bills passed right now that affect the budget is an uphill battle.
“I think the fiscal realities of what we face in Virginia and across the country is certainly the biggest hurdle we’ll have to overcome,” he said. “From a policy perspective, everybody will be there. The hardest part is deciding this is an important investment when you think about recovery coming out of the COVID impact.”
Currently 19 other states, including Arkansas, California and Georgia, have state-level tax credit programs for affordable housing.
