[Senate Hearing 115-288]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 115-288

     AMERICA'S AFFORDABLE HOUSING CRISIS: CHALLENGES AND SOLUTIONS

=======================================================================

                                 HEARING

                               BEFORE THE

                          COMMITTEE ON FINANCE
                          UNITED STATES SENATE

                     ONE HUNDRED FIFTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             AUGUST 1, 2017

                               __________

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            Printed for the use of the Committee on Finance


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                          COMMITTEE ON FINANCE

                     ORRIN G. HATCH, Utah, Chairman

CHUCK GRASSLEY, Iowa                 RON WYDEN, Oregon
MIKE CRAPO, Idaho                    DEBBIE STABENOW, Michigan
PAT ROBERTS, Kansas                  MARIA CANTWELL, Washington
MICHAEL B. ENZI, Wyoming             BILL NELSON, Florida
JOHN CORNYN, Texas                   ROBERT MENENDEZ, New Jersey
JOHN THUNE, South Dakota             THOMAS R. CARPER, Delaware
RICHARD BURR, North Carolina         BENJAMIN L. CARDIN, Maryland
JOHNNY ISAKSON, Georgia              SHERROD BROWN, Ohio
ROB PORTMAN, Ohio                    MICHAEL F. BENNET, Colorado
PATRICK J. TOOMEY, Pennsylvania      ROBERT P. CASEY, Jr., Pennsylvania
DEAN HELLER, Nevada                  MARK R. WARNER, Virginia
TIM SCOTT, South Carolina            CLAIRE McCASKILL, Missouri
BILL CASSIDY, Louisiana

                     Chris Campbell, Staff Director

              Joshua Sheinkman, Democratic Staff Director

                                  (ii)
                            
                            C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page
Hatch, Hon. Orrin G., a U.S. Senator from Utah, chairman, 
  Committee on Finance...........................................     1
Wyden, Hon. Ron, a U.S. Senator from Oregon......................     2

                               WITNESSES

Garcia-Diaz, Daniel, Director, Financial Markets and Community 
  Investment, Government Accountability Office, Washington, DC...     5
Whitaker, Grant, president, National Council of State Housing 
  Agencies, Washington, DC.......................................     7
O'Regan, Hon. Katherine M., Ph.D., professor of public policy and 
  planning, Robert F. Wagner Graduate School, and faculty 
  director, Furman Center for Real Estate and Urban Policy, New 
  York University, New York, NY..................................     8
McClure, Kirk, Ph.D., professor, Urban Planning Program, School 
  of Public Affairs and Administration, University of Kansas, 
  Lawrence, KS...................................................    10
MacDonald, Granger, chairman, board of directors, National 
  Association of Home Builders, Washington, DC...................    12

               ALPHABETICAL LISTING AND APPENDIX MATERIAL

Garcia-Diaz, Daniel:
    Testimony....................................................     5
    Prepared statement...........................................    37
    Responses to questions from committee members................    46
Hatch, Hon. Orrin G.:
    Opening statement............................................     1
    Prepared statement...........................................    49
MacDonald, Granger:
    Testimony....................................................    12
    Prepared statement...........................................    50
McClure, Kirk, Ph.D.:
    Testimony....................................................    10
    Prepared statement...........................................    58
    Responses to questions from committee members................    62
O'Regan, Hon. Katherine M., Ph.D.:
    Testimony....................................................     8
    Prepared statement...........................................    65
    Responses to questions from committee members................    69
Whitaker, Grant:
    Testimony....................................................     7
    Prepared statement...........................................    78
    Responses to questions from committee members................    84
Wyden, Hon. Ron:
    Opening statement............................................     2
    Prepared statement...........................................    88

                             Communications

A Call To Invest in Our Neighborhoods (ACTION) Campaign..........    91
Affordable Housing Developers Council (AHDC).....................    94
Capital One Financial Corporation................................    96
Center for Fiscal Equity.........................................   100
Council for Affordable and Rural Housing (CARH)..................   101
Council of Large Public Housing Authorities (CLPHA)..............   106
Local Initiatives Support Corporation (LISC).....................   108
LOCUS............................................................   112
National Affordable Housing Management Association (NAHMA).......   114
National Association of Housing and Redevelopment Officials 
  (NAHRO)........................................................   117
National Housing Conference......................................   119
National Low Income Housing Coalition............................   120
National Multifamily Housing Council (NMHC) and National 
  Apartment Association (NAA)....................................   128
National Trust for Historic Preservation, National Trust 
  Community Investment Corporation, and Historic Tax Credit 
  Coalition......................................................   137
New York City Department of Housing Preservation and Development 
  and New York City Housing Development Corporation..............   140
Olsen, Edgar O...................................................   142
Winkler Development Corporation..................................   147
.................................................................

 
     AMERICA'S AFFORDABLE HOUSING CRISIS: CHALLENGES AND SOLUTIONS

                              ----------                              


                        TUESDAY, AUGUST 1, 2017

                                       U.S. Senate,
                                      Committee on Finance,
                                                    Washington, DC.
    The hearing was convened, pursuant to notice, at 10:10 
a.m., in room SD-215, Dirksen Senate Office Building, Hon. 
Orrin G. Hatch (chairman of the committee) presiding.
    Present: Senators Grassley, Cornyn, Thune, Isakson, 
Portman, Toomey, Cassidy, Heller, Scott, Wyden, Stabenow, 
Cantwell, Nelson, Cardin, Brown, Bennet, Casey, and McCaskill.
    Also present: Republican Staff: Mark Prater, Deputy Staff 
Director and Chief Tax Counsel; Nicholas Wyatt, Tax and 
Nominations Professional Staff Member; Jeff Wrase, Chief 
Economist; and Martin Pippins, Detailee. Democratic Staff: 
Michael Evans, General Counsel; Tiffany Smith, Chief Tax 
Counsel; Adam Carasso, Senior Tax and Economic Advisor; and 
Robert Andres, Tax Policy Analyst.

 OPENING STATEMENT OF HON. ORRIN G. HATCH, A U.S. SENATOR FROM 
              UTAH, CHAIRMAN, COMMITTEE ON FINANCE

    The Chairman. The committee will come to order.
    I want to welcome everybody to today's hearing entitled 
``America's Affordable Housing Crisis: Challenges and 
Solutions.''
    This is an important issue, and this hearing will allow the 
committee to hear from experienced and well-educated witnesses 
who can provide more context on our affordable housing policies 
and the sections of the tax code that were written with the 
intent of mitigating this long-time set of problems in our 
society.
    As many of you are aware, the last time we underwent a 
national, comprehensive revision of the tax code was in 1986, 
with the passage of the Tax Reform Act. At that time, 
affordable housing tax incentives were baked into statute, with 
the Low-Income Housing Tax Credit being chief among them.
    Since then, this important section of the tax code has 
enjoyed bipartisan support. Still, it is worth examining this 
particular law as we continue to ramp up our work on tax 
reform.
    Throughout today's hearing, I want each member to keep in 
mind some guiding principles for tax reform. I have repeated 
these principles quite a bit in recent years. But for those in 
the audience who may not have heard me mention them, the 
principles are fairness, efficiency, simplicity, and American 
competitiveness.
    These principles are important within the context of 
affordable housing tax policy, because they should be able to 
help us improve upon what is currently in the code. I know the 
prospect of more oversight can be seen as a challenge, but I 
think we should all view this examination as an opportunity to 
determine where we can improve.
    While some sections of the tax code have undergone changes 
over the past 3 decades, solutions on affordable housing remain 
as elusive as ever. There seem to remain many households facing 
cost burdens associated with renting, with perhaps as much as 
26 percent of renter households having paid more than half of 
their incomes in rent in 2015, for example.
    And the burdens seem to fall heavily on lower-income 
households. And this is not just simply a problem of 
arithmetic. In 2015, 25 million children lived in households in 
which rent comprised a fairly large share of household income.
    This is a problem that should be ready for a bipartisan 
solution. We have already introduced bipartisan legislation to 
address some of these issues. And many are hopeful that 
cooperation on these efforts will continue. I personally 
believe they will.
    With that, I would just like to thank everyone for 
attending today, and I look forward to hearing from our 
distinguished panel of witnesses. But before we get to that, I 
would like to hand it over to the ranking member, Senator 
Wyden, for his opening remarks at this time.*
---------------------------------------------------------------------------
    * For more information, see also, ``Present Law and Data Relating 
to Tax Incentives for Rental Housing,'' Joint Committee on Taxation 
staff report, July 28, 2017 (JCX-40-17), https://www.jct.gov/
publications.html?func=startdown&id=5019.
---------------------------------------------------------------------------
    [The prepared statement of Chairman Hatch appears in the 
appendix.]

             OPENING STATEMENT OF HON. RON WYDEN, 
                   A U.S. SENATOR FROM OREGON

    Senator Wyden. Thank you very much, Mr. Chairman. Mr. 
Chairman, let me thank you for focusing today on the Low-Income 
Housing Tax Credit, which is a key part of the tax reform 
puzzle.
    I also want to thank our colleague from Washington State, 
Senator Cantwell, who has been for years now the go-to person 
on this committee on this issue. I am going to talk a little 
bit more about the history of it in a minute.
    I would also like to note there was a lot of talk last week 
about bipartisanship and bipartisanship on key issues. That is 
what this committee is showing today, that we are serious about 
tackling an important issue in a bipartisan way.
    Colleagues, my bottom line is, America's housing policy 
needs an urgent remodel. Today millions of Americans struggle 
to pay the rent, and they cannot even dream of purchasing a 
home.
    To recall our old classes on Introduction to Economics, a 
key housing challenge is increasing supply. When housing is 
scarce in the communities where people want to live and work, 
prices get bid up and working people get pushed out. Rent rises 
faster than people's incomes, even among those who are earning 
a pretty good salary. And there are few incentives to build 
affordable housing near schools, public transit, and amenities 
like parks and retail services.
    Oftentimes, the only places where people can afford housing 
are an hour or more from where they work or where they want 
their kids to go to school every single day. And a lot of 
Americans either spend a small fortune on train tickets and bus 
fares, or they spend an eternity sitting behind a steering 
wheel on a daily commute. And a lot of our folks wind up in 
food deserts where it is almost impossible to get healthy fresh 
food.
    This crisis is a five-alarm fire across America. And it is 
certainly true in my home State of Oregon--in Portland, Bend, 
Hood River, Astoria, Medford, and a lot of other places. I see 
it on the faces of families, children, vets, and folks who are 
living on the streets.
    Now Senator Cantwell and Senator Hatch have an important 
bill, and I have cosponsored it. It is entitled the Affordable 
Housing Credit Improvement Act of 2017.
    In effect, it supercharges the Low-Income Housing Tax 
Credit, and it also builds on what the three of us got into the 
2015 tax bill which made the expanded Low-Income Housing Tax 
Credit permanent.
    In my view, this is a bipartisan, smart way to attack the 
housing scarcity problem, and it is going to mean more housing 
goes up in communities where folks want to work and plant 
roots.
    In the days ahead, I am going to have other ideas about the 
housing challenge, particularly about helping the middle-class 
and first-time homebuyers and doing a better job of linking 
services--services like transportation--with low-income 
housing.
    Today we are going to talk to our witnesses about some of 
the ideas that Senators Cantwell and Hatch have put forward. I 
want to thank the two of them and particularly note that, after 
the events of last week, colleagues, it is more important than 
ever to be very concrete about this issue of bipartisanship and 
not just make it a rhetorical talking point. That is what we 
are doing today.
    Thank you, Mr. Chairman.
    The Chairman. Well, thank you, Senator.
    [The prepared statement of Senator Wyden appears in the 
appendix.]
    The Chairman. I also would like to thank Senator Cantwell. 
She was the one who suggested this hearing, and we have gone 
out of our way to make sure that we have it. And I just want to 
thank you for your efforts in this regard.
    I would like to welcome each of our five witnesses today. I 
am confident we have some of the Nation's greatest minds and 
experts on housing and urban development matters.
    First, we will hear from Mr. Daniel Garcia-Diaz, Director 
of the Financial Markets and Community Investment group at the 
U.S. Government Accountability Office.
    Mr. Garcia-Diaz leads a range of reviews covering mortgage 
finance, rental housing, economic development, and insurance. 
Specifically, he led recent reviews of management issues in the 
Department of Housing and Urban Development on Home Ownership 
and Affordable Rental Housing, the Low-Income Housing Tax 
Credit, and the Federal Terrorism Risk Insurance Programs. He 
has also led reviews of programs and regulatory changes 
authorized under the Emergency Economic Stabilization Act and 
the Dodd Frank Wall Street Reform Act.
    Mr. Garcia-Diaz joined GAO in 1998. He holds a bachelor's 
degree from Dartmouth College and a master's degree in public 
policy from Harvard University's Kennedy School of Government.
    Then we will hear from Mr. Grant S. Whitaker, president of 
the National Council of State Housing Agencies.
    Mr. Whitaker hails from my home State of Utah and has been 
extraordinarily helpful as we have prepared for this hearing. 
He has dedicated his career to serving the financial needs of 
low- and moderate-income families back in our home State of 
Utah.
    He currently serves as president and CEO of the Utah 
Housing Cooperation, a self-supporting, State-sponsored public 
corporation which has been funding and promoting affordable 
housing in Utah since 1977. Mr. Whitaker was appointed to the 
position of president and CEO in January 2009 and has served in 
that capacity since that time. But Mr. Whitaker's experience at 
UHC started back in 1979, before the last time we reformed the 
tax code.
    Mr. Whitaker earned a bachelor's degree in business 
management from the University of Utah's David Eccles School of 
Business. Subsequently, he worked on post-graduate studies at 
the University of Utah and through the university's 
professional education division.
    Third will be the Honorable Dr. Katherine M. O'Regan, 
professor of public policy and planning at NYU's Wagner 
Graduate School of Public Service, where she is also the 
faculty director of the Furman Center for Real Estate and Urban 
Policy. Dr. O'Regan recently served from April 2014 to January 
2017 as the Assistant Secretary for Policy Development and 
Research at the Department of Housing and Urban Development.
    Her primary research interests are at the intersection of 
poverty and space. Among others, she has served on the board of 
the Reinvestment Fund, the advisory board for NYU's McSilver 
Institute for Poverty Policy and Research, and the editorial 
board for the Journal of Policy Analysis and Management. She 
has been a visiting scholar at the Federal Reserve Bank in 
Boston and at the Economic Studies Group at the Brookings 
Institution.
    Dr. O'Regan holds a Ph.D. in economics from the University 
of California at Berkley and spent 10 years teaching at the 
Yale School of Management.
    Then we will hear from Dr. Kirk McClure from the Urban 
Planning Program at the University of Kansas. Dr. McClure has 
won several awards for his research on housing and urban 
planning.
    His academic career has also included an appointment as 
scholar and resident to the U.S. Department of Housing and 
Urban Development. He serves on the board of editors of Housing 
Studies and the Journal of Planning, Education, and Research. 
He is associate editor of Housing Policy Debate.
    Dr. McClure holds a master's of city planning degree from 
the Massachusetts Institute of Technology and a Ph.D. degree 
from the University of California at Berkeley.
    And finally, Mr. Granger MacDonald is chairman of the board 
of directors for the National Association of Home Builders and 
president of the MacDonald Companies.
    Mr. MacDonald is a Kerrville, TX-based builder and 
developer with 40 years of experience in the home-building 
industry. His company, MacDonald Companies, provides affordable 
housing for communities in need in the State's rural and small 
metro areas.
    Mr. MacDonald also has extensive experience working in the 
NAHB leadership, including more than 30 years on the NAHB board 
of directors and chairing the Federal Government Affairs 
Committee, the State and Local Government Affairs Committee, 
the Housing Credit Group, and the Multifamily Council and Build 
PAC.
    Mr. MacDonald holds a BBA degree in real estate and finance 
from the University of Texas School of Business.
    We will start with you, Mr. Garcia-Diaz. You will kick this 
off with your opening remarks, if you will.

 STATEMENT OF DANIEL GARCIA-DIAZ, DIRECTOR, FINANCIAL MARKETS 
  AND COMMUNITY INVESTMENT, GOVERNMENT ACCOUNTABILITY OFFICE, 
                         WASHINGTON, DC

    Mr. Garcia-Diaz. Thank you.
    Mr. Chairman, Ranking Member Wyden, members of the 
committee, thank you for the opportunity to be here today to 
discuss the Low-Income Housing Tax Credit program, the Nation's 
largest source of Federal assistance for developing affordable 
rental housing.
    Over the past 3 years, GAO has completed three reviews of 
this program. We have a current effort underway looking at 
development costs under the program. We have worked with a 
total of 17 different allocating agencies in 14 States and in 
the District in conducting these four reviews.
    I want to recognize the cooperation of these agencies 
during our site visits and in responding to requests for 
information. We look forward to continuing a productive working 
relationship with them.
    As you know, the Internal Revenue Service is in charge of 
administering the LIHTC program, while State and local 
allocating agencies are responsible for day-to-day 
implementation of the program. My statement today focuses on 
allocating agencies' implementation of Federal requirements and 
IRS's oversight of the program.
    We found that allocating agencies have implemented varying 
processes to address key Federal requirements, but we have some 
concerns that I would like to highlight in my remarks, which 
are discussed more fully in our prior reports.
    Allocating agencies are responsible for alerting IRS about 
any property noncompliance. Problems with property physical 
condition are the most common form of noncompliance.
    We found that agencies varied in when they submitted 
noncompliance reports to IRS, what types of violations were 
reportable, and the level of supporting details provided. 
Because of these differences, it is not surprising that the 
number of submitted noncompliance reports from nine agencies we 
examined ranged from as little as one to more than 1,700 over a 
1-year period, and, in fact, we are aware that some agencies 
have submitted few or no compliance reports to IRS over a 3-
year period, and IRS has not followed up with them.
    Furthermore, we also found that IRS does very little to 
assess the noncompliance information it receives. IRS has no 
method to determine if issues reported have been resolved or if 
properties have recurring noncompliance issues.
    In addition, we also found that critical data on allocation 
amounts and certification were not complete and reliable. For 
example, we could not tell how often LIHTC properties were 
placed in service within required time frames. Across these 
findings, a common problem has been that IRS oversight of this 
program has been minimal.
    Over the past 30 years, IRS has audited allocating agencies 
7 times. Yet, even when these audits were conducted, they often 
yielded multiple findings, including agency policies that 
conflict with the code or Treasury regulation, incomplete or 
outdated qualified allocation plans, annual reports to IRS with 
errors, and so on.
    We have some thoughts on how to strengthen oversight and 
accountability in the LIHTC program. First, with respect to 
noncompliance reporting, we made two recommendations that IRS 
clarify when agencies should report noncompliance and evaluate 
how it could improve noncompliance information by leveraging 
HUD's physical inspection data systems. These recommendations 
remain open.
    Second, in response to our concern about data quality, we 
recommended that IRS should address weaknesses in control to 
ensure reliable data are collected on credit allocations. IRS 
has not completed implementation of this recommendation but is 
taking steps to improve it.
    And finally and more significantly, we continue to believe 
that the Department of Housing and Urban Development can be a 
resource to augment IRS's oversight capabilities. Other tax 
credit programs such as the New Markets Tax Credits and the 
Historic Tax Credits have formal partnerships grounded in 
statute with a relevant subject matter agency to assist in 
oversight, data collection analysis and reporting, and 
technical assistance.
    HUD is well-positioned to assist allocating agencies' 
efforts to monitor physical and financial condition of 
properties, address Federal fair housing goals, and perform 
other tasks that are common in managing affordable rental 
housing programs--all areas in which IRS has no specific 
expertise.
    Over the past 30 years, LIHTC has matured to be the most 
significant Federal policy tool for incentivizing the 
production of affordable housing nationwide. We believe that 
investing in oversight and accountability will help ensure that 
agencies meet program requirements, use Federal resources 
effectively, and ultimately achieve the Nation's goal of 
providing poor and vulnerable families safe, decent, and 
affordable housing which is so desperately needed today.
    This concludes my opening remarks. Thank you again for the 
opportunity to speak today. I would be glad to take any 
questions you have.
    [The prepared statement of Mr. Garcia-Diaz appears in the 
appendix.]

  STATEMENT OF GRANT WHITAKER, PRESIDENT, NATIONAL COUNCIL OF 
             STATE HOUSING AGENCIES, WASHINGTON, DC

    Mr. Whitaker. Mr. Chairman, Senator Wyden, members of the 
committee, thank you for this opportunity to testify on behalf 
of the National Council of State Housing Agencies.
    I am Grant Whitaker, president and chief executive officer 
of the Utah Housing Corporation. I also serve as president of 
NCSHA, a nonpartisan, national organization that represents 
State housing finance agencies.
    Thank you, Mr. Chairman and Senator Cantwell, for your 
steadfast support for the Low-Income Housing Tax Credit and 
tax-
exempt private activity housing bonds. And thank you for your 
leadership in introducing the Affordable Housing Credit 
Improvement Act, S. 548.
    I also want to acknowledge Senator Wyden and the many other 
members of the committee who have cosponsored this bill. We 
urge all Senators to become cosponsors.
    The Housing Credit and Housing Bonds program has long 
enjoyed strong bipartisan support, and this bill is no 
exception. Already, nearly one-third of Senators--Republicans 
and Democrats--have cosponsored this legislation. The House 
companion legislation also has significant bipartisan backing.
    The need for affordable rental housing across the country 
is great and growing. Nearly half of all renters pay an 
excessive share of their income for housing. And the crisis is 
most acute for the poorest households.
    Simply put, we have a severe shortage of affordable rental 
homes. Nationwide, there are more than 11 million extremely 
low-income renter households, but only 4 million rental homes 
are available and affordable to them. This shortage continues 
to grow as hundreds of thousands of new renter households enter 
the market each year while we lose countless affordable homes 
to conversion and obsolescence.
    The housing crisis impacts working families, seniors, 
people with disabilities, and so many more: those living in 
high-cost cities, suburban neighborhoods, and rural 
communities. Coastal cities, like Seattle, are well-known to 
have extreme housing costs.
    Low-income households in Utah also struggle to find 
affordable housing. Over 58,000 renter households in my State 
pay more than half of their income for housing, and we have a 
shortage of over 38,000 homes that are affordable and available 
to the extremely low-income households.
    We are not unique. Every State confronts this challenge. 
This crisis will only get worse unless we act.
    If current rent and income trends continue, the number of 
severely cost-burdened renters, those paying 50 percent or more 
of their income for rent, will reach nearly 15 million 
nationwide by 2025. That is a 25-percent increase.
    The Housing Credit and Housing Bonds are the most effective 
response. These are highly successful, private-public 
partnerships with a proven track record. They are administered 
by publicly accountable HFAs that take seriously the 
responsibility for their operation and oversight that you have 
entrusted to us. States deploy these resources to respond to 
the needs we determine to be most pressing.
    The Housing Credit and Housing Bonds create affordable 
homes for families, seniors, people with special needs, 
veterans, and those experiencing homelessness. The stable 
housing created improves lives by supporting better health, 
education, and employment outcomes. These programs also 
contribute to economic growth by creating jobs and generating 
tax revenue.
    In Utah, we have had great success using the Housing Credit 
and Housing Bonds. We have made considerable progress, for 
example, in reducing our chronically homeless population. In 
fact, Utah Housing Corporation will devote 30 percent of our 
2018 housing credit authority to supportive housing properties, 
moving us closer to the goal of ending chronic homelessness. 
But we still have significant work ahead as we continue to 
tackle family homelessness and help the many low-income 
households who pay more rent than they can afford.
    NCSHA urges you to seize the opportunity of tax reform, or 
other legislation that may advance this year, to build on what 
works. We ask you to increase housing credit authority and make 
the other critical program changes you proposed in S. 548, such 
as facilitating the development of mixed-income rural and 
deeply income-targeted housing.
    Current housing credit authority is oversubscribed by a 
measure of nearly three to one nationally. Meanwhile, reliance 
on the credit continues to grow as other Federal resources 
shrink and new demands are placed on the credit.
    Finally, we ask you to mitigate any unintentional negative 
effects the changes you make to the tax code might have on the 
housing credit and bond programs.
    Thank you for your commendable efforts to address the 
affordable housing crisis. I am honored to have had this 
opportunity to testify. We stand ready to assist you in any way 
that we can.
    The Chairman. Well, thank you so much.
    [The prepared statement of Mr. Whitaker appears in the 
appendix.]
    The Chairman. Dr. O'Regan?

  STATEMENT OF HON. KATHERINE M. O'REGAN, Ph.D., PROFESSOR OF 
 PUBLIC POLICY AND PLANNING, ROBERT F. WAGNER GRADUATE SCHOOL, 
 AND FACULTY DIRECTOR, FURMAN CENTER FOR REAL ESTATE AND URBAN 
           POLICY, NEW YORK UNIVERSITY, NEW YORK, NY

    Dr. O'Regan. Thank you. Chairman Hatch, Ranking Member 
Wyden, and members of the committee, thank you for inviting me 
to appear today.
    I want to begin by reminding people of a few facts about 
America's affordable housing crisis. As stated, the housing 
cost burdens are extremely high, particularly for renters. 
Nearly half of all renters were cost-burdened in 2015, and more 
than a quarter face severe cost burdens.
    So they were spending more than 50 percent of their income 
on housing costs. These rates remain far above pre-recession 
levels, and the challenges are widespread, extending beyond 
high-cost cities and lowest-income households. At least 37 
percent of renter households in each State across the Nation 
were cost-burdened in 2014, and the sharpest growth in cost 
burdens over the past 15 years has been among middle-income 
households.
    And finally, housing supply is simply not keeping up with 
demand. Housing completions in the last 10 years were lower 
than any other 10-year period since the late 1970s. The rental 
vacancy rate is at its lowest level in 30 years.
    So what to do about it? In terms of the Federal response 
and tax policy, the main lever is the Low-Income Housing Tax 
Credit, LIHTC. So I will focus my comments there.
    With more than 30 years of LIHTC experience to build on, it 
is an opportune time for reforming and streamlining LIHTC. I 
want to highlight three critical areas for reform that are 
greatly facilitated by Senate bill 548, the Affordable Housing 
Credit Improvement Act of 2017.
    First is working in a broader set of markets across a 
broader set of incomes. While LIHTC's Federal income limits are 
tied to 50 or 60 percent of area-median income, States are also 
required to prioritize developments reaching lowest-income 
tenants, and indeed, nearly half of LIHTC tenants have incomes 
below 30 percent of area median income, AMI.
    Serving such households with extremely low incomes requires 
some form of additional rental assistance such as vouchers or 
other development-level subsidies. Yet those additional 
subsidies are in decreasing supply, may not be within the 
control of the housing agency or developer, and even if 
available, require coordination and layering across multiple 
funding streams.
    Income averaging can help address these challenges as well 
as improve economic feasibility in different market settings. 
It permits a development to employ an average income cap of 60 
percent of AMI with no household's income exceeding 80 percent 
of AMI.
    Higher rents can be used to offset lower rents, and a 
broader set of incomes can be served, where the additional 
resources needed to reach low-income households come from 
within the finances of the development itself. This cross-
subsidy will be useful in high-cost markets for developments 
that are a part of a mixed-income community revitalization 
plan, and in rural markets where it may be necessary to serve a 
broader set of income ranges to be economically feasible. This 
greater flexibility is one of the most important LIHTC reforms.
    Permitting States to increase maximum basis boosts for 
serving extremely low-income tenants has a similar flexibility, 
providing resources from within the tax credit itself for 
reaching lowest-
income tenants. And broadening the definition of difficult 
development areas to automatically include Indian areas would 
enable the credit to work in a high-need environment that has 
been underserved.
    The second area is achieving locational goals. Siting LIHTC 
in higher opportunity neighborhoods or ensuring that LIHTC 
investments contribute to neighborhood revitalization requires 
two reforms contained in S. 548: prohibiting local approval and 
contribution requirements which can act as local vetoes, and 
clarifying the States' authority to determine the definition of 
a community revitalization plan.
    The third area is preservation of existing affordable 
housing, which is a key and potentially cost-effective strategy 
for narrowing the demand-supply gap. This would be greatly 
aided by the establishment of a permanent minimum for the 4-
percent credit.
    Finally, on LIHTC resources, expected declines in the 
corporate tax rate are estimated to decrease LIHTC resources by 
up to 17 percent in the future. Failure to increase the per-
capita allocation is equivalent to cutting LIHTC resources 
relative to recent years. Given the breadth and depth of the 
affordability issues across the country, now does not seem a 
time to withdraw Federal resources for affordable housing.
    Thank you.
    The Chairman. Well, thank you very, very much.
    [The prepared statement of Dr. O'Regan appears in the 
appendix.]
    The Chairman. We will now turn to Dr. McClure.

  STATEMENT OF KIRK McCLURE, Ph.D., PROFESSOR, URBAN PLANNING 
     PROGRAM, SCHOOL OF PUBLIC AFFAIRS AND ADMINISTRATION, 
               UNIVERSITY OF KANSAS, LAWRENCE, KS

    Dr. McClure. Chairman Hatch, Ranking Member Wyden, members 
of the committee, thank you for the opportunity to address you 
on this very important topic.
    The Low-Income Housing Tax Credit program is the Nation's 
primary affordable housing production program. It is a good 
program, but it is one that is in need of improvements to make 
it perform better. I would like to make three observations 
about the performance of the program and use those observations 
to support recommendations to help it be a better fit with 
current housing market conditions.
    The first issue answers the question, ``Does the Low-Income 
Housing Tax Credit program produce units in the price range 
where there is a shortage of units?'' And here, sadly, the 
answer is ``no.''
    Generally rents on tax credit units fall in the range of 
$500 to $1,000 a month. If a household is to spend no more than 
30 percent of income to afford these units, these incomes need 
to be in the $20,000 to $40,000 per year range.
    When we examine rental markets across the Nation, we find 
that there is, in fact, no shortage of units in this price 
range. Rather, the number of units is far in excess of the 
number of households with these incomes.
    When we shift to the lowest tier and we look at the rental 
markets below this one, we see there is a significant mismatch. 
The number of households with incomes below $20,000 is far in 
excess of the number of apartments available for under $500. 
What this means is that the Low-Income Housing Tax Credit 
program is adding units to the market segment that already is 
in surplus, but is unable to reach far enough down to the 
households who suffer from a shortage.
    So a first reform would be to ask State housing finance 
agencies to exercise greater rigor in their market analysis and 
to certify the need for each tax credit development supported 
by independent, not developer-driven, market analysis.
    A second reform would be to permit State housing finance 
agencies to exchange tax credit authority for voucher 
authority. The vouchers could be freestanding, where that is 
appropriate to the marketplace, or they could be attached to 
the project. The vouchers would permit a poorer population to 
afford the unit, with the tenant contribution importantly set 
at 30 percent of their income, not at the flat rent. This would 
eliminate the cost-burden for these households.
    The second issue seeks to answer the question, ``Does the 
Low-Income Housing Tax Credit program add new units to tight 
markets and rehabilitate existing units in soft markets?'' And 
the answer here is ``not very well.''
    Typically, the program should add new units where we have 
tight markets, very low vacancy rates, and should rehabilitate 
existing units in soft markets where we have very high vacancy 
rates. Built into the tax credit program is an incentive that 
favors new construction. Nine-percent credits are awarded 
against new construction costs; 4-percent credits are offered 
against rehabilitation costs independent of market conditions. 
Developers have responded appropriately by developing 45 
percent more new construction units than rehabilitation, 
favoring new construction whether it is a tight, normal, or 
soft market.
    This problem can be rectified by reconfiguring the benefits 
of the tax credit program to favor rehab in soft markets and to 
permit new construction only where a market is very tight or is 
eliminating severely dilapidated units for replacement.
    The final point asks the question, ``Does the Low-Income 
Housing Tax Credit program support mixed-income housing?'' And 
sadly, again, the answer here is ``no.'' Research demonstrates 
that projects wholly populated by the poor are not good for the 
households, not good for the projects, and not good for the 
surrounding neighborhoods. Mixed-income housing is a much more 
beneficial format for all concerned.
    The tax credit program provides no incentives for mixed-
income housing. As a result, 76 percent of all tax credit 
developments are occupied entirely by subsidized low-income 
households. Fewer than 3 percent are configured with more than 
one-half of all units at market rates.
    The program can be improved by reconfiguring the benefits 
of the tax credit program to favor mixed-income developments 
and prohibit wholly subsidized developments, except in very 
distressed markets were mixed-income developments are not 
feasible. The tax credit program remains an important tool for 
resolving the Nation's affordability problems. With 
improvements, it can be made better.
    Thank you.
    The Chairman. Well, thank you.
    [The prepared statement of Dr. McClure appears in the 
appendix.]
    The Chairman. Mr. MacDonald, we will turn to you.

 STATEMENT OF GRANGER MacDONALD, CHAIRMAN, BOARD OF DIRECTORS, 
     NATIONAL ASSOCIATION OF HOME BUILDERS, WASHINGTON, DC

    Mr. MacDonald. Thank you. I appreciate the opportunity to 
testify today.
    My company specializes in construction and management of 
affordable rental housing. We currently own and manage 4,700 
units throughout Texas. For the past 20 years, I have built 
affordable rental housing with the Low-Income Housing Tax 
Credit.
    We are here today because the housing affordability has 
reached crisis proportions. The number of renter households who 
are severely cost-burdened--meaning they pay more than half of 
their monthly income on rent--is at an all-time high of 11.4 
million people. This is one in four renters.
    The first step to solving this crisis is to pass Senate 
bill 548, the Affordable Housing Credit Improvement Act of 
2017. I want to thank Senator Cantwell, Senator Hatch, and all 
the bipartisan cosponsors. Bipartisanship seems to be rare 
these days, and I hope we can all unite around this bill and 
take action this year.
    The challenge we face is inadequate supply to meet the 
growing demand. S. 548 will increase the supply, most 
noticeably by boosting the tax credit allocations by 50 
percent; in addition, creating the 4-percent floor will allow 
more units to be preserved and developed using housing bonds.
    Our housing stock ages. The first tax credit projects are 
now 30 years old. Preservation and rehabilitation is a cost-
effective tool, and fixing the 4-percent credit will really 
help that.
    Enacting this bill is expected to result in an additional 
400,000 tax credit units over the next 10 years. That added 
construction activity will increase the Federal tax revenue by 
$11.4 billion.
    To get to the root of the crisis, we need to look at the 
challenges facing developers. There is no magic wand to erase 
the basic development cost. Fees, regulatory compliance, modern 
building and energy codes, building materials, land and labor 
costs determine what rents are needed to make a project viable.
    The bottom line is, if we want to increase the supply of 
affordable rental housing for lower-income households, it is 
financially impossible to do without the tax credit. The tax 
credit is the most successful affordable housing production 
program in our Nation's history.
    Part of the success is the advantage of creating it in the 
tax code. Investors have the confidence and the predictability 
of the tax code, which ensures a fairly constant supply of 
affordable housing. And tax credit communities outperform the 
rest of the multifamily sector in the annualized foreclosure 
rate. This rate is less than one-tenth of 1 percent, but it 
lacks the resources to keep up with demand.
    Without a sizable investment in our housing stock, 
particularly as older units reach obsolescence, we risk a 
worsening problem. Rental housing demand remains solid and is 
expected to grow even stronger. Absent new supply, this demand 
will increase rents and worsen the affordability issues we now 
have.
    We also need to recognize the important role affordable 
housing plays in our communities. I see how affordable housing 
creates stability for my tenants and their families. My 
properties also help revitalize neighborhoods and break the 
cycle of poverty that starts with access to stable and 
affordable housing.
    The housing affordability crisis affects our economy as 
well. Housing affordability is critical in areas experiencing 
robust economic growth, but our fellow citizens cannot afford 
to live where the jobs are, because we are just creating a 
divide based on housing costs.
    Some criticize the program for not directing more 
affordable housing to higher-income areas. Let me shed some 
light on these challenges that I face as a developer.
    In Texas, unless you have the blessing of the local 
community to put an affordable housing project there, the State 
agency will never award me an allocation. In many higher-income 
areas, as soon as you utter the word ``affordable,'' the 
discussion often turns ugly and may take on racial overtones.
    This is the reality affordable housing developers face 
every day. Fortunately, some relief is possible. Senate bill 
548 will prohibit States from requiring special local approval 
of tax rate developments. This will ensure that if the zoning 
allows it, an affordable project will be treated just like any 
other development.
    We have an opportunity to do something that not only makes 
good economic sense, but will uplift the lives of millions of 
Americans. I greatly appreciate the bipartisan support for 548 
and urge the committee to pass it as soon as possible.
    The Chairman. Well, thank you so much.
    [The prepared statement of Mr. MacDonald appears in the 
appendix.]
    The Chairman. You have been an excellent panel, and I think 
we have learned a lot from you.
    Let me just ask this question of Mr. Whitaker and Mr. 
MacDonald.
    One reason I support the Low-Income Housing Tax Credit 
program is that it keeps decision-making on affordable housing 
away from a centralized bureaucratic agency in Washington, DC 
and allows decisions to be made within the communities where 
the housing is needed, while involving the private sector.
    Can both of you discuss how that helps you decide what 
projects to build and how the public-private partnership aspect 
of the program promotes more spending in affordable housing 
than would happen if only the government was involved?
    Mr. Whitaker. In Utah, we offer up two different 
opportunities for developers, syndicators, advocates, public 
entities, private entities, and nonprofits to come in and talk 
to us. There is a mandatory public hearing that we hold, and we 
also hold another one earlier in the session to get input on 
how we should run our program, specifically how we should 
modify our qualified allocation plan.
    So we get a lot of input from the industry partners through 
this effort. Obviously, they do not agree with themselves all 
the time, and so we have to ferret that out. But we also look 
at needs that are happening.
    So a moment ago I mentioned that we are going to set aside 
30 percent of next year's allocation for supportive housing, 
because we know there is a horrendous homeless issue that is 
taking place right downtown in Salt Lake City right now, and 
that is a problem that cannot be solved if there is not some 
permanent place for them to be housed.
    So we work diligently with governmental entities and the 
private sector, try to find out how we can utilize these very 
scarce resources the best that we can to meet the needs of our 
population.
    The Chairman. Well, thank you.
    Mr. MacDonald. And I would just like to add to that, that 
every State has its own qualified allocation process which 
allows a decentralization of how the tax credits are allocated. 
They are allocated more based on what the citizens of a 
specific State need.
    Every State's needs are slightly different than another, 
and it allows them to be addressed based more on the economic 
trends in the State, the housing trends in the State, and the 
demographic changes that are always occurring across a State. 
For example, my home State of Texas is a large State, and we go 
from one very rural area to a very urban area, to the necessity 
for family housing, to the necessity for senior housing. So it 
lets everything stay in balance.
    Our local State agency did a wonderful job this last year 
of changing the balance between families and senior housing. 
And it was very, very important, and it is an extremely well-
balanced process because of just what Mr. Whitaker said, that 
we are able to address all of these issues on a local State 
basis with lots of public and private input, public hearings, 
so the citizens and everyone get to benefit from those 
decisions.
    The Chairman. Let me ask another question for Grant 
Whitaker.
    One of the series of reports that the GAO has published on 
the Low-Income Housing Tax Credit recently notes that it does 
not appear that the IRS is doing very much oversight of the 
program. And while Federal oversight of this program is 
important, I know that there is much oversight that takes place 
at the State housing authority level.
    As president of the National Council of State Housing 
Agencies, and especially as president and CEO of the Utah 
Housing Corporation, can you discuss how you ensure that your 
credit allocation is wisely and prudently awarded and how you 
monitor the use of these credits?
    Mr. Whitaker. Starting with the allocation process, we have 
a process that is outlined very clearly in our qualified 
allocation plan. It is based on those projects that score the 
highest in the pools that we set aside for them, how that is 
allocated, so the best projects are the ones that are awarded 
credits.
    In terms of the compliance of the properties, we have a 
team of compliance auditors who look at properties on a more 
regular basis for those that have problems, that exhibit 
problems in their properties, and less often at those that are 
in full compliance as we go around.
    But this team looks at their financial records, it looks at 
the rent rolls, it looks at the physical conditions of the 
properties. We do submit reports to the IRS, those that will 
imply that if they do not fix these things, the tax benefit can 
go away from the investors.
    We make sure that the development company that is managing 
the projects know that that is happening, and we think we get 
some pretty darn good compliance from our projects in Utah.
    The Chairman. Well, thank you so much.
    Senator Wyden?
    Senator Wyden. Thank you, Mr. Chairman.
    Thank you all. It has been an excellent panel. I want to 
ask first about some questions that relate to the overall tax 
reform puzzle, because, as you know, these pieces are 
interrelated.
    Mr. Whitaker, for you--the Low-Income Housing Tax Credit is 
a tax credit that is often claimed by corporate partners like 
banks in qualifying for low-income housing tax projects. 
Reducing the corporate tax rate could reduce the value of the 
Low-Income Housing Tax Credit and thus investor demand.
    We have heard some talk about the credit declining by up to 
17 percent. So what do you think needs to be done to make sure 
that, as we get into tax reform, the credit is kept whole?
    Mr. Whitaker. Thank you, Senator.
    Yes, we do see that. We have already seen that, though not 
so much in Utah. I think we are a little bit blessed with the 
CRA-
hungry industrial banks, so our credit pricing has not gone 
down as much as it has in other areas, but we do recognize 
through the National Council of State Housing Agencies that 
this is very critical to some of the areas. Some of the HFAs 
are handling their allocations in different ways to try to get 
that out there so that the properties do work, so that they do 
pencil out.
    In going forward with S. 548, we recognize that there is 
not a mechanism in their right now that would enable us to 
increase the benefit of the tax code such that, as pricing 
might go down on tax credits, as corporate rates go down--there 
is not a mechanism built in there, but we think that there are 
some opportunities for that to happen.
    Senator Wyden. Why don't you, for the record, get us those 
ideas, because I think one of the areas I am going to 
concentrate on is trying to make sure that, as we look at these 
critically important needs, like increasing the supply of low-
income housing, that we make sure that it fits into the tax 
reform puzzle and we do not end up having an inadvertent 
problem as a result of, say, a reduction in the corporate rate 
lowering the value of the credit.
    Dr. O'Regan, let us go to you.
    In my town hall meetings at home--I go to every town every 
year--I hear from folks at home who are just apoplectic about 
having to live in one place and then drive hither and yon to 
get to work, to take their kids to school, buy groceries, get 
medical care, and so on. I am always struck by how people in 
politics just preach morning, noon, and night about family 
values. It is pretty hard to get family values when you spend 2 
hours a day just commuting, driving family members to the 
places they need to go.
    What are your ideas about how we could do more in a 
practical way to link low-income housing with transportation 
and services and the like? I mean, you do not want to just do 
some kind of one-size fits all national mandate from 
Washington, DC, but you do want to say, let us really wring the 
value out of this low-income credit. I mean, I think that is 
really what Senator Cantwell and Chairman Hatch are trying to 
do, to wring every bit of value out of this low-income credit.
    Do you have any thoughts on what could be done to make sure 
that, when you build this housing, it is more closely tied to 
the services like transportation, and schools, and health, that 
low-
income folks need?
    Dr. O'Regan. Thank you, Senator.
    Yes, this is a big issue. We talk about the cost of 
housing, and we should be talking about the cost of housing and 
transportation when we think about what it is that families pay 
in order to make their life work.
    There are some States that have been very aggressive in 
this, in their qualified allocation plan, where they use their 
ability to apply basis boosts and priority points in a way that 
prioritizes not just low-poverty neighborhoods, but 
neighborhoods that have good access to transit and good 
schools. So I think there is a lot that could be learned from 
what States have done in the last 5 to 10 years.
    I also think you need to be getting a broader group of 
stakeholders in some of these meetings, because employers 
really care whether or not the workforce is within driving 
distance. So they have a role to play in making sure that the 
collection of resources, not just LIHTC, but local resources 
are where the housing is located and the transit dollars to 
make sure that they are being used in a way that works well for 
the whole community.
    Senator Wyden. Okay.
    Thank you, Mr. Chairman.
    The Chairman. Senator Grassley?
    Senator Grassley. Yes.
    Thank you, Mr. Garcia-Diaz, for GAO doing some studies I 
have asked you to do. So I have some issues I would like to 
have you comment on.
    The organization has found that basic LIHTC data, including 
credit allocations, certification information, building 
dispositions, and program noncompliance, is either not 
collected or rarely used. So could you describe what steps were 
taken to gather the information on how this lack of data 
impacted GAO's ability to analyze basic program information?
    Mr. Garcia-Diaz. Thank you, Senator.
    Essentially the LIHTC program, from our perspective, is a 
very hard program to review. There is a lack of information at 
the Federal level, such as basic information about allocations 
awarded to projects and placed-in-service dates, which are 
critical requirements in the program, making this program 
difficult for us to review. What is more, when we asked the IRS 
to provide us information on how many properties had a 
recapture because of noncompliance, the IRS was not able to 
provide us with that information.
    So we are very concerned that, on these basic 
accountability measures, the IRS and no one else in the Federal 
Government really has an idea what is going on. The program 
lacks basic accountability requirements that we would expect of 
any program, and especially one as important as this one.
    Senator Grassley. Okay.
    GAO is currently examining development costs of LIHTC 
properties. What are some of your preliminary observations 
about this data that you are collecting and the types of 
activity allocating agencies are doing to manage costs?
    Mr. Garcia-Diaz. So, on the first part of your question, we 
are developing a database on development costs of LIHTC 
projects for 12 different allocating agencies representing the 
period where properties were placed in service between 2011 and 
2015. This information does not exist in a central location. So 
we have had to go to individual allocating agencies to collect 
it.
    It has taken us well over a year and a half to build this 
database, but we have amassed about 1,900 projects representing 
122,000 units. And we hope, early next year, to be able to 
report on our cost estimates. Our plan is to meet with the 
individual allocating agencies and share what we have done with 
the data, so that we can help these agencies build a capacity 
to analyze cost data and assess the reasonableness of their 
costs.
    Right now, in our interviews with the 12 agencies, we are 
seeing a range of practices regarding assessing the 
reasonableness of project costs. Part of that is driven by the 
availability of analyzable data at the agency level.
    So we have identified certain agencies that may have some 
cost limits that they impose on project applications, yet they 
may not be assessing the reasonableness of the costs. Other 
agencies are using the analysts' judgment on whether costs are 
reasonable. Then finally, you have another group of agencies 
that are actually doing pretty sophisticated analysis, using 
statistical regressions for instance, to better understand 
their data.
    So we are seeing quite a bit of variety in the 
sophistication of the agencies in analyzing costs and assuring 
that credits are used as cost-effectively as possible.
    Senator Grassley. Okay.
    We often hear from LIHTC industry participants that 
syndicators provide the necessary program oversight because 
they have the vested interests in ensuring that programs run 
effectively. So, Mr. Garcia-Diaz, do you believe that this is 
sufficient oversight?
    Mr. Garcia-Diaz. I would not say it is sufficient. It is an 
important component of oversight. The syndicators are a very 
important player in this program, and actually if you look 
across past affordable housing programs, we have never had a 
private entity like this that monitors projects and performs 
audits and reviews and other kinds of asset management 
services.
    However, I do not think this relieves the Federal 
Government of the responsibility of having basic performance 
information about LIHTC and, particularly, understanding the 
extent of noncompliance.
    Senator Grassley. Yes.
    For Mr. Whitaker and Dr. McClure: in his written statement, 
Dr. McClure raised--this will be my last question--Dr. McClure 
raised concern that State housing agencies fail to conduct 
rigorous market analysis to build LIHTC units in areas with the 
greatest need. As a result, he finds that most LIHTC projects 
are not being built in areas that experience a housing 
shortage.
    So, Mr. Whitaker, could you first comment on whether or not 
you agree with Dr. McClure's concerns, and two, what policies 
are in place at State housing agencies to identify where 
projects are most needed?
    Mr. Whitaker. Thank you, Senator.
    I think, first of all, I can speak mostly on behalf of my 
own State. However, the Council of State Housing Agencies is 
putting together, with participation by all allocating 
entities, some best practices that would probably improve those 
that are not doing quite as well.
    But in terms of what we require, we mandate that we get a 
market study with the application that is submitted for the tax 
credits. Market studies have to be fairly new. I think they 
cannot be more than 6 months old, or 90 days. I am not sure 
which. But we do look at those very carefully.
    We also have some of the market studies done independently 
in some areas where we are concerned about what is happening. 
So there are a couple of rural counties in Utah where we can 
see the rent rolls, and some projects that we have funded with 
tax credits a number of years ago are having high vacancy 
rates. So we do not accept applications in those counties.
    So we are very careful about that. We have not seen the 
kind of problem that he described, at least in my State. So it 
is a little hard for me to describe what might be happening in 
other places.
    Senator Grassley. Thank you.
    The Chairman. Thank you, Senator.
    Senator Stabenow?
    Senator Stabenow. Well, thank you, Mr. Chairman, for this 
very important hearing.
    I first want to indicate my strong support for S. 548. I am 
looking forward to being a cosponsor. I know we are doing this 
in twos, a Republican and a Democrat coming on together. So I 
am looking forward to that, but I want to commend Senator 
Cantwell and yourself, Mr. Chairman, for this important 
legislation. I hope we are going to be able to move it through 
the process quickly.
    I do have one issue that has come up, though, that, Mr. 
Whitaker, I thought I might ask you about, and if anyone else 
has any thoughts on it. But affordable housing is so critical, 
whether it is rental or purchasing, building, and so on.
    We have had a very concerning issue come up in Michigan 
related to the Low-Income Housing Tax Credit. We have at least 
one developer who has essentially foreclosed on their own 
properties to try to avoid the affordability requirements under 
the tax credit.
    Obviously, this is not what was intended, and you cannot 
just simply plan foreclosures so you can circumvent the 
commitments to affordable housing. However, only the Secretary 
of the Treasury has the authority to deem a foreclosure 
illegitimate for LIHTC purposes.
    And formal guidance has not been issued on this. So as a 
result, we have Michigan families who are wrongfully losing 
access to affordable housing which is absolutely critical to 
them because developers want to charge more.
    I wonder if this is something that you are seeing more 
broadly with members. And if so, what can we do to fix this?
    Mr. Whitaker. Thank you, Senator.
    We have heard of it. It has not happened in Utah, and I 
understand Michigan has that problem. It may be unique, but 
possibly not either.
    But we know that S. 548 may have some language in there 
that will help to correct that so that the allocating entities 
are the ones who can make that determination. We have had, I 
think, very good compliance in the State of Utah with 
maintaining those properties through the extended use periods 
and beyond. We require that the properties have a 50-year 
compliance period. So that is beyond what the Federal 
Government requires.
    But we have not had any who have threatened to do that. I 
think it is possible that it could happen. So we welcome the 
steps that were taken in S. 548 to enable us to handle that as 
opposed to Treasury.
    Senator Stabenow. Do you know if there have been 
discussions with Treasury or how they have reacted? Is this, at 
this point, isolated, do you think, to Michigan? Have you heard 
from other people? I am wondering if there is any real 
discussion going on about this.
    Mr. Whitaker. I do not think there has been much 
discussion, because I think it is fairly rare. We do know, and 
I have heard, that Michigan has that problem. So that is why I 
say, perhaps it is unique.
    My understanding is that when Treasury has been notified of 
the problem, they have chosen to take no action.
    Senator Stabenow. Thank you.
    Well, we need to fix that process.
    Mr. MacDonald. If I may----
    Senator Stabenow. Yes? Mr. MacDonald?
    Mr. MacDonald. If I may--in Texas, the State, in their 
qualified allocation process, detailed an identity of interests 
who could and could not foreclose. And it boiled down to, 
obviously, lenders need to have the preservation right to 
foreclose or a syndicator if they have someone who is not 
taking care of their asset like they should. But after that, it 
is just not allowed.
    I think it is very similar--I understand GAO's problem in 
auditing the tax credit program. But what makes the tax credit 
program so wonderful is that it has 50 Qualified Action Plans, 
and it is very regionalized. It is not a one-size-fits-all 
program.
    So a best practices idea like this or like what is being 
proposed in this bill could go forward and is maybe something 
that should circulate more to the other 50 States, like we have 
in Texas on this one. The decentralization has its negatives, 
but it also has its positives in that the program is customized 
for a region, for a State.
    Senator Stabenow. Thank you.
    And, Mr. MacDonald, on a different note, again, it is 
rental housing, it is affordable housing, it is also affordable 
purchasing and people being able to get into home ownership as 
well. I wonder--we all know what happened with the financial 
crisis, where we lost $7 trillion in home equity. I am sure it 
has happened in other places, but home values in some locations 
in Michigan--it was unbelievable, actually, how far they 
dropped. And people are just now coming back a little bit. 
Finally, with the recovery, they are starting to build up a 
little bit of equity in their home again.
    When we go into tax reform, one of my concerns is that 
there are proposals that would limit the value of the mortgage 
interest deduction for families. With a major increase in the 
standard deduction, fewer taxpayers would itemize, as we know. 
And that means home ownership would not be a benefit in terms 
of the mortgage interest deduction unless you owned a very 
large home.
    So this is also a concern to me. I wonder if you might talk 
about the different proposals and the impacts that they would 
have on working families who are finally starting to regain 
their equity after being under water for so long.
    Mr. Whitaker. Yes, ma'am. It is very important that the 
mortgage interest deduction be preserved. However, we also need 
to keep the same amount of funds flowing into housing that are 
generated under the existing tax code. There are several 
alternatives for that.
    A first buyer home assistance purchase program is very, 
very important. And that is something that is administered on a 
State-wide basis too, through the housing agencies.
    Additionally, there has been a lot of discussion in 
reference to a tax credit, a home buyer's tax credit and a home 
owner's tax credit, and that could be a very efficient way to 
augment the mortgage interest deduction as well.
    Senator Stabenow. Thank you, Mr. Chairman.
    The Chairman. Okay.
    Senator Cantwell?
    Senator Cantwell. Is my colleague from Georgia next, Mr. 
Chairman? Are we going back and forth? Okay.
    Well, thank you, Mr. Chairman. I so appreciate my colleague 
from Georgia and his help on all of this, and, Mr. Chairman, 
thank you for holding this hearing along with Ranking Member 
Wyden, and thank you for your work on this legislation.
    I so appreciate everything our witnesses have said. I 
actually disagree with very little that has been discussed so 
far.
    I want to point out that the reason I went to Chairman 
Hatch about this to begin with, Mr. Whitaker, was your great 
work in Utah on the veterans' homelessness issue, and the fact 
that you guys have driven that down to such a low rate or next 
to zero is just so impressive. In the United States of America, 
to take that population that we owe so much to and deliver for 
them on affordable housing--I so appreciate that, and I have a 
question on that.
    But I did want to emphasize a couple of things in these 
points that were made. The first fact is that we have 15 
million people, as Dr. O'Regan was talking about, and that the 
projections are getting worse. That 2025 number--if we do 
nothing, this is just going to be exacerbated. Several people 
mentioned the 25-percent increase in renters over the last 10 
years, which is the largest on record. That is just 
unbelievable to me, unless you stop and think about the 
implosion of the economy during that time period, and then you 
realize, yes, those who were on the last rung of the ladder 
literally fell off the ladder. So there were no more rungs, and 
this 10-percent reduction, the lack of supply, that is the 
crazy thing. But I guess, Mr. MacDonald, you would say that is 
not so unusual either, because if you had an implosion of the 
economy, then you also had the lowest production of rental 
housing in 40 years, because of this crisis.
    So I guess, if anything, you have illuminated for many of 
us things that we knew, that this is both an urban and a rural 
problem, that there are places like Jackson, MS or Baton Rouge 
that are just right up there with Miami and other places, and 
that there are places like Clark, IA or Douglas, NV--that it is 
everywhere.
    So the one thing that I have not heard talked about is 
that--I have heard this number: that 90 percent of the 
affordable housing units are built with a tax credit. I do not 
know if somebody can clarify that information, but the majority 
of affordable units do use a tax credit. So when you look at 
that chart and you see that the number of renters is 
increasing, if we do not increase the tax credit, how are we 
going to get out of this crisis?
    Also for Mr. MacDonald, I have heard that the discussion of 
tax reform has actually suppressed the amount of capital going 
into this, so that we are actually going to see in 2017 and 
2018 a decrease in the amount of affordable housing at the very 
moment that we are at this crisis, and we know that the tax 
credit is the dial to help create more supply, and we are 
actually seeing a decrease just because people are waiting to 
see, or just because of this uncertainty.
    So I do not know if anybody--if, Mr. MacDonald, you can 
address that or, Dr. O'Regan, if you can address that.
    Mr. Whitaker, I do want to hear about the veterans success 
in Utah.
    Mr. MacDonald. Well, you are exactly right. After the 
November elections and the first thoughts of tax reform came 
out and the 15-percent tax bracket was announced, it had an 
extreme impact on credit prices. And it was mainly the fear of 
the unknown. People did not realize where it was going; the 
syndicators were petrified.
    And they went to a stop. There was a point where they fell 
in price, and then they just would not purchase credits at all. 
And it came to a grinding halt.
    I think that now that there has been more discussion of tax 
reform, the reality is that we are not going to have a 15-
percent rate, in all likelihood. You people know better than I, 
but it is probably more in terms of a 25-percent rate. So it is 
not going to be as dramatic. It has softened it some.
    We have seen some recovery in prices. But I will tell you 
that the fixing of the 4-percent rate, as this bill does, is 
the perfect way to fix that problem, because it puts the money 
back into the program even if the credit price does not 
recover. And by fixing the 4-percent rate and getting the bond 
prices back up, you pick up 25 percent more funds, so you more 
than offset the loss of what the credit price is.
    Senator Cantwell. Dr. O'Regan, is this the primary tool 
that we have for fixing this crisis?
    Dr. O'Regan. This absolutely is, on the affordable side of 
the market. So I had heard the 90-percent number. I have not 
checked it myself, so I will say it is in the range of that, in 
terms of the role that LIHTC plays for the creation of 
affordable housing at the low end of rent.
    So what we know is that when markets are responding, they 
are responding and producing at the very high end. The bulk of 
units that come into the low-rent market are what economists 
call ``filtered down.'' They are units that exist, that as they 
age, their value goes down, and they are lower rent.
    The tighter the housing market, the less likely that units 
filter down. In fact, in very tight markets, you see them 
filtering up. So units that were affordable are no longer 
affordable, and the production that comes in is at the top of 
the market.
    So what you need to do is have a mechanism for producing 
along a range of price points, and it is only with these types 
of subsidies that you are going to relieve any of the pressure 
at the low end of the market.
    Senator Cantwell. So you are saying, basically, the only 
thing we have to do is to turn this dial if we think we are 
going to make a dent?
    Dr. O'Regan. We need to turn this dial. And I think a point 
that Professor McClure was making is, to the extent that we 
want the dial to go as deep as 30 percent of income, we want 
some of the other reforms that are in your proposal and in S. 
548 to be able to have a little bit of the ability to reach 
deeper in the income level.
    Senator Cantwell. Well, I cannot emphasize enough how this 
is a crisis across many parts of our country. I can tell you, 
from Seattle to Walla Walla, the housing crisis is real.
    Many times it is trying to help either the senior 
population or the veteran population. So, Mr. Whitaker, how did 
you address the veteran population in your State?
    Mr. Whitaker. It was in conjunction with a housing 
authority. The Salt Lake County Housing Authority, 
specifically, put an application into us for 9-percent credits. 
And one of the things that they proposed is that a portion of 
those units be set aside for the homeless.
    So they got points for that, and they have rents at levels 
such that people coming out of a homeless situation could 
afford them, or they would have set aside vouchers for them. As 
it turns out, this property was such a unique property because, 
initially, it was not even welcome in the neighborhood. Since 
it has been built, it is a real jewel, and it is appreciated 
very much.
    Many of the residents who are residing there are those who 
have been veterans who were formally homeless. And they have a 
good comradery going there. Also, the service providers who 
need to be there for issues related to addictions and mental 
health cases and so forth, they have a single place to go where 
they can help a lot of people in one spot.
    That has made this project, in particular, successful. But 
we have quite a number of other projects that are doing 
something similar.
    Senator Cantwell. Thank you.
    Thank you, Mr. Chairman.
    The Chairman. Thank you.
    Senator Isakson?
    Senator Isakson. Thank you, Mr. Chairman.
    Mr. MacDonald, of the 4,700 units--I believe you said you 
had built 4,700 units, low-income housing units. How many of 
those do you own as an owner with tenants?
    Mr. MacDonald. Forty-seven hundred.
    Senator Isakson. All 4,700?
    Mr. MacDonald. Yes, sir.
    Senator Isakson. Were the tax credit program not available, 
would you have had that big an investment?
    Mr. MacDonald. No, sir. We would have never had the ability 
to raise capital and offer a portfolio with affordable rent. It 
would just not have been a viable alternative at all.
    Senator Isakson. The reason I make that point is, Senator 
Cantwell is exactly right. The only way you meet the future 
shortage, the existing shortage today, is to have the program 
that attracts the money into it. If you do not do what you need 
to do, the money will go somewhere else, and then you will have 
a bigger problem than you had before. I think that program is 
great.
    So all 4,700 were rental units in multi-family buildings?
    Mr. MacDonald. Some are multi-family buildings. We also 
have some single-family. We did a neighborhood revitalization 
program in San Angelo, TX where the city gave us the lots for 
$1,000 and we built 36 scattered single-family homes there, for 
example. And it jump-started a community revitalization in the 
whole area. People started fixing up the entire area because of 
it. We do both multi-family and single-family.
    Senator Isakson. Mr. Chairman, there is one point I want to 
make. There are two tax credit programs created by Congress. 
One is the Conservation Easement Tax Credit program and the 
other is the Low-Income Housing Tax Credit program, both of 
which have caused a lot of land to go into conservation, and a 
lot to go into low-income housing.
    There have been some attacks on both of those programs in 
terms of the syndicators and others--questioning their 
validity. So one of the things we have to be sure we do not 
do--we want to make sure the integrity of the programs that 
raise the money by the syndicators is intact. We want to make 
sure there is no misrepresentation or other mishandling of the 
funds.
    But we have to realize that it is such an attractive 
program. It is the only way we are going to have money flowing 
into two things that meet the test of what we want to give a 
tax credit for, and instead of the government taking tax money 
and investing it into land to buy for conservation easements, 
or the government getting into the business of building housing 
projects, we are incentivizing the private sector to build 
projects, utilizing the capital that is invested by individual 
investors who recover their capital investment by tax credits 
earned over time. Am I not correct?
    So it has a multiplier effect in terms of what it does for 
generating more moderate-income housing, and it is a solid 
program. It also has about as many motivations as you can have 
in a program to incentivize the developer and the owner to take 
care of the property to make sure it does not become a blighted 
property and to make sure it is a great property. Is that not 
correct?
    Mr. MacDonald. Absolutely, sir. We have what seems to be a 
continual audit. We are being examined by our lenders, by our 
syndicators. If we have section 8 vouchers, we are being 
reviewed on those.
    And then, of course, our State agency is out every year, 
goes through our books and records, notices what we are doing 
with our rents, makes sure it does a property evaluation, does 
a complete needs assessment for our property, gives us 90 days 
to fix it. If it does not get fixed, they give you an 8609 and 
we lose our tax credits.
    We take it very, very seriously. I realize that is hard to 
track from a GAO standpoint, but on a local basis there is a 
lot, a lot of oversight to make sure that the compliance in 
this program is being carefully, carefully monitored.
    Senator Isakson. In terms of cost of your units, what 
percentage of the cost of the average unit that you build goes 
to regulatory costs like impact fees and things like that?
    Mr. MacDonald. Approximately 25 percent.
    Senator Isakson. Senator Wyden asked a question a little 
bit ago--he is gone now. I will try to remember to tell him 
this, but when we talk about what local governments can do to 
help make it easier to bring the project to fruition and bring 
housing programs in, they can look at the regulatory burden of 
costs on the developer to build the project in and of itself.
    Mr. Whitaker, I think, was talking about the homeless 
veterans program. I chair the Veterans' Affairs Committee. We 
had a family, a veteran in 1906 who gave 300 acres in West Los 
Angeles to the VA. That zip code is now 90210. So it is a 
pretty good location, if you know what that means, Beverly 
Hills.
    They are going to use a lot of that land to build housing 
for veterans who have been homeless. And it is going to be 
because the local government is going to exercise some 
authority it has in zoning and land use restrictions to 
motivate and incentivize the private sector to build housing so 
the veterans will have the housing on that project.
    So, it is a great way to provide housing. I am a big 
supporter of Ms. Cantwell's program. It is a good program. It 
has passed the test of time. And if we do not do it, I cannot 
think of any other way to get private capital flowing to 
generate the housing necessary to house the American people.
    Thank you, Mr. Chairman.
    The Chairman. Thank you.
    Senator Menendez?
    Senator Menendez. Thank you, Mr. Chairman.
    I think this is an incredibly important hearing. I 
appreciate my colleague from Washington driving the opportunity 
for the hearing, and I want to make the case for her specific 
legislation by speaking about some of the other issues that we 
have in housing that only strengthen the need for her 
legislation.
    In New Jersey and across the Nation, low-income households, 
including seniors living on fixed incomes, people with 
disabilities, and families with children, are struggling to 
find affordable places to call home. For the lowest-income 
families, New Jersey faces a shortage of more than 212,000 
homes that are affordable and available.
    That problem is exacerbated by the fact that only one out 
of every four eligible low-income households receives Federal 
rental assistance. So I cannot help but point out that the 
President's fiscal year 2018 budget request slashes HUD's 
funding by more than $7 billion. Now that would turn this 
crisis into an epidemic.
    By eliminating programs like CDBG and HOME, cutting public 
housing funds to the bone, eliminating a quarter-million 
housing choice vouchers, failing to provide sufficient funding 
for project-based assistance renewals, and requiring low-income 
families, seniors, and people with disabilities to pay more in 
rent, the President is clearly not in tune with the housing 
crisis that we have in this country.
    So, Mr. Whitaker, could you comment on how the elimination 
of the Community Development Block Grant program and the HOME 
Investment Partnership would impact the affordable housing 
crisis?
    Mr. Whitaker. I can surely talk about the HOME program, 
because that is what funds a fund in Utah that we call the 
Olene Walker Housing Loan Fund. Olene Walker was a former 
Lieutenant Governor, and ultimately Governor of the State of 
Utah, who had a very ideal outlook for affordable housing.
    This funds this program, and this provides the gap funding. 
So when we have a project that is submitted to us, in order to 
score points, one of the things that they will do is to offer 
up some of the units for the very, very low-income, extremely 
low-income--below 35 percent AMI, typically at 25 percent AMI.
    Those units receive rents that are very low, and that does 
not contribute a lot of revenue to the project. So they are 
funded with their mortgage, and they are funded with tax 
credits. But those units at that very low level have a very 
difficult time supporting themselves. So they go to this other 
funding source and use that for gap funding. They get soft 
seconds--sometimes grants, but usually soft seconds. And that 
HOME money is what keeps that program going in Utah.
    I think that is the same as it is for other areas. CDBG, I 
am not so familiar with.
    Senator Menendez. I appreciate your answer on HOME.
    Professor O'Regan, how would you view affordable housing 
efforts? Would they be hampered if Congress were to enact 
large-scale cuts in the housing voucher program and create 
greater income payments by low-income households?
    Dr. O'Regan. Thank you, Senator; yes. There is an 
incredible overlap between the units that HUD funds and 
developments that also use the tax credit. About 47 percent of 
LIHTC units receive some type of rental assistance, and most of 
that is project-based or voucher-based.
    LIHTC owners are not allowed to discriminate on source of 
income. So the LIHTC stock itself is critically important for 
voucher households as they go around and try to find units that 
they can rent.
    The HOME funding is one form of the gap funding. CDBG is 
also paired with broader community redevelopment. And LIHTC is 
usually the big infusion of capital into those plans.
    So the streams on the ground--up here at the Federal level, 
these are very separate. On the ground, these are tools that 
you are using in your communities to be able to address the 
issues. And the flexible tools, such as HOME and CDBG, those 
going away would make it even more difficult, because you are 
looking for things that can work well with the plans that you 
are putting together.
    Senator Menendez. Let me follow up on that. The Low-Income 
Housing Tax Credit program sets income limits at 50 percent, 60 
percent of area median income; however, extremely low-income 
households have incomes that are less than 30 percent of area 
median income. For those households, the vast majority of which 
face severe cost burdens--paying more than 50 percent of their 
incomes on rent--the Low-Income Housing Tax Credit alone is not 
enough to make a home affordable.
    You highlight this issue in your testimony. Can you explain 
why additional subsidies, be they project-based, tenant-based, 
rental assistance, are critical to ensuring the lowest-income 
families are served by the Low-Income Housing Tax Credit?
    Dr. O'Regan. Yes. So I think the point that Mr. Whitaker 
made is, there is a gap. There is a penciling gap; right? So if 
the rents work out financially at 50 or 60 percent of AMI, to 
go all the way to 30, you are going to need something else.
    But I will point out, 59 percent of tenants in LIHTC units 
have incomes below $20,000 a year. So right now, State HFAs are 
piecing together a collection of things--a lot of it is HUD 
funding--to be able to reach deep. So as the HUD budget 
changes, you are not going to see these units able to reach 
down. So we are going to see an increase in rent burdens among 
that group purely outside of the LIHTC allocation, because of 
other parts of what is happening in the budget.
    State and local jurisdictions put their own money in. As 
other money goes away, their budget is going to shift. They may 
not have the ability to put their resources in. And it is this 
kind of patchwork that makes the system work as well as it does 
currently.
    Senator Menendez. Thank you, Mr. Chairman.
    The Chairman. Senator Scott?
    Senator Scott. Thank you, Mr. Chairman, and thank you to 
you all for being here this morning.
    Mr. MacDonald, affordability and accessibility go hand-in-
hand when it comes to housing. Fannie and Freddie use an old 
credit-scoring model that does not take into account rent, 
utility payments, your cell phone bill payments, things that 
actually show a broader swath of the credit history of the 
borrower.
    Why is it so important for the GSEs to start considering 
this data? Who stands to benefit? And I will note that Senator 
Warner and myself have legislation that we introduced today to 
hopefully help the GSEs update their credit scoring model.
    Mr. MacDonald. Senator, I want to thank you for the 
legislation you filed, and we really look forward to studying 
it. It is an issue that has been at the forefront for home 
builders for quite some time, probably since 2008, when the 
downturn of the economy came. And we were trying to find out 
why all of a sudden we were having so many perspective home 
buyers who were losing the opportunity to purchase homes.
    We sat down with our economics department--and we have four 
or five of the smartest Ph.D.s I have ever met in my life--and 
we said, ``Tell us how FICO works.'' Sir, after about 30 days, 
they came back, and they could not figure it out.
    We need a system that is transparent so that you know, and 
you know, and you know exactly how that score that controls 
your life and what kind of housing you are going to be able to 
provide your family is made up, so you know what to do and how 
to improve it, how to work with it, how to work toward having 
good credit.
    Good credit should not be an accident. It should be 
something that you work at as a goal. And if you understand the 
rules that you are playing by, it is a lot easier to play the 
game.
    Senator Scott. Absolutely. Thank you so much, sir.
    Mr. MacDonald. Yes, sir.
    Senator Scott. I appreciate your passion as well.
    Mr. Garcia-Diaz, I have a question for you on a different 
topic.
    So often in the discussion about home ownership and 
affordability, manufactured housing just goes unnoticed. In 
South Carolina, one out of every five homes is, indeed, a 
prefabricated home, the highest percentage in the Nation.
    At the same time, the average household income for a 
manufactured homeowner is around $30,000, versus about $52,000 
nationwide. Folks who buy manufactured housing are the least 
equipped to deal with rising costs.
    A 2014 GAO study found that high financing costs often keep 
these homes from being even more affordable. What conclusions 
did the GAO reach on improving manufactured homes' 
affordability?
    Mr. Garcia-Diaz. I am aware of the report that you are 
referring to. I do not have an exact answer, but I will be more 
than happy to reach out to your staff and provide that 
information related to our work on financing manufactured 
homes.
    Senator Scott. Thank you, very much.
    Back to you, Mr. MacDonald--I liked your passion, so I am 
going to ask you another question here.
    You testified that many home builders struggle to fill 
vacancies because the workforce lacks the skills necessary, 
whether it is welding, carpentry, plumbing. This shortage of 
qualified workers prevents housing inventories from keeping 
pace and ultimately leads to higher costs. I have worked on 
legislation around apprenticeship programs. I think that one of 
the ways we improve the housing inventory is to help folks earn 
and learn at the exact same time on the job sites.
    How can we ensure more Americans are ready for the skilled 
labor jobs that are high-paying?
    Mr. MacDonald. The National Association of Home Builders 
this year is sponsoring 8,400 people in the apprenticeship 
programs. These programs are exceptionally important.
    The average age of a master plumber in Texas is 61 years 
old. The average age of a master electrician in Texas is 59 
years old. That is a recipe for disaster.
    We are not having the skilled people come into our 
workforce. Part of it is, we have to go back to moms and dads 
and school counselors who will tell young people that it is not 
a bad thing if you do not go to college, if you go to a trade 
or technical school.
    We also have to start offering more trade and technical 
school education in our high schools for people to use so that 
they can develop the job skills where they can make a wonderful 
living and have a wonderful career, possibly own their own 
business, and then not be burdened by student debt.
    Senator Scott. Absolutely.
    I know I am running out of time, Mr. Chairman, but I will 
close by saying that there is dignity in all work. I recall 
back in my days in high school, just about a few years ago--Mr. 
Brown was there with me in a different State--the reality of it 
was, we had shop when I was in high school.
    We need to restore dignity in all work and encourage every 
facet of this society to participate and encourage the fact 
that there is strong income as a welder. I understand in Texas 
you can make over $125,000 a year as a welder.
    Mr. MacDonald. I am a licensed welder. Thank you. 
[Laughter.]
    Senator Scott. Exactly. It works. So we have problems that 
we can solve if we work together towards those solutions.
    Thank you very much to all of you guys for being here 
today.
    The Chairman. Well, thank you, Senator.
    Senator Brown?
    Senator Brown. Thank you, Mr. Chairman.
    I am flattered that Senator Scott thinks we were in high 
school at the same time, but thank you for that.
    Senator Scott. I need your cosponsorship on the 
legislation. There is that. [Laughter.]
    Senator Brown. Nice try.
    Thank you, Mr. MacDonald, for your comments about the 
importance of the trades, and thank you for your passion about 
that and in reminding people how important it is that young 
people become carpenters and machinists and sheet metal workers 
and plumbers and electricians.
    A couple of comments, and then I have questions for Dr. 
O'Regan and for Mr. Whitaker, if I could.
    As we know, families burdened by high housing costs have 
fewer resources, obviously, to meet other needs like food, 
transportation to work, medicines, and may face homelessness 
and eviction. As a sociologist, Matthew Desmond says, ``The 
rent eats first.''
    A person with a full-time job would need to earn an hourly 
wage of $21 to afford a modest two-bedroom rental at HUD's 
national average fair market rate. This housing wage, for want 
of a better term, varies, along with housing costs, across the 
country. The fact remains there are only 12 counties in the 
U.S. where a full-time worker earning Federal minimum wage can 
afford a modest one-bedroom rental home.
    In my home State of Ohio, a more affordable State than many 
others, the average housing wage is still $15. The State's 
minimum wage is $8.15. The mean renter wage is $12.87.
    My wife and I live in Cleveland in zip code 44105. Ten 
years ago that zip code had more foreclosures than any zip code 
in the United States of America. So we see every day the blight 
that comes from people not being able to afford decent places 
to live.
    The Low-Income Housing Tax Credit is a critical tool--as 
you know from your service in the administration--and 
developing affordable housing certainly should be protected and 
expanded, regardless of whether tax reform develops into a real 
bipartisan process or remains the partisan fantasy that people 
here talk about.
    Yet all of you here today as witnesses say the mismatch 
between housing costs and wages goes far beyond the cost of 
building and operating affordable units.
    I am the ranking member of the Banking, Housing, and Urban 
Affairs Committee. We have had a lot of discussion of the 
President's proposed 15-percent cut in HUD funding. Senator 
Menendez asked you a moment ago about that.
    This proposal goes in the wrong direction. How can you 
provide more affordable rental and home purchases when you make 
such savage cuts to affordable housing? So my question to 
Professor O'Regan, first for you, is, can you discuss 
additional steps that Congress and HUD should take to address 
the needs of rent-
burdened working families?
    And then the question for both you and Mr. Whitaker: 
pediatrician Megan Sandel likens affordable housing to a 
vaccine due to its ability to improve or not improve children's 
health and other outcomes. So, could the two of you talk about 
what we know about the effect that the lack of safe, healthy, 
affordable housing has on children's health?
    Dr. O'Regan, if you would answer both questions, and, Mr. 
Whitaker, if you would take the second question.
    Thank you.
    Dr. O'Regan. Okay.
    So I will start with the need for resources. The need for 
resources on affordable housing is broad. The hit on the HUD 
budget is going to be felt severely around the country. So I am 
not in a position--I am no longer at HUD, and I am not in a 
position to affect the Federal budget. But it is hard--you want 
to find ways in which the resources do not get cut for those 
most at need.
    I know there are a number of other proposals being 
considered, things like renter tax credits, things that can be 
used that would actually focus on the greatest need at a time 
when other types of resources are becoming less available. 
Additional flexibility within the tax credit so resources can 
be used in more than one way is a way to help fill those gaps 
as the home funding goes away, which is the gap and fungible 
funding. You are going to need to look for other places where 
it can come in.
    On the vaccine part, I would like to highlight one piece of 
work that came out from HUD called the ``Family Option Study.'' 
I think it is the most rigorous and best evidence to date on 
the effect of stable, affordable housing on outcomes for 
children and on non-housing outcomes, radiating benefits that 
came from homeless families who were provided with long-term 
housing subsidies.
    Within 3 years, a whole collection of additional impacts 
were seen. Domestic violence went down in these families. 
Family separations were significantly lower. Kids were less 
mobile across school and across day-care.
    By the third year follow-up, you were seeing prosocial 
behavior and a collection of all of those outcomes that the 
longer-term health studies show are directly connected to adult 
health and mental well-being. And I think that researchers will 
be following that study for the next 5 years and be using it to 
show exactly the direct correspondence between stable 
affordable housing and good outcomes for kids.
    The Chairman. Thank you.
    Senator Cassidy?
    Senator Brown. I did not get an answer, but thank you, Mr. 
Chairman.
    The Chairman. Oh, I am sorry.
    Mr. Whitaker. Well, mine will be short, because I am not 
much of a health expert, actually. But we do know for a fact 
that for households that are on the cusp of just being able to 
afford their daily lives, paying the rent and the necessary 
food and so forth for their families, anything such as a 
significant car repair is something that can throw them into 
homelessness. And a homeless family, those with children--there 
is nothing more pathetic than to go to the areas of Salt Lake 
City where we see that on a daily basis.
    We see a shopping cart with mom and dad with kids in tow 
with all of their goods in that shopping basket walking down 
the street. That is all they have. And we know that is an 
unhealthy situation for those families.
    The Chairman. Well, thank you.
    Senator Cassidy?
    Senator Cassidy. Mr. MacDonald, good to see you.
    Mr. MacDonald. Good to see you, sir.
    Senator Cassidy. I love your industry. Folks start off 
swinging the hammer, they end up being quite an entrepreneur. 
It is really tremendous. So just to compliment you, and we have 
met before, so just to mention that.
    Now when I read you all's testimony, it seems as if it is 
pointing in different directions--nothing against your 
testimony; very provocative. But let me toss this out.
    Dr. McClure, you quote some of Dr. O'Regan's research. So 
on the one hand, there is data showing that if you 
``ghettoize'' low-
income people, that is negative. So, Dr. McClure, you suggest 
that we should have more policy forcing integration, if you 
will, of the lower-income into richer neighborhoods. It sounds 
great, except Mr. MacDonald's testimony points out that 
wealthier people tend to live near transit centers, probably 
live near better schools, better restaurants, better et cetera. 
That increases your development costs.
    So we have kind of a push-back there, because it is going 
to increase your cost to the program. And then, similarly, when 
you speak about those being underserved--I think you quoted Dr. 
O'Regan's research--most of these programs are for those who 
are kind of at $40,000 to $60,000, not less than $20,000.
    But when you are down in that level of poverty, there tends 
to be more economic segregation. Folks do not live near transit 
centers. They do not live near nice Whole Foods as a rule, 
although there is a nice place in New Orleans where there is a 
Whole Foods near such a neighborhood.
    So I just toss that out, because it seems like the 
recommendations and the reality kind of go against each other. 
Yes, we need more housing for those who have reportable incomes 
of less than $20,000. But that is going to increase your 
housing development costs. Yes, you want to integrate those 
folks into the broader social fabric, but the social indicators 
may make it more difficult to do so.
    How do we reconcile that?
    Dr. McClure. Thank you, Senator. You are correct. It is an 
enormously tricky process.
    What we have now is a one-size-fits-all tax credit program 
with very few flexibilities built into it. We have built an 
entire industry of developers, underwriters, nonprofits, that 
have found ways to layer subsidy on top of subsidy to come up 
with some very impressive results.
    If we could make the Low-Income Housing Tax Credit program 
more flexible, if we would reward the type of developments that 
better serve those households truly in need, our outcomes would 
improve in the program.
    Dr. O'Regan. I would like to join in on that. I think that 
making it work by having the ability within the program to be 
flexible is quite useful. But you did point out something that 
is kind of inherent: locational goals may be in conflict.
    Senator Cassidy. Totally.
    Dr. O'Regan. And so I think this is where the benefit of it 
being a decentralized program for localities that have the 
housing market and the needs in front of them getting to be 
flexible there is important.
    But I want to point out one thing on the research that is 
important for thinking about them potentially not being in such 
conflict. There is very good work by Rebecca Diamond and 
Timothy McQuade, who look at the effect of creating low-income 
housing, LIHTC housing in higher poverty neighborhoods, and 
find robust findings that those investments, themselves, pay 
off in the neighborhood.
    And if you look at the properties nearby, the housing 
values go up by more than 6 percent, crime rates go down, and 
you see larger benefits----
    Senator Cassidy. Now, that is just that good money drives 
out bad people.
    Dr. O'Regan. No. You will see composition coming in 
differently. You will see higher-income households coming in, 
so the economic and racial composition of the neighborhood 
changes over time. So it is a community reinvestment strategy.
    So, if you think about the place-based side of this, where 
the LIHTC development goes in now, 5 years in the future looks 
different. So that is one way to think about some of the 
benefits you get on that location side.
    Senator Cassidy. Okay. I get that.
    Now, also it is interesting--I was also just in North Baton 
Rouge, an area of low socio-economic class in Louisiana. After 
the flooding, they have lost a lot of their rental stock. So 
the local pastor was saying, ``They are not rebuilding our 
rental homes, which means that I am losing my congregation. We 
are losing the fabric of our community.''
    So your point, sir, that perhaps we need to award 
rehabilitation a little bit more than new construction would 
maybe solve some of that. I will concede that.
    If you go to New Orleans, sometimes older neighborhoods are 
closer to transit sites, hubs, if you will--they are just older 
neighborhoods. It did seem like rehabilitation would be part of 
the answer. I will just kind of commend your testimony on that.
    Mr. MacDonald. And I also think that the 4-percent side of 
this bill will aid that rehabilitation. It will heighten it. We 
have to realize that rehabilitation is really, really a strong 
position, because we are starting to get older and older units 
that need the work, and we have to do something to revitalize 
some of these neighborhoods. The taxpayer program does a 
wonderful job of that.
    I agree that in a perfect world, we would try to build in 
more affluent areas. But the problem is that the real estate 
costs in the more affluent areas, everything else, then would 
reduce the amount of units we are able to get on the ground to 
assist families.
    So, if we are going to get the most bang for our buck, we 
need to let that stay as a State's issue. When they write their 
QAPs, those people back home, we need to trust that the people 
back home know exactly where they need to develop and what is 
best for their community.
    In Texas, we will see the need for revitalization, and you 
will see an entire set-aside for revitalization. And that is 
very, very important. We would not want to do anything to swipe 
that.
    They know exactly how to monitor this at home. They know 
what is good in Baton Rouge for what needs to happen in the 
rest of North Baton Rouge.
    Senator Cassidy. Thank you all very much.
    The Chairman. Senator Cardin?
    Senator Cardin. Thank you very much, Mr. Chairman. I just 
really wanted to sort of summarize and thank all of the 
witnesses for being here.
    I particularly thank the chairman and Senator Cantwell for 
your leadership on this issue. We need your leadership.
    Affordable housing is more challenging today than ever 
before. The statistics that were brought out today indicate 
that we need to have stronger tools available in order to meet 
the needs of the people of this country. I think the 
legislation the two of you have authored gives us a way to move 
forward in the best traditions of this committee and the 
Senate. So I first want to thank you all.
    I also just want to make an acknowledgment. As I see the 
work that is done in Maryland, whenever we can get a program 
started to provide additional affordable housing for people in 
need, there is not usually one tool available that will make 
that happen. You sort of have to rely on a lot of different 
opportunities.
    No question, the Low-Income Housing Tax Credit is the major 
tool that is available, and strengthening that tool will be the 
most important thing I believe we can do for affordable 
housing. But the historic tax credits are a major part. We had 
over 5,000 units, I think, of residential housing that was 
created under the tax credits.
    That is another important tool that is available that has 
combined many times with Low-Income Housing Tax Credits. We 
have the New Markets Tax Credits that can be a helpful part of 
getting this done.
    We have incentives for energy efficiency, which can be 
coupled with these projects, that accomplish additional savings 
for the people who live there and their energy costs, but also 
help us in regards to our energy policies in this country. That 
can also help us deal with those issues.
    So, as we look at improving the Low-Income Housing Tax 
Credit, which I think we definitely strongly support, I think 
we should be also mindful of the other tools that are available 
and look at ways that they can be strengthened and in some 
cases more targeted to the objective of affordable housing.
    I am not squeamish about looking at ways we can make these 
programs more effective. We need to do that, but at the same 
time, we need to expand them and provide greater resources in 
order to deal with the tremendous needs that we have in our 
community.
    I should mention also, we could not do this without the 
private sector. The private sector takes incredible risks at 
times in order to carry out a public function of affordable 
housing. They are committed to that.
    So it is all of that coming together that has allowed us to 
move forward in Maryland on the affordable housing issues.
    I look forward to working with all of the stakeholders to 
find ways that we can improve the programs.
    Thank you, Mr. Chairman.
    The Chairman. Thanks, Senator.
    Senator Thune?
    Senator Thune. Last person here, Mr. Chairman?
    The Chairman. As far as I know. [Laughter.]
    Senator Thune. Okay.
    Well, thank you. And thank you to all of you for being with 
us today. We appreciate you taking time away from your jobs and 
families to testify this morning.
    Affordable housing is an important issue for each of us in 
our States across the country, and we are fortunate in my State 
of South Dakota to have one of the lowest unemployment rates in 
the Nation. But we still have a need for housing that lower-
income individuals--especially those just getting started--are 
able to afford.
    Now there are a number of Federal programs and provisions 
in the tax code that are intended to help provide affordable 
housing in this country, both in urban areas and rural parts of 
the Nation as well.
    As we turn to tax reform as our top priority, we have an 
opportunity to look at a lot of these tax provisions to make 
sure that they are working effectively and efficiently. Your 
insights this morning are an important contribution to that 
effort. So, thank you again for being here.
    As part of tax reform, many of us on the committee have 
been looking at the important role that cost recovery can play 
in helping ensure long-term economic growth. And while much of 
the testimony this morning has focused on the Low-Income 
Housing Tax Credit, I understand that depreciation is also a 
significant component of the financing of affordable housing 
projects.
    However, the current recovery period of 27.5 years can 
create a significant lock-in effect for residential housing 
investment. So the question is, if tax reform were to include a 
shorter recovery period for residential real estate or 
acceleration of the depreciation deductions, how would you see 
that affecting affordable housing projects? And I will just 
throw that open to the panel.
    Mr. MacDonald?
    Mr. MacDonald. It would obviously bring down the price. 
Twenty-six years is better than 27. Twenty-five would be better 
than 26. So, however you come down the scale, what you will do 
is help reduce the cost of producing affordable housing. And I 
do not think there is anyone is this room who will not say that 
is a great idea.
    Senator Thune. Okay.
    Anybody else?
    Everybody is for that. All right.
    The focus on affordable housing is often centered on our 
larger cities and the surrounding suburbs, but there is also a 
need for affordable housing in States like South Dakota, which 
are largely rural. In these areas we often need housing 
properties that are smaller, since low-income individuals are 
more dispersed than in larger cities.
    Due to their smaller scale, these housing projects may not 
be as financially feasible as those being developed in urban 
communities. Some have suggested enhancing the Low-Income 
Housing Tax Credit to encourage financing for affordable 
housing in rural areas.
    So the question is, do you agree that the low-income 
housing in rural areas presents challenges for using the 
current Low-Income Housing Tax Credit, and what do you think 
might be the most effective enhancement to the credit that we 
could come up with that would address this issue?
    Yes, sir?
    Mr. MacDonald. Well, Senator Cantwell has got it right 
here, and that is the ability to adjust DDAs, difficult to 
develop areas, and give the economic boosts and to allow the 
States to do that when they write their QAPs on a local area 
basis, so that in South Dakota or in Texas, they can reach deep 
and give that boost to the rural areas, which in Texas they do. 
And that is what allows the development of affordable housing 
in rural Texas.
    Senator Thune. Okay.
    Anybody else?
    Dr. O'Regan. I think this is correct. The bill actually has 
several things in it that would help with rural communities, 
including making a change on the income definitions. I think 
income averaging gives you a broader market so that you would 
be able to actually support this in rural areas.
    I am going to just second the DDA designations so that 
Indian areas are automatically designated as difficult to 
develop, which comes with the basis boosts.
    Senator Thune. Okay.
    All right. Well, those are my questions, Mr. Chairman. 
Thank you.
    The Chairman. Well, thank you, Senator.
    Senator Thune. Thank you all for being here.
    The Chairman. Senator Cantwell really deserves the credit 
for this hearing. And she is a very integral and important 
member of this committee.
    Senator Cantwell?
    Senator Cantwell. Thank you, Mr. Chairman. I would say you 
are a very integral part of this committee as well. [Laughter.]
    The Chairman. That is good to know.
    Senator Cantwell. And Utah has been a very integral leader 
in this issue. And so I thank them, again, for pioneering and 
piloting. I do not know all of the ways in which Utah has been 
able to muster that, but I admire it. So thank you.
    I just want to bring up one last point, and that is, does 
doing nothing save us any money? Because one of the things that 
I have heard is that dealing with this population--I know there 
are some studies, but dealing with this population is costing 
us $3 billion more because everything is more expensive. If you 
are dealing with the same population without a roof over their 
head--or as my colleague, Senator Scott, was talking about, 
apprenticeship--well I guarantee you, you cannot deliver job 
training to a tent. It just does not work.
    So how do we communicate about the fact that doing nothing 
is not really saving us any money here?
    Dr. O'Regan. I would say that the language that is used on 
this frequently is the ``wrong pocket'' issue. There is an 
incredibly increasing body of evidence on the role of 
affordable and stable housing for non-housing outcomes, for 
improvements in health, mental well-being, for economic 
mobility for children.
    So the lack of affordable housing shows up in the budgets 
outside of the housing budgets. And so how do you get the 
attention of those who care about that range of outcomes to 
realize that investing in housing now decreases all of those 
other costs over time?
    Senator Cantwell. Do we know of a specific analysis of that 
now, or could you help us with CBO in scoring that some way, 
because the----
    Dr. O'Regan. The bane of my existence, when I had my 
previous job, was trying to get to this, but I think the best 
evidence is on supportive housing, on all of the immediate cost 
savings from emergency room visits, and actually from 
implications in the criminal justice system.
    So we have very robust evidence there. And then with more 
recent evidence with homeless families, what we are seeing is 
outcomes that--down the pike--would hit the budget.
    But certainly, on the ones that are most robust on 
supportive housing, we could get that to you.
    Senator Cantwell. Well, somebody mentioned to me they 
thought the number was 25 percent per person. It cost 25 
percent more to deal with someone who is in this homeless 
situation than if they had a roof over their head, because of 
all those health care costs and expenses.
    I do not know, Mr. Whitaker, if you have seen or could 
comment on that?
    Mr. Whitaker. I cannot comment on statistics, but one of 
the things that we are beginning to see in our State is the 
health insurers who are becoming very involved in investing in 
the tax credit projects.
    The supportive housing project that we just funded most 
recently, with some leftover funding, has major investment by 
one of the health insurers in Utah, because they understand 
that, going forward, getting people into a home is going to be 
cheaper for them than it is to deal with their health issues, 
particularly related to people who are moving into supportive 
housing from homelessness.
    Senator Cantwell. So health insurers are investing in 
affordable housing?
    Mr. Whitaker. Yes.
    Senator Cantwell. Because they think it helps drive down 
costs of health insurance?
    Mr. Whitaker. Is that not amazing?
    Senator Cantwell. Thank you.
    Mr. MacDonald, anything else on that point?
    Mr. MacDonald. I just want to second the comment about the 
criminal justice system, because there is no way of 
ascertaining the costs there, but the end result of 
homelessness and despair puts an impact on criminal justice.
    Senator Cantwell. Thank you.
    Again, thank you, Mr. Chairman. And thank you for your 
leadership on this issue.
    And again, I thank all of those in the Utah area who 
created great models for us to follow.
    The Chairman. Well, thank you. I want to thank you for your 
leadership on this in this area. This would not have happened 
without you.
    I just want to say this is one of the best panels I have 
seen in all of my years as a member of this committee. You 
folks have really been right on. You have made your points very 
well, and I think you have been very persuasive, and you have 
been coordinated with each other, which is very, very good as 
far as I am concerned.
    We appreciate your taking the time to help us to understand 
this better. Hopefully, we can do a better job than we have 
done in the past.
    I want to thank, again, Senator Cantwell and other members 
of this committee for the work that they are doing on this. And 
we will just go from there.
    With that, any other questions that people have, we will 
want them to get them in as soon as possible, and we will 
adjourn this particular meeting at this particular time.
    Thank you.
    [Whereupon, at 12:05 p.m., the hearing was concluded.]

                            A P P E N D I X

              Additional Material Submitted for the Record

                              ----------                              


 Prepared Statement of Daniel Garcia-Diaz, Director, Financial Markets 
       and Community Investment, Government Accountability Office

                     LOW-INCOME HOUSING TAX CREDIT

       Actions Needed to Strengthen Oversight and Accountability

                             GAO Highlights

Why GAO Did This Study

    The LIHTC program, established under the Tax Reform Act of 1986, is 
the largest source of Federal assistance for developing affordable 
rental housing and will represent an estimated $8.5 billion in forgone 
revenue in 2017.

    LIHTC encourages private-equity investment in low-income rental 
housing through tax credits. The program is administered by IRS and 
allocating agencies, which are typically State or local housing finance 
agencies established to meet affordable housing needs of their 
jurisdictions.

    Responsibilities of allocating agencies (in section 42 of the 
Internal Revenue Code and regulations of the Department of the 
Treasury) encompass awarding credits, assessing the reasonableness of 
project costs, and monitoring projects.

    In this testimony, GAO discusses (1) how allocating agencies 
implement Federal requirements for awarding LIHTCs, assess 
reasonableness of property costs, and monitor properties' ongoing 
compliance; and (2) IRS oversight of the LIHTC program. This statement 
is based primarily on three reports GAO issued in July 2015 (GAO-15-
330), May 2016 (GAO-16-360), and February 2017 (GAO-17-285R). GAO also 
updated the status of recommendations made in these reports by 
reviewing new or revised IRS policies, procedures, and reports and 
interviewing IRS officials.

What GAO Found

    In its May 2016 report on the Low-Income Housing Tax Credit (LIHTC) 
program of the Internal Revenue Service (IRS), GAO found that State and 
local housing finance agencies (allocating agencies) implemented 
requirements for allocating credits, reviewing costs, and monitoring 
projects in varying ways. Moreover, some allocating agencies' day-to-
day practices to administer LIHTCs also raised concerns. For example:

      Qualified allocation plans (developed by 58 allocating agencies) 
that GAO analyzed did not always mention all selection criteria and 
preferences that section 42 of the Internal Revenue Code requires; and

      Allocating agencies could increase (boost) the eligible basis 
used to determine allocation amounts for certain buildings if needed 
for financial feasibility. However, they were not required to document 
the justification for the increases. The criteria used to award boosts 
varied, with some allocating agencies allowing boosts for specific 
types of projects and one allowing boosts for all projects in its 
State.

    In its 2015 and 2016 reports, GAO found IRS oversight of the LIHTC 
program was minimal. Additionally, IRS collected little data on or 
performed limited analysis of compliance in the program. Specifically, 
GAO found that:

      Since 1986, IRS conducted 7 audits of the 58 allocating agencies 
we reviewed. Reasons for the minimal oversight may include LIHTC being 
viewed as a peripheral program in IRS in terms of its mission and 
priorities for resources and staffing.

      IRS had not reviewed the criteria allocating agencies used to 
award discretionary basis ``boosts,'' which raised concerns about 
oversubsidizing projects (and reducing the number of projects funded).

      IRS guidance to allocating agencies on reporting noncompliance 
was conflicting. As a result, allocating agencies' reporting of 
property noncompliance was inconsistent.

      IRS had not participated in and leveraged the work of the 
physical inspection initiative of the Rental Policy Working Group--
established to better align the operations of Federal rental assistance 
programs--to augment its databases with physical inspection data on 
LIHTC properties that the Department of Housing and Urban Development 
(HUD) maintains.

    In its prior reports, GAO made a total of four recommendations to 
IRS. As of July 2017, IRS had implemented one recommendation to include 
relevant IRS staff in the working group. IRS has not implemented the 
remaining three recommendations, including improving the data quality 
of its LIHTC database, clarifying guidance to agencies on reporting 
noncompliance, and evaluating how the information HUD collects could be 
used for identifying noncompliance issues. In addition, because of the 
limited oversight of LIHTC, in its 2015 report GAO asked that Congress 
consider designating certain oversight responsibilities to HUD because 
the agency has experience working with allocating agencies and has 
processes in place to oversee the agencies. As of July 2017, Congress 
had not enacted legislation to give HUD an oversight role for LIHTC.
_______________________________________________________________________

    Chairman Hatch, Ranking Member Wyden, and members of the committee:

    I am pleased to be here today to discuss our work on the Low-Income 
Housing Tax Credit (LIHTC) program administered by the Internal Revenue 
Service (IRS) and allocating agencies, which typically are State or 
local authorities established to meet the affordable housing needs of 
the residents of their States. LIHTC, established under the Tax Reform 
Act of 1986, is the largest source of Federal assistance for developing 
affordable rental housing. Each State receives an annual allocation of 
LIHTCs, determined by statutory formula. Allocating agencies then 
competitively award the tax credits to owners of qualified rental 
housing projects that reserve all or a portion of their units for low-
income tenants. In 2017, LIHTC will represent an estimated $8.5 billion 
in forgone revenue to the Federal Government.\1\
---------------------------------------------------------------------------
    \1\ Joint Committee on Taxation, ``Estimates of Federal Tax 
Expenditures for Fiscal Years 2016-2020'' (Washington, DC: Jan. 30, 
2017).

    My statement today will focus on (1) how allocating agencies 
implement Federal requirements for awarding LIHTCs, assess 
reasonableness of property costs, and monitor properties' ongoing 
compliance; and (2) IRS's oversight of the LIHTC program. This 
statement is based primarily on three reports we issued in July 2015, 
May 2016, and February 2017.\2\ To conduct the work for the three 
reports, among other methodologies, we reviewed IRS regulations and 
guidance, including how allocating agencies and taxpayers are selected 
for review. We also conducted a structured analysis of 58 Qualified 
Allocation Plans (QAP), which outline processes for awarding LIHTCs and 
compliance monitoring responsibilities.\3\ We selected a 
nonprobability, nongeneralizable sample of nine allocating agencies for 
site visits, and during these visits, we reviewed files for randomly 
selected housing developments to determine how each agency addressed 
Federal requirements for awarding LIHTCs, assessed the reasonableness 
of development costs, and monitored properties' compliance with program 
requirements. We also interviewed officials from IRS, the Department of 
the Treasury (Treasury), the Department of Housing and Urban 
Development (HUD), the National Council of State Housing Agencies 
(NCSHA), and selected allocating agencies. For our 2017 report, we 
gathered data for 32 syndicators in total--31 through a no-cost 
contract with CohnReznick, a national accounting firm--and one survey 
response directly from a syndicator.\4\ More detailed information on 
our scope and methodology can be found in each of the reports cited 
throughout this testimony. To update the status of recommendations from 
our 2015 and 2016 reports, we reviewed new or revised IRS policies, 
procedures, and reports and interviewed IRS officials.
---------------------------------------------------------------------------
    \2\ See GAO, ``Low-Income Housing Tax Credit: The Role of 
Syndicators,'' GAO-17-285R (Washington, DC: Feb. 16, 2017); ``Low-
Income Housing Tax Credit: Some Agency Practices Raise Concerns and IRS 
Could Improve Noncompliance Reporting and Data Collection,'' GAO-16-360 
(Washington, DC: May 11, 2016); and ``Low-Income Housing Tax Credit: 
Joint IRS-HUD Administration Could Help Address Weaknesses in 
Oversight,'' GAO-15-330 (Washington, DC: July 15, 2015).
    \3\ Our review examined plans from 2013 or the most recent QAP 
available.
    \4\ CohnReznick completed a survey to capture requested data on 
behalf of the 31 syndicators for which it had information. It then sent 
the completed surveys to the syndicators to review and, if necessary, 
correct before transmitting the data to us.

    We performed the work on which this statement is based in 
accordance with generally accepted government auditing standards. Those 
standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe that 
the evidence obtained provides a reasonable basis for our findings and 
conclusions based on our audit objectives.
                               background
Overview of IRS Administration of LIHTC Program
    IRS administration of the LIHTC program involves overseeing 
compliance on the part of allocating agencies and taxpayers and 
developing and publishing regulations and guidance. IRS is responsible 
for reviewing LIHTC information on three IRS forms that are the basis 
of LIHTC program reporting and then determining whether program 
requirements have been met. Taxpayer noncompliance with LIHTC 
requirements may result in IRS denying claims for the credit in the 
current year or recapturing--taking back--credits claimed in prior 
years.

    Published guidance may include revenue rulings and procedures, 
notices, and announcements. Other guidance for the program includes an 
Audit Technique Guide for Completing Form 8823 that includes specific 
instructions for allocating agencies, including when site visits and 
file reviews are to be performed, and guidelines for determining 
noncompliance in areas such as health and safety standards, rent 
ceilings, income limits, and tenant qualifications.
Role of Allocating Agencies
    State and local allocating agencies are responsible for day-to-day 
administration of the LIHTC program based on section 42 of the Internal 
Revenue Code and Treasury regulations. More specifically, allocating 
agencies are responsible for:

    Awarding tax credits. Each State receives an annual allocation of 
LIHTCs, determined by statutory formula. Allocating agencies then 
competitively award the tax credits to owners of qualified rental 
housing projects that reserve all or a portion of their units for low-
income tenants, consistent with the agencies' QAPs.\5\ Developers 
typically attempt to obtain funding for their projects by attracting 
third-party investors willing to contribute equity to the projects; the 
project investors then can claim the tax credits.
---------------------------------------------------------------------------
    \5\ An allocating agency develops the QAP and receives approval of 
the plan by the governmental unit of which the allocating agency is a 
part. The agency then evaluates the proposed projects against the 
approved QAP. The QAP also must be developed in accordance with section 
42 requirements for such plans. Section 42 requires that QAPs give 
preference to certain projects, specifically, those that: (1) serve the 
lowest-income tenants; (2) are obligated to serve qualified tenants for 
the longest periods; and (3) are located in qualified census tracts and 
the development of which contributes to a concerted community 
revitalization plan.

    Monitoring costs. Section 42 states that allocating agencies must 
consider the reasonableness of costs and their uses for proposed LIHTC 
projects, allows for agency discretion in making this determination, 
and also states that credits allocated to a project may not exceed the 
amount necessary to assure its feasibility and its viability as a low-
income housing project. However, section 42 does not provide a 
definition or offer guidance on determining how to calculate these 
---------------------------------------------------------------------------
amounts.

    Monitoring compliance. After credits are awarded, Treasury 
regulations state that allocating agencies must conduct regular site 
visits to physically inspect units and review tenant files for 
eligibility information. The agencies also have reporting and 
notification requirements. For example, allocating agencies must notify 
IRS of any noncompliance found during inspections and ensure that 
owners of LIHTC properties annually certify they met certain 
requirements for the preceding 12-month period.
Role of Investors and Syndicators
    Developers of awarded projects typically attempt to obtain funding 
for their projects by attracting third-parties willing to invest in the 
project in exchange for the ability to claim tax credits. The developer 
sells an ownership interest in the project to one or more investors, or 
in many instances, to a fund managed by a syndicator who acts as an 
intermediary between the developer and investors.

    Investors and syndicators play several roles in the LIHTC market. 
For example, syndicators help initially connect investors and 
developers and oversee acquisition of projects. Once a project is 
acquired, syndicators perform ongoing monitoring and asset management 
to help ensure the project complies with LIHTC requirements and is 
financially sound. Syndicators attempt to identify potential problems 
and intercede if necessary, such as replacing under- or nonperforming 
general partners, and may use their own reserves to help resolve 
problems. In exchange for these services, syndicators typically are 
compensated through an initial acquisition fee--usually a percentage of 
the gross equity raised--and an annual asset management fee.

    Syndicators that we surveyed for our 2017 report were nonprofit or 
for-profit entities, generally had multistate operations, and averaged 
more than 20 years of experience with the LIHTC program.\6\ Of the 32 
syndicators we surveyed, the syndicators collectively had raised more 
than $100 billion in LIHTC equity since 1986, helping to fund more than 
20,000 properties and about 1.4 million units placed-in-service through 
2014. Projects for which these syndicators raised equity in 2005-2014 
represented an estimated 75 percent of all LIHTC properties placed-in-
service in that period.\7\
---------------------------------------------------------------------------
    \6\ For more information on the role of syndicators and their 
characteristics, see GAO-17-285R.
    \7\ We collected data through calendar year 2014 because that was 
the most current available at the time of our 2017 report.
---------------------------------------------------------------------------
     selected allocating agencies implemented differing practices 
                       for key lihtc requirements
    As we reported in 2016, allocating agencies implemented 
requirements for QAPs in varying ways and had processes in place to 
meet requirements for credit awards. Allocating agencies also had 
procedures to assess costs, but determined award amounts for projects 
differently, used various cost limits and benchmarks to determine 
reasonableness of costs, and used widely varying criteria for basis 
boosts. Agencies also had processes in place to monitor compliance. 
However, some of these practices raised concerns.
Agencies Implemented Requirements for Allocation Plans and Award 
        Credits in Varying Ways
    In our 2016 report, we generally found that allocating agencies 
implemented requirements for QAPs in varying ways and had processes in 
place to meet requirements for awarding the tax credit.

      Based on our 2016 review of 58 QAPs and our 9 site visits, we 
found the QAPs did not always contain, address, or mention preferences 
and selection criteria required in section 42. Rather, some allocating 
agencies incorporated the information into other LIHTC program 
documents, or implemented the requirements in practice.

      While section 42 specifies some selection criteria (such as 
project location or tenant populations with special housing needs), it 
also more broadly states that a QAP set forth selection criteria 
``appropriate to local conditions.'' As a result, allocating agencies 
have the flexibility to create their own methods and rating systems for 
evaluating applicants. We found that nearly all the allocating agencies 
that we reviewed used points or a threshold system for evaluating 
applicants. They used criteria such as qualifications of the 
development team, cost effectiveness, or leveraging of funds from other 
Federal or State programs.

      According to section 42, allocating agencies must notify the 
chief executive officer (or the equivalent) of the local jurisdiction 
in which the project is to be located. However, some agencies imposed 
an additional requirement of letters of support from local officials. 
Specifically, as of 2013, we found that of the 58 agencies in our 
review, 12 agencies noted that their review or approval of applications 
was contingent on letters of support, and another 10 agencies awarded 
points for letters of local support. HUD officials have cited fair 
housing concerns in relation to any preferences or requirements for 
local approval or support because of the discriminatory influence these 
factors could have on where affordable housing is built. In December 
2016, IRS issued a revenue ruling that clarified that section 42 
neither requires nor encourages allocating agencies to reject all 
proposals that do not obtain the approval of the locality where the 
project developer proposes to place the project.\8\
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    \8\ IRS, Rev. Rul. 2016-29.

    Allocating agencies we visited for our 2016 report had processes in 
place to meet other section 42 requirements, including awarding credit 
to nonprofits and long-term affordability of projects. Allocating 
agencies must allocate at least 10 percent of the State housing credit 
ceiling to projects involving qualified nonprofit organizations. All 
nine allocating agencies we visited had a set-aside of at least 10 
percent of credits to be awarded to projects involving nonprofits. 
Section 42 also requires allocating agencies to execute an extended 
low-income housing commitment of at least 30 years before a building 
can receive credits. For example, one allocating agency we visited 
required developers to sign agreements for longer extended-use periods, 
while some agencies awarded points to applications whose developers 
elect longer periods.
Agencies We Reviewed Had Procedures to Assess Costs and Used Widely 
        Varying Criteria for Basis Boosts
    Allocating agencies we reviewed for our 2016 report had procedures 
to assess costs, but determined award amounts for projects differently 
and used various cost limits and benchmarks to determine reasonableness 
of costs. All nine allocating agencies we visited required applicants 
to submit detailed cost and funding estimates, an explanation of 
sources and uses, and expected revenues as part of their applications. 
These costs were then evaluated to determine a project's eligible basis 
(total allowable costs associated with depreciable costs in the 
project), which in turn determined the qualified basis and ultimately 
the amount of tax credits to be awarded.\9\
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    \9\ The credit the taxpayer can claim each year is determined by 
the following calculations: (1) eligible basis  applicable fraction = 
qualified basis; and (2) qualified basis  applicable percentage = 
annual credit amount. Qualified basis is the portion of a project's 
total costs--excluding the costs of land, obtaining permanent 
financing, rent reserves, syndication, and marketing--allocable to 
units that meet section 42 requirements for rent, tenant income, and 
habitability. The applicable fraction is the lesser of the portion of 
qualified low-income units in relation to total rental units or the 
portion of total floor space dedicated to low-income units in relation 
to the total floor space of residential rental units. The applicable 
percentage is the discount factor needed to limit the present value of 
the credit available over a 10-year period to either 70 percent or 30 
percent of the qualified basis, depending on the characteristics of the 
housing. The credit percentages are adjusted monthly by IRS based on 
current interest rates. Under a special rule first enacted in 2008 and 
made permanent in 2015, the minimum percentage is 9 percent for the 
buildings eligible for the 70 percent credit.

    Reasonableness of costs. We found that allocating agencies had 
different ways for determining the reasonableness of project costs. 
Based on our analysis of 58 QAPs and our 9 site visits, agencies had 
established various limits against which to evaluate the reasonableness 
of submitted costs, such as applying limits on development costs, total 
credit awards, developer fees, and builder's fees.\10\ Section 42 does 
not provide a definition of reasonableness of costs, giving allocating 
agencies discretion on how best to determine what costs are appropriate 
for their respective localities.
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    \10\ Our review examined plans from 2013 or the most recent QAP 
available. Allocating agencies we observed that did not describe cost 
limits in their QAPs still may have used cost limits or other factors 
as a measure of reasonableness in their actual application reviews and 
these may have been documented elsewhere.

    Discretionary basis boosts. Allocating agencies commonly 
``boosted'' the basis for projects, but used widely varying criteria 
for doing so. Section 42 notes that an increase or ``boost'' of up to 
130 percent in the eligible basis can be awarded by an allocating 
agency to a housing development in a qualified census tract or 
difficult development area.\11\
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    \11\ A difficult development area is ``any area designated by the 
Secretary of Housing and Urban Development as an area which has high 
construction, land, and utility costs relative to area median gross 
income.'' 26 U.S.C. Sec. 42(d)(5)(B)(iii)(I). The Housing and Economic 
Recovery Act of 2008 amended section 42 and gave allocating agencies 
the discretion to designate any building, regardless of location, as 
eligible for a boost of up to 130 percent of the eligible basis. 
Although the boost is applied to the total eligible basis (as opposed 
to the total credit amount), the credit amount awarded increases (the 
actual increase to the credit award is less than 30 percent because the 
award is determined by multiplying the applicable fraction by the total 
eligible basis, which is increased by the boost).

    According to our QAP analysis, 44 of 58 plans we reviewed included 
criteria for awarding discretionary basis boosts, with 16 plans 
explicitly specifying the use of basis boosts for projects as needed 
for financial or economic feasibility. The discretionary boosts were 
applied to different types of projects and on different scales (for 
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example, statewide or citywide).

      For example, we found one development that received a boost to 
the eligible basis for having received certain green building 
certifications, although the applicant did not demonstrate financial 
need or request the boost. The allocating agency told us that all 
projects with specified green building certifications received the 
boost automatically, as laid out in its QAP. At the time of our review, 
agency officials said that the agency had changed its practices to 
prevent automatic basis boosts from being applied and required 
additional checks for financial need.

      In another QAP we reviewed, one agency described an automatic 
130 percent statewide boost for all LIHTC developments. According to 
the officials, the automatic statewide boost remained in effect because 
officials made the determination that nearly all projects would need it 
for financial feasibility.

    Section 42 requires that allocating agencies determine that 
``discretionary basis boosts'' were necessary for buildings to be 
financially feasible before granting them to developers.\12\ Section 42 
does not require allocating agencies to document their analysis for 
financial feasibility (with or without the basis boost). However, 
legislative history for the Housing and Economic Recovery Act of 2008 
included expectations that allocating agencies would set standards in 
their QAPs for which projects would be allocated additional credits, 
communicate the reasons for designating such criteria, and publicly 
express the basis for allocating additional credits to a project.\13\ 
In addition, NCSHA (a nonprofit advocating for State allocating 
agencies) recommends that allocating agencies set standards in their 
QAPs to determine eligibility for discretionary basis boosts and make 
the determinations publicly available.\14\
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    \12\ We use ``discretionary basis boosts'' to describe boosts 
awarded to developments outside of qualified census tracts or difficult 
development areas.
    \13\ H. Rept. No. 110-606, at 25 (2008).
    \14\ National Council of State Housing Agencies, Report of the 
National Council of State Housing Agencies' Housing Credit Task Force 
on Recommended Practices in Housing Credit Allocation and Underwriting 
(December 2011).
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Agencies We Visited Had Processes for Monitoring Compliance
    In our 2016 report we found that the allocating agencies we visited 
had processes for and conducted compliance monitoring of projects 
consistent with section 42 and Treasury regulations. Treasury 
regulations require allocating agencies to conduct on-site physical 
inspections for at least 20 percent of the project's low-income units 
and file reviews for the tenants in these units at least once every 3 
years. In addition, allocating agencies must annually review owner 
certifications that affirm that properties continue to meet LIHTC 
program requirements.

      Allocating agencies we visited followed regulatory requirements 
on when to conduct physical inspections and tenant file reviews.

      Allocating agencies we visited generally used electronic 
databases to track the frequency of inspections, file reviews, and 
certifications, although most of these agencies documented these 
reviews on paper.

      All the allocating agencies we visited had inspection and review 
processes in place to monitor projects following the 15-year compliance 
period, as required under section 42. Allocating agencies must execute 
an extended low-income housing commitment to remain affordable for a 
minimum of 30 years before a tax credit project can receive credits. 
After the compliance period is over, the obligation for allocating 
agencies to report to IRS on compliance issues ends and investors are 
no longer at risk for tax credit recapture.
                irs oversight of lihtc has been minimal
    Our prior reports found IRS conducted few reviews of allocating 
agencies and had not reviewed how agencies determined basis boosts. 
Data on noncompliance were not reliable and IRS used little of the 
reported program information. IRS had not directly participated in an 
interagency initiative to augment HUD's databases with LIHTC property 
inspection data. Both our 2015 and 2016 reports concluded that 
opportunities existed to enhance oversight of the LIHTC program, 
specifically by leveraging the knowledge and experience of HUD.
IRS Conducted Few Reviews of Allocating Agencies and Had Not Reviewed 
        How Agencies Determined Basis Boosts
    Few reviews of allocating agencies. In our 2015 report, we found 
that IRS had conducted seven audits (reviews) of allocating agencies 
from 1986 (inception of the program) through May 2015. In the audits, 
IRS found issues related to QAPs, including missing preferences and 
selection criteria.

    But in both our 2015 and 2016 reports, IRS officials stated that 
they did not regard a regular review of QAPs as part of their 
responsibilities as outlined in section 42 and therefore did not 
regularly review the plans.\15\ IRS officials said that allocating 
agencies have primary responsibility to ensure that the plans meet 
section 42 preferences and selection criteria. IRS officials noted that 
review of a QAP to determine if the plan incorporated the elements 
specified in section 42 could occur if IRS were to audit an allocating 
agency.
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    \15\ In GAO-15-330, we reported that IRS did not regularly review 
QAPs as it was the agency's view that regular reviews of QAPs were 
outside the scope of its compliance responsibilities.

    No review of agencies' discretionary basis boosts. In our 2016 
report, we found IRS had not reviewed the criteria allocating agencies 
used to award discretionary basis boosts. The use of basis boosts has 
implications for LIHTC housing production because of the risk of 
oversubsidizing projects, which would reduce the amount of the 
remaining allocable subsidies and yield fewer LIHTC projects overall 
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within a State.

    IRS also had not provided guidance to agencies on how to determine 
the need for the additional basis to make projects financially 
feasible. IRS officials told us that section 42 gives allocating 
agencies the discretion to determine if projects receive a basis boost 
and does not require documentation of financial feasibility. 
Additionally, IRS officials explained that because the overall amount 
of subsidies allocated to a State is limited, the inherent structure of 
the program discourages States from oversubsidizing projects. However, 
during our 2016 review, we observed a range of practices for awarding 
discretionary basis boosts, including a blanket basis boost that could 
result in fewer projects being subsidized and provide more credits than 
necessary for financial feasibility. We concluded that because IRS did 
not regularly review QAPs, many of which list criteria for 
discretionary basis boosts, IRS was unable to determine the extent to 
which agency policies could result in oversubsidizing of projects.
Some Program Data Were Not Reliable and IRS Used Little of Reported 
        Program Information
    Unreliable data. We reported in 2015 that IRS had not 
comprehensively captured information reported for the program in its 
Low-Income Housing Credit database and the existing data were not 
complete and reliable. IRS guidance requires the collection of data on 
the LIHTC program in an IRS database, which records information 
submitted by allocating agencies and taxpayers on three forms. The 
forms include:

      Credit allocation and certification (Form 8609). The two-part 
form is completed by the allocating agency and the taxpayer. Agencies 
report the allocated amount of tax credits available over a 10-year 
period for each building in a project. The taxpayer reports the date on 
which the building was placed in service (suitable for occupancy).

      Noncompliance or building disposition (Form 8823). Allocating 
agencies must complete and submit this form to IRS if an on-site 
physical inspection of a LIHTC project finds any noncompliance. The 
form records any findings (and corrections of previous findings) based 
on the inspection of units and review of the low-income tenant 
certifications.

      Annual report (Form 8610). IRS staff review the reports to 
ensure allocations do not exceed a statutorily prescribed ceiling for 
that year.

    Based on our analysis of the information in the database, we found 
in 2015 that the data on credit allocation and certification 
information were not sufficiently reliable to determine if basic 
requirements for the LIHTC program were being achieved. For example, we 
could not determine how often LIHTC projects were placed-in-service 
within required time frames. We concluded that without improvements to 
the data quality of credit allocation and certification information, it 
was difficult to determine if credit allocation and placed-in-service 
requirements had been met by allocating agencies and taxpayers, 
respectively. Thus, we recommended that IRS should address weaknesses 
identified in data entry and programming controls to ensure reliable 
data are collected on credit allocations.

    At the time of our 2015 report, IRS acknowledged the need for 
improvements in its controls and procedures (including data entry and 
quality reviews). IRS officials agreed that these problems should be 
corrected and data quality reviews should be conducted on an ongoing 
basis. As of March 2017, in response to our recommendation, IRS 
officials said that they had explored possibilities to improve the 
database, which not only houses credit allocation information, but also 
data from noncompliance and building disposition forms. Specifically, 
IRS is working to move the database to a new and updated server, which 
will address weaknesses identified in data entry and programming 
controls. IRS expects to complete the data migration step by early fall 
of 2017. Until IRS implements its plan to improve the data, this 
recommendation will remain open.

    Limited noncompliance data, analysis, and guidance on reporting. We 
found in our 2015 and 2016 reports that IRS had done little with the 
information it collects on noncompliance. IRS had captured little 
information from the Form 8823 submissions in its database and had not 
tracked the resolution of noncompliance issues or analyzed trends in 
noncompliance. As of April 2016, the database included information from 
about 4,200 of the nearly 214,000 Form 8823s IRS received since 2009 
(less than 2 percent of forms received).

    For our 2015 report, officials told us the decision was made during 
the 2008-2009 time frame to input information only from forms that 
indicated a change in building disposition, such as a foreclosure. IRS 
focused on forms indicating this change for reasons including the 
serious nature of the occurrence for the program and impacts on 
taxpayers' ability to receive credit. Officials also stated it was not 
cost effective to input all the form information and trend analysis on 
all types of noncompliance was not useful for purposes of ensuring 
compliance with the tax code.

    In addition, as we reported in both 2015 and 2016, IRS had assessed 
little of the noncompliance information collected on the Form 8823 or 
routinely used it to determine trends in noncompliance. Because little 
information was captured in the Low-Income Housing Credit database, IRS 
was unable to provide us with program-wide information on the most 
common types of noncompliance. Furthermore, IRS had no method to 
determine if issues reported as uncorrected had been resolved or if 
properties had recurring noncompliance issues.

    In our 2016 report, we also found inconsistent reporting on the 
noncompliance forms, the reasons for which included conflicting IRS 
guidance, different interpretations of the guidance by allocating 
agencies, and lack of IRS feedback about agency submissions.

      IRS developed guidelines for allocating agencies to use when 
completing the Form 8823, the ``fundamental purpose'' of which was 
identified as providing standardized operational definitions for the 
noncompliance categories listed on the form. The IRS guide adds that it 
is important that noncompliance be consistently identified, 
categorized, and reported and notes that the benefits of consistency 
included enhanced program administration by IRS.

      Allocating agencies we visited had various practices for 
submitting Form 8823 to IRS, including different timing of submissions, 
reporting on all violations (whether minor or corrected during 
inspections) or not, and amounts of additional detail provided. Partly 
because of these different practices, the number of forms each of the 
nine agencies told us they sent to IRS in 2013 varied from 1 to more 
than 1,700.

    We concluded that without IRS clarification of when to send in the 
Form 8823, allocating agencies will continue to submit inconsistent 
noncompliance data to IRS, which will make it difficult for IRS to 
efficiently distinguish between minor violations and severe 
noncompliance, such as properties with health and safety issues. We 
recommended that IRS should clarify what to submit and when--in 
collaboration with the allocating agencies and Treasury--to help IRS 
improve the quality of the noncompliance information it receives and 
help ensure that any new guidance is consistent with Treasury 
regulations.

    In August 2016, IRS stated it would review the Form 8823 Audit 
Technique Guide to determine whether additional guidance and 
clarification were needed for allocating agencies to report 
noncompliance information on the form. If published legal guidance is 
required, IRS stated that it will submit a proposal for such guidance 
for prioritization. IRS indicated an expected implementation date by 
November 2017. In addition, in March 2017, officials stated that IRS 
Counsel attended an industry conference with allocating agencies at 
which issues related to the Form 8823 were discussed.

    Lack of participation in data initiative. Moreover, in our 2016 
report we found IRS had not taken advantage of the important progress 
HUD made through the Rental Policy Working Group (working group)--which 
was established to better align the operation of Federal rental 
policies across the administration--to augment its databases with LIHTC 
property inspection data.\16\ This data collection effort created 
opportunities for HUD to share inspection data with IRS that could 
improve the effectiveness of reviews for LIHTC noncompliance. However, 
the IRS Small Business/Self-Employed Division managing the LIHTC 
program had not been involved in the working group. We concluded that 
such involvement would allow IRS to leverage existing resources, 
augment its information on noncompliance, and better understand the 
prevalence of noncompliance.
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    \16\ The Rental Policy Working Group comprises representatives from 
the White House Domestic Policy Council, National Economic Council, 
Office of Management and Budget, HUD, Treasury, the Department of 
Agriculture, and the Department of Justice.

    We recommended that staff from the division participate in the 
physical inspection initiative of the working group and also 
recommended that the IRS Commissioner evaluate how IRS could use HUD's 
real estate database, including how the information might be used to 
reassess reporting categories on Form 8823 and reassess which 
categories of noncompliance information to review for audit potential. 
As of March 2017, IRS had implemented our recommendation to include the 
appropriate staff at the working group meetings. However, IRS officials 
stated that since HUD's database with property inspection data was not 
complete as of March 2017 and contained data from 30 States, it was 
unclear how the database could be used. IRS officials said they would 
continue exploring the HUD database if the data for all LIHTC 
properties were included and it was possible to isolate the LIHTC 
property data from other rental properties in the HUD database.
Leveraging Experience of HUD May Augment IRS's Capacity to Oversee 
        Program
    Both our 2015 and 2016 reports found that opportunities existed to 
enhance oversight of the LIHTC program, specifically by leveraging the 
knowledge and experience of HUD. We found in 2015 that while LIHTC is 
the largest Federal program for increasing the supply of affordable 
rental housing, LIHTC is a peripheral program in IRS in terms of 
resources and mission. Oversight responsibilities for the program 
include monitoring allocating agencies and taxpayer compliance. 
However, as we have discussed previously, IRS oversight has been 
minimal and IRS has captured and used little program information. As we 
previously stated, such information could help program managers and 
congressional decision makers assess the program's effectiveness.

    HUD--which has a housing mission--collects and analyzes information 
on low-
income rental housing, including LIHTC-funded projects. As we reported 
in 2015, HUD's role in the LIHTC program is generally limited to the 
collection of information on tenant characteristics (mandated by the 
Housing and Economic Recovery Act of 2008). However, it has voluntarily 
collected project-level information on the program since 1996 because 
of the importance of LIHTC as a source of funding for affordable 
housing. HUD also has sponsored studies of the LIHTC program that use 
these data. HUD's LIHTC databases, the largest Federal source of 
information on the LIHTC program, aggregates project-level data that 
allocating agencies voluntarily submit and information on tenant 
characteristics that HUD must collect. Since 2014, HUD also has 
published annual reports analyzing data it must collect on tenants 
residing in LIHTC properties. As part of this report, HUD compares 
property information in its tenant database to the information in its 
property database to help assess the completeness of both databases.

    In our 2015 report, we also discussed HUD's experience in working 
with allocating agencies. While multiple Federal agencies administer 
housing-related programs, HUD is the lead Federal agency for providing 
affordable rental housing. Much like LIHTC, HUD's rental housing 
programs rely on State and local agencies to implement programs. HUD is 
responsible for overseeing these agencies, including reviewing State 
and local consolidated plans for the HOME Investment Partnership and 
Community Development Block Grant programs--large grant programs that 
also are used to fund LIHTC projects. HUD also has experience in 
directly overseeing allocating agencies in their roles as contract 
administrators for project-based section 8 rental assistance. HUD has 
processes, procedures, and staff in place for program evaluation and 
oversight of State and local agencies that could be built upon and 
strengthened.

    In our 2015 report, we concluded that significant resource 
constraints affected IRS's ability to oversee taxpayer compliance and 
precluded wide-ranging improvement to such functions, but that IRS 
still had an opportunity to enhance oversight of LIHTC. We also 
concluded that leveraging the experience and expertise of another 
agency with a housing mission, such as HUD, might help offset some of 
IRS's limitations in relation to program oversight. HUD's existing 
processes and procedures for overseeing allocating agencies could 
constitute a framework on which further changes and improvements in 
LIHTC could be effected. However, enhancing HUD's role could involve 
additional staff and other resources. An estimate of potential costs 
and funding options for financing enhanced Federal oversight of the 
LIHTC program would be integral to determining an appropriate funding 
mechanism.

    We asked that Congress consider designating HUD as a joint 
administrator of the program responsible for oversight. As part of the 
deliberation, we suggested that Congress direct HUD to estimate the 
costs to monitor and perform the additional oversight responsibilities, 
including a discussion of funding options. Treasury agreed that it 
would be useful for HUD to receive ongoing responsibility for, and 
resources to perform, research and analysis on the effectiveness of 
LIHTCs in increasing the availability of affordable rental housing. 
Treasury noted that such research and analysis are not part of IRS's 
responsibilities or consistent with its expertise in interpreting and 
enforcing tax laws. However, Treasury stated that responsibility for 
interpreting and enforcing the code should remain entirely with IRS. 
Our report noted that if program administration were changed, IRS could 
retain certain key responsibilities consistent with its tax 
administration mission.

    In our 2016 report, we concluded that IRS oversight of allocating 
agencies continued to be minimal, particularly in reviewing QAPs and 
allocating agencies' practices for awarding discretionary basis boosts. 
As a result, we reiterated the recommendation from our 2015 report that 
Congress should consider designating HUD as a joint administrator of 
the program responsible for oversight due to its experience and 
expertise as an agency with a housing mission.

    In response to our 2016 report, HUD stated it remains supportive of 
mechanisms to use its significant expertise and experience 
administering housing programs for enhanced effectiveness of LIHTC. HUD 
also stated that enhanced interagency coordination could better ensure 
compliance with fair housing requirements and improve alignment of 
LIHTC with national housing priorities. As of July 2017, Congress had 
not enacted legislation to give HUD an oversight role for LIHTC.

    Chairman Hatch, Ranking Member Wyden, and members of the committee, 
this concludes my prepared statement. I would be happy to respond to 
any questions that you may have at this time.

                                 ______
                                 
        Questions Submitted for the Record to Daniel Garcia-Diaz
               Question Submitted by Hon. Orrin G. Hatch
    Question. Are there any best practices or other recommendations you 
have for requirements based on oversight done at the State housing 
agency level we could put in legislation for State housing agencies to 
follow?

    Would you recommend any requirements be put in legislation or are 
there other ways to address the oversight question?

    Answer. In our 2015 and 2016 reports, we reviewed oversight done by 
the Internal Revenue Service (IRS) and State and local housing finance 
agencies (allocating agencies) on the Low-Income Housing Tax Credit 
(LIHTC) program. We made multiple recommendations to IRS for improving 
oversight as well as asked Congress to consider designating the 
Department of Housing and Urban Development (HUD) as a joint 
administrator of the program responsible for oversight.\1\ We discuss 
these in more detail below, along with other GAO work underway on 
development costs under the LIHTC program.
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    \1\ See GAO, ``Low-Income Housing Tax Credit: Some Agency Practices 
Raise Concerns and IRS Could Improve Noncompliance Reporting and Data 
Collection,'' GAO-16-360 (Washington, DC: May 11, 2016); and ``Low-
Income Housing Tax Credit: Joint IRS-HUD Administration Could Help 
Address Weaknesses in Oversight,'' GAO-15-330 (Washington, DC: July 15, 
2015).

    Leveraging HUD to Improve Oversight. In 2016, we reported that 
selected allocating agencies implemented requirements for Qualified 
Allocation Plans (QAPs) in varying ways and had processes in place to 
meet requirements for awarding credits. Allocating agencies also had 
procedures to assess costs, but determined award amounts for projects 
differently, used various cost limits and benchmarks to determine 
reasonableness of costs, and used varying criteria for basis boosts. 
Agencies also had processes in place to monitor compliance. My 
testimony on August 1, 2017, and our 2015 and 2016 reports stated these 
variations and some of the concerns raised.\2\ For example, all the 
required selection criteria and preferences in the Internal Revenue 
Code were not always listed in the QAP documents we reviewed (we noted 
that they could be documented in other publicly available sources) and 
some allocating agencies required local letters of support, which can 
lead to fair housing concerns.
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    \2\ GAO, ``Low-Income Housing Tax Credit: Actions Needed to 
Strengthen Oversight and Accountability,'' GAO-17-784T (Washington, DC: 
Aug. 1, 2017).

    In our 2015 and 2016 reports, we stated that oversight of the 
program was minimal with IRS performing seven audits of all 58 
allocating agencies since 1986. Examples of the IRS audit findings 
included allocating agencies' policies that conflicted with the 
Internal Revenue Code; QAP did not address all compliance requirements 
or was outdated; annual report to IRS had incorrect credit allocations; 
failure to report noncompliance to IRS; and physical inspections and 
tenant file reviews were not completed as required. IRS cited multiple 
reasons for not conducting regular reviews of QAPs and audits of 
allocating agencies, including not regarding regular review of QAPs as 
a part of its compliance responsibilities and competing priorities for 
resources and staffing. We found that without regular monitoring of 
allocating agencies, IRS could not determine the extent to which 
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agencies comply with program requirements.

    In our comparison of tax credit programs (similar in purpose and 
structure of LIHTC) in our 2015 report, we found that these programs 
were jointly administered by IRS and a Federal agency to conduct 
monitoring, report on performance, and collect data. These other 
Federal agencies had missions consistent with the purposes of the tax 
credit programs. For example, the National Park Service's Technical 
Preservation Services (TPS) administers the Historic Rehabilitation Tax 
Credit program and the Department of the Treasury's (Treasury) 
Community Development Financial Institutions (CDFI) Fund administers 
the New Markets Tax Credit program. As part of its oversight, TPS 
directly oversaw State entities through on-site inspections of 
projects, and the CDFI Fund performed programmatic- and risk-based 
compliance site visits of the private-sector partner entities that 
monitor investments. Further, TPS and the CDFI Fund published annual 
reports and worked with research institutions to conduct additional 
evaluation of the programs. The LIHTC program does not have a Federal 
agency that jointly administers the program.

    We stated that Congress should consider designating HUD as a joint 
administrator of the program responsible for oversight given its 
experience and expertise as the Nation's lead housing agency. 
Specifically, applying HUD's experience in administering affordable 
housing programs to address areas such as QAP review, Federal fair 
housing goals, and tenant income and rent issues would provide 
information, analysis, and potentially guidance on issues that apply 
across all allocating agencies. We also stated that HUD has processes, 
procedures, and staff in place for program evaluation and oversight of 
State and local agencies that could be built upon and strengthened. IRS 
would retain certain key responsibilities consistent with its tax 
administration mission.

    Strengthening Data Collection and Noncompliance Reporting. We found 
in 2015 that the data on credit allocation and certification 
information were not sufficiently reliable to determine if basic 
requirements for the LIHTC program were being achieved. For example, we 
could not determine how often LIHTC projects were placed in service 
within required time frames. We concluded that without improvements to 
the data quality of credit allocation and certification information, it 
was difficult to determine if credit allocation and placed-in-service 
requirements had been met by allocating agencies and taxpayers, 
respectively. Thus, we recommended that IRS should address weaknesses 
identified in data entry and programming controls to ensure reliable 
data are collected on credit allocations. As we stated in the 
testimony, this recommendation remains open.

    We found that select allocating agencies we visited for our 2016 
report had varying practices for monitoring and submitting 
noncompliance information to IRS using the Form 8823 (report of 
noncompliance or building disposition). For example, the Illinois and 
Massachusetts allocating agencies had both inspected about 200 
properties in 2013, but Illinois filed only one Form 8823 with IRS in 
that year, while Massachusetts had filed almost 100 forms in the same 
year. As a result, in order to receive more consistent information on 
LIHTC noncompliance, we recommended the IRS Commissioner should 
collaborate with the allocating agencies to clarify when allocating 
agencies should report such information on the Form 8823. Additionally, 
IRS should collaborate with Treasury in drafting such clarifications to 
help ensure that any new guidance is consistent with Treasury 
regulations. As we stated in the testimony, this recommendation remains 
open.

    Tracking and Analyzing Development Cost Information. We are 
conducting a review of development costs under the LIHTC program, 
including reviewing development cost data and allocating agencies' 
approaches to managing these costs. Because there is no national 
database of project costs, we are currently building a database of 
nearly 2,000 projects (from 12 different allocating agencies) that were 
completed from 2011 through 2015. This effort has required discussions 
with allocating agencies to determine standard definitions of 
variables, consolidation of data across allocating agencies, and manual 
entry of data into the database. While our work on development costs is 
ongoing, we have observed variation in how allocating agencies manage 
development costs. For example, some of the allocating agencies we 
spoke to incorporate several types of cost management measures into 
their project selection criteria, while others incorporate fewer. These 
cost management measures include cost or credit limits by region or 
development type, competitive points for lower-cost or more cost-
efficient projects, and cost-based tie breaker criteria. As we 
mentioned earlier, our 2016 report found that allocating agencies had 
procedures to assess costs, but determined award amounts for projects 
differently and used various cost limits and benchmarks to determine 
reasonableness of costs. The demand for affordable housing among low-
income renters far exceeds the amount of assistance available. Thus, 
understanding and managing costs are important in ensuring that scarce 
Federal resources are used as efficiently and effectively as possible.

                                 ______
                                 
                  Question Submitted by Hon. Tim Scott
    Question. Manufactured housing is a topic that often goes 
unmentioned in the affordable housing discussion. One in five homes in 
South Carolina are prefabricated. That's the highest percentage of any 
State. At the same time, the average household income for a 
manufactured home owner is $30,000 versus the $52,000 national average. 
The folks that buy manufactured housing are the least equipped to deal 
with rising costs. A 2014 GAO study found that ``high financing costs 
often keep these homes from being even more affordable.''

    What conclusions did the GAO reach on improving manufactured 
housing affordability?

    Answer. GAO has published three reports on manufactured housing in 
the last several years.\3\ As you note, in our 2014 report, we found 
that owners of manufactured homes tended to have both lower incomes 
than other homeowners and lower monthly housing costs than site-built 
owners and apartment renters. However, high financing costs often keep 
these homes from being even more affordable. Our report stated that 
owners of manufactured homes are more likely to have higher-priced 
financing than owners of site-built homes. Unlike site-built homes, 
which are titled as real property and usually financed through a 
mortgage, a manufactured home may be financed as either personal or 
real property. When a home buyer purchases a manufactured home without 
tying the purchase to land, the home is generally considered personal 
property, or chattel--that is, it is a movable, ``personal'' 
possession, much like an automobile.
---------------------------------------------------------------------------
    \3\ GAO, ``Federal Housing Administration: Agency Should Assess the 
Effects of Proposed Changes to the Manufactured Home Loan Program,'' 
GAO-07-879 (Washington, DC: Aug. 24, 2007); ``Manufactured Housing 
Standards: Testing and Performance Evaluation Could Better Ensure Safe 
Indoor Air Quality,'' GAO-13-52 (Washington, DC: Oct. 24, 2012); and 
``Manufactured Housing: Efforts Needed to Enhance Program Effectiveness 
and Ensure Funding Stability,'' GAO-14-410 (Washington, DC: July 2, 
2014).

    We found there are several reasons for the high cost of financing 
for manufactured homes. Manufactured homes are sometimes grouped 
together in communities where residents may either own or lease the 
home, but lease the land. When a manufactured home is attached to the 
underlying land by a permanent foundation and the home and the land are 
treated as a single real estate title under State law, the home is 
considered real property. In such instances, the borrowers can obtain a 
conventional real estate loan or a government-guaranteed mortgage 
through traditional mortgage lenders. HUD's Federal Housing 
Administration (FHA) has two insurance programs for manufactured home 
loans. Although most manufactured homes are titled or owned as personal 
property, HUD's programs primarily insure loans on manufactured homes 
---------------------------------------------------------------------------
financed as real estate.

    We found that another reason for high financing cost of 
manufactured homes was related to the securitization of manufactured 
housing on the secondary market. In our 2014 report, we discussed 
limited liquidity options for lenders through the secondary market. 
Ginnie Mae offers a mechanism to securitize manufactured home loans. 
Although the agency had experienced losses in the past, a Ginnie Mae 
official explained that the agency had conducted outreach to lenders to 
increase participation in the program. Further, we noted that Fannie 
Mae and Freddie Mac (the enterprises), which guarantee and purchase 
loans from mortgage lenders, play less of a role in providing liquidity 
to lenders of manufactured home loans than they do in providing 
liquidity to lenders of loans on other single-family properties. One 
lender of manufactured home loans cited certain underwriting 
constraints that limited their participation in Fannie Mae and Freddie 
Mac programs. For example, Fannie Mae requires an appraisal of the 
manufactured home with comparable local manufactured homes titled as 
real estate, a requirement that can be challenging, particularly in 
rural areas with relatively few homes and where many manufactured homes 
are titled as personal property. Fannie Mae and Freddie Mac do not 
purchase loans for manufactured homes titled as personal property. 
Because of these constraints, most financing for manufactured homes, 
whether chattel or real property, is provided through private lenders.

Finally, we found that HUD had not developed a plan to review the 
effectiveness of the FHA programs for manufactured homes. Noting that 
the higher cost of financing manufactured homes can limit their 
potential affordability, we concluded that such reviews would allow HUD 
to identify (1) potential changes to its mortgage insurance programs 
that would further promote the affordability of manufactured homes or 
(2) efforts to determine the potential for the enterprises and Ginnie 
Mae to actively develop and implement better secondary market 
securitization programs for manufactured home loans. We concluded that 
without analysis and research into the financing mechanism as it 
relates to the affordability of manufactured housing, HUD had little 
assurance that its loan programs and the securitization programs of 
Ginnie Mae and the enterprises were appropriately promoting the 
availability of affordable manufactured homes. As a result, GAO 
recommended that HUD develop a plan to assess how FHA financing might 
further promote the affordability of manufactured homes and identify 
the potential for better securitization of manufactured housing 
financing. As of August 2017, we are still awaiting an update from HUD 
on the recommendation. Therefore, this recommendation remains open. We 
plan to continue to follow up with HUD on the status of this 
recommendation.

                                 ______
                                 
              Prepared Statement of Hon. Orrin G. Hatch, 
                        a U.S. Senator From Utah
WASHINGTON--Senate Finance Committee Chairman Orrin Hatch (R-Utah) 
today delivered the following opening statement at a hearing to examine 
effective ways to increase access to affordable housing:

    This is an important issue, and this hearing will allow the 
committee to hear from experienced and well-educated witnesses who can 
provide more context on our affordable housing policies and the 
sections of the tax code that were written with the intent of 
mitigating this long-time problem in our society.

    As many of you are aware, the last time we underwent a national, 
comprehensive revision of the tax code was in 1986, with the passage of 
the Tax Reform Act. At that time, affordable housing tax incentives 
were baked into statute, with the Low-Income Housing Tax Credit being 
chief among them.

    Since then, this important section of the tax code has enjoyed 
bipartisan support. Still, it is worth examining the law as we continue 
to ramp up our work on tax reform.

    Throughout today's hearing, I want each member to keep in mind some 
guiding principles for tax reform. I've repeated these principles quite 
a bit in recent years. But, for those in the audience who may not have 
heard me mention them, the principles are: fairness, efficiency, 
simplicity, and American competitiveness.

    These principles are important within the context of affordable 
housing tax policy because they should be able to help us improve upon 
what is currently in the code. I know the prospect of more oversight 
can be seen as a challenge, but I think we should all view this 
examination as an opportunity to determine where we can improve.

    While some sections of the tax code have undergone changes in the 
past three decades, solutions on affordable housing remain as elusive 
as ever.

    There seem to remain many households facing cost burdens associated 
with renting, with perhaps as much as 26 percent of renter households 
having paid more than half of their incomes in rent in 2015, for 
example. And the burdens seem to fall heavily on lower-income 
households.

    And this is not just simply a problem of arithmetic. In 2015, 25 
million children lived in households in which rent comprised a fairly 
large share of household income.

    This is a problem that should be ready for a bipartisan solution. 
We've already introduced bipartisan legislation to address some of 
these issues. And, many are hopeful that cooperation on these efforts 
will continue. I believe they will.

    With that, I would just like to thank everyone for attending today 
and I look forward to hearing from our distinguished panel of 
witnesses.

                                 ______
                                 
Prepared Statement of Granger MacDonald, Chairman, Board of Directors, 
                 National Association of Home Builders
    On behalf of the approximately 140,000 members of the National 
Association of Home Builders (NAHB), I appreciate the opportunity to 
testify today.

    My name is Granger MacDonald, and I am CEO of the MacDonald 
Companies based in Kerrville, TX. I am a proud second-generation 
builder with 40 years of experience in real estate development. I run 
the business my parents founded in the mid-1950s to meet post-war 
demand for affordable housing. My son Justin serves as president of our 
business, continuing our family legacy.

    Our company specializes in the construction and management of 
affordable rental housing, and we currently own and manage 4,700 units 
in 41 communities in 25 Texas cities. I have constructed affordable 
rental housing with the Low-Income Housing Tax Credit (LIHTC) since 
1997. I am proud to have committed my life's work to providing safe, 
decent, affordable housing to thousands of Texans.

    NAHB is a Washington, DC-based trade association focused on 
enhancing the climate for housing, homeownership and the residential 
building industry. We represent builders and developers who construct 
many types of housing--including 
single-family for-sale homes, affordable and market-rate rental 
apartments, and remodelers. About one-third of our members are builders 
and remodelers; the other two-thirds work in closely related 
specialties, such as sales and marketing, insurance, and financial 
services.

    NAHB is a member of the A Call To Invest in Our Neighborhoods 
(ACTION) Campaign, a grassroots coalition of over 2,000 national, 
State, and local organizations and businesses calling on Congress to 
protect, expand and strengthen the Low-Income Housing Tax Credit.

    While the housing industry continues to recover slowly from the 
Great Recession, housing affordability in both the single and multi-
family markets has become a rising challenge in the industry. 
Multifamily housing affordability has reached crisis proportions. The 
number of renter households considered ``severely cost burdened,'' 
meaning they spend more than half of their monthly income on rent, is 
at an all-time high of 11.4 million.\1\ That translates to more than 
one in four of all U.S. renters.
---------------------------------------------------------------------------
    \1\ Harvard University Joint Center for Housing Studies (JCHS), 
``The State of the Nation's Housing 2016.''

    I am grateful to the committee for focusing today's hearing on this 
important issue. The tax code plays a major role in multifamily 
---------------------------------------------------------------------------
development, most visibly through the Low-Income Housing Tax Credit.

    The best solution to this crisis is to pass S. 548, the Affordable 
Housing Credit Improvement Act of 2017. This bipartisan bill provides 
needed additional resources and includes other reforms to promote the 
construction of affordable housing nationwide.
         affordable housing development requires policy support
    To understand what is needed to address the affordable housing 
crisis, you need to understand the challenges facing the development 
community.

    Let me be direct. Where there is housing demand, as a businessman, 
I want to supply that demand. But there is no magic wand to erase basic 
development costs. Fees, regulatory compliance, modern building and 
energy codes, building materials, land and labor costs determine 
whether a project is financially viable. If we want to provide 
affordable rental housing for lower-income households, it is 
financially impossible to do so without a subsidy.

    A 2011 study from the Harvard University Joint Center on Housing 
Studies reiterates this point: ``[t]he rising costs of construction 
make it difficult to build new housing for lower-income households 
without a subsidy.'' \2\
---------------------------------------------------------------------------
    \2\ ``America's Rental Housing: Meeting Challenges, Building on 
Opportunities,'' Joint Center for Housing Studies of Harvard 
University, 2011. Page 23.

    In 2009, the median asking rent for new unfurnished apartments was 
$1,067; for minimum-wage workers, an affordable monthly rent using the 
30% of income standard is just $377.\3\ The study calculated that to 
develop new apartments with rents affordable to households with incomes 
equivalent to the full-time minimum wage, the construction costs would 
have to be 28% of the current average.\4\
---------------------------------------------------------------------------
    \3\ Page 23 and 21.
    \4\ Page 24.

    Without Federal assistance, it is financially infeasible to 
construct new, unsubsidized affordable rental units. The LIHTC is a 
critical program, and as noted in the study, ``[a]t present, the Low-
Income Housing Tax Credit (LIHTC) program is nearly alone in 
replenishing the affordable stock, supporting both new construction and 
substantial rehabilitation of existing properties including older 
assisted developments.'' \5\
---------------------------------------------------------------------------
    \5\ Page 5.

    We also need to recognize the important role affordable housing 
plays in our communities. There are meaningful social effects, which 
can be seen as middle- and lower-income Americans try to make ends 
meet. I see how affordable housing creates stability for my tenants and 
their families. My properties help to revitalize neighborhoods. 
Breaking the cycle of poverty starts with access to stable and 
---------------------------------------------------------------------------
affordable housing.

    The housing affordability crisis affects our economy as well. It 
costs us jobs, productivity and economic growth. I challenge everyone 
in this room to ask the owners of the small businesses you frequent 
about labor shortages. Housing affordability is critical in areas of 
the country experiencing robust economic growth. As the number of open, 
unfilled jobs grows, the operation of the housing market plays a key 
role in allowing individuals to relocate to areas where jobs need to be 
filled. And if we don't address this issue, where do our employers find 
their workers? How do we grow the economy?

    And for our fellow citizens who want to realize the American dream, 
if they cannot afford to live where the economic opportunities are, we 
are just creating an economic divide based on housing ``haves'' and 
``have nots.''

    This isn't complicated economics here. Simple supply and demand. To 
address it, we need to commit to increasing supply. That is why I 
respectfully ask you to support and pass S. 548.
       development costs are increasing: factors driving up costs
Regulation
    Increasing costs due to regulation are a significant challenge for 
the residential construction industry. For example, regulatory costs at 
all levels of government now make up roughly 25% of the price of a home 
and have increased by one-third since 2011.\6\ Costs incurred in the 
development stage alone account for over half of the cost of a finished 
site sold to a builder. At the local level, jurisdictions may charge 
permit, hook-up, and impact fees, and establish development and 
construction standards that either directly or indirectly increase 
costs to builders and developers. The Federal Government can also 
affect the price of a home. For example, the government may require 
permits for stormwater discharge on construction sites, which may lead 
to delays in addition to permit costs.
---------------------------------------------------------------------------
    \6\ http://eyeonhousing.org/2016/12/top-posts-of-2016-regulation-
is-24-3-percent-of-the-average-new-home-price/.
---------------------------------------------------------------------------
Building Materials
    Building material price increases continue to outpace inflation by 
a wide margin, significantly increasing development costs nationwide. 
For example, since the start of this year, the industry average price 
of framing lumber has increased 18%. The cost of many softwood lumber 
products has risen well over 30% in the same period, and lumber futures 
suggest that prices are expected to keep climbing. The increase in 
softwood lumber prices adds nearly $500 to the development and 
acquisition cost of a typical multifamily unit.\7\
---------------------------------------------------------------------------
    \7\ http://eyeonhousing.org/2017/06/duties-on-lumber-now-enough-to-
threaten-thousands-of-u-s-jobs/?_ga=2.116462790.1957391554.1501190622-
192765943.1501190622.

    The costs of other materials used in residential construction have 
also risen significantly. Oriented strand board (OSB), commonly used as 
sheathing in walls, flooring, and roof decking, is nearly 30% more 
expensive than in August 2016. The price of drywall has also increased 
9% over the same period.
Labor Shortages
    Labor costs and availability remain large problems. In 2012, only 
21% of builders reported labor cost or availability problems. That 
figure rose to 46% in 2014 and increased to 56% in 2016. The rate of 
construction job openings has risen substantially in the past year, 
meaning builders have available jobs but cannot find people to fill 
them.\8\ This translates into higher prices and/or construction delays, 
both of which increase project costs.
---------------------------------------------------------------------------
    \8\ http://eyeonhousing.org/2016/06/more-builders-report-
laborsubcontractor-shortages/.
---------------------------------------------------------------------------
Lot Shortages
    Another significant problem is the availability and supply of sites 
ready for construction. In a recent NAHB survey, 64% of builders cited 
site availability as ``low'' or ``very low.'' Unsurprisingly, the price 
of sites has gone up as well, with 65% of builders saying prices were 
``substantially'' or ``somewhat'' higher than they were a year ago. 
Taken together, the cost and availability of sites was cited as a 
significant problem by more than 60% of builders in 2016, a nearly 
threefold increase from 2011, when only 21% of builders identified site 
supply as an issue.

    There are many inputs that go into developing a multi-family 
project, and they have all increased in price in the past few years. 
This adds to the strain of the existing affordable housing resources. 
Put simply, projects require additional financial support, yet 
financial resources remain either flat or have been significantly 
reduced, as in the case of Federal programs like HOME.
       the lihtc is a success story, but demand exceeds resources
    The Low-Income Housing Tax Credit (LIHTC) was created during the 
Reagan administration as part of the Tax Reform Act of 1986 as a more 
effective mechanism to produce affordable rental housing. It is the 
most successful affordable rental housing production program in U.S. 
history. Since its inception, the LIHTC has produced and financed more 
than 2.9 million affordable apartments. As LIHTC properties must 
generally remain affordable for 30 years or longer, they provide long-
term rent stability for low-income households around the country. But 
the demand for affordable housing is acute and exceeds the availability 
of financing through the LIHTC program.

    The LIHTC is a unique private-public partnership. The benefits of 
this structure are evident in the quality of the projects. Moreover, 
NAHB estimates that the LIHTC program in a typical year supports 95,000 
new, full-time jobs, adds $7.1 billion to the economy, and generates 
approximately $2.8 billion in Federal, State, and local tax revenue. 
Unfortunately, the supply of private, affordable housing stock is 
rapidly shrinking. According to a 2011 Harvard study:

        . . . the private low-cost stock is rapidly disappearing. Of 
        the 6.2 million vacant or for-rent units with rents below $400 
        in 1999, 11.9% were demolished by 2009. Upward filtering to 
        higher rent ranges, conversions to seasonal or nonresidential 
        use, and temporary removals because of abandonment added to the 
        losses. On net, more than 28% of the 1999 low-cost stock was 
        lost by 2009.\9\
---------------------------------------------------------------------------
    \9\ ``America's Rental Housing: Meeting Challenges, Building on 
Opportunities,'' Joint Center for Housing Studies of Harvard 
University, 2011. Page 6. http://www.jchs.harvard.edu/publications/
rental/rh11_americas_rental_housing/AmericasRentalHousing-2011.pdf.

    And the private marketplace needs a subsidy to build new 
---------------------------------------------------------------------------
construction to replace those lost units.

    While no program is perfect, the LIHTC works incredibly well. Its 
public-private partnership model is one that frankly should be 
replicated in other government programs. When I start a LIHTC project, 
my investors and I assume all the risk. If the project fails, the 
taxpayer is protected, as the IRS can and will reclaim the tax credits. 
Since the investors cannot claim the credits until after the project is 
placed in service, it is the rare public program where the taxpayer 
gets what they are paying for, or the taxpayer does not pay.

    A key component to the LIHTC's success is the flexibility the State 
agencies have to target specific types of affordable housing 
developments. For example, a State with a large population of seniors 
may offer a developer bonus points on an application for focusing on 
senior housing. Nationally, in 2014, approximately 27% of LIHTCs were 
directed to senior housing.\10\ Other targeted projects include 
assisted living; family housing; homeless; and housing for the 
disabled. This flexibility allows each State to determine what types of 
affordable housing are best suited to the demographics of their State, 
rather than applying a single, national standard. Ultimately, however, 
a lot of needs are not being met as demand simply outstrips the 
availability of credits.
---------------------------------------------------------------------------
    \10\ 2014 NCSHA State FHA Factbook. Page 111.

    As the map below shows, every State has a large population of rent-
burdened households. Correspondingly, demand for credits greatly 
outstrips the resources available. According to the most recent annual 
survey released by the National Council of State Housing Agencies 
(NCSHA), State housing finance agencies generally receive more than $2 
in requests for every $1 in LIHTCs available. In 2014, State agencies 
received applications for $1,836,172,240 in credits. Total allocations 
were $775,844,195. This means that for every tax credit allocated, 
there was a demand for approximately 2.4 tax credits.\11\
---------------------------------------------------------------------------
    \11\ Page 94.

    But this does not tell the whole story. As an experienced 
developer, I will not submit applications for viable projects when 
there are inadequate resources to support it. So there is a shadow 
---------------------------------------------------------------------------
demand for credits not reflected in the above data.

    Nationally, demand varies somewhat from year to year but generally 
remains high. It is useful to compare the 2014 national numbers against 
2008, 2008 was the height of the financial crisis, and multifamily 
development was at a low point. Many traditional LIHTC project 
investors were not investing, which made putting together deals much 
more challenging. Nationally, there were applications for 
$1,873,311,018 in credits. Credits allocated were $939,924,853.\12\ 
Even in one of the most challenging times for real estate development, 
demand was still double the amount of available credits.
---------------------------------------------------------------------------
    \12\ State HFA Factbook: 2008 NCSHA Annual Survey Results. Page 92.

    Looking back to better times in 2006, there were applications for 
$1,509,779,928 in credits. Credits allocated were $691,073,326,\13\ 
2006 had approximately $2.20 in credit requests for every $1 available. 
We can see over several years and in different economic environments, 
demand for tax credits remained steady at double or more of the 
available credits.
---------------------------------------------------------------------------
    \13\ State HFA Factbook: 2006 NCSHA Annual Survey Results. Page 88.

[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]    

    LIHTC development remains stable because the need for affordable 
housing is significant. Consistent demand for credits also reflects the 
advantage of creating this credit in the tax code. Investors have 
confidence in the predictability of the tax code, which allow LIHTC 
developments to continue even during economic downturns. The LIHTC 
enables a fairly constant supply of affordable housing, as well as a 
financing mechanism that ensures long-term operation of affordable 
housing. In fact, LIHTC tax credit projects outperform the rest of the 
multifamily housing sector in one key measure: the annualized 
foreclosure rate. This rate is less than one-tenth of a percent \14\ 
and a third of the rate for other multifamily properties. The success 
of these projects partially reflects the ever-present threat that the 
government can recapture tax credits if the project fails.
---------------------------------------------------------------------------
    \14\ ``The Low Income Housing Tax Credit: Assessment of Program 
Performance and Comparison to Other Federal Affordable Rental Housing 
Subsidies,'' by Novogradac and Company, LLP, 2011, page 4. https://
www.novoco.com/sites/default/files/atoms/files/special_report_lihtc_
assessment_program_performance_052313.pdf.

    To start meeting the growing and significant demand for affordable 
rental housing, we must increase resources supporting production. S. 
548 takes a significant and needed step to boost supply by increasing 
LIHTC allocations by 50%. NAHB estimates that based on the estimates of 
the bill's sponsor that enacting 
S. 548 would result in an additional 400,000 LIHTC units over the next 
10 years, the economic effects from that construction would increase 
Federal tax revenue by $11.4 billion and State and local revenues by 
---------------------------------------------------------------------------
$5.6 billion over 10 years.

    Failure to take action now will only deepen the crisis. Rental 
housing demand remains solid, and more housing is needed to help 
address growing affordability challenges. For example, the peak age of 
the Millennials is approximately age 27. While historically the typical 
age of a first-time home buyer is just above age 30, we can expect 
continued demand for rental housing in the years ahead. Absent new 
supply, this demand will increase rents and worsen existing 
affordability issues.
       cost containment: effectively utilizing existing resources
    Reducing and containing LIHTC development costs is a critical, yet 
difficult, balancing act. For starters, there are simply more fees 
associated with LIHTC development, which can account for 10% of the 
cost of a project. These fees are associated with compliance and 
necessary to ensure that the program is fulfilling its intended goals. 
Other trends which have understandable policy goals, such as locating 
affordable housing near transit hubs or in higher-income neighborhoods, 
result in higher development costs. Land costs tend to be significantly 
higher when constructing near transportation centers, and wealthier 
communities may require more expensive exterior architectural details 
to blend into the surrounding neighborhood.

    But we have also seen a growing trend towards gold-plating 
Qualified Allocation Plans (QAPs). Every State housing finance agency 
develops a QAP, which establishes the criteria used by the State for 
awarding tax credits. States have significant latitude to write a QAP 
to ensure that resources are meeting the unique affordable needs of 
each State. As mentioned earlier, a State QAP may steer more investment 
into affordable seniors housing, for example. This flexibility is 
important, but should have some limits. One troubling trend we are 
seeing is QAPs pushing energy efficiency requirements significantly 
above the current code requirements, which can greatly increase project 
costs. Pennsylvania, for example, is pushing for ``net zero energy'' 
projects, which is not even common in high-end single-family homes.

    A more cost-effective means of promoting energy efficiency is 
through tax incentives. While a number of energy efficiency tax 
credits, such as section 45L, the New Energy Efficient Home Tax Credit, 
have been allowed to expire, they were not utilized for LIHTC 
development because they required a basis adjustment. Because the total 
basis in a property determines the amount of LIHTCs a project can be 
awarded, using an energy tax credit that requires reducing basis in the 
project had the effect of reducing the amount of LIHTCs the project 
received--offsetting any gains from the energy efficiency tax credit. 
Section 311 would remove this barrier by eliminating the LIHTC basis 
adjustment requirement when using energy tax credit. NAHB strongly 
supports section 311 and also urges the committee to restore the 
section 45L tax credit and section 179D deduction.

    QAPs should weigh the cost and benefit of various development 
requirements to produce as much affordable housing with the limited 
resources we have, but unfortunately that does not always occur. As an 
example, Texas briefly considered, and fortunately rejected, a proposal 
to require LIHTC projects to include a carport. At the time, it made me 
wonder if we were housing cars or people. The quality of affordable 
housing built under the LIHTC is part of the program's 31-year success 
story, but we cannot lose sight that this program's goal is to produce 
and preserve as much affordable housing as possible. We must strike a 
reasonable balance between development requirements and cost.

    Local governments may also impose costly requirements on 
development, which apply whether the project is market-rate or 
affordable. In one Texas community, I was required to plant 200 trees, 
which probably doubled the number of trees in this community. Sadly, 
the community also had water restrictions due to a drought, so while 
the trees were planted as required, I could not water them, and most 
died. This is simply the reality of developing housing in this country. 
While academics may offer assorted ideas on how affordable development 
should work, until you have actually done a deal, you cannot possible 
understand the challenges developers face.

    Some criticize the program for not directing more affordable 
housing to higher-income communities. This is an interesting academic 
debate, but let me shed light on the challenges I face as a developer 
working in higher-income communities. The Texas QAP awards bonus 
points, without which receiving an allocation is nearly impossible, for 
LIHTC projects that are endorsed by the appropriate State legislator 
and the local community, even if that project is otherwise permitted 
under the municipality's comprehensive plan and zoning rules. In other 
words, if I was building a market rate project, I could simply pull the 
permits and start construction. But for tax credit projects, developers 
are subject to a special review process that oftentimes results in 
community opposition.

    Any affordable housing developer in Texas has many stories of 
battling community opposition simply because the project would serve 
lower-income residents. The problem is so acute that The New York Times 
recently highlighted the challenges Texas developers face when building 
in higher-income areas.\15\ The article quoted a resident who is 
opposing an affordable housing project in the Houston, Texas, area: ``I 
will fight very hard before I give up that privilege and dignity to 
those who, either from lack of initiative or misfortune, don't deserve 
to be there.'' If we are going to break the cycle of poverty and ensure 
all Americans have equal opportunity to succeed, we must reject the 
notion that only some people ``deserve'' to live in well-off 
communities. I can assure the committee that this reaction is not 
unique and is often associated with racial undertones. Nonetheless, 
this is a real-world challenge that developers of affordable housing 
across the country face on a daily basis.
---------------------------------------------------------------------------
    \15\ ``Program to Spur Low-Income Housing Is Keeping Cities 
Segregated,'' New York Times, July 2, 2017.

    Fortunately, relief is possible. Section 308 of S. 548 would 
prohibit State QAPs from requiring special local approval of LIHTC 
developments. This will ensure that if the zoning allows it, I will be 
able to develop affordable housing on the same terms as a market-rate 
project.
             improving utilization of existing resources: 
                 create a minimum floor for 4% credits
    Under the Low-Income Housing Tax Credit (LIHTC) program, affordable 
housing developments receive tax credits that are used to attract 
equity capital. There are two types of tax credits: one credit provides 
70% of the financing cost and is used for new construction and 
substantial rehabilitation; and a second credit that provides 30% of 
the financing cost and is used to acquire an existing property for 
rehabilitation. These are often referred to as the 9% and 4% credits, 
respectively, because that was the original credit amount when the 
program was created in 1986.

    The Tax Reform Act of 1986 did not fix those credit rates at 9% and 
4%, but rather created a floating rate system where the credit rates 
are adjusted on a monthly basis. The IRS calculates the monthly values 
of the credits based on the cost of borrowing by the Federal 
Government. As a result, today's low Federal borrowing costs produce 
very low credit rates, which reduces the amount of private equity 
invested in LIHTC development. For August 2017, the 9% credit was only 
worth 7.52%; the 4% credit was worth 3.22%. These low rates reduce the 
amount of equity properties could receive by more than 15%, making it 
more difficult to do LIHTC developments, particularly as State and 
Federal governments cut back on direct spending that is used to fill 
financing gaps for LIHTC properties. The ``floating rate'' system also 
creates uncertainty for owners and investors, and complicates State 
administration of the program.

    In response to the declining rates, the Housing and Economic 
Recovery Act of 2008 (HERA) set the rate for new construction and 
substantial rehab credits from each State's allocation at no less than 
9%, which was the rate when the program was created. The provision was 
then extended for credits allocated by the end of 2013 through the 
American Taxpayer Relief Act of 2012 (ATRA). The 9% minimum floor was 
made permanent in the Protecting Americans from Tax Hikes Act of 2015 
(PATH ACT).

    Unfortunately, while the Finance Committee has favorably reported 
legislation that included a minimum 4% credit floor for acquisition, 
the legislation enacted into law (HERA, ATRA and the PATH Act) failed 
to address the 4% credit. S. 548 will correct this by creating a 
minimum floor for 4% credits. Applying the minimum floor rate for 4% 
credits would similarly remove the uncertainty and financial complexity 
of the floating rate system, simplify State administration, and 
increase the number of units that can be preserved and developed into 
affordable housing. As our housing stock ages--the first LIHTC projects 
are now over 30 years old--preservation and rehabilitation is a cost-
effective tool.
                            income averaging
    The LIHTC serves tenants with an area median income (AMI) of no 
more than 60%. Many tax credit projects target significantly lower-
income individuals. It is important to recognize that the tax credit 
only partially covers development costs. LIHTC projects also rely on 
other sources of financing, including a mortgage. The amount of debt a 
project can take on is determined by rental income. As rent is based on 
the tenant's income, projects targeting lower-income residents cannot 
assume as much debt, which may affect the financial viability of a 
project.

    Section 201 of S. 548 would allow for income averaging, providing 
States with the flexibility to target lower-income tenants while also 
ensuring the financial viability of the project by allowing a limited 
number of units to serve tenants with incomes up to 80% of AMI. This is 
an excellent solution for achieving income targeting below the current 
60% AMI minimum while ensuring that the project is viable and can be 
built. However, the entire project must still maintain an average 
income of 60% or below.
           improve rural affordable development opportunities
    My company specializes in rural affordable housing development, 
which has unique challenges. Although housing costs tend to be lower in 
rural areas, these areas are often plagued with lower incomes and high 
poverty rates. Nearly half of rural renters are rent-burdened, paying 
more than 30% of their income in rent. Rural areas also often have 
limited rental options.

    S. 548 includes a number of provisions that will enhance rural 
development opportunities. They include income averaging, discussed 
above, but also standardizing rural income limits. The bill also 
provides a basis boost for projects serving extremely low-income 
tenants. This is an important provision considering that rural 
residents' income tends to be lower than in urban areas. The bill would 
also encourage development in Native American communities, which are 
home to some of our most vulnerable rural residents.
     tax reform and the lihtc: preserving production levels in the 
                        next generation tax code
    NAHB believes that lower rates, simplification, and a fair system 
will spur economic growth and increase competitiveness. And that's good 
for housing, because housing not only equals jobs, but jobs mean more 
demand for housing. As the committee moves forward on tax reform, NAHB 
wants to be a constructive partner and help the committee with this 
important issue.

    Corporate tax reform poses a unique challenge to syndicated tax 
credits such as the LIHTC. Investor valuation of a tax credit is based 
on how much tax liability that credit offsets. As the committee 
considers lowering the corporate tax rate, NAHB also recommends the 
committee consider options to ensure that tax credit equity remains 
stable. We believe that a lower corporate rate and a robust LIHTC are 
both possible to achieve.

    Earlier this year, we saw a significant drop in tax credit pricing 
throughout the country as investors began to assume a drop in the 
corporate tax rate. In some cases, projects were unable to move 
forward. We believe the effects of the lower corporate tax rate on 
LIHTCs can be mitigated through two policy changes.

    The first recommendation is to update the discount rate formula 
used to calculate the 9% and 4% credit rates. The basis of that formula 
reflects the cost of borrowing for the Federal Government, which is not 
a reflection of investor return in the private market. The formula can 
also be adjusted based on the final corporate tax rate to ensure that 
tax credit equity remains stable.\16\
---------------------------------------------------------------------------
    \16\ See: https://www.novoco.com/notes-from-novogradac/how-
congress-could-offset-effects-affordable-housing-production-reduced-
corporate-rate.

    The second recommendation is to expand the investor base. Greater 
demand for credits will increase pricing. Currently, most tax investors 
are financial institutions, as tax credits also help banks meet their 
Community Reinvestment Act obligations, as well as other large C-Corps 
with stable and constant profits. Individuals, pass-through businesses, 
and S-Corp banks are largely shut out of the tax credit market due to 
the current passive-loss rules. While C-Corps can fully claim passive 
losses, and are therefore willing to pay a higher price for tax 
credits, individuals and pass-throughs are limited to a $25,000 
deduction. NAHB does not recommend a complete repeal of the passive 
loss rules, but rather suggests that additional flexibility for 
individual investors and pass-throughs investing in LIHTCs should be 
---------------------------------------------------------------------------
considered.

    We believe a targeted tweak of the passive-loss rules would also 
enhance deals in smaller communities, particularly rural areas, where 
tax credits can be marketed to local professionals.
                               conclusion
    The challenges of housing affordability are increasing. In some 
communities, even middle-class households are feeling the financial 
strain of today's housing costs. The problem is simple: we lack enough 
affordable housing. The only effective, long-term solution is to 
increase supply. S. 548 would greatly enhance our ability to increase 
the supply of affordable rental units, and NAHB urges the committee to 
mark up and favorably report out the bill.

    We also must recognize that without a sizable investment in our 
housing stock, particularly as older units reach obsolescence, we risk 
a worsening problem for middle-income Americans. We commend Senator 
Wyden for recognizing this emerging problem and his legislation last 
Congress to create a Middle Income Housing Tax Credit (S. 3384), 
modeled on the LIHTC. NAHB would also urge the committee to take up 
this legislation. Frankly, addressing these challenges now before they 
reach a national crisis point will be much cheaper in the long-run.

    NAHB greatly appreciates the overwhelming bipartisan Senate support 
to solve our affordable housing crisis. In this era of increasingly 
partisan political discord, I hope we can all unite around this issue 
and take action. Shelter is a basic human need, and we have an 
opportunity to do something that not only makes good economic sense, 
but will uplift the lives of millions of Americans.

    NAHB stands ready and willing to help.

                                 ______
                                 
 Prepared Statement of Kirk McClure, Ph.D., Professor, Urban Planning 
  Program, School of Public Affairs and Administration, University of 
                                 Kansas
          reform of the low-income housing tax credit program
How does the Low-Income Housing Tax Credit (LIHTC) program work?
    Tax credit authority is allocated annually from the Federal 
Government to each State which, through its Housing Finance Agency 
(HFA), awards the tax credits to development proposals. The annual 
allocations totaled to about $7.6 billion in fiscal year 2015 
(Gramlich, 2015).

    Each developer sells the tax credits to investors who join into the 
ownership of the development with the proceeds from the sale of the tax 
credits used to pay for a portion of the development costs. In exchange 
for receiving the tax credits, developers agree to limit the rents on 
the housing units to levels affordable to low-income households and to 
maintain low-income occupancy in the tax credit supported units for a 
period of at least 15 years.
How has the program performed?
    The program began in 1987 and produced about 2.6 million low-income 
units since its inception. Annually, the program typically produces 
about 90,000 units in 1,400 projects.
Who is served by the program?
    The income ceilings for participation in the LIHTC program vary 
with the metropolitan area or with the county if the location is 
outside of a metropolitan area. The maximum income for a household 
occupying a tax credit unit is a set percentage of the Area Median 
family Income (AMI). The LIHTC program limits the highest income of 
households who reside in LIHTC units at either 50 percent or 60 percent 
of the AMI, depending upon developer selection and State HFA 
preferences. In 2015, the national median family income was $66,011. 
Thus, the program tends to serve households with incomes below either 
$33,000 or $40,000.

    The U.S. Department of Housing and Urban Development (HUD) defines 
low-
income somewhat differently than does the LIHTC program, but the HUD 
definitions are helpful for understanding which households are served 
by the various low-income housing programs. HUD defines any household 
as low-income if its income is below 80 percent of the AMI. HUD further 
defines two subsets of the low-income households as: (1) Very low-
income, those with income between 30 and 50 percent of AMI; and (2) 
Extremely low-income, those with income below 30 percent of AMI. These 
distinctions are important because markets very widely in terms of 
which category of low-income renter households suffer from shortages of 
units.

    O'Regan and Horn (2013) find that about 45 percent of LIHTC 
households have incomes below 30 percent of AMI, and 55 percent have 
incomes between the 30 percent and the 60 percent ceiling level. Low-
income households with income in the upper tier, between 60 and 80 
percent of AMI, are not permitted into the units as their income is too 
high. Households with incomes in the lowest tier, below 30 percent of 
AMI, can usually afford the rents charged in LIHTC developments only if 
they have additional subsidy through the Housing Choice Voucher (HCV) 
program. Williamson (2011) found that about 10 percent of Florida LIHTC 
households had vouchers. Thus, most non-voucher LIHTC households tend 
to have income at the middle tier of the low-income levels or about 
$20,000 to $40,000. For comparison, public housing and the HCV programs 
serve the poorest tier of the low-income renter population, households 
with an average income of about $14,000 (calculated from HUD data for 
2015).
Does the LIHTC program produce units in a price range where there is a 
        need?
    If the LIHTC program tends to serve households with incomes in 
range of $20,000 to $40,000, does this income segment suffer from a 
shortage of rental units priced so that they can afford the units?

    Figure 1 divides the rental housing stock of the Nation into market 
segments. Renter households are divided into income categories from the 
American Community Survey, 2015. Rental units are divided into 
categories based on gross rents (rents plus utilities). These rent 
categories correspond to the renter income categories assuming that 
these households spend 30 percent of income on housing, which is about 
the median level of spending for renters nationwide.

[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

    For example, a household with income of $25,000 per year can afford 
a unit with rent at $625, and a household with and income of $35,000 
can afford rent of $875. Thus, the rental units with gross rents from 
$625 to $875 can be compared to the numbers of households with incomes 
from $25,000 to $35,000. In rent categories where the number of units 
exceeds the number of renter households, a surplus exists, and where 
households exceed units, a shortage exists.

    The segment of the rental housing market served by the LIHTC 
program has a large surplus of units. There are many more units renting 
in the price range of $625 to $875 per month than there are households 
with incomes in the range of $25,000 to $35,000, the households who can 
afford units in this price range. This is the market segment where the 
LIHTC is adding units.

    It is a very different story in the rental housing market segment 
served by the HCV program. This program assists households with incomes 
below $20,000. Households in this market segment can only afford rental 
units with much lower rents, averaging about $350 per month. All the 
market segments with rents below $500 have fewer units than there are 
households.

    Thus, the LIHTC program is adding units to a market segment with a 
large surplus of units indicating a lack of need in most markets.
Does the LIHTC program locate units in tracts with a shortage of units?
    What is true for the Nation as a whole is not necessarily true for 
individual markets. While the Nation may have a surplus of units in the 
market segment with rents from $625 to $875, many individual markets 
may have a shortage. The LIHTC could be the right form of governmental 
intervention to resolve this problem if it is targeting those locations 
with shortages.

    Table 1 indicates that LIHTC units are being located in census 
tracts that do not have a shortage of rental units in the price range 
serving low-income renter households. Table 1 categorizes the 73,000 
census tracts in the Nation by comparing the number of renter 
households with income between $25,000 to $35,000 to the number of 
rental units with rents between $625 and $875. If the LIHTC program is 
working well, it should be locating units in tracts with a shortage of 
units in this price range compared to the number of households in the 
income range.

Table 1. Low-Income Housing Tax Credit Units by Tract Rental Market Need
 
 Number of rental units with rents $625 to $875 minus renter households
                    with income of $25,000 to $35,000
------------------------------------------------------------------------
    Rental market need
         category              Tracts (Percent)    LIHTC Units (Percent)
------------------------------------------------------------------------
Shortage 200 or more units            231 (0.3%)          18,013 (0.7%)
Shortage 50 to 199 units            5,102 (7.0%)         190,868 (7.9%)
Balanced -49 to +49 units         39,033 (53.4%)        687,597 (28.3%)
Surplus 50 to 199 units           21,966 (30.1%)        929,850 (28.3%)
Surplus 200 or more units           6,724 (9.2%)        603,944 (24.9%)
------------------------------------------------------------------------
    Total                        73,056 (100.0%)     2,430,272 (100.0%)
------------------------------------------------------------------------
Source: American Community Survey, 2015, 1-year estimates; HUD LIHTC
  Database, 2017.


    Fewer than 9 percent of LIHTC units are located where there is a 
shortage. This is not entirely surprising as fewer than 8 percent of 
all the tracts in the Nation have a shortage suggesting that the need 
for units in the price range served by the LIHTC program is small. Over 
one-half of all LIHTC units are in tracts with a surplus of more than 
50 units. One-fourth of all LIHTC units are in tracts with a surplus of 
200 or more units.
Does the LIHTC add new units to tight markets and rehabilitate existing 
        units in soft markets?
    It would be expected that the program would add new construction 
units to tight markets, those with low vacancy rates, and rehabilitate 
existing units in soft markets, those with high vacancy rates.

  Table 2. LIHTC Units by Construction Type in Tracts by Rental Vacancy
                                  Rate
------------------------------------------------------------------------
                                      LIHTC Units
   Rental    -----------------------------------------------------------
Vacancy Rate                             Units
               New Construction     Rehabilitation        Type Known
------------------------------------------------------------------------
Tight 0% to              440,692             305,227             745,919
 4.9%
                             59%                 41%                100%
 
Normal 5.0%              155,153             113,323             268,476
 to 6.9%
                             58%                 42%                100%
 
Soft 7.0% to             207,558             139,446             347,004
 9.9%
                             60%                 40%                100%
 
Very soft                357,266             232,960             590,226
 10%+
                             61%                 39%                100%
------------------------------------------------------------------------
    Total              1,160,669             790,956           1,951,625
                             59%                 41%               100%
------------------------------------------------------------------------
Source: American Community Survey, 2015, 1-year estimates; HUD LIHTC
  Database, 2017.


    The LIHTC program favors new construction over rehabilitation in 
all markets. Nine percent credits are awarded against new construction 
costs, and 4 percent credits are awarded against rehabilitation costs, 
independent of market conditions.

    Developers have responded by developing 47 percent more new 
construction units than rehabilitation units. There is a strong 
tendency for the program to produce new construction units over 
rehabilitation units without regard to the rental vacancy rate.
Does the LIHTC program support mixed-income housing?
    Research demonstrates that projects wholly populated by the poor 
are not good for the households, the developments or the surrounding 
neighborhoods (Smith 2002). Mixed-income housing is a more beneficial 
format for everyone involved (Kleit 2005).

    The LIHTC program does not provide any incentives to developers to 
generate mixed-income housing. Rather, the program sets minimums, 
rather than maximums, on the percentages of households with incomes 
below 50 percent and 60 percent of AMI. As a result, 76 percent of all 
LIHTC developments are occupied entirely by low-income households. 
Fewer than 3 percent are configured with market-rate units comprising 
more than one-half of all units.
Conclusions and recommendations
    It can be concluded that the LIHTC program is:

      Serving a segment of renters with a surplus of units and not 
serving the lowest-income segment with a shortage of units.

      Adding units to neighborhoods with a surplus of units and 
failing to add units where there are shortages.

      Favoring new construction over rehabilitation independent of 
market condition.

      Not promoting mixed-income housing.

    It is time to rethink how the LIHTC program works. Four changes are 
recommended:

    More rigorous market analysis: State Housing Finance Agencies 
should have to justify each LIHTC allocation by demonstrating a market 
need. Each HFA should have to show that both neighborhood and 
metropolitan vacancy rates justify production subsidies. The HFA should 
have to find that vacancy rates are low and that a shortage of units 
exists at the price point to be served by the proposed LIHTC 
development. There is little value in adding units to a market that has 
a high rental vacancy rate or in adding units to a market segment that 
is saturated.

    Exchange tax credit authority for voucher authority: Currently, 
housing authorities can convert up to 20 percent of tenant-based 
voucher contract authority into project-based voucher authority. HFAs 
should be permitted the same latitude to convert project-based LIHTC 
funding into vouchers. These vouchers could be tenant-based vouchers, 
permitting extremely low-income households to rent apartments in the 
market if market conditions suggest this to be the preferred approach. 
These vouchers could also be project-based vouchers that could be 
layered on top of LIHTC subsidy to serve households who could not 
otherwise afford the tax credit units. These vouchers would help the 
LIHTC program both serve households with extremely low income as well 
as permit these households to pay a rent based on their incomes, rather 
than a flat rent now used in the LIHTC program. This approach prevents 
a high housing cost hardship among these households.

    Favor rehabilitation over new construction: The LIHTC program 
should be modified so that it favors the appropriate type of 
development for each market. The higher 9 percent credits should be 
given for rehabilitation and the lower 4 percent credits should be 
given to new construction developments. The higher 9 percent credits 
would only be available to new construction units if the market is 
truly tight (the rental vacancy rate is very low) or the new units are 
replacing severely deteriorated units.

    Favor mixed-income development: The LIHTC should mandate mixed-
income occupancy in most developments. A majority of the units in each 
tax credit supported development should be set-aside for market-rate 
occupancy. A development that is configured with a majority of units 
for low-income occupancy should be permitted only in a highly 
distressed area where mixed-income housing is not feasible and the tax 
credit development contributes to a community revitalization strategy.

References

Gramlich, Ed. (2015). Low-Income Housing Tax Credits. 2015 Advocates 
Guide. National Low-Income Housing Coalition. At: http://nlihc.org/
sites/default/files/Sec5.10_LIHTC_2015.pdf.

Kleit, Rachel Garshick. (2005). ``HOPE VI New Communities: Neighborhood 
Relationships in Mixed-Income Housing.'' Environment and Planning A 
37(8): 1413-1441.

O'Regan, Katherine M. and Horn, Keren M. (2013). ``What Can We Learn 
About the Low-Income Housing Tax Credit Program by Looking at the 
Tenants?''. Housing Policy Debate 23(3): 597-613.

Smith, Alastair. (2002). Mixed-Income Housing Developments: Promise and 
Reality. NeighborWorks and the Joint Center for Housing Studies.

U.S. Census Bureau, 2011-2015 American Community Survey-Year Estimates. 
Tables B25119 and B25063. At: https://factfinder.census.gov/faces/
tableservices/jsf/pages/productview.xhtml?src=bkmk.

U.S. Department of Housing and Urban Development. (2017). LIHTC 
Database. At: https://lihtc.huduser.gov.

Williamson, Anne R. (2011). ``Can They Afford the Rent? Resident Cost 
Burden in Low-Income Housing Tax Credit Developments.'' Urban Affairs 
Review 47(6): 775-799.

                                 ______
                                 
       Questions Submitted for the Record to Kirk McClure, Ph.D.
               Questions Submitted by Hon. Orrin G. Hatch
    Question. Are there State and local issues we should consider, or 
at least keep in mind, such as zoning requirements and land use 
regulations, that are working against us in that they make housing 
artificially more expensive or otherwise limit its availability?

    Are there ways we can and should account for that, such as by 
applying certain requirements to Federal incentives for affordable 
housing?

    Answer. One of the great success stories of the Low-Income Housing 
Tax Credit (LIHTC) program has been its ability to locate units in low-
poverty suburban neighborhoods. The LIHTC program is able to do this on 
par with the Housing Choice Voucher program. The voucher program would 
be expected to perform better due to the mobility granted to 
participating households. However, the LIHC developers have managed to 
overcome many of the barriers that suburban communities so often use to 
stop affordable housing from locating in their midst.

    S. 548 includes a provision that would prohibit States from 
requiring local approval of LIHTC developments. This much-needed reform 
to the LIHTC program would remove a barrier that communities use to 
limit the availability of affordable housing and will help the program 
perform even better.

    Question. In your testimony you noted that the LIHTC program does 
not produce units in price ranges where there are shortages of units; 
that it is not very efficient at adding new units to tight markets and 
rehabilitating existing units in soft markets; and that it does not 
support mixed-income housing.

    How would you recommend that the program be reformed to address 
these issues?

    Answer. The LIHTC program needs reforms that will cause it to 
better fit housing market conditions. The program needs improvements in 
terms of:

        Reaching the poorest renters confronting the greatest need for 
affordable housing;

        Promoting development of mixed-income housing; and

        Emphasizing rehabilitation in soft markets and new 
construction in tight markets.
Reaching Extremely Low-Income Renters Who Are the Population Most in 
        Need
    The LIHTC program tends to serve the least worst off among low-
income renters, those with income ranging from 30 to 60 percent of each 
market's Area Median family Income (AMI). The program tends not to 
serve the poorest population, those with income from 0 to 30 percent of 
AMI, because the LIHTC rents are too high to be unaffordable for them. 
Yet, in most markets across the Nation, the renters in the 30 to 60 
percent of AMI enjoy more than ample numbers of rental units, while 
renters in the 0 to 30 percent of AMI face shortages.

    S. 548 includes income averaging which is a step in the right 
direction toward serving the poorer renter households. Income averaging 
will permit property managers to admit households with incomes up to 80 
percent of AMI to offset admission of households with lower incomes, as 
long as the average income of all households does not exceed 60 percent 
of AMI. However, this mechanism will not reach very far down the income 
spectrum. S. 548 also contains a provision to give greater credit 
amounts to developments serving the 0 to 30 percent of AMI population. 
Again, this is a step in the right direction, but the units will 
continue to have flat rents. If the LIHTC developments are to serve the 
extremely low-income renters households without creating high housing 
cost burdens, the integration of a voucher approach is needed.

    Housing credit agencies should have the capacity to exchange some 
portion of their LIHTC authority for housing vouchers for renter 
households who are extremely low-income (below 30 percent of AMI). 
These vouchers could be attached to a portion of the units in the LIHTC 
developments. This would permit the LIHTC developments to serve the 
extremely low-income households who could not otherwise afford to live 
in a LIHTC development. With the voucher format, the tenant would pay 
30 percent of income toward the cost of the housing, rather than a flat 
rent. The voucher would pay the portion between the tenant's 
contribution and the rent on the unit, eliminating high housing cost 
burden in these units.

    A very similar arrangement now exists with Public Housing 
Authorities (PHAs) who operate the Housing Choice Voucher (HCV) 
program. PHAs can convert up to 20 percent of its voucher authority 
into project-based vouchers. This procedure is helping developers 
include units that serve extremely low-income households in mixed-
income developments. The LIHTC program would benefit from a similar 
provision incentivizing the generation of mixed-income developments 
that provide a portion of units for extremely low-income households.
Promote Mixed-Income Developments
    Serving a poorer renter population, those with income below 30 
percent of AMI, is only one of the needed reforms. These households are 
best served of housed in mixed-income developments. Developments that 
are entirely occupied by extremely low-income households tends to 
exacerbate the problems of concentrated poverty. Unfortunately, the 
LIHTC program does not foster mixed-income housing as 76 percent of all 
LIHTC developments are occupied entirely by low-income households. 
Fewer than 3 percent of developments are configured with market-rate 
units comprising more than one-half of all units.

    Where market conditions permit mixed-income housing to be 
successful, the LIHTC program should promote this form of housing. The 
program now sets minimums on the percentages of low-income units in the 
development. To obtain any credits, the development must have at least 
20 percent of units designated for households with income no higher 
than 50 percent of AMI or at least 40 percent of units designated for 
households with income no higher than 60 percent of AMI. Instead of 
these minimums, the program should set maximums such as no more than 20 
percent of units would be for extremely low-income households and no 
more than an additional 20 percent of units would be for very low-
income households with the remainder for moderate- and middle-income 
households.

    Unfortunately, mixed-income housing will not work in all 
marketplaces. Middle-income households often cannot be attracted to 
distressed neighborhoods with high concentrations of poverty. Where 
rigorous market analysis establishes that mixed-income housing cannot 
be successfully marketed but that a LIHTC development would contribute 
to neighborhood revitalization, exceptions could be made. State housing 
finance agencies should be required to perform this market analysis, 
and HUD should provide oversight to ensure that the market analysis is 
rigorous.

Better Market Analysis So That the Right Type of LIHTC Is Developed in 
Each Market

    The LIHTC program also needs tools to ensure that it is adding new 
units only where there is a shortage of units and rehabilitating units 
where there is no shortage.

    As currently structured, the LIHTC program gives more lucrative 9 
percent tax credits to new construction projects and less lucrative 4 
percent tax credits to rehabilitation projects. This arrangement 
encourages developers to pursue new construction, independent of the 
type of construction appropriate to a market.

    Most rental markets in the Nation have normal to high rental 
vacancy rates indicating no need for additional units through new 
construction. A minority of rental markets are tight with low vacancy 
rates. The LIHTC program should be restructured to reflect this 
condition. Rehabilitation should receive the 9 percent tax credits, and 
new construction would receive the 4 percent tax credits. This would 
shift the emphasis of the program from building new units to preserving 
the stock of older housing units. New construction should receive the 9 
percent credits only where local market conditions indicate that the 
market has a very low vacancy rate or where the new construction units 
replace a larger number of deteriorated units demolished as part of a 
redevelopment plan.

    State housing finance agencies should be required to perform 
rigorous market analysis to determine whether the use of 9 percent 
credits for new construction is appropriate. Oversight is needed to 
ensure that this market analysis is performed properly, and the U.S. 
Department of Housing and Urban Development is well-equipped to take on 
this role.

                                 ______
                                 
              Question Submitted by Hon. Michael F. Bennet
    Question. I am interested in the research you've done on the extent 
to which housing policies, including vouchers, can help low-income 
families move closer to opportunity or, on the other hand, further 
socioeconomic and racial segregation.

    Could you comment on what the most effective steps would be to 
reform our current housing policies to better help more low-income 
families live in places with access to opportunity?

    Answer. The Federal Government has two rental assistance programs 
that are actively placing low-income households in new locations, the 
LIHTC program and the Housing Choice Voucher (HCV). Neither program 
strongly promotes movement to high-opportunity neighborhoods.

    The HCV program only minimally promotes the notion of helping 
assisted households locate in high-opportunity neighborhoods through a 
provision of the technique used to monitor the performance of the 
administering Public Housing Authority.

    The LIHTC program does not mandate that States give priority to 
developments located in neighborhoods offering high levels of 
opportunity. A few States have taken steps in this direction, but the 
process in not widespread.

    For either the LIHTC program or the HCV program, the criteria used 
to identify high-opportunity neighborhoods should be locally defined. 
The research agrees that these neighborhoods should have low 
concentrations of poverty, low exposure to crime, high-performing 
schools, and access to gainful employment. Beyond these, the research 
has yet to identify criteria that can be applied universally. It 
appears that each metropolitan area will need to adopt its own criteria 
appropriate to individual markets. For example, access to public 
transit may be an important issue in some markets but not in others.

    The HCV could be modified to mandate that a portion of vouchers be 
set aside for households who would be willing to accept the voucher on 
the condition that it be used only in a high-opportunity neighborhood.

    The LIHTC program could be modified to mandate that States give 
priority to developments located in high-opportunity neighborhoods.

    Program administrators should engage in opportunity mapping to 
identify, at the metropolitan level, high-opportunity neighborhoods as 
targets for voucher households or for tax credit units. The U.S. 
Department of Housing and Urban Development is especially skilled in 
this type of work and should be charged with overseeing the opportunity 
mapping process.

                                 ______
                                 
 Prepared Statement of Hon. Katherine M. O'Regan, Ph.D., Professor of 
   Public Policy and Planning, Robert F. Wagner Graduate School, and 
 Faculty Director, Furman Center for Real Estate and Urban Policy, New 
                            York University
    Chairman Hatch, Ranking Member Wyden, and members of the committee, 
thank you for inviting me to appear today to discuss America's 
affordable housing crisis, challenges and solutions. I am speaking 
today from my perspective as a researcher, particularly on affordable 
housing policy, and from my experience at the Department of Housing and 
Urban Development, where I chaired the cross-agency Rental Policy 
Working Group (RPWG) which specifically focused on alignment of Federal 
rental programs and rental affordability.
                  american's affordable housing crisis
    As has been reported widely and frequently in the press, and 
documented well by the researchers at Harvard's Joint Center, the 
Furman Center and many others, we have a housing affordability crisis 
in this country that is not going away. Let me start with just some 
facts.
Housing Cost Burdens Are Extremely High, Particularly for Renters
    Using the affordability standard of spending no more than 30 
percent of income on housing, in 2015 nearly 39 million households were 
``cost-burdened.'' \1\ This is about a third of all households in 
America. And renters are much more likely to face cost burdens. Nearly 
half (48.3 percent) of all renters were cost burdened in 2015. More 
than a quarter (25.6 percent) face severe cost burdens, spending at 
least half of their income on housing.
---------------------------------------------------------------------------
    \1\ Joint Center for Housing Studies. The State of the Nation's 
Housing 2017.
---------------------------------------------------------------------------
These Rates Remain Far Above Pre-Housing Crisis Levels
    While rent cost burdens have declined slightly since their peak in 
2011, they remain considerably above pre-housing crisis levels. 
Focusing on those most burdened, 11.1 million renter households were 
severely cost burdened in 2015, nearly 4 million more than in 2001.
Affordability Challenges Are Widespread--Beyond Highest Cost Cities and 
        Lowest Income Households
    Affordability issues are not limited to highest-cost markets or a 
handful of States. With more than 30 percent of its renters 
experiencing severe cost burdens, Augusta, GA is among the 10 
metropolitan areas with the highest rates of severe burdens for 
renters, for example.\2\ While Florida, California and Hawaii had the 
highest shares of renters facing cost burdens, at least 37% of renter 
households in every State across the Nation were cost burdened in 
2014.\3\ High levels of cost burdens are also not confined to larger 
metropolitan areas. Almost 12 million households living outside the top 
100 metropolitan areas are cost burdened, about half of whom are 
severely burdened.\4\
---------------------------------------------------------------------------
    \2\ Joint Center for Housing Studies, The State of the Nation's 
Housing 2017.
    \3\ Joint Center for Housing Studies. Rental Housing Affordability 
2015, Appendix Tables and Additional web-only Tables, A-5.
    \4\ Smaller metro and non-metro areas. Joint Center for Housing 
Studies, The State of the Nation's Housing 2017.

    The sharpest growth in cost-burdened shares over the past decade 
and a half has been among middle-income households: burdened households 
within the middle quintile of the income distribution increased from 13 
percent in 2001 to 25 percent in 2014.\5\
---------------------------------------------------------------------------
    \5\ Joint Center for Housing Studies. Rental Housing Affordability 
2015.

[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

    Looking specifically at cost burdens for renters by their income 
levels, in 2015:\6\
---------------------------------------------------------------------------
    \6\ Joint Center for Housing Studies, The State of the Nation's 
Housing 2017. Chapter 7--Appendix Tables.

      For renter households with incomes below $15,000--comparable to 
full-time work at the Federal minimum wage--more than 80 percent were 
cost-burdened in 2015, with 70 percent facing severe cost burdens 
---------------------------------------------------------------------------
(spending more than half of income on housing).

      Sixty-four percent of renters with incomes between $15,000 and 
$30,000 were cost-burdened in 2015, 32 percent severely so.

      Over 40 percent of renters earning between $30,000 and $45,000 
were cost-
burdened in 2015.
Housing Supply Is Not Keeping Up With Demand
    The country has experienced 7 consecutive years of growth in new 
construction, with 1.17 million housing units added to the national 
stock in 2016.\7\ Even with this, construction is well below the 
historical annual rates of 1.4 to 1.5 million experienced during the 
1980s and 1990s. Housing completions in the last 10 years are lower 
than any other 10-year period since the late 1970s.
---------------------------------------------------------------------------
    \7\ Joint Center for Housing Studies, The State of the Nation's 
Housing 2017.

    Despite the gains in multifamily construction, rental markets 
remain extremely tight. Based on the Housing Vacancy survey, the Joint 
Center reports that rental vacancy rates continued to decline for the 
7th year in a row.\8\ In 2016, the rental vacancy rate fell to its 
lowest level in 30 years, 6.9 percent. Throughout the country, rent 
increases continue to far exceed inflation.
---------------------------------------------------------------------------
    \8\ Joint Center for Housing Studies, The State of the Nation's 
Housing 2017.

    Meanwhile, over the past 15 years, there has been a shift in the 
rental stock toward the higher end. Nearly half of the 100 largest 
metropolitan areas reported absolute declines in the number of low rent 
units, even as their housing stocks increased.\9\
---------------------------------------------------------------------------
    \9\ Joint Center for Housing Studies, The State of the Nation's 
Housing 2017.
---------------------------------------------------------------------------
                   consequences of high housing costs
    There are obvious reasons to be concerned about the escalating 
costs of housing and the myriad of ways it affects people. Households 
spending large portions, even half or more of their incomes on housing, 
face difficult tradeoffs in how to meet their basic needs with what 
remains. For example, severely cost-burdened families with children who 
are in the bottom quartile of income spend 75 percent less on health 
care than non-burdened families in the same income quartile. Low-income 
and severely burdened seniors also cut back drastically on health care, 
spending 60 percent less than other low-income seniors.

    High housing costs affect where people live, and may constrain 
families with children to neighborhoods and locations that do not 
support healthy child development, or upward economic mobility.

    There may also be aggregate consequences if people are priced out 
of a high cost but highly productive markets, and choose to live in 
another area altogether. This affects the wages of that worker, and 
overall productivity in the Nation. Recent work by Berkeley economists 
estimates that had higher housing costs not inhibited the movement of 
workers and capital over the past four decades, national output would 
have been 10 percent higher in 2009.\10\ Higher cost housing may be a 
greater obstacle for low-wage earners, exacerbating inequality and 
locking in economic differences across States.\11\ The differential 
mobility also may have very long term effects on inequality, because 
many of the areas to which more highly educated workers may move have 
higher levels of intergenerational mobility than the areas in which 
less educated workers remain.\12\
---------------------------------------------------------------------------
    \10\ Hsieh, C., and Moretti, E. (2017). ``Housing Constraints and 
Spatial Misallocation'' (Working Paper). Berkeley, CA: National Bureau 
of Economic Research (NBER).
    \11\ Ganong, P., and Shoag, D. (2015). ``Why Has Regional Income 
Convergence in the U.S. Declined?'' (Working Paper). Cambridge, MA: 
Harvard Kennedy School.
    \12\ Schleicher, D. (2017). ``Stuck! The Law and Economics of 
Residential Stability.'' Yale Law Journal, 127 (forthcoming).
---------------------------------------------------------------------------
            the federal role: low-income housing tax credit
    In terms of Federal response, Tax Policy plays a key role in 
housing markets. For affordable rental housing, this is primarily 
through the Low-Income Housing Tax Credit (LIHTC), the largest source 
of Federal financing for the private production and rehabilitation of 
affordable rental housing in the country.\13\ I will focus my policy 
comments on LIHTC.
---------------------------------------------------------------------------
    \13\ https://www.huduser.gov/portal/datasets/lihtc.html.
---------------------------------------------------------------------------
                    reforming and streamlining lihtc
    We now have more than 30 years of LIHTC experience to inform 
reforms--to increase the credit's flexibility and feasibility in a 
broader set of market conditions, to streamline, and to more 
effectively meet key policy goals. I would like to highlight three 
areas for improvement that are also part of S. 548 (the Affordable 
Housing Credit Improvement Act of 2017).
(1) Working in a Broader Set of Markets, Across a Broader Set of 
        Incomes
    LIHTC's Federal income and associated rent limits are tied to 
either 50 or 60 percent of area median income during the application 
process. Since 2000, States are to prioritize developments reaching 
lowest income tenants, and indeed, nearly half (47.5 percent) of LIHTC 
tenants have incomes below 30 percent of Area Median Income (AMI), and 
58 percent have annual incomes below $20,000.\14\ Serving such 
households with extremely low incomes (ELI) generally requires some 
form of additional rental assistance, such as project-based or tenant-
based vouchers, or other 
development-level subsidies. Without those additional subsidies, 
reaching lowest income households is not economically feasible in most 
markets. Yet those additional subsidies are in decreasing supply, may 
not be within the control of the HFA or developer, and even if 
available require coordination and layering across funding streams.
---------------------------------------------------------------------------
    \14\ ``Understanding Whom the LIHTC Program Serves: Data on Tenants 
in LIHTC Units as of December 31, 2014. HUD USER.'' 2017. Accessed 
April 19. https://www.huduser.gov/portal/publications/
LIHTCTenantReport-2014.html.

    Income Averaging (section 201) can help address these challenges as 
---------------------------------------------------------------------------
well as improve economic feasibility in different market settings.

    Income averaging permits developments to employ an ``average 
income'' cap of 60 percent of AMI, with no household's income exceeding 
80 percent of AMI. Rents set for 80 percent of AMI can be used to 
offset the lower rents for those at 30 (or 40) percent of AMI. This 
means a broader set of incomes can be served in a development, where 
the additional resources needed to reach lower income households comes 
from within the finances of the development itself. This ``cross-
subsidy'' will be useful in high-cost markets, as well as for 
developments that are part of mixed-income community revitalization 
plans. It also addresses some of the issues in rural markets, where it 
may be necessary to serve a broader set of income ranges to be 
economically feasible. This greater flexibility is one of the most 
important LIHTC reforms.

    Permitting States to increase the maximum basis boost for serving 
ELI tenants (section 309) adds a similar flexibility in terms of 
identifying resources within LIHTC for reaching lowest income 
households, avoiding additional layering of financing and the 
associated complexities. Finally, broadening the definition of 
Difficult Development Areas (DDAs, section 402) to automatically 
include Indian areas (along with the increased DDA cap, section 311) 
also enable the credit to work in a different, high need environment 
that it has historically underserved.
(2) Achieving Locational Goals
    Over time and in practice, at least two (potentially conflicting) 
locational goals have emerged. On the one hand, there is a desire to 
avoid locating subsidized housing in neighborhoods in which poverty 
rates are already high, as this may further concentrate poverty. An 
additional concern is that high poverty neighborhoods may lack 
conditions conducive to self-sufficiency and economic mobility. Recent 
work by Raj Chetty and his co-authors, looking at the adult outcomes 
for children in assisted housing affirms that neighborhoods matter; 
children provided access to lower poverty neighborhoods were more 
likely to go to college and had higher earnings as adults.\15\
---------------------------------------------------------------------------
    \15\ Chetty, R., Hendren, N., and Katz, L.F. (2016). ``The Effects 
of Exposure to Better Neighborhoods on Children: New Evidence From the 
Moving to Opportunity Experiment.'' American Economic Review, 106(4), 
855-902.

    On the other hand, the desire to preserve existing affordable 
housing might drive investments to higher poverty neighborhood, and it 
is argued that such investments might spur broader community 
revitalization. This community reinvestment goal was made explicit in 
2000, when the Community Renewal Tax Relief Act of 2000 required States 
to give preference to applications for LIHTC developments in area of 
lower income/higher poverty (Qualified Census Tracts or QCTs) with 
concerted community revitalization plans. Recent research provides 
compelling evidence that LIHTC developments in low-income neighborhoods 
do indeed have positive effects on the surrounding neighborhood, 
increasing property values, lowering crime, and attracting a more 
racially and economically diverse population.\16\
---------------------------------------------------------------------------
    \16\ Diamond, R. and McQuade, T. 2016. Who Wants Affordable Housing 
in Their Backyard? An Equilibrium Analysis of Low-Income Property 
Developments.

    How States are to balance these competing goals remains a live 
debate. To achieve either locational goal, however--siting LIHTC in 
higher income/higher opportunity neighborhoods or contributing to 
neighborhood improvement through LIHTC investments, requires two 
---------------------------------------------------------------------------
reforms contained in S. 548.

    In terms of accessing higher income neighborhoods, section 308 
would prohibit local approval and contribution requirements. Beyond the 
Federal requirement that agencies provide notice to local government 
and a reasonable opportunity to comment on planned LIHTC 
developments,\17\ some States also require proof of local support or 
provide other competitive points for such support. Such local approvals 
can, in essence, give jurisdictions the ability to veto developments. 
Considerable anecdotal evidence from developers and States suggest such 
``veto power'' creates sizable location barriers in some States.
---------------------------------------------------------------------------
    \17\ 26 U.S.C. Sec. 42(m)(1)(A)(ii).

    In terms of prioritizing developments in QCTs with concerted 
community revitalization plans, no guidance has been provided on who is 
to define what constitutes such a plan. In the absence of clarity, some 
States have provided the same prioritization to all developments 
proposed in QCTs, regardless of evidence of a plan. Clarification that 
States have the authority to determine the definition of community 
revitalization plan (section 307) would encourage States to employ 
prioritization that is consistent with Federal intent.
Preservation of Existing Affordable Housing
    LIHTC is also used for the preservation of existing affordable 
housing, primarily through the so-called 4-percent credit. Preserving 
existing affordable housing is a key (and potentially cost-effective) 
strategy for narrowing the gap between demand and supply. Due to how 
the credit formula is calculated, its value actually fluctuates, adding 
uncertainty to credit deals. While a permanent minimum has been 
established for the 9-percent credit,\18\ section 301 would establish a 
permanent minimum for the 4-percent credit. Along with modifying 
building repurchase rights (section 303), this would improve the 
ability of the tax credit to be used for preserving existing affordable 
housing.
---------------------------------------------------------------------------
    \18\ Protecting Americans from Tax Hikes Act of 2015 (PATH).

Additional Reform
    Housing markets and needs vary greatly across jurisdictions and 
States. LIHTC is a Federal credit, but implemented by States to permit 
tailoring to local conditions. It is possible to add additional 
flexibility to the credit that could improve cost-
effectiveness by permitting a portion of the value of the credits, or 
of any credit expansion, to finance State (HFA)-issued vouchers. 
Perhaps modeled on the Tax Credit Assistance Program (TCAP) \19\ in 
which States could apply to provide grants in lieu of credits, the 
funding in this case would support a set of State-issued vouchers, 
likely time limited to match the timing of the funding. For those 
markets in which there is an adequate supply of quality housing across 
a range of price points, it may be more cost effective to permit States 
to utilize tenant-based vouchers.
---------------------------------------------------------------------------
    \19\ The American Recovery and Reinvestment Act of 2009.
---------------------------------------------------------------------------
                            lihtc resources
    Finally, I want to end by making a point about the level of 
resources for LIHTC. Due to the nature of how investors in LIHTC 
properties receive tax benefits--through both the credit and through 
losses, any decrease in corporate tax rates also lowers the amount of 
equity raised by the credit. LIHTC funding is predicted to decline by 
up to 17 percent under expected decreases in the corporate tax rate if 
per-capita allocations are not increased to keep pace.\20\ Uncertainty 
over future corporate rates has already led to delays in deal closing 
and decreases in the price investors are willing to pay for the 
credit.\21\
---------------------------------------------------------------------------
    \20\ https://www.novoco.com/notes-from-novogradac/how-congress-
could-offset-effects-affordable-housing-production-reduced-corporate-
rate.
    \21\ Capps, Kriston. 2017. ``Tax Reform Hasn't Started Yet, but 
Affordable Housing Is Already Taking a Hit.'' CityLab. Accessed May 1. 
http://www.citylab.com/housing/2017/01/uncertainty-over-tax-reform-is-
already-hurting-affordable-housing/514235/.

    This means failure to increase the per-capita allocation is 
equivalent to cutting LIHTC resources relative to its funding in recent 
years. This also means that some amount of increase in the per-capita 
allocation is budget neutral relative to past years. Given the breadth 
and depth of affordability issues in the country, now does not seem a 
time to withdraw Federal resources for affordable housing, particularly 
---------------------------------------------------------------------------
for LIHTC.

    It is, however, an opportune time to make substantive improvements 
in LIHTC, making it a more effective and efficient program as the 
Nation grapples with a serious and persistent rental affordability 
crisis.

                                 ______
                                 
 Questions Submitted for the Record to Hon. Katherine M. O'Regan, Ph.D.
               Question Submitted by Hon. Orrin G. Hatch
    Question. Are there State and local issues we should consider, or 
at least keep in mind, such as zoning requirements and land use 
regulations, that are working against us in that they make housing 
artificially more expensive or otherwise limit its availability?

    Are there ways we can and should account for that, such as by 
applying certain requirements to Federal incentives for affordable 
housing?

    Answer. Local zoning requirements and regulations provide a number 
of benefits to communities, including increased health and safety for 
residents. But local zoning and regulatory constraints play a 
significant role in impeding housing production \1\ and increase the 
costs of housing.\2\ There is also growing evidence that the prevalence 
and intensity of land use regulations have increased over time, as 
housing affordability declines.\3\
---------------------------------------------------------------------------
    \1\ Glaeser, Gyourko, and Saks, 2005; Glaeser and Ward, 2009; 
Malpezzi, 1996; Quigley and Raphael, 2005; Saks 2008.
    \2\ Glaeser and Gyourko, 2003; Gyourko and Molloy, 2015.
    \3\ Furman, 2015; Gyourko, Saiz, and Summers, 2008; Mullen, 2015.

    To the extent that land use regulations restrict the supply of 
housing and raise prices, they also make it more difficult for workers 
to move to the cities with more productive businesses, potentially 
contributing to slower productivity growth and increased economic 
inequality.\4\
---------------------------------------------------------------------------
    \4\ Hsieh and Moretti, 2017; Ganong and Shoag 2015.

    While zoning and land use restrictions are locally determined, the 
effect of their use on housing costs is felt beyond the borders of 
local jurisdictions and could be addressed by higher levels of 
---------------------------------------------------------------------------
government.

    The Federal Government could provide incentives directly to 
localities specifically to decrease regulatory barriers through a newly 
created competitive grant program or similar vehicle.

    The Obama administration, for example, proposed $300 million in 
competitive grant funds for localities and regional coalitions that 
embrace reforms to zoning and land use regulations that create a ``more 
elastic and diverse'' supply of housing (HUD, Local Housing Policy 
Grants).\5\ The proposal would have allowed local governments to use 
the funding to support infrastructure expansion or any activities that 
would facilitate the regulatory reforms, such as market analyses and 
assistance with identifying reform options.
---------------------------------------------------------------------------
    \5\ The HUD proposal requires matching funds from State, local, or 
private sources, presumably to indicate serious commitment on the part 
of applicants.

---------------------------------------------------------------------------
    To add some specifics, any such competitive grant program might:

        Offer technical assistance and funding to encourage local 
building authorities and departments to redesign and simplify their 
permitting systems. To become eligible for funds, localities might, for 
example, commit to promising approvals within a certain time window, or 
adopt procedural reforms to help streamline the process, such as 
establishing a single, standard, application for all needed permits, 
combining public hearings, or creating an on-line application and 
tracking system for permit requests.\6\
---------------------------------------------------------------------------
    \6\ Massachusetts Association of Regional Planning Agencies, 2007.
---------------------------------------------------------------------------
        Encourage localities and/or regional coalitions to adopt more 
relaxed land use regulations, such as upzoning certain areas to allow 
for more residential density, or perhaps removing restrictions on 
multifamily housing development. Similar to the Massachusetts Chapter 
40R law, the program might also require that some minimum percentage of 
the additional units built be set aside as affordable to low-income 
households. In this case, incentive funds could be used to offset the 
development costs of those units.
        Finally, the Federal Government might issue a model zoning 
code (or a set of zoning provisions to allow for more flexibility), 
which localities could adopt in order to be automatically eligible for 
these funds.\7\
---------------------------------------------------------------------------
    \7\ There has been some exploration of the feasibility of such 
model codes. See APA (1996) for a set of useful articles.

    Alternatively, or in addition, the Federal Government might include 
incentives in existing funding streams. Those funding sources need not 
---------------------------------------------------------------------------
be limited to housing programs per se.

    For example, the Department of Transportation (DOT), which already 
offers competitive grants to State and local governments for capital 
investments in transit, is a natural source of support. Indeed, the 
DOT's New Starts program already gives priority to projects built in 
areas with high population density and relatively high shares of 
affordable housing. Specifically, the program regulations require that 
in rating alternative proposals, Federal officials must consider the 
population density around proposed stations, and the ratio of the 
proportion of ``legally binding affordability restricted'' housing 
within a half mile of the proposed station to the proportion of 
``legally binding, affordability restricted'' housing in the counties 
through which the route travels. These criteria could be expanded to 
cover population density and affordable housing in a jurisdiction as a 
whole, or measures to reform local zoning, and the criteria could be 
given more weight in selection. Additional points could be granted to 
applications that involve regional coalitions that aim to collectively 
permit more building.

    Finally, a particularly promising approach is for the Federal 
Government to provide incentives to States which have much greater 
direct authority over local zoning powers. While the degree of local 
autonomy varies across States, it has long been established that local 
governments are ultimately ``creatures of the State.''\8\ Thus, even in 
``home rule'' States where local governments have relatively high 
levels of autonomy, State legislatures have considerable authority over 
what local governments can and cannot do. As cities derive their very 
power to zone from States' zoning enabling acts, the latter's authority 
over the former very much extends to the ability to condition, 
restrict, or otherwise alter their land use power.
---------------------------------------------------------------------------
    \8\ Most States follow the judicial rule of interpretation embodied 
by ``Dillon's Rule.'' Even in States that do not, John Dillon's deeper 
argument that cities only have the powers that States give them (even 
if a State decides that a city has expansive powers that cannot be 
limited by the State except through State constitutional amendment) has 
been widely accepted. See David J. Barron, ``Reclaiming Home Rule,'' 
116 Harv. L. Rev. 2255 (2003); Gerald E. Frug, ``The City as a Legal 
Concept,'' 93 Harv. L. Rev. 1057 (1980).

    There are numerous examples of State actions that could be 
---------------------------------------------------------------------------
encouraged. For example:

        Massachusetts Chapters 40R and 40S tie State aid of some form 
to local construction in higher demand areas.
        A bill is working its way through the Massachusetts 
legislature to require every jurisdiction to include at least one 
district that allows MF housing construction as of right.\9\
---------------------------------------------------------------------------
    \9\ https://malegislature.gov/Bills/189/House/H4140/.
---------------------------------------------------------------------------
        About half of States require comprehensive plans, which could 
be broadened. Five States require affordable housing as part of that 
planning.\10\ Minimum parking restrictions, which drive up the cost of 
housing, could be reduced or eliminated by States (though it is unclear 
if any have).
---------------------------------------------------------------------------
    \10\ Pendall paper provided summary of existing State laws, http://
www.jchs.harvard.edu/sites/jchs.harvard.edu/files/rr07-11_pendall.pdf.

    The Federal Government could offer a pool of funds to States that 
adopt measures to check local zoning or incentivize residential 
development in localities, such as those highlighted above. Such State 
incentive programs might arguably be more effective than direct 
incentives to localities, given the greater political distance States 
have from homeowners concerned about growth and development in their 
communities. The scale of the potential funds to States is enormous. 
Consider that the Federal Government granted $51 billion to States in 
highway funds in 2014, which amounted to about 25 percent of spending 
on highways and transit.\11\ While State highway funds are allocated 
through a statutory formula (see 23 U.S.C. Sec. 104), Congress could 
potentially alter the formula and set aside some amount to be allocated 
through competitive grants. Alternatively, Congress could allocate 
additional funds that could be allocated through a competitive process 
that would reward States that enact laws to check local zoning or 
incentivize localities to allow greater density. Finally, it could add 
checks on local zoning as a condition or a criterion for existing 
competitive funding for capital investment (about $2.3 billion per 
year) that goes to States and localities.\12\
---------------------------------------------------------------------------
    \11\ http://www.cbo.gov/sites/default/files/cbofiles/attachments/
44434-HighwayTrustFund_
Testimony.pdf and http://www.pewtrusts.org/en/research-and-analysis/
analysis/2015/02/24/funding-challenges-in-highway-and-transit-a-
federal-state-local-analysis.
    \12\ https://www.transit.dot.gov/funding/grant-programs/capital-
investments/about-program.

                                 ______
                                 
            Questions Submitted by Hon. Robert P. Casey, Jr.
      high housing costs and lack of access to affordable housing
    Question. I know you touched on this somewhat in your testimony, 
but can you elaborate on how high housing costs and lack of access to 
affordable housing can negatively impact families, seniors, worker 
wages, economic mobility and access to health care for children? Can 
you discuss how the Low Income Housing Tax Credit has and can be used 
to mitigate those outcomes?

    Answer. There are (at least) three channels through which the high 
cost of housing negatively impacts families and individuals: by 
decreasing resources for other crucial spending; by lowering the 
quality of housing consumed; and by lowering the quality of the 
neighborhoods the selected housing is in.
Cost of Housing
    The high cost of housing results in households spending large 
portions of their incomes on housing. More than a quarter of renters in 
the United States are spending half or more of their income on their 
housing,\13\ facing difficult tradeoffs in how to meet their basic 
needs with what remains. This results in cutting back on food, 
particularly nutritional food, and medical care.
---------------------------------------------------------------------------
    \13\ Joint Center for Housing Studies. The State of the Nation's 
Housing 2017.

---------------------------------------------------------------------------
    For example,

        Severely cost-burdened families with children who are in the 
bottom quartile of income spend 40 percent less on food and 75 percent 
less on health care than non-burdened families in the same income 
quartile.
        Low-income and severely burdened seniors also cut back 
drastically on health care, spending 60 percent less than other low-
income seniors.\14\
---------------------------------------------------------------------------
    \14\ Joint Center for Housing Studies. The State of the Nation's 
Housing 2017.
---------------------------------------------------------------------------
        The stresses associated with living in unaffordable housing 
could also undermine mental health.

    Lack of access to affordable housing also means households face 
difficult tradeoffs and limited options in the housing they do get to 
live in. In particular, households are more likely to end up in lower 
quality housing and in neighborhoods that do not support the health, 
well-being, and economic mobility of residents.
Housing Quality
    In terms of housing quality, there is evidence of negative effects 
on both health and education from living in low quality or crowded 
housing. In particular, the literature suggests:\15\
---------------------------------------------------------------------------
    \15\ For details, see summaries of the housing/health and housing/
education nexus, see Center for Housing Policy, http://
docs.wixstatic.com/ugd/19cfbe_c1919d4c2bdf40929852291a57e5246f.
pdf and http://www2.nhc.org/HSGandHealthLitRev_2015_final.pdf.

        Substandard housing puts residents at greater risk for 
exposure to lead paint and other toxins, and to injuries.
        The health benefits of living in structurally sound homes that 
are free of toxins are likely largest for children as they develop, and 
for seniors, who spend more of their time in their homes and are also 
most vulnerable to injuries and falls.
        To the extent that living in higher quality housing improves 
children's health, children will then be less likely to miss school or 
fall behind in classwork.
        Living in adequately sized housing, with space for studying, 
may also directly affect children's performance in school.\16\
---------------------------------------------------------------------------
    \16\ Leventhal and Newman (2010). ``Housing and child 
development.'' Children and Youth Services Review, 32(9), 1165-1174.

Neighborhood Characteristics and Quality
    Research finds that neighborhood characteristics are also quite 
important for the health and educational outcomes, the physical and 
social aspects of the neighborhood itself, and the schools, health 
care, and jobs that may be proximate to the neighborhood. Some relevant 
findings include:\17\
---------------------------------------------------------------------------
    \17\ Also see summaries of the housing/health and housing/education 
nexus, see Center for Housing Policy http://docs.wixstatic.com/ugd/
19cfbe_c1919d4c2bdf40929852291a57e5246f.pdf and http://www2.nhc.org/
HSGandHealthLitRev_2015_final.pdf.

        Low air quality, car emissions, and proximity to hazardous 
waste increase negative health outcomes for children, such as increased 
children hospitalizations, premature births, low weight births, and 
infant mortality.\18\
---------------------------------------------------------------------------
    \18\ Chay and Greenstone, ``The Impact of Air Pollution on Infant 
Mortality: Evidence from Geographic Variation in Pollution Shocks 
Induced by a Recession,'' Quarterly Journal of Economics 118 (2003): 
1121-67. Currie, Neidell, and Schmieder, ``Air Pollution and Infant 
Health: Lessons from New Jersey,'' Journal of Health Economics 28 
(2009): 688-703. Currie, Greenstone, and Moretti, ``Superfund Cleanups 
and Infant Health,'' Working Paper 16844 (National Bureau of Economic 
Research, Cambridge, MA, 2011). Currie and Walker, ``Traffic Congestion 
and Infant Health: Evidence from E-ZPass, '' Working Paper 15413 
(National Bureau of Economic Research, Cambridge, MA, 2009).
---------------------------------------------------------------------------
        As documented rigorously in HUD's Moving to Opportunity 
Demonstration (MTO), getting to live in lower poverty, safer 
neighborhoods leads to significant reductions in obesity and diabetes 
among mothers, as well improvements in mental health, as least among 
adults and girls.\19\
---------------------------------------------------------------------------
    \19\ Ludwig et al., ``Neighborhoods, Obesity, and Diabetes--a 
Randomized Social Experiment,'' New England Journal of Medicine 365 
(2011): 1509-19, doi: 10.1056/NEJMsa1103216, https://www.nejm.org/doi/
pdf/10.1056/NEJMsa1103216.
---------------------------------------------------------------------------
        Lack of safety in a neighborhood, particularly exposure to 
violent crime, has been shown to significantly undermine children's 
ability to focus and cognitive functioning.\20\
---------------------------------------------------------------------------
    \20\ Patrick Sharkey, ``Acute Effect,'' http://www.pnas.org/
content/pnas/107/26/11733.full.
pdf; Sharkey et al., ``High Stakes,'' https://
www.sociologicalscience.com/download/volume%201
/may(3)/high-stakes-in-the-classroom-high-stakes-on-the-street.pdf.
---------------------------------------------------------------------------
        Finally, as documented by more recent assessments of the adult 
outcomes of children in HUD's MTO, being raised in low poverty/safer 
neighborhoods increases the likelihood of going to college, quality of 
college attended, and earnings as an adult.\21\
---------------------------------------------------------------------------
    \21\ Chetty, Raj, Nathaniel Hendren, and Lawrence Katz. 2016. ``The 
Effects of Exposure to Better Neighborhoods on Children: New Evidence 
from the Moving to Opportunity Project.'' American Economic Review 106 
(4).
---------------------------------------------------------------------------
Worker Productivity and Inequality
    There may also be aggregate consequences if people are priced out 
of high cost but highly productive markets, and choose to live in 
another area altogether. This affects the wages of that worker, and 
overall productivity in the Nation.

        Work by Berkeley economists estimates that had higher housing 
costs not inhibited the movement of workers and capital over the past 4 
decades, national output would have been 10 percent higher in 2009.\22\
---------------------------------------------------------------------------
    \22\ Hsieh and Moretti. (2017). ``Housing Constraints and Spatial 
Misallocation'' (Working Paper). Berkeley, CA: National Bureau of 
Economic Research (NBER).
---------------------------------------------------------------------------
        Higher cost housing may be a greater obstacle for low-wage 
earners, exacerbating inequality and locking in economic differences 
across States.\23\
---------------------------------------------------------------------------
    \23\  Ganong and Shoag. (2015). ``Why Has Regional Income 
Convergence in the U.S. Declined?'' (Working Paper). Cambridge, MA: 
Harvard Kennedy School.
---------------------------------------------------------------------------
        This differential mobility may also have very long term 
effects on inequality, because many of the areas to which more highly 
educated workers may move have higher levels of intergenerational 
mobility than the areas in which less educated workers remain.\24\
---------------------------------------------------------------------------
    \24\ Schleicher (2017). ``Stuck! The Law and Economics of 
Residential Stability.'' Yale Law Journal, 127 (forthcoming).
---------------------------------------------------------------------------
               mitigating these negative effects through 
               the low-income housing tax credit (lihtc)
    LIHTC can and does affect the three channels already mentioned: 
affordability of housing, its quality, and the associated 
neighborhoods. As the largest source of Federal funding for the 
production and rehabilitation for affordable rental housing in the 
United States, LIHTC plays a critical role in the provision of quality 
affordable housing, including the rehabilitation of potentially 
substandard housing. I will focus on a few key aspects here.
Housing Affordability
    Nearly 3 million housing units have been placed in service through 
LIHTC as of 2015.\25\ In terms of affordability, LIHTC's Federal income 
and associated rent limits are tied to either 50 or 60 percent of area 
median income. Broadly, this means the Federal limits would make LIHTC 
units affordable to households whose incomes were no greater than 
$28,258 to $33,910 in 2015. While there is great need for housing 
affordable to these low- and very low-income households,\26\ households 
with extremely low incomes (30 percent of AMI or below) face the 
greatest affordability challenge. Since 2000, States are to prioritize 
developments reaching lowest income tenants, and indeed, nearly half 
(47.5 percent) of LIHTC tenants have incomes below 30 percent of Area 
Median Income (AMI), and 58 percent have annual incomes below 
$20,000.\27\ Serving such households with extremely low incomes 
generally requires additional subsidy to be economically feasible. This 
is done with some form of additional rental assistance, such as 
project-based or tenant-based vouchers, or other development-level 
subsidies. This requires coordination and layering across funding 
streams.
---------------------------------------------------------------------------
    \25\ https://www.huduser.gov/portal/datasets/lihtc.html.
    \26\ HUD considers households with income at or below 50 percent of 
AMI as ``very low income'' and those with incomes between 50 and 80 
percent of AMI as ``low income.''
    \27\ ``Understanding Whom the LIHTC Program Serves: Data on Tenants 
in LIHTC Units as of December 31, 2014. HUD USER.'' 2017. Accessed 
April 19, https://www.huduser.gov/portal/publications/
LIHTCTenantReport-2014.html.

    There are several ways in which LIHTC could be modified to be more 
effective or efficient at reaching lowest income households, increasing 
---------------------------------------------------------------------------
its affordability for those most in need. Such as:

        Income averaging (permitting an average income cap of 60 
percent of AMI, with an overall income cap of 80 percent of AMI). The 
higher rents received for units set above 60 percent of AMI can provide 
the subsidy for units at 40 or 30 percent of AMI.
        Increase the maximum ``basis boost'' for developments 
targeting those with extremely low incomes.

    The common theme here is for the additional subsidy needed to reach 
the lowest income households to come from within LIHTC or the 
development, and avoiding complicated and cumbersome layering of 
multiple funding streams.

    An additional means of increasing affordability would be to permit 
a portion of the credits, or of any credit expansion, to finance State 
(HFA)-issued vouchers. For those markets in which there is an adequate 
supply of quality housing across a range of price points, it may be 
more cost effective to permit States to utilize tenant-based vouchers. 
This would permit States to either reach deeper down the income 
distribution or to serve a greater number of households, for any given 
amount of resources.
Neighborhood Quality
    Studies show that Low-Income Housing Tax Credit (LIHTC) units are 
generally located in lower poverty neighborhoods than other forms of 
project-based, subsidized rental housing.\28\ That said, LIHTC units 
are more likely to located in high poverty tracts than the rental stock 
overall, though research on most recently funded units shows some 
decline in the share of units in higher poverty tracts.\29\
---------------------------------------------------------------------------
    \28\ Ellen, O'Regan, and Voicu. (2009). ``Siting, spillovers, and 
segregation: A reexamination of the Low Income Housing Tax Credit 
program,'' McClure (2006). ``The low income housing tax credit program 
goes mainstream and moves to the suburbs.'' Housing Policy Debate.
    \29\ Ellen and Mertens. ``Points for Place: Can State and Local 
Governments Steer Private Investments in Subsidized Housing to New 
Neighborhoods?'' Working Paper.

    There are two proposed LIHTC reforms that would improve locational 
outcomes, the first by improving the ability for developments to be 
built in higher opportunity neighborhoods, and the second by increasing 
the likelihood that neighborhoods around LIHTC properties improve after 
---------------------------------------------------------------------------
the development is constructed.

        Prohibiting local approval and contribution requirements. Some 
States require proof of local support or provide other competitive 
points for such support. Such local approvals can, in essence, give 
jurisdictions the ability to veto developments. Considerable anecdotal 
evidence from developers and States suggest such ``veto power'' creates 
sizable location barriers in some States, specifically for building in 
lower poverty, higher opportunity areas.
        Clarification that States have the authority to determine the 
definition of community revitalization plan. The Federal requirement 
that States prioritize developments in Qualified Census Tracts with 
concerted community revitalization plans is meant to foster the 
redevelopment of those neighborhoods. Yet, in the absence of any 
Federal guidance on what constitutes such a plan, some States have 
provided the same prioritization to all developments proposed in QCTs, 
regardless of evidence of a plan or whether that development is likely 
to contribute to neighborhood improvements.

    Finally, there are numerous small ``fixes'' that have been 
proposed, that would ease the use of LIHTC with other funding streams, 
such as employing a uniform income eligibility for rural projects and a 
consistent definition of student status. Simplifying the use of LIHTC 
with other funding streams lowers the administrative costs of creating 
affordable housing.

    Question. Can you discuss the importance of having stable housing, 
in addition to affordable housing, and how lack of stable and 
affordable housing may affect children and childhood development?

    Answer. Housing affordability and stability are obviously quite 
linked, with instability being a fourth channel through which the high 
cost of housing can negatively affect families and children (see 
response above). Lack of affordability can lead to ``reactive'' moves, 
as families unable to make the rent need to quickly find alternative 
housing.\30\ Such moves put families under great stress, don't allow 
for a careful housing search process, and may be poorly timed for the 
school year. Even absent actual moves, insecure housing tenure may 
cause both parents and children to feel acute levels of stress, making 
it more difficult for children to focus on school and parents on their 
parenting.
---------------------------------------------------------------------------
    \30\ Deluca, Rosenblatt, and Wood. ``Why Poor People Move (and 
Where They Go): Residential Mobility, Selection, and Stratification.'' 
Working Paper, http://www.law.nyu.edu/sites/default/files/
ECM_PRO_074751.pdf

    Some key findings from the literature on housing stability and 
children:\31\
---------------------------------------------------------------------------
    \31\ Section largely builds from: Center for Housing Policy, http:/
/docs.wixstatic.com/ugd/19cfbe_c1919d4c2bdf40929852291a57e5246f.pdf.

        Changing schools is associated with declines in education 
achievement, particularly if mobility is frequent or occurs during key 
developmental stages.\32\
---------------------------------------------------------------------------
    \32\ For example, see Grigg, ``School Enrollment Changes and 
Student Achievement Growth: A Case Study in Educational Continuity,'' 
Sociology of Education, October 2012 (85): 4 388-404. Alexandra Beatty, 
Rapporteur; Committee on the Impact of Mobility and Change on the Lives 
of Young Children, Schools, and Neighborhoods, National Research 
Council and Institute of Medicine; ``Student Mobility: Exploring the 
Impact of Frequent Moves on Achievement: Summary of a Workshop'' 
(Washington, DC: The National Academies Press, 2012).
---------------------------------------------------------------------------
        Frequent residential mobility, regardless of whether changing 
schools, also are associated with negative effects for students.\33\ 
For example, poor children who move three or more times before turning 
six years old are more likely to demonstrate behavior and attention 
problems.\34\
---------------------------------------------------------------------------
    \33\ Cohen and Wardrip, Should I Stay or Should I Go? Exploring the 
Effects of Housing Instability and Mobility on Children (Washington, 
DC: Center for Housing Policy, 2011); Scanlon and Devine, ``Residential 
Mobility and Youth Well-Being: Research, Policy, and Practice Issues,'' 
Journal of Sociology and Social Welfare 28(1) (2001): 119-138; 
Vandivere, Hair, Theokas, Cleveland, McNamara, and Atienza, How Housing 
Affects Child Well-Being (Coral Gables, FL: Funders' Network for Smart 
Growth and Livable Communities, 2006).
    \34\ Ziol-Guest and McKenna, ``Early Childhood Housing Instability 
and School Readiness,'' Child Development 85(1) (2014): 103-113.
---------------------------------------------------------------------------
        Residential instability among children and adolescents may 
negatively affect behavior and mental well-being, particularly for 
families with limited social connections or other key supports.\35\
---------------------------------------------------------------------------
    \35\ Leventhal and Newman. 2010. ``Housing and Child Development.'' 
Children and Youth Service Review 32(9): 1165-1174.
---------------------------------------------------------------------------
        Families forced to move through formal or informal evictions 
report worsened health for the mothers and children.\36\
---------------------------------------------------------------------------
    \36\ Desmond and Kimbro. 2015. ``Eviction's Fallout: Housing, 
Hardship, and Health'' Social Forces, Volume 94, Issue 1, September 1, 
2015, pages 295-324, https://doi.org/10.1093/sf/sov044.

    At the extreme, housing instability can result in homelessness. In 
this country, a person is most likely to spend a night in a homeless 
shelter, when they are an infant, in their first year of life.\37\ A 
recently completed randomized trial, assessing the efficacy of three 
common homelessness interventions, provides perhaps some of the most 
rigorous and compelling evidence to date on how children are affected 
by housing instability that leads to homelessness.
---------------------------------------------------------------------------
    \37\ https://pdfs.semanticscholar.org/7764/
698bc0817371fd7ae26c6a05d144654f86e2.pdf.

    HUD's Family Options Study followed more than 2,000 homeless 
families in 12 communities, for 3 years.\38\ The top-line finding is 
that providing homeless families with access to long term housing 
subsidies significantly reduced all forms of housing instability, with 
greatly reduced emergency shelter stays, doubling up, and housing 
mobility. Stable, affordable housing outperformed all other 
interventions.
---------------------------------------------------------------------------
    \38\ https://www.huduser.gov/portal/sites/default/files/pdf/
FamilyOptionsStudySummary
Report.pdf.

---------------------------------------------------------------------------
    Perhaps as important, were the effects on non-housing outcomes:

        The offer of stable affordable housing--usually through a 
voucher, resulted in reductions in adult psychological distress, 
intimate partner violence, economic stress, school mobility, and food 
insecurity.
        There were also positive impacts in the child well-being 
domain, including reductions in behavior and sleep problems, and an 
increase is pro-social behavior.
        Within 20 months of random assignment, families assigned to 
receive the subsidy, experienced significant reductions in three of the 
seven categories of Adverse Childhood Experiences (ACES). These adverse 
experiences have been linked to negative health and mental health 
outcomes as adults.\39\
---------------------------------------------------------------------------
    \39\ Centers for Disease Control, Adverse Childhood Experiences 
Study, https://www.cdc.gov/violenceprevention/acestudy.

    It is increasingly my view that as a country, we cannot make 
headway on breaking the intergenerational transmission of poverty 
without addressing the housing needs of families with young children. 
Housing is the foundation for healthy child development, through all 
four dimensions mentioned here. Without affordable, stable, quality 
housing in neighborhoods that support child development and upward 
mobility, children born into low-income families will continue to face 
---------------------------------------------------------------------------
a steep uphill climb to escape poverty as adults.

    Question. In your testimony, you mentioned that studies have shown 
children have better outcomes, higher earnings, and receive higher 
education when they live in low poverty neighborhoods. Can you 
elaborate on this research and how it may be used to inform Federal 
policymaking?

    Answer. The recent work by Raj Chetty and his co-authors provides 
the best evidence to date on the role of a child's neighborhood in 
their adult outcomes.\40\ The work builds from HUD's Moving to 
Opportunity Demonstration (MTO), in which families living in public 
housing were offered different forms of vouchers, one form that could 
only be used in low poverty neighborhoods. A key strength of this study 
is that it was a randomized trial; whether a family was offered a 
voucher that would more likely lead them to a low poverty neighborhood 
was random and not determined by the participants.
---------------------------------------------------------------------------
    \40\ Chetty, Hendren, and Katz. 2016. ``The Effects of Exposure to 
Better Neighborhoods on Children: New Evidence From the Moving to 
Opportunity Project.'' American Economic Review 106(4).

    By linking data from the original study to IRS data, Chetty 
extended this work to look at the adult outcomes of the low-income 
children in the demonstration. The main finding is that young children 
in families offered vouchers more likely to get families to low 
poverty, safer neighborhoods did much better as adults than otherwise 
similar children. Specifically, they were more likely to go to college, 
to go to a higher quality college, and to earn more as adults. It is 
important to note that these positive effects were found for children 
who were 12 years old or younger at the time of the demonstration. 
There were no effects, or even negative effects, for children who were 
older at the time the voucher was offered. This may shed some light on 
the potentially negative effect of residential moves; older children 
may mainly experience the ``down side'' of a disruptive move, while 
having less time living in the low poverty neighborhoods, so less of 
---------------------------------------------------------------------------
the ``up side.''

    This work highlights that Federal policy needs a heightened 
emphasis on the neighborhood context of families, particularly those 
with young children. Federal policy also needs to be cognizant of the 
disruptive effect of moves. Federal efforts need to focus on improving 
choices, including the choice to remain in one's community, among 
existing support networks.

    Let me highlight two policy approaches where this evidence is 
particularly useful: improving neighborhood options for families with 
vouchers, and improving the neighborhoods where so many low income 
families lives.
 improving neighborhood options in hud's housing choice voucher program
    More than 2 million children live in families receiving HUD rental 
assistance through tenant-based vouchers.\41\ Those vouchers should 
provide households with relief on housing affordability, and the 
ability to choose across better neighborhoods. Many believe the voucher 
program has been less successful on this second goal. For example, less 
than 13 percent of voucher households with children live in 
neighborhoods of low poverty (less than 10 percent of the population 
being poor).\42\ In some jurisdictions, the share is much lower than 
this.
---------------------------------------------------------------------------
    \41\ https://www.cbpp.org/housing-choice-voucher-fact-sheets.
    \42\ https://www.cbpp.org/research/housing/realizing-the-housing-
voucher-programs-potential-to-enable-families-to-move-to.

    While many factors affect where families receiving a voucher 
ultimately live, one factor may be how HUD determines Fair Market Rents 
(FMRs), which bound allowable rental payments to landlords. HUD's 
Metropolitan-wide FMRs (set at the 40th percentile of rents in the 
metropolitan area) may not be sufficient in some markets to help 
voucher holders access high opportunity/high rent areas--and thus 
voucher holders end up highly concentrated in a few high poverty areas. 
Given the importance of neighborhood quality for a child's life 
outcomes, HUD determined it needed to consider alternatives to 
---------------------------------------------------------------------------
metropolitan-wide FMRs.

    HUD initiated a Small Area Fair Market Rent (SAFMR) demonstration 
to test the effects of setting FMRs at the ZIP code level within a 
metropolitan area, rather than metropolitan-wide (in 2010 via court 
settlement in Dallas and in 5 PHAs in 2012).\43\ This permits FMRs/
payment standards to be higher in high rent/low poverty areas, and 
lower in low rent/high poverty areas. Early evidence from Dallas was 
quite promising--suggesting SAFMRs led to de-concentration to lower 
poverty, lower crime neighborhoods at essentially the same cost per 
voucher as using the 40th percentile metropolitan FMR.\44\
---------------------------------------------------------------------------
    \43\ Cook County, IL; Mamaroneck, NY; Chattanooga, TN; Long Beach, 
CA; Laredo, TX.
    \44\ Collinson and Ganong, September 2014, ``The Incidence of 
Housing Voucher Generosity,'' NBER.

    Based on that evidence, and two rounds of public comments, HUD 
issued a final SAFMR rule in November of 2016, mandating the use of 
SAFMRs in a limited number of metropolitan areas in which voucher 
households are disproportionately concentrated in high poverty census 
tracts.\45\ Implemented in January of 2017, the rule would first affect 
FMRs announced in the fall of 2017.
---------------------------------------------------------------------------
    \45\ https://portal.hud.gov/hudportal/HUD?src=/press/
press_releases_media_advisories/2016/HUDNo_16-173.

    Yet on August 15, 2017, HUD announced that it was suspending the 
mandatory SAFMR for at least 2 years.\46\ HUD's letter to affected 
Public Housing Agencies noted several reasons for the delay, including 
an interim report on the demonstration.\47\ The letter noted particular 
concern over potential increases in rent burdens and stated further 
analysis was warranted. However, concern over possible effects on 
household rent burdens were raised during the public comment period, 
and led HUD to include multiple tenant protections in the final SAFMR 
rule. Meaning, the final rule differs substantially from how SAFMRs 
were implemented in the demonstration sites, specifically in terms of 
protecting tenants from large increases in rent burden.
---------------------------------------------------------------------------
    \46\ https://www.housingonline.com/2017/08/23/hud-suspends-
mandatory-implementation-small-area-fair-market-rents/.
    \47\ https://www.huduser.gov/portal/sites/default/files/pdf/SAFMR-
Interim-Report.pdf.

    Interestingly, the interim report confirms key findings from the 
earlier research: using SAFMRs, voucher households were more likely to 
move to lower poverty, higher opportunity neighborhoods, at somewhat 
lower average voucher costs. The outcomes documented in the report are, 
of course complicated and quite varied. They do not, however, appear to 
contradict the key expectations HUD had when it finalized the SAFMR 
rule. It is unclear why HUD would provide a blanket 2-year delay for 
all newly-designated SAFMR areas, for one of the few policies proven to 
help voucher households reach better neighborhoods.
            improving where families already live and lihtc
    Most low-income families do not have vouchers, and many families do 
not want to move from their communities in order to access decent 
schools and be safe at home. Reinvesting in the neighborhoods where 
families already live also needs to be part of the Federal approach. 
There are a variety of Federal programs meant to spur community 
redevelopment. Programs aimed at comprehensive community development, 
however, can be difficult to evaluate, due to numerous data and 
methodological challenges.

    Recent research by Stanford economists has filled one important 
knowledge gap, specifically whether developing LIHTC in a neighborhood 
fosters--or hinders--neighborhood improvements.\48\ Using extensive 
data on the property values of nearby homes before and after LIHTC 
housing is created, the authors provide compelling evidence that LIHTC 
developments in low-income neighborhoods do help revitalize those 
neighborhoods. Creating LIHTC developments in low-income neighborhoods 
increases property values by over 6%, lowers crime, and attracts a more 
racially and economically diverse population. The authors estimate that 
a LIHTC development in a low-income area ``improves welfare by $23,000 
per local homeowner and $6,500 per local renter, with aggregate welfare 
benefits to society of $115 million.''
---------------------------------------------------------------------------
    \48\ https://web.stanford.edu/diamondr/LIHTC_spillovers.pdf.

    States and localities need the continued flexibility to use LIHTC 
as part of redevelopment strategies. Along with such flexibility should 
come more clarity in what constitutes a concerted community 
revitalization plan in order for a LIHTC application in a qualified 
---------------------------------------------------------------------------
census tract to qualify for additional basis boost.

                                 ______
                                 
              Question Submitted by Hon. Michael F. Bennet
    Question. Reporters in places like Milwaukee have highlighted a 
troubling trend: some landlords set up Limited Liability Company--or 
LLC--structures to avoid paying property taxes and fines, allowing them 
to abandon properties more easily. LLCs obscure landlords' personal 
information and assets, making it difficult to hold them accountable.

    Are you aware of this practice? How widespread do you believe this 
LLC problem to be? What changes to the tax code or other policies might 
address this issue?

    Relatedly, some landlords buy up cheap properties, ``milk'' them by 
charging rents until they deteriorate, and then abandon them. What can 
we do to deter this activity and instead incentivize long-term landlord 
investment in communities?

    Answer. The ability of investors to hide their identity or assets 
behind Liability Corporations--or LLCs-- makes it very difficult for 
local governments and community groups to track who is acquiring 
property. This limits the ability to detect trends that might warrant 
attention, or to deter inappropriate behavior by landlords. The extent 
of the problem likely varies by context and the LLC registration 
requirements of the State.

    In New York City, for example, LLCs have been implicated by 
affordable housing advocates and the media in the ``flipping'' of rent-
stabilized apartments to luxury apartments.\49\ The inability to easily 
identify landlords accused of harassment tactics impedes policy efforts 
to support housing market functions. This includes identifying 
landlords who may be misusing the eviction process as part of 
harassment.
---------------------------------------------------------------------------
    \49\ https://patch.com/new-york/prospectheights/flippers-playbook-
how-nyc-slumlords-terrorize-tenants-get-away-it.

    A starting point for deterring counter-productive behavior by 
landlords is more transparency in the corporate structure. According to 
a cross-country comparison of corporate transparency, the U.S. ranked 
below at least 28 other countries, with a score of 31 out of 100.\50\ 
Some States within the U.S., however, scored much more highly. 
Washington State, for example, has adopted their own LLC registration 
requirements that greatly increase LLC transparency, and could provide 
a model for a Federal requirement.\51\
---------------------------------------------------------------------------
    \50\ http://registries.opencorporates.com/.
    \51\ https://sunlightfoundation.com/2014/08/14/washington-a-better-
practices-state-for-llc-transparency.

    The Federal tax code could require that all LLCs provide and keep 
current the name and address of the founders, members, and managers of 
any LLC to the local government in any municipality in which they hold 
---------------------------------------------------------------------------
real property.

                                 ______
                                 
           Prepared Statement of Grant Whitaker, President, 
               National Council of State Housing Agencies
    Mr. Chairman, Ranking Member Wyden, and members of the committee, 
thank you for this opportunity to testify on behalf of the National 
Council of State Housing Agencies (NCSHA) on our Nation's critical need 
for affordable housing, the roles the Low-Income Housing Tax Credit 
(Housing Credit) and tax-exempt private activity Housing Bonds (Housing 
Bonds) play in responding to that need, and how Congress can seize the 
opportunity of tax reform to further strengthen these programs.

    I am Grant Whitaker, president and chief executive officer of the 
Utah Housing Corporation. I also have the privilege to serve as 
president of NCSHA, which is a nonprofit, nonpartisan, national 
organization created by the Nation's State Housing Finance Agencies 
(HFA) more than 40 years ago to coordinate and leverage their Federal 
advocacy efforts for affordable housing. In addition to NCSHA's 
advocacy work, the organization provides HFAs with education and 
training on the Housing Credit, Housing Bonds, and other Federal 
housing programs.

    HFAs are governmental and quasi-governmental, nonprofit agencies 
that address the full spectrum of affordable housing need, from 
homelessness to homeownership. HFAs effectively employ the Housing 
Credit and Housing Bonds, entrusted by Congress to State 
administration, to advance their common public-purpose mission of 
providing affordable housing to the people of their jurisdictions who 
need it.

    Thank you, Mr. Chairman, for your steadfast leadership in support 
of the Housing Credit and Housing Bonds over many years. I also want to 
thank Senator Maria Cantwell (D-WA), who too has been a true champion 
of these crucial housing programs and a tireless advocate for low-
income households who need housing help. Together, you have introduced 
the most important housing legislation Congress has considered in many 
years, S. 548, the Affordable Housing Credit Improvement Act. NCSHA 
strongly supports your bill, which would increase Housing Credit 
authority, facilitate Housing Credit development in challenging markets 
and for hard-to-reach populations, support the preservation of existing 
affordable housing, and simplify program requirements.

    NCSHA also thanks committee Ranking Member Ron Wyden (D-OR) and 
committee members Dean Heller (R-NV), Michael Bennet (D-CO), Rob 
Portman (R-OH), and Johnny Isakson (R-GA) for their cosponsorship of 
this legislation. We urge all Senators to become cosponsors.

    The Housing Credit has long enjoyed strong bipartisan, bicameral 
support, and this bill is no exception. Already, approximately one-
third of the Senate has either cosponsored the Affordable Housing 
Credit Improvement Act or declared their intention to do so. Its House 
companion legislation, H.R. 1661, also enjoys significant bipartisan 
backing in that chamber, including cosponsorship by over half of the 
Ways and Means Committee, with near equal numbers of Republicans and 
Democrats.

    In addition to strong support in Congress, more than 2,000 local, 
State, and regional organizations and businesses nationwide support 
this legislation as members of the A Call To Invest In Our 
Neighborhoods (ACTION) Campaign. NCSHA is proud to co-chair this 
important grassroots coalition, which advocates in support of 
protecting, expanding, and strengthening the Housing Credit.

    Given this broad support, we urge the committee to include this 
important bill in any tax legislation it considers.
          the need for affordable housing is great and growing
    The need for affordable housing across the country has reached 
crisis proportions, and is growing substantially. Nearly half (48 
percent) of renters in the United States pay an excessive share of 
their income for housing. The crisis is most acute for those earning 
the least. Of those renter households with annual incomes of $15,000 or 
less--approximately equivalent to working full-time at the minimum 
wage--83 percent pay more than 30 percent of their income for housing, 
and 70 percent devote more than half of their income to housing. This 
leaves little money left over for other critical necessities like food, 
transportation, childcare, health care, and utilities.

    The housing crisis affects both homeowners and renters. For many 
low- and 
moderate-income borrowers, purchasing a home is by far their best 
opportunity to build wealth, yet these families face significant 
challenges as they seek to achieve homeownership. Even as the housing 
market strengthens, many creditworthy home buyers, especially first-
time buyers, struggle to obtain mortgages they can afford. According to 
the most recent data from the National Association of REALTORS, first-
time home buyers accounted for only 33 percent of home purchases in May 
and 32 percent of home purchases in June, compared to the 40 percent 
historical average.

    As more and more people turn to the rental market, they find a 
severe shortage of affordable homes. Those available to extremely low-
income (ELI) households, those earning 30 percent or less of Area 
Median Income (AMI), are especially scarce. Nationwide, there are 11.4 
million ELI renter households, but only 4 million rental homes 
affordable and available to them, leaving a gap of 7.4 million needed 
homes. The rental shortage is exacerbated as hundreds of thousands of 
new renter households enter the market each year, while the Nation 
loses countless affordable units from the housing stock due to 
conversion to market rate rentals or condominiums, demolition, or 
obsolescence.

    The housing crisis impacts working families, seniors, people with 
disabilities, and so many more across the country--those living in 
high-cost cities, in suburban neighborhoods, and in rural communities. 
Coastal cities like New York, San Francisco, and Seattle are well known 
for their extreme housing costs.

    But, I speak from experience when I say that low-income households 
in Utah face immense struggles to find affordable housing, too. Over 
58,000 renter households living in Utah pay more than half of their 
income for housing. Those most in need are extremely low-income 
renters, for whom there is an estimated affordable rental housing 
shortage of over 38,000 units.

    I know from my conversations with my colleagues at HFAs across the 
country that what we face in Utah is not unique. Every State confronts 
this challenge.

    This crisis will only get worse unless we act. According to 
research by Harvard University's Joint Center for Housing Studies and 
Enterprise Community Partners, if current rent and income trends 
continue, the number of severely cost-burdened renters--those paying 50 
percent or more of their income for rent--will reach 14.8 million 
nationwide by 2025. That is 25 percent more severely cost-burdened 
households than we have today.

    While the Housing Credit and Housing Bond programs are 
extraordinarily successful, the resources devoted to them are woefully 
insufficient to meet the Nation's affordable housing needs of today, 
let alone those of tomorrow.
   the housing credit and housing bonds: our nation's most effective 
            response to the affordable rental housing crisis
    The Housing Credit and Housing Bonds are the most important tools 
we have to address the affordable housing shortage. These programs are 
highly successful 
public-private partnerships that draw on State HFAs' sophisticated 
underwriting, asset management, and oversight capacity as well as 
private sector expertise and investment. Without question, the Housing 
Credit and Housing Bonds are the most effective means of targeting 
limited affordable housing resources to the people and places that need 
them, while transferring risk to private sector investors.

    Since the Housing Credit's establishment in the Tax Reform Act of 
1986, it has financed roughly 3 million affordable rental homes for 
low-income families, seniors, veterans, and those with special needs. 
Approximately 40 percent of these rental homes are financed with 4 
percent Housing Credit authority, which is triggered by the use of 
multifamily Housing Bonds and therefore is not subject to the Housing 
Credit volume cap. These homes would not exist were it not for those 
bonds. In addition to the rental homes financed with both the 4 percent 
Credit and Housing Bonds, HFAs also finance affordable rental housing 
properties with multifamily Housing Bonds alone.

    These programs transform lives by creating quality, affordable 
living environments that lift up families; help children thrive; 
support seniors, people with special needs, and veterans; and 
permanently house persons at risk of or experiencing homelessness. They 
contribute to community revitalization by inspiring business growth, 
infrastructure advances, transportation solutions, and much more.

    State HFAs are proud, not only of the high quality, sustainable 
housing we help produce with the Housing Credit and Housing Bonds, but 
also of our strong program administration. We take very seriously our 
responsibility for program operation and oversight, as entrusted to 
States by Congress. We steadfastly enforce Federal program rules, 
developing statewide allocation plans with extensive public input; 
allocating to developments only the amount of Credit necessary to 
ensure their feasibility and long-term viability; serving only income-
qualified households and the lowest income people we can possibly 
reach; ensuring the financial and physical health of the properties for 
the duration of their affordability periods through regular and 
thorough inspections; and reporting noncompliance to the IRS.

    States often exceed Federal requirements, collaborating on the 
development through NCSHA of national recommended practices in Housing 
Credit administration that set very high standards, while preserving 
the genius of the program's devolved design that allows States to 
determine their highest and best use of Credit authority within broad 
and appropriate Federal mandates. Strong State administration has been 
cited by the U.S. Government Accountability Office in the past and in 
its most recent Housing Credit study on State administration released 
in 2016.
          affordable housing successes and challenges in utah
    We have had significant success in Utah using the Housing Credit 
and Housing Bonds. I am pleased to say that, with these programs, we 
have made considerable progress in reducing our chronically homeless 
population. Just last week, my board voted to devote 30 percent of our 
2018 Housing Credit authority to supportive housing projects that will 
move us closer to the goal of ending chronic homelessness in Utah.

    We are particularly proud of projects such as the Kelly Benson 
Apartments, a supportive housing development for seniors in Salt Lake 
County. Many of its residents are formerly homeless veterans who have 
struggled with physical and mental health challenges and drug and 
alcohol addictions. This property serves seniors earning 35 percent of 
the AMI or less and offers supportive services to those who need extra 
help getting through the day or night. Resisted by the community at 
first, the project is now considered a neighborhood jewel.

    But, we still have significant work ahead as we seek to tackle 
family homelessness and help the many other low-income households in 
our State who are housed, but pay more than they can afford for rent. 
The fact is we simply do not have enough resources to meet our 
affordable housing needs. In 2017, Utah Housing Corporation received 22 
proposals for Housing Credit developments in our competitive 9 percent 
Housing Credit round, requesting a total of $14,631,181. But, with our 
limited Housing Credit authority, we were able to fund just 12 of them.
      affordable housing is a vital part of a pro-growth tax code
    Congress is embarking upon one of the most significant and 
challenging endeavors of recent decades--reform of the Federal tax code 
to create a tax system that better promotes economic growth. As it 
pursues this goal, we urge Congress to consider how it can strengthen 
our Nation's housing infrastructure, as housing is the foundation for 
an economically vibrant country.

    The use of the tax code to provide affordable housing--both through 
the production and preservation of affordable rental properties with 
the Housing Credit and multifamily Housing Bonds and through the 
provision of lower cost mortgages for working families with single-
family Housing Bonds (under the Mortgage Revenue Bond (MRB) and 
Mortgage Credit Certificate (MCC) programs)--has been one of the 
singular successes of the current system.

    The housing stability that can be achieved through the Housing 
Credit and Housing Bonds creates better health outcomes, improves 
children's school performance, and can help low-income individuals gain 
employment and keep their jobs. And, the production and preservation of 
affordable housing helps drive economic growth, through job creation 
and the generation of tax revenues at all levels of government.

    Sadly, the affordable housing crisis we face now is exacting an 
economic toll on our Nation. Homelessness and hypermobility suffered by 
unassisted low-income families have dire consequences for children's 
educational attainment. Numerous studies show that children who move 
frequently--as they often must without stable housing--are more likely 
to drop out of school, repeat grades, perform poorly, or have numerous 
school absences compared to those with stable housing. The social and 
economic cost of this effect on children's lives is immeasurable. 
Sadly, there were nearly 25 million children living in households with 
cost burdens as of 2015.

    Affordable housing also can promote economic mobility. A recent 
Harvard University study, The Equality of Opportunity Project, found 
that moving younger children from a high-poverty neighborhood to a more 
integrated, lower poverty neighborhood improves their chances of going 
to college, lowers their risk of becoming a single parent, and 
increases their expected income as an adult by as much as 30 percent. 
Housing production programs, such as the Credit and Bonds, which build 
and preserve affordable housing in lower poverty neighborhoods, are 
critical to achieving these results.

    Affordable housing sited near transportation and areas with 
employment opportunities as part of larger redevelopment plans provides 
low-income households with better access to work, which increases their 
financial stability and may help them eventually achieve independence 
from government assistance. It also provides employers in those areas 
with needed labor.

    Not only do affordable housing programs deliver immeasurable 
benefits to the low-income households for whom they provide homes, they 
also have an enormous immediate impact on the economy through the 
creation of jobs and generation of tax revenue. The Housing Credit 
supports approximately $3.5 billion in Federal, State, and local taxes; 
$9.1 billion in wages and business income; and 95,700 jobs across 
various U.S. industries every year. The National Association of Home 
Builders estimates that in its first year, a typical 100-unit Housing 
Credit property on average provides $8.7 million in additional wages 
for local workers and business profits; creates $3.3 million in 
additional Federal, State, and local tax revenue; and supports 116 
jobs.

    Housing Bonds also have a profound economic impact. According to 
models formulated by the National Association of Home Builders and the 
National Association of REALTORS, in the 10-year period from 2006 to 
2015, State HFA MRB homeownership programs generated almost 50,000 jobs 
annually. Multifamily Housing Bonds also spur important economic 
growth. Over the same period of time, State construction and 
rehabilitation of apartments financed with HFA multifamily Housing 
Bonds generated approximately 27,000 jobs and added over $2 billion to 
GDP annually on average.
          preserve, expand, and strengthen the housing credit
    Since the Housing Credit's creation over 30 years ago, Congress has 
acted several times to strengthen and refine it so that the program is 
equipped to meet new and changing housing challenges. As you now 
consider changes to the current tax structure, NCSHA urges you to use 
this opportunity to build on what works, not only by preserving the 
Housing Credit program, but also by expanding Credit resources so that 
we can better address the Nation's severe affordable rental housing 
shortage, and by enacting policy modifications to strengthen this 
already highly successful program.

    Passing Senator Cantwell and Chairman Hatch's Affordable Housing 
Credit Improvement Act, S. 548, is essential to addressing the 
affordable housing crisis. The lynchpin provision of this legislation 
would expand the Housing Credit authority each State receives by 50 
percent over 5 years. This cap increase would allow States to make 
meaningful progress towards meeting the housing needs of their low-
income residents. We know that Congress faces extraordinary pressure as 
it directs limited Federal resources to so many priorities. However, we 
strongly believe that investing new resources in the Housing Credit 
makes sense, even in this time of budget austerity.

    Each year, State Housing Credit allocating agencies receive 
applications requesting nearly three times more Housing Credit 
resources than agencies have to allocate. Yet even this does not 
quantify the extent to which demand for affordable rental housing 
outstrips the supply of Credits, as many developers with worthwhile 
projects do not even bother applying because the competition for Credit 
is so fierce.

    State Housing Credit allocating agencies face difficult choices--
not just whether to direct their limited Credit resources to 
preservation as opposed to new construction, but also whether to commit 
them to rural rather than urban areas or to neighborhood revitalization 
rather than to projects in high-opportunity areas. Agencies must 
balance whether to finance supportive housing for persons experiencing 
homelessness against assisted living for the elderly, housing for needy 
families, and projects for veterans--all of which serve populations 
with extraordinary housing and service needs.

    Reliance on the Housing Credit to meet the needs of so many 
populations has only grown as Federal resources for housing programs 
funded through the appropriations process have shrunk. Funding for the 
HOME Investment Partnerships (HOME) program has been cut by nearly half 
since 2010. HOME has long been a critical source of gap financing in 
Housing Credit developments, and without adequate funding for it we 
must rely even more on Housing Credit equity to build those properties.

    Moreover, the Federal Government in recent years has turned to the 
Housing Credit time and again to achieve other Federal priorities such 
as transforming the Nation's public housing through the Rental 
Assistance Demonstration (RAD) program and producing housing for 
persons with disabilities in conjunction with the section 811 Project 
Rental Assistance program. Congress has already raised the cap on 
public housing units eligible for RAD multiple times, and the 
administration this year proposed to eliminate that cap entirely. 
Moreover, Congress is now considering allowing section 202 elderly 
housing properties with Project Rental Assistance Contracts also to 
become eligible for RAD. Those public housing and section 202 
properties will likely need to rely on the Housing Credit for the 
equity necessary to undertake the RAD transition. There simply are not 
enough Housing Credit resources to meet all these demands.

    In addition to the increase in authority, NCSHA strongly supports 
other provisions of the Affordable Housing Credit Improvement Act that 
would strengthen the bond-financed portion of the Housing Credit 
program; amend the Housing Credit income limits to allow for income 
averaging, thus allowing low-income families earning up to 80 percent 
of AMI access to Credit properties, while improving affordability for 
ELI households; provide parity in Housing Credit income rules for rural 
properties; simplify complex program rules, such as the Housing Credit 
student rule; and establish a State-determined basis boost of up to 50 
percent for units in Housing Credit properties reserved for ELI 
households. These, and all of the bill's other provisions, would make 
an already successful program even more so.

    Lastly, we also ask that you be mindful of the impact other changes 
you may make to the tax code could have on the Housing Credit and 
Housing Bonds, and seek to prevent any unintentional negative effects 
those tax changes could have on these programs.
     preserve the tax-exempt private activity housing bond program
    For decades, the Housing Bond program--multifamily bonds for 
financing affordable rental housing and the MRB and MCC programs for 
financing affordable first-time, modest home purchases--has been an 
essential and successful tool in our affordable housing efforts. While 
these bonds are private activity bonds (PAB), Congress deemed that the 
affordable housing they make possible is worthy of a tax exemption, not 
just because of the direct housing benefits these bonds provide but 
also because of the positive effects the housing opportunities they 
create have more broadly on families, communities, and the economy.

    In recent years, a few tax reform proposals have been advanced, 
both in Congress and from outside experts, which would eliminate the 
tax deduction for interest on PABs while maintaining the exemption for 
other municipal bonds. This would be a mistake, and would drastically 
set back our efforts to provide affordable housing to those in need.

    While it is true PABs provide direct financing to private entities, 
the bonds fulfill a very important public purpose that the market is 
often unable to meet. This is certainly the case with Housing Bonds. In 
addition to affordable housing, PABs support many other critical public 
priorities, such as financing for airport renovations, sewage 
facilities, public power, and affordable student loans. Simply put, 
repealing or limiting the tax exemption for PABs would severely hamper 
State and local governments' efforts to support affordable housing and 
other locally determined priorities.

    The Housing Bond market, like many financial markets, has not fully 
recovered from the financial, housing, and broader economic crises of 
recent years. The historically low interest rates we have experienced 
during the recovery have hampered further the Housing Bond market by 
greatly reducing the Housing Bond tax-exempt interest rate advantage. 
However, interest rates now are beginning to rise and are likely to 
continue to climb.

    As we enter a more typical interest rate environment, the tax 
exemption afforded to Housing Bonds will be even more critical to 
helping lower income home buyers purchase their first homes. Already, 
the market for Housing Bonds has strengthened. The most recent 
available data shows that in just 1 year--from 2013 to 2014--State HFA 
bond issuance jumped by 39 percent, as demand for tax-exempt bond-
financed housing grew. At this pace, we fully expect the PAB cap soon 
will be fully subscribed in most States--and oversubscribed in some--
just as it has been historically.

    Given the considerable need for more bond authority in many States, 
we hope to explore with the committee a mechanism--not unlike that 
which already exists for the Housing Credit--for the redistribution of 
expiring bond authority to those States that are using all of their 
authority.

    In Utah, our Housing Bond programs are well oversubscribed. We 
could easily use 3 times our allotment for MRBs, and demand for 
multifamily Housing Bonds has been staggering as well.
            streamline and simplify the housing bond program
    NCSHA recommends Congress take a few modest steps to make the 
highly successful Housing Bond program even more effective. With tax 
reform, Congress has the opportunity to further strengthen Housing 
Bonds by making low or no cost changes to eliminate outdated rules and 
to give States more flexibility to respond to their unique needs and 
circumstances. For example, within the MRB program, the purchase price 
limit is no longer needed, as the income limits Congress later imposed 
much more effectively control the price of homes MRB borrowers can 
purchase. The considerable resources HUD and Treasury expend coming up 
with the purchase price limits annually could be deployed elsewhere.

    In addition, the MRB home improvement loan program, especially 
important now given the repair needs of foreclosed properties and the 
home maintenance families were forced to defer during the recession, 
would be much more useful if Congress increases its loan limit of 
$15,000 by an amount at least adequate to reflect the rise in 
construction costs since it was first established in 1980 and indexes 
that limit to keep up with construction cost inflation annually. We 
also encourage Congress, as it did on a temporary basis from 2008 
through 2010, to allow State HFAs to use MRBs for refinancing, so State 
HFAs can help otherwise qualified borrowers.

    In addition, we urge you to adopt proposals that would improve 
investor interest in the Housing Bond program. For example, NCSHA 
supports exempting interest earned on refunding Housing Bonds from the 
Alternative Minimum Tax. Conversely, we urge you to resist proposals 
that would undermine investor interest in Housing Bonds, such as 
limiting the value of the municipal bond interest deduction to a lower 
tax rate, as this would greatly diminish the value of Housing Bond 
investments and, consequently, investor interest in them.

    We also have several suggestions for simplifying the MCC program, 
which the tax code provides as an alternative to MRBs and which states 
utilize more when the Housing Bond rate advantage is limited, as it has 
been in recent years. MCCs help lower income families afford 
homeownership by allowing first-time home buyers who meet the MRB 
program's income requirements to claim a dollar-for-dollar tax credit 
for a portion of the mortgage interest they pay each year, up to 
$2,000. Specifically, we urge you to simplify the MCC calculation; 
permit HFAs to recycle MCCs, as you allow them to recycle Housing 
Bonds; provide HFAs the flexibility to shorten the MCC term and/or 
``front load'' its benefits; eliminate the $2,000 annual credit cap on 
MCC benefits; and provide HFAs the flexibility to structure the MCC 
assistance to respond to diverse home buyer needs. We would be happy to 
provide further detail on any of these proposals.

    Thank you for your commendable efforts to support affordable 
housing. I am honored to have had this opportunity to testify before 
the committee to provide NCSHA's and my own State's perspective on the 
effectiveness of the Housing Credit and Housing Bond programs, and on 
how the committee can strengthen these programs. NCSHA and its member 
HFAs stand ready to assist you in any way we can.

                                 ______
                                 
          Questions Submitted for the Record to Grant Whitaker
               Question Submitted by Hon. Orrin G. Hatch
    Question. Are there any best practices or other recommendations you 
have for requirements based on oversight done at the State housing 
agency level we could put in legislation for State housing agencies to 
follow? Would you recommend any requirements be put in legislation or 
are there other ways to address the oversight question?

    Answer. State Housing Finance Agencies (HFA) take their Low Income 
Housing Tax Credit (Housing Credit) oversight responsibilities very 
seriously. In fact, in many areas, HFAs exceed the requirements of 
Federal law and regulation, such as by requiring deeper income 
targeting, longer property affordability terms, and more stringent 
market study requirements.

    HFAs collectively through our national organization, the National 
Council of State Housing Agencies (NCSHA), have developed recommended 
practices in Housing Credit administration that support HFAs in their 
pursuit of the highest standards of administration while preserving 
their need to respond most effectively to their own housing needs and 
priorities. The U.S. Government Accountability Office (GAO) has 
recognized the value of NCSHA's recommended practices in several of its 
reports on the Housing Credit.

    HFAs have revised and updated these recommended practices multiple 
times over the last three decades, and are currently engaged in an 
effort to further strengthen and expand them. This effort has been 
underway for the last year, and we expect the NCSHA board of directors 
to adopt the updated practices later this year. These recommended 
practices cover all areas of program oversight, including cost 
certification, cost containment, developer fee limits, and compliance 
during the extended use period.

    There are, however, steps we suggest Congress consider taking to 
further strengthen State oversight of the Housing Credit program 
through legislative changes. Our recommendations are as follows:

        Foreclosure prevention: Congress should pass the Affordable 
Housing Credit Improvement Act, S. 548, sponsored by Senator Maria 
Cantwell (D-WA) and Senate Finance Committee Chairman Orrin Hatch (R-
UT), which already has strong bipartisan support. Among the bill's many 
provisions that would give States stronger administrative authority and 
flexibility is the provision ensuring that affordability restrictions 
endure in the case of illegitimate foreclosures. Under current law, if 
a property is acquired by foreclosure (or instrument in lieu of 
foreclosure) during the extended use period, the affordability 
restrictions terminate unless the Secretary of the Treasury determines 
that the acquisition was part of an arrangement to terminate the 
affordability restrictions and not a legitimate foreclosure. In 
practice, it is difficult--if not impossible--for the Treasury 
Secretary to make such determinations about individual properties. S. 
548 would transfer that responsibility from Treasury to the States, 
which already are tasked with ongoing compliance monitoring of Housing 
Credit properties. The legislation would further require the owner or 
successor acquiring the property to provide the State with 60 days 
written notice of its intent to terminate the affordability period so 
that States have time to assess the legitimacy of the foreclosure.

        Underwriting of Housing Bond-financed Housing Credit 
properties: Congress should consider amending Internal Revenue Code 
section 42(m)(2)(D), which provides that the governmental unit that 
issues the Housing Bonds used to finance a 4 percent Housing Credit 
property must ensure that the Housing Credit amount provided to the 
property does not exceed that which is necessary for the property's 
financial feasibility. Unfortunately, some local government entities 
that issue Housing Bonds do not have the capacity to underwrite 
properties and properly ensure that sufficient Credit authority is 
provided, while not over-subsidizing the property. Instead, we believe 
that underwriting bond-financed properties should be the responsibility 
of the State Housing Credit allocating agency, not only for the 9 
percent Housing Credit, but also for bond-financed 4 percent Credit 
properties. State allocating agencies have the capacity and expertise 
to underwrite these deals, and in practice, they typically undertake 
this responsibility for bond-financed properties, even though the law 
does not require it of them, because of their interest in ensuring 
proper underwriting. However, it would be prudent for Congress to 
clarify in statute that this responsibility lies with the State 
allocating agency and not the local bond issuer.

        Resources for IRS oversight: GAO's reports on the Housing 
Credit have pointed to several areas where it believes increased 
federal oversight of the Housing Credit would be beneficial. NCSHA 
would support increasing the resources provided to the Internal Revenue 
Service (IRS) so that it is better able to achieve these goals, which 
would further support state oversight capacity. Specifically, we 
encourage Congress to increase resources for IRS so that it may improve 
internal protocols related to the Housing Credit and allow it to 
undertake community outreach to industry groups and taxpayers. More 
resources would also better equip IRS to determine if tax returns may 
warrant an audit and conduct those audits if necessary, assist it in 
reconciling Housing Credit forms from allocating agencies and taxpayers 
to identify potential inconsistencies, and populate and make necessary 
technical updates to IRS's Low-Income Housing Credit database. 
Increased resources would also help the IRS Office of Chief Counsel in 
its provision of timely Housing Credit guidance. Lastly, IRS could use 
additional resources to develop and fund a whistleblower hotline at the 
IRS so that individuals who are aware of potential fraudulent 
activities can make reports to IRS.

                                 ______
                                 
            Questions Submitted by Hon. Robert P. Casey, Jr.
    Question. This is a little out of scope, as it pertains to HUD's 
section 202 Supportive Housing for the Elderly program, but I would 
welcome your thoughts. We all know the population of our country is 
growing rapidly, and there is an acute shortage of affordable senior 
housing. Thirty-eight percent of section 202 tenants are frail or near-
frail, requiring assistance with basic activities of daily living. 
Without access to supportive housing, these individuals would be at 
high risk of institutionalization. Do you think funding section 202 as 
a means of keeping older adults out of nursing homes is a worthy public 
policy goal? If you are able to, can you share best practices for home 
modification programs that would help low-income elderly and/or 
disabled individuals stay in their existing homes?

    Answer. NCSHA supports the section 202 Supportive Housing for the 
Elderly program, which is a critical tool for meeting the needs of 
America's aging population. However, section 202 cannot possibly meet 
the vast and growing needs of our seniors on its own. As it is for all 
other populations of low-income renters, the Housing Credit is central 
to addressing seniors' affordable housing needs. Of the 3 million 
affordable homes financed with the Housing Credit since its inception 
in 1986, more than 800,000 are headed by older adults. More than half 
of states provide additional points in their Housing Credit application 
process for developments that house persons over 55 or 62 years old or 
making other provisions that benefit seniors, such as providing 
services, using universal design components, or locating near a senior 
service center.

    Both the administration's FY 2018 budget request and the Senate 
Appropriations Committee-passed Transportation, Housing, and Urban 
Affairs funding bill would make section 202 units eligible to 
participate in HUD's Rental Assistance Demonstration (RAD) and lift the 
cap on total units eligible for RAD participation. The RAD program is 
highly dependent on the Housing Credit as a means of attracting the 
private capital to RAD developments. Therefore, should Congress 
implement this proposal, it would create additional demand for Housing 
Credit authority.

    Seniors' dependence on the Housing Credit and the unmet need for 
affordable housing for seniors underscore the need for increasing 
Housing Credit authority. The Affordable Housing Credit Improvement Act 
would expand Housing Credit resources by 50 percent, phased in over 5 
years. NCSHA believes that Congress should increase the Housing Credit 
cap by at least this much.

    In regards to Senator Casey's question regarding home modification 
program best practices, many State HFAs administer successful emergency 
home repair programs that help elderly homeowners, among others. Often 
these repairs allow seniors to age in place and are critical for people 
on fixed-incomes, as so many seniors are. These programs frequently 
rely on HOME Investment Partnerships (HOME) program or Community 
Development Block Grant (CDBG) funding.

    In Utah, the Bear River Association of Governments, consisting of 
Utah's three northern most counties, offers two essential CDBG-funded 
home repair programs. The Emergency HOME Repair Program provides grants 
of up to $2,000 for minor home repairs needed to correct hazardous 
situations and ensure safe living conditions. The Single Family 
Rehabilitation and Reconstruction Program provides low interest rate 
loans to households living in substandard housing in need of major 
repairs.

    In 2013, the Indiana Housing Development Authority won an NCSHA 
Annual Award for Program Excellence for a program it implemented to 
support home and community improvements designed to help seniors age in 
place. This program, and others like it across the country, are models 
for how State agencies can assist seniors with home modifications and 
repairs.

    Unfortunately, Federal tax law imposes a significant limitation on 
States' abilities to finance home improvement loans for critical 
repairs by setting an exceptionally low limit on the home improvement 
loans States can finance with the Mortgage Revenue Bond (single-family 
private activity tax-exempt Housing Bond) program. The limit is set by 
statute at $15,000 and has not been increased since it was first 
established in 1980. Over that time period, inflation (as measured by 
the Consumer Price Index) has increased nearly 200 percent ($15,000 in 
1980 is worth the equivalent of more than $43,000 today). Consequently, 
many of the critical repairs the program was designed to support are 
now too expensive to qualify for MRB financing. Therefore, we strongly 
encourage Congress to either raise the MRB home improvement loan limit 
to reflect the increase in construction cost since 1980 and index it to 
annually reflect cost increases or preferably, to just eliminate it 
entirely and allow States to set their own limits.

    Question. According to the Center for Budget Policy and Priorities, 
the cuts to HUD's FY 2018 budget proposed by the White House would 
eliminate more than 250,000 Housing Choice Vouchers next year. This 
comes at a time when public housing agencies across the country are 
already facing massive wait lists for these vouchers. Philadelphia 
alone projected 18,230 households on its HCV wait list at the beginning 
of FY 2017. With the need for HUD rental assistance far outpacing the 
available funds, can you discuss the challenges States face in 
prioritizing different high-need groups such as families with children, 
people with disabilities, and homeless veterans?

    Answer. NCSHA strongly opposes cuts in the voucher program. There 
simply are not enough affordable housing resources--both capital 
resources like the Housing Credit and operating or rental resources 
like the Housing Choice Voucher program--to meet the need. More than 
11.2 million severely cost-burdened renter households spend more than 
half their income on housing. Demand is increasing, as more and more 
low-income households enter the rental market each year, while we 
confront the loss of increasing amounts of our existing affordable 
housing stock.

    In Utah, we have seen a significant increase in the population of 
extremely low-income (ELI) renters (those with incomes of 30 percent or 
less of area median income). In 2009, ELI households made up 20.7 
percent of all renters in Utah, but by 2013 they comprised 22.5 percent 
of renters. More than three quarters of these households are severely 
cost-burdened, meaning they pay more than 50 percent of their income 
for rent

    Both the Housing Credit and Housing Choice Vouchers play a critical 
role in addressing the need. These programs have distinct and 
complementary purposes. Unlike the Housing Credit, the voucher program 
was not designed to address challenges such as expanding affordable 
rental housing supply in tight markets, producing housing for 
households with special needs, building properties in areas 
experiencing job growth, recapitalizing and preserving aging 
properties, and revitalizing low-income communities. Rather, vouchers 
are designed to make existing housing more affordable to low-income 
households. We need both to address our growing housing needs.

    Question. Can you discuss current mechanisms and best practices to 
ensure that units available to low-income renters continue meeting 
basic quality standards, particularly after the 15 year LIHTC period?

    Answer. One of the most important roles State agencies play in 
administering the Housing Credit is compliance monitoring, which 
includes inspecting properties to ensure quality standards are met 
throughout the full affordability period, including the extended use 
period after year 15. In its 2016 report on State administration of the 
Housing Credit program, GAO found that all the agencies it visited had 
processes in place for conducting compliance monitoring of properties 
consistent with law and regulations, including processes for monitoring 
properties after year 15, and many went above and beyond Federal 
statutory and regulatory requirements in their monitoring.

    In 2012, the U.S. Department of Housing and Urban Development 
published an extensive report titled What Happens to Low-Income Housing 
Tax Credit Properties at Year 15 and Beyond?, in which HUD found, ``The 
vast majority of LIHTC properties continue to function in much the same 
way they always have, providing affordable housing of the same quality 
at the same rent levels to essentially the same population without 
major recapitalization.''

    While tax credits are no longer eligible for recapture by IRS after 
year 15, States still have a variety of means for enforcing 
affordability restrictions in the extended use period. These include 
helping owners to ensure property performance while still complying 
with rent and income limits, barring owners who fail to comply from 
receiving future Housing Credit allocations, and even pursuing legal 
action against owners who fail to comply with the extended use 
agreement. Sadly, Utah Housing Corporation has been forced to file suit 
recently against a project owner for failing to maintain project 
compliance. However, this underscores the fact that allocating agencies 
can and do take legal action when it is necessary to ensure compliance 
with the Housing Credit statute after year 15.

    Question. The HOME program and Community Development Block Grants 
are two of the most often-used Federal programs for gap financing for 
construction of affordable housing. President Trump's FY18 budget 
proposes eliminating both of these programs. At the same time, housing 
agencies across the country are facing major low-income housing 
shortages. Philadelphia, for example, had nearly 40,000 people on the 
Philadelphia Housing Agency's public housing wait list in October 2016. 
Can you discuss the anticipated impact of eliminating the HOME and CDBG 
programs on the supply of low-income housing?

    Answer. The elimination of HOME would be disastrous to the efforts 
to address our Nation's severe housing needs. HOME is an essential and 
flexible housing resource that is critical not only to rental housing 
financed with the Housing Credit, but also to programs to help low-
income creditworthy home buyers through down payment assistance and 
lower rate mortgages and homeowners through home rehabilitation 
programs. HOME funding already has been cut by nearly half since 2010.

    HOME funding is a critical ``gap filler'' resource in nearly 20 
percent of Housing Credit properties nationwide. In 2015, Utah used 
HOME funding in over half of our Housing Credit units. The gap is the 
difference between the Housing Credit equity for which a property is 
eligible and the actual cost of building or rehabilitating that 
property. It can either be filled with hard debt, such as a bank 
mortgage, or soft financing sources like HOME, which reduce or 
eliminate the amount of debt required to finance the property, thus 
making it possible to charge lower rents. HOME helps States serve ELI 
households, including families with young children, seniors, persons 
with disabilities, veterans, and other needy households, with the 
Housing Credit, sometimes even without rental assistance. Therefore, we 
strongly urge Congress to at least level fund HOME at $950 million in 
FY 2018, as the Senate Appropriations Committee has proposed.

                                 ______
                                 
              Question Submitted by Hon. Michael F. Bennet
    Question. According to the National Low-Income Housing Coalition, a 
worker in Colorado needs to make $22 per hour to make a modest two-
bedroom apartment affordable. As is the case elsewhere, affordable 
housing is in short supply, and the crisis has disproportionately 
impacted low-income families. What do you believe are the causes for 
the shortage of affordable options, especially for low- and moderate-
income households?

    Answer. The private market is unable to respond to the need for 
affordable housing absent an incentive such as the Housing Credit 
because it simply costs too much to build housing to rent it at rates 
low-income people can afford. Harvard's Joint Center for Housing 
Studies states that, ``to develop new apartments affordable to renter 
households with incomes equivalent to the full-time minimum wage, the 
construction cost would have to be 28 percent of the current average.'' 
The fact is, that unlike many other tax expenditures, which subsidize 
activity that would occur at some level without a tax benefit, 
virtually no affordable rental housing development would occur without 
the Housing Credit.

                                 ______
                                 
                 Prepared Statement of Hon. Ron Wyden, 
                       a U.S. Senator From Oregon
    At the outset of this morning's hearing, I want to begin by 
thanking Chairman Hatch and Senator Cantwell. They are leading the 
charge when it comes to affordable housing, particularly through smart 
tax policies the committee will discuss today, and I'm looking forward 
to working more with them on these issues.

    Our country's housing policy needs an urgent remodel. Today 
millions of Americans struggle to pay the rent, and they can't even 
dream of purchasing a home.

    To get into a bit of Introduction to Economics, a key housing 
challenge is increasing supply. When housing is scarce in the 
communities where people want to live and work, prices get bid up, and 
working people get pushed out. Rent increases faster than people's 
incomes, even among people who earn a decent wage. There are few 
incentives to build affordable housing near schools, public transit and 
amenities like parks and retail.

    Oftentimes, the only places where people can afford housing are an 
hour or more from where they work or want their kids to go to school. 
Many people either spend a small fortune on train tickets and bus 
fares, or they spend eternities sitting behind a steering wheel on the 
daily commute. Many families wind up in food deserts where it's next to 
impossible to get healthy, fresh meals.

    This crisis is a five-alarm fire across the country and all over my 
home State of Oregon--in Portland, Bend, Hood River, Astoria, Medford 
and so many other places. It's evident in the faces of far too many 
Oregon children, veterans, and families living on the streets.

    On this committee, Senator Cantwell and Chairman Hatch have spent 
considerable time fighting this supply shortage. They've got an 
important bill that I co-
sponsored called the Affordable Housing Credit Improvement Act of 2017. 
Their proposal is all about supercharging the Low-Income Housing Tax 
Credit and wringing more value out of every dollar that goes into it. 
And it builds on what the three of us got in the 2015 tax bill, which 
made the expanded LIHTC credit permanent.

    In my view they've developed smart ways of attacking this scarcity 
problem, and that will mean more housing goes up in communities where 
people want to work and plant roots.

    I'll have other ideas to talk about in the days and weeks ahead--
ideas about helping the middle class and first-time homebuyers, as well 
as better-linking services with low-income housing.

    But as for today's hearing, I'm looking forward to talking with our 
witnesses about some of the ideas Senators Cantwell and Hatch have put 
forward, as well as how it'll be possible to incentivize more housing 
construction near transit, schools and amenities.

    I'll wrap up with one last thought. Senators Cantwell and Hatch are 
demonstrating how the two sides can work together on major economic 
challenges. After a heated few weeks in the Senate, I know both sides 
crave a return to bipartisanship and regular order, and for this 
committee that would mean tax reform is likely on the horizon.

    Senate Democrats outlined our principles for a tax overhaul in a 
letter to the majority this morning. It spells out what our caucus will 
bring to the debate. And in my view, it's in the best tradition of this 
committee to tackle big issues like tax reform on a bipartisan basis, 
so it's my hope that we're able to bring the two sides together on this 
issue in the months ahead.

                                 ______
                                 

                             Communications

                              ----------                              


        A Call To Invest in Our Neighborhoods (ACTION) Campaign
The A Call To Invest in Our Neighborhoods (ACTION) Campaign, 
representing over 2,000 national, state, and local organizations and 
businesses, thanks the Senate Finance Committee for holding a hearing 
on ``America's Affordable Housing Crisis: Challenges and Solutions.'' 
This hearing provided the Committee an opportunity to hear from expert 
witnesses about the scope of the affordable housing crisis and how 
Congress can strengthen critical housing programs administered through 
the tax code, namely the Low-Income Housing Tax Credit (Housing Credit) 
and tax-exempt private activity Housing Bonds, so that we can better 
address the significant and growing need for affordable housing 
nationwide.

Much of the hearing focused on the Affordable Housing Credit 
Improvement Act, 
S. 548, which Senator Maria Cantwell (D-WA) and Senate Finance 
Committee Chairman Orrin Hatch (R-UT) introduced earlier this year. 
This crucial piece of legislation would increase Housing Credit 
authority, facilitate Housing Credit development in challenging markets 
and for hard-to-reach populations, support the preservation of existing 
affordable housing, and simplify program requirements. The 
ACTION Campaign is grateful to Senator Cantwell and Chairman Hatch for 
their leadership, and to the other Committee members--Ranking Member 
Ron Wyden (D-OR) and Senators Dean Heller (R-NV), Michael Bennet (D-
CO), Rob Portman (R-OH), and Johnny Isakson (R-GA)--for their co-
sponsorship support. We strongly urge the Committee to advance this 
critical bill as part of any tax legislation it considers.

The Housing Credit Has a Remarkable Track Record

President Reagan and the Congress showed remarkable foresight when they 
created the Housing Credit as part of the Tax Reform Act of 1986. The 
Housing Credit is now our nation's most successful tool for encouraging 
private investment in the production and preservation of affordable 
rental housing, with a proven track record of creating jobs and 
stimulating local economies. For over 30 years, the Housing Credit has 
been a model public-private partnership program, bringing to bear 
private sector resources, market forces, and state-level administration 
to finance more than 3 million affordable apartments--nearly one-third 
of the entire U.S. inventory--giving more than 6.7 million households, 
including low-income families, seniors, veterans, and people with 
disabilities, access to homes they can afford. Roughly 40 percent of 
these homes were financed in conjunction with multifamily Housing 
Bonds, which are an essential component of the program's success.

The Housing Credit Is a Proven Solution to Meet a Vast and Growing Need

Despite the Housing Credit's tremendous impact, there are still 11 
million renter households--roughly one out of every four--who spend 
more than half of their income on rent, leaving too little for other 
necessary expenses like transportation, food, and medical bills. This 
crisis is continuing to grow. HUD reports that as of 2015, the number 
of households with ``worst case housing needs'' had increased by 38.7 
percent over 2007 levels, when the recession began, and by 63.4 percent 
since 2001. A study by Harvard University's Joint Center for Housing 
Studies and Enterprise Community Partners estimates that the number of 
renter households who pay more than half of their income towards rent 
could grow to nearly 15 million by 2025.

Without the Housing Credit, there would be virtually no private 
investment in affordable housing. It simply costs too much to build 
rental housing to rent it at a level that low-income households can 
afford. In order to develop new apartments that are affordable to 
renters earning the full-time minimum wage, construction costs would 
have to be 72 percent lower than the current average.

The Housing Credit Creates Jobs

Housing Credit development supports jobs--roughly 1,130 for every 1,000 
Housing Credit apartments developed, according to the National 
Association of Home Builders (NAHB). This amounts to roughly 96,000 
jobs per year, and more than 3.25 million since the program was created 
in 1986. NAHB estimates that about half of the jobs created from new 
housing development are in construction. Additional job creation occurs 
across a diverse range of industries, including the manufacturing of 
lighting and heating equipment, lumber, concrete, and other products, 
as well as jobs in transportation, engineering, law, and real estate.

The Housing Credit Stimulates Local Economies and Improves Communities

The Housing Credit has a profound and positive impact on local 
economies. NAHB estimates that the Housing Credit adds $9.1 billion in 
income to the economy and generates approximately $3.5 billion in 
federal, state, and local taxes each year.

Conversely, a lack of affordable housing negatively impacts economies. 
Research shows that high rent burdens have priced out many workers from 
the most productive cities, resulting in 13.5 percent foregone GDP 
growth, a loss of roughly $1.95 trillion, between 1964 and 2009.

Housing Credit development also positively impacts neighborhoods in 
need of renewal. About one-third of Housing Credit properties help 
revitalize distressed communities. Stanford University research shows 
Housing Credit investments improve property values and reduce poverty, 
crime, and racial and economic isolation, generating a variety of 
socio-economic opportunities for Housing Credit tenants and 
neighborhood residents.

Affordable Housing Improves Low-Income Households' Financial Stability

Affordable housing promotes financial stability and economic mobility. 
It leads to better health outcomes, improves children's school 
performance, and helps low-
income individuals gain employment and keep their jobs. Affordable 
housing located near transportation and areas with employment 
opportunities provides low-income households with better access to 
work, which increases their financial stability and provides employers 
in those areas with needed labor.

Families living in affordable homes have more discretionary income than 
low-income families who are unable to access affordable housing. This 
allows them to allocate more money to other needs, such as health care 
and food, and gives them the ability to pay down debt, access 
childcare, and save for education, a home down payment, retirement, or 
unexpected needs.

The Housing Credit Is a Model Public-Private Partnership

The Housing Credit is structured so that private sector investors 
provide upfront equity capital in exchange for a credit against their 
tax liability over 10 years, which only vests once the property is 
constructed and occupied by eligible households paying restricted 
rents. This unique, market-based design transfers the risk from the 
taxpayer to the private sector investor. In the rare event that a 
property falls out of compliance during the first 15 years after it is 
placed in service, the Internal Revenue Service can recapture tax 
credits from the investor. Therefore, it is in the interest of the 
private sector investors to ensure that properties adhere to all 
program rules, including affordability restrictions and high-quality 
standards--adding a unique accountability structure to the program.

The Housing Credit Is State Administered with Limited Federal 
Bureaucracy

The Housing Credit requires only limited federal bureaucracy because 
Congress wisely delegated its administration and decision-making 
authority to state government as part of its design. State Housing 
Finance Agencies, which administer the Housing Credit in nearly every 
state, have statewide perspective; a deep understanding of the needs of 
their local markets; and sophisticated finance, underwriting, and 
compliance capacity. States develop a system of incentives as part of 
their Qualified Allocation Plans (QAP), which drives housing 
development decisions, including property siting, the populations 
served, and the services offered to residents. States are also deeply 
involved in monitoring Housing Credit properties, including compliance 
audits and reviews of financial records, rent rolls, and physical 
conditions.

The Housing Credit Is Critical to Preserving Our Nation's Existing 
Housing Investments

The Housing Credit is our primary tool to preserve and redevelop our 
nation's current supply of affordable housing. Without the Housing 
Credit, our ability to revitalize and rehabilitate our nation's public 
housing and Section 8 housing inventory, decades in the making, would 
be significantly diminished. In addition to putting the residents of 
these properties at risk of displacement, we would lose these 
investments that taxpayers have already made.

In rural areas, where direct funding for rural housing programs has 
been cut significantly, the Housing Credit is the backbone for 
preservation and capital improvements to the existing housing stock. 
Low-income rural residents' incomes average just $12,960, and they are 
often living in areas with extremely limited housing options, making 
preservation of the existing housing stock crucial.

The Demand for Housing Credits Exceeds the Supply

Viable and sorely needed Housing Credit developments are turned down 
each year because the cap on Housing Credit authority is far too low to 
support the demand. In 2014--the most recent year for which data is 
available--state Housing Credit allocating agencies received 
applications requesting more than twice their available Housing Credit 
authority. Many more potential applications for worthy developments are 
not submitted in light of the intense competition, constrained only by 
the lack of resources.

The scarcity of Housing Credit resources forces state allocating 
agencies to make difficult trade-offs between directing their extremely 
limited Housing Credit resources to preservation or new construction, 
to rural or urban areas, to neighborhood revitalization or developments 
in high opportunity areas, or to housing for the homeless, the elderly, 
or veterans. There simply is not enough Housing Credit authority to 
fund all of the properties needed, but with a substantial increase in 
resources, many more of these priorities would be addressed--and the 
benefits for communities would be even greater.

Though the need for Housing Credit-financed housing has long vastly 
exceeded its supply, Congress has not increased Housing Credit 
authority permanently in 16 years.

We Urge Congress to Expand and Strengthen the Housing Credit

To meaningfully grow our economy and address our nation's growing 
affordable housing needs through tax reform, we urge Congress to 
increase the cap on Housing Credit authority by 50 percent. Such an 
expansion would support the preservation and construction of up to 
400,000 additional affordable apartments over a 10-year period. We also 
call on Congress to retain the tax exemption on multifamily Housing 
Bonds, which are essential to Housing Credit production.

S. 548, which would authorize such an expansion, has earned strong 
bipartisan support in the Senate and among Senate Finance Committee 
members.

This legislation would increase Housing Credit allocation authority by 
50 percent phased in over 5 years, and enact roughly two dozen changes 
to strengthen the program by streamlining program rules, improving 
flexibility, and enabling the program to serve a wider array of local 
needs. For example, S. 548 would encourage Housing Credit development 
in rural and Native communities, where it is currently more difficult 
to make affordable housing developments financially feasible; Housing 
Credit developments that serve the lowest-income tenants, including 
veterans and the chronically homeless; the development of mixed-income 
properties; the preservation of existing affordable housing; and 
development in high-opportunity areas. The legislation would also 
generate a host of benefits for local communities, including raising 
local tax revenue and creating jobs.

An investment in the Housing Credit is an investment in individuals, 
local communities, and the economy. It transforms the lives of millions 
of Americans, many of whom are able to afford their homes for the first 
time--and it transforms their communities and local economies. The 
ACTION Campaign applauds the leadership the Senate Finance Committee 
has shown in support of the Housing Credit to date and urges the 
Committee to expand and strengthen the Housing Credit and multifamily 
Housing Bonds.

ACTION Campaign Co-Chairs

National Council of State Housing Agencies
Enterprise Community Partners

ACTION Campaign Steering Committee Members

Affordable Housing Tax Credit Coalition
Council for Affordable and Rural Housing
Council of Large Public Housing Authorities
CSH
Housing Advisory Group
Housing Partnership Network
LeadingAge
Local Initiatives Support Corporation/National Equity Fund
Make Room
National Association of Affordable Housing Lenders
National Association of Home Builders
National Association of Housing and Redevelopment Officials
National Association of REALTORS
National Association of State and Local Equity Funds
National Housing and Rehabilitation Association
National Housing Conference
National Housing Trust
National Low Income Housing Coalition
National Multifamily Housing Council
Stewards of Affordable Housing for the Future
Volunteers of America

For a full list of ACTION Campaign members, visit 
www.rentalhousingaction.org.

                                 ______
                                 
              Affordable Housing Developers Council (AHDC)
Chairman Hatch, Ranking Member Wyden, and Members of the Committee:

The Affordable Housing Developers Council (AHDC) would like to thank 
you for holding a hearing on the critically important issue of 
affordable housing. AHDC is a CEO level member organization 
representing 19 of the top 50 affordable housing developers in the 
country. We are proud that our work not only produces affordable 
housing for families, but that the construction of our multi-family 
affordable housing communities also create jobs and tax revenue. Our 
mission is to increase federal resources for addressing affordable 
housing issues, support and defend existing affordable housing 
programs, and work to defeat changes to programs that would have a 
negative impact on the supply of affordable housing in the United 
States.

This hearing comes at a crucial time. The lack of affordable housing in 
our country has reached a level of crisis, and projections show that 
the crisis will continue to get worse without a legislative fix. 
Furthermore, with discussions about comprehensive tax reform underway, 
there is both an opportunity to address some of these problems and a 
need to focus on protecting the successful programs already being 
utilized. We urge Congress to preserve the low-income housing tax 
credit (LIHTC) in any comprehensive tax reform package, and enhance 
LIHTC through legislation such as the Affordable Housing Credit 
Improvement Act (S. 548) and disaster tax relief including provisions 
to address housing shortages in impacted communities.
Background
The United States faces a severe housing affordability crisis. Working 
families across America including police officers, teachers, and nurses 
are spending far too much of their income on rent due to the affordable 
housing shortage, with more than half of all renters spending over 30% 
of their income on rent and over 11 million households spending more 
than half of their income on rent. This increase represents 4 million 
more renting families with a critical housing affordability problem 
than there were in 2001. Furthermore, almost 400,000 low-income and 
working family households are expected to enter the market each year 
for the next 10 years.

We believe that LIHTC is a valuable tool in addressing the growing 
problem of affordable housing in this country. The tax credit 
encourages public-private partnerships designed to encourage the 
development of affordable housing nationwide. Signed into law in 1986 
by President Reagan, the structure of the program ensures that private 
developers bear the financial risk instead of the government, taking 
advantage of using market forces and private sector resources to 
provide economic revitalization in both rural and urban communities. 
LIHTC is a critical program that provides low-income families, seniors, 
veterans, and people with disabilities access to affordable housing, 
financing nearly 3 million rental units across the country since its 
adoption.
Preserving the low-income housing tax credit
LIHTC must be maintained in any deliberation on tax reform, especially 
as Congress grapples with the revenue neutrality of the legislation. 
This program is a documented long term success that attracts private 
at-risk investment and creates jobs that stay here in the United 
States, and resources for affordable housing must be maintained as low-
income and working class Americans continue to struggle to make ends 
meet.

As tax reform is considered, Congress should also be aware that 
lowering the corporate tax rate impacts and decreases the value of 
LIHTC. In other words, you could maintain LIHTC in its current form, 
but absent any enhancement to LIHTC, with a lower corporate rate there 
will be less equity to build affordable housing in the United States. 
These unintended consequences must be addressed in any lowering of the 
corporate tax rate.
Expanding the credit
LIHTC should not only be preserved and secured during negotiations over 
comprehensive tax reform, but strengthened by passing the Affordable 
Housing Credit Improvement Act of 2017 (S. 548) and comprehensive 
disaster tax relief to address affordable housing shortages in impacted 
communities throughout the country.

The Affordable Housing Credit Improvement Act expands the annual 
allocation of the credit by 50 percent and includes key provisions to 
streamline the administration of the program. Several members of the 
Committee have already joined as cosponsors, and we thank you again for 
leader ship on this issue. We urge all committee members to support the 
legislation. As mentioned above, this program has a long record of 
success, and its expansion is a simple way to help alleviate the 
housing affordability crisis in America.

We also support legislation that provides comprehensive natural 
disaster tax relief, including housing relief, in the wake of 
presidentially declared FEMA disasters. Affordable housing stock is 
even further reduced in the wake of the many natural disasters our 
country unfortunately endures on a yearly basis. Unfortunately, 
Congress has not acted to help communities with tax relief since 
Senator Roberts' last major effort, the Heartland Disaster Tax Relief 
Act of 2008. Individuals, small businesses and housing need help to 
recover in the wake of a major natural disaster. We urge you to review 
this policy in the context of addressing our nation's affordable 
housing challenges.
Conclusion
Despite the successes of LIHTC, it is important now more than ever to 
strengthen and secure the program, and take a critical step towards 
addressing the affordable housing supply gap. We urge Congress to 
preserve the program in the upcoming tax reform deliberations, and to 
enhance LIHTC through the Affordable Housing Credit Improvement Act of 
2017 and comprehensive disaster tax relief.

We thank you again for holding a hearing on this critically important 
topic. We look forward to being a resource to the Committee and are 
happy to answer any additional questions.

The A.H.D.C. is bringing together the CEOs of the nation's top 
affordable housing developers to advance federal policies that support 
the industry's ability to meet the nation's affordable housing needs. 
To date, the Founders Council includes:

AU Associates                       Carleton Residential Properties
Holly Weidmann                      Jeffrey Fulenchek
President and CEO                   Partner and Director of Development
http://auassociates.com/            http://carletonresidential.com/

The Commonwealth Companies          Conifer
Louie Lange                         Tim Fournier
President                           Chairman and CEO
http://commonwealthco.net/          http://coniferllc.com/

Dominum                             Hudson Housing Capital
Paul Sween                          W. Kimmel Cameron
Co-Managing Partner                 Vice President
http://dominiumapartments.com/      http://hudsonhousing.com/
Gorman and Company, Inc.            Meta Housing Corporation
Gary Gorman                         Kasey Burke
CEO                                 President
http://www.gormanusa.com/           http://www.metahousing.com/

The Michaels Organization           The NHP Foundation
Gary Beuchler                       Richard Burns
President                           President
http://themichaelsorg.com/          http://www.nhpfoundation.org/

Norstar USA                         NYS/FAH
Linda L. Goodman                    Jolie A. Milstein
Senior Vice President               President and CEO
http://norstarcompanies.com/        http://nysafah.org/index.php

Pennrose                            Preservation of Affordable Housing
Mark Dambly                         Rodger Brown
President                           Managing Director
https://pennrose.com/               http://pokopartners.com/

RedStone Equity Partners            Related
Eric McClelland                     Jeff Brodsky
President and CEO                   Vice Chairman
http://redstoneco.com/              http://related.com/

Silver Street Development 
Corporation                         Sugar Creek Capital
Roger J. Gendron                    Chris Hite
President                           President
http://silver-street.net/           http://sugarcreekcapital.com/

Winn Companies
Larry H. Curtis
President and Managing Partner
http://winncompanies.com/

                                 ______
                                 
                   Capital One Financial Corporation

                         1680 Capital One Drive

                            McLean, VA 22102

August 1, 2017

Chairman Orrin Hatch
Ranking Member Ron Wyden
Senate Committee on Finance
219 Dirksen SOB
Washington, DC 20510

Chairman Hatch and Ranking Member Wyden,

Thank you for convening today's hearing, ``America's Affordable Housing 
Crisis: Challenges and Solutions.'' The United States faces a current 
shortage of 7.4 million affordable and available apartments for low-
income households, and the Low-Income Housing Tax Credit is an 
essential tool to help us meet the growing need for affordable housing 
in communities across the country.

Like many companies, Capital One joins in the bipartisan call for 
thoughtful and balanced reform of our corporate tax system, including 
improvements to the Low-Income Housing Tax Credit (LIHTC). As with most 
legislation, the most important part of tax reform will be in the 
details. The definitions, transition rules and timing, among other 
things, will be of extreme importance.

Capital One Financial Corporation (www.capitalone.com) is a financial 
holding company whose subsidiaries, which include Capital One, N.A., 
and Capital One Bank (USA), N.A., had $239.8 billion in deposits and 
$350.6 billion in total assets as of June 30, 2017. Headquartered in 
McLean, Virginia, Capital One offers a broad spectrum of financial 
products and services to consumers, small businesses and commercial 
clients through a variety of channels. Capital One, N.A. has branches 
located primarily in New York, New Jersey, Texas, Louisiana, Maryland, 
Virginia and the District of Columbia. Capital One 360 is the nation's 
preeminent digital bank, offering best-in-class products and services 
to customers across the country. A Fortune 500 company, Capital One 
trades on the New York Stock Exchange under the symbol ``COF'' and is 
included in the S&P 100 index.

Founded in 1988, Capital One today employs over 41,000 associates 
primarily in the U.S., with small card operations in Canada and the 
United Kingdom. Because of Capital One's significant domestic business 
and simple product offerings, we pay a high corporate tax rate. This 
year, our estimated effective tax rate is 32 percent, which equates 
approximately to a $2 billion tax bill. A lower corporate tax rate 
would enable Capital One to better lend to our customers, to reinvest 
in our company and our associates, and enable us to compete with 
international banks.

Capital One joins with you in your call today to examine the 
difficulties and solutions to increasing access to affordable housing 
in America. Capital One is a strong supporter of increasing the number 
of available affordable housing units and supports S. 548, the 
Affordable Housing Credit Improvement Act, as an important step in 
providing increased affordable housing and strengthening the LIHTC 
program. The LIHTC is an essential tool to help us meet the growing 
need for affordable housing in communities across the country, and the 
program enjoys bipartisan support at the federal, state and local 
levels, and represents the best of what private-public partnerships can 
offer. The United States faces a current shortage of 7.4 million 
affordable and available apartments for low-income households. The 
first attachment to this letter is a national infographic intended to 
provide greater detail on the $8.7 billion in loans and investments 
Capital One has been fortunate to provide since 2007, with another $1.1 
billion planned through the end of 2017.

Attached to this letter are two state specific infographics providing 
details on affordable housing in Utah and Iowa. Capital One is proud to 
be a part of $51 million in investments in Utah, which represents 844 
housing units in the state. In Iowa, Capital One is partner to $169 
million in investments, representing 2,148 affordable housing units.

These investments represent real families in critical need of truly 
affordable housing. If not for these investments, the LIHTC and 
community-based partnerships, affordable housing and these families 
would suffer. Capital One stands with you to improve and strengthen the 
affordable housing inventory for America's families.

Capital One appreciates the opportunity to share our priorities for 
federal tax reform, including our strong support for the LIHTC. We look 
to serve as a resource to you and your staff. Please do not hesitate to 
contact Kate Bonner, Director of Government and Policy Affairs, 
([email protected], or 571-663-8100), for any additional 
assistance Capital One can provide. We welcome the opportunity to meet 
with you to discuss this matter in greater detail.

Sincerely,

Laura Bailey
Senior Vice President, Community Development Banking

Attachment: Capital One's Impact on Low-Income Housing; Affordable 
Housing: Utah; Affordable Housing: Iowa.

[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

                                 ______
                                 
                        Center for Fiscal Equity

                    Statement of Michael G. Bindner

Chairman Hatch and Ranking Member Wyden, thank you for the opportunity 
to submit these comments for the record to the Committee on Finance. As 
usual, we will preface our comments with our comprehensive four-part 
approach, which will provide context for our comments.

      A Value-Added Tax (VAT) to fund domestic military spending and 
domestic discretionary spending with a rate between 10% and 13%, which 
makes sure every American pays something.
      Personal income surtaxes on joint and widowed filers with net 
annual incomes of $100,000 and single filers earning $50,000 per year 
to fund net interest payments, debt retirement and overseas and 
strategic military spending and other international spending, with 
graduated rates between 5% and 25%.
      Employee contributions to Old Age and Survivors Insurance (OASI) 
with a lower income cap, which allows for lower payment levels to 
wealthier retirees without making bend points more progressive.
      A VAT-like Net Business Receipts Tax (NBRT), which is 
essentially a subtraction VAT with additional tax expenditures for 
family support, health care and the private delivery of governmental 
services, to fund entitlement spending and replace income tax filing 
for most people (including people who file without paying), the 
corporate income tax, business tax filing through individual income 
taxes and the employer contribution to OASI, all payroll taxes for 
hospital insurance, disability insurance, unemployment insurance and 
survivors under age 60.

The Subtraction VAT/Net Business Receipts Tax is the relevant item for 
the purposes of this topic. Among the possible credits and deductions 
from this tax are the diversion of Social Security Old Age and 
Survivors tax revenue to employee stock grants, with a third of those 
traded into an insurance fund of similar companies. This is important, 
though not essential, because employee-owned firms can spend 
cooperatively as well as manage cooperatively. Current employee-owned 
firms could, of course, pursue these options immediately. A second 
credit could be for education, collegiate, trade and remedial. This 
credit would include both tuition and living expenses, including both 
pay and housing.

Larger firms would have larger apartment buildings ``on campus'' or 
would pay for campus housing from universities, trade schools and 
remedial education providers (both public and religious--religious 
adult education would fill in a whole in their product portfolio--one 
that is sorely lacking).

Student housing would not be ``one size fits all.'' Students with 
children would also get $10,000 per child per month, payable with 
stipends. Students would not be one size fits all either. They could be 
teens, young adults or middle-aged learners who have never before had a 
chance at literacy or workers who have lost their jobs to automation, 
as well as the disabled who need skills to enter the workforce.

At some points, employee-owned cooperatives may dominate a local 
economy without employing all members. In such cases, in lieu of land 
value taxes, cooperatives could house and pay a citizens' dividend to 
non-workers.

Work and student rules will require that rented housing be kept neat. 
Longer-term workers will receive permanent housing (possibly with 
indoor gardening capabilities made possible by Mars exploration 
research) which they will be responsible for maintaining, but with 
maintenance and repair services so no one need let problems go unfixed. 
Ownership and responsibility both guard against bad landlords and bad 
tenants. This plan will maximize both, but only if you think outside 
the box.

Thank you for the opportunity to address the committee. We are, of 
course, available for direct testimony or to answer questions by 
members and staff.

                                 ______
                                 
            Council for Affordable and Rural Housing (CARH)

                         116 S. Fayette Street

                       Alexandria, Virginia 22314

                             (703) 837-9001

                           (703) 837-8467 Fax

                             [email protected]

                              www.carh.org

                 Statement of Tanya Eastwood, President

Chairman Hatch, Ranking Member Wyden and members of the Committee, as 
President of the Council for Affordable and Rural Housing (``CARH''), 
and on behalf of CARH and their membership, I would like to submit 
written testimony in support of efforts to address the affordable 
housing crisis, especially in rural America. CARH, the leading national 
trade association headquartered in Alexandria, Virginia, represents the 
interests of both for-profit and non-profit builders, developers, 
management companies, and owners, as well as financial entities and 
suppliers of goods and services to the affordable rural rental housing 
industry.

Among other organizations I am involved with, I am also President of 
Greystone Affordable Development, whereby I am responsible for the 
strategic growth and implementation of Greystone's affordable housing 
preservation efforts. In that role, I work closely with non-profit and 
for profit owners and developers in meeting the challenges associated 
with the preservation, recapitalization and rehabilitation of their 
affordable housing across the U.S. To date, we have successfully 
recapitalized and rehabilitated approximately 256 apartment communities 
(over 9,000 housing units) in the USDA Rural Development (``RD'') 
Section 515 multifamily rural rental housing programs; and we are 
currently in the process of preserving an additional 85 Section 515 
properties (approximately 3,700 units) across multiple states using 
Housing Bonds and the Affordable Housing Credit.
Rural Americans: Great Hardships Compared With Non-Rural Areas
During the August 1, 2017 Senate Finance Committee hearing, Senator 
John Thune (R-SD) accurately noted the affordable housing crisis is not 
just an urban community concern but also greatly affects rural 
communities across the country. Lower incomes and higher poverty rates 
often make housing options simply unaffordable for many rural 
residents, even though housing costs are generally lower in the rural 
communities. In fact, rural renters are more than twice as likely to 
live in substandard housing compared to people who own their own homes. 
USDA's 2016 Multi-Family Housing Occupancy Report published December 6, 
2016 revealed the average household living in RD's Section 515 housing 
with rental assistance lives on only $10,732 per year of income and 
$12,960 for tenants that do not receive rental assistance.

While the demand for rental housing in rural areas remains high, the 
supply, particularly of new housing, has significantly decreased. 
According to a recent report published by the National Rural Housing 
Coalition (``NHRC''), the Section 515 Rural Rental Housing Loan program 
was once the principal source of financing for new rural rental housing 
development.\1\ Since its peak in the mid-1980s, program levels have 
been cut by more than 96 percent from $954 million to just $35 million 
today (with further proposed cuts in the FY18 budget). Since 2012, the 
program has largely halted financing the construction of new rental 
housing; hence, the need for preservation of the existing (but aging) 
house stock is more critical today than any time in our nation's 
history. USDA reports a reduction of 271 rural rental properties in 
just the past year, representing a loss of 4,220 much needed apartment 
units.
---------------------------------------------------------------------------
    \1\ NRHC, ``A Review of Federal Rural Rental Housing Programs,'' 
Policy and Practices; April 2017.

Housing is particularly difficult to develop or preserve in the 
portions of rural America that are classified as ``Persistent 
Poverty''--defined by the Economic Research Service at USDA as those 
counties where 20% or more of their population was poor over the last 
30 years. Of the 353 persistently poor counties, 301 or an astounding 
85.3% are rural counties.\2\ The demand is there and the need is there, 
but too many Americans are simply unable to afford basic decent 
housing. Areas that are particularly persistently poor include middle 
Appalachia, the lower Mississippi Delta, the southern Black Belt, 
border Colonias areas, and Native American lands. In fact, 21 million 
people live in persistent poverty counties.\3\ High poverty counties 
with 17% or more living in poverty essentially exist in nearly every 
state.
---------------------------------------------------------------------------
    \2\ Id.
    \3\ HAC Rural Research Brief, June 2012.

Housing instability has well-documented effects on the education and 
health of this country's greatest asset--our children. Neither the 
private nor the public sector can produce affordable rural housing 
independently of the other; it must be a collaborative partnership.
The Affordable Housing Credit_An Essential Tool
The low-income housing tax credit (``Affordable Housing Credit'') is a 
model of success, implemented through a federal-state model that 
utilizes federal economies of scale, state and local decision making, 
and partnership with the private non-profit and for-profit sectors to 
deliver new and rehabilitated quality housing to elderly and low income 
Americans. It has been noted that 90% of affordable housing constructed 
in recent years is done in partnership with the Affordable Housing 
Credit and has provided more than 2.5 million rental units since its 
inception.\4\ The Affordable Housing Credit is likewise an essential 
tool for preservation of aging affordable housing that exist in high 
cost areas, or have been starved from the necessary capital to 
modernize.
---------------------------------------------------------------------------
    \4\ New York Times, ``A Tax Credit Worth Preserving,'' December 20, 
2012.

When the Affordable Housing Credit program was enacted as part of the 
Reagan-era Tax Reform Act of 1986, it did not create a large new 
bureaucracy. Instead, it uses a small policy-setting staff at the 
Internal Revenue Service to coordinate funding to states, which in turn 
works with state Housing Finance Agencies or local agencies, depending 
on the local choices. These state and local agencies rigorously inspect 
and asset manage, but their job is made easier by the private 
investment system. Affordable Housing Credit investors are strongly 
motivated to require project owners and managers to consistently comply 
with housing requirements, even before government inspections.
CARH Strongly Supports S. 548, Housing Bonds and Other Proposals
CARH strongly supports S. 548, the Affordable Housing Credit 
Improvement Act, as we agree with the bipartisan expression of concern 
and support to find solutions to the affordable housing crisis. It has 
always been difficult to attract investors to transactions in rural 
areas. While land costs in rural markets are typically less than urban 
areas, there are offsetting concerns caused by greater transportation 
costs and fewer vendors from which to choose. Housing assistance 
programs are generally geared toward urban areas, with programs like 
the Community Development Block Grant largely unavailable to rural 
areas. This is why the Affordable Housing Credit has been even more 
important to rural areas--because it is truly the single largest path 
to preserving existing housing and constructing new affordable housing. 
S. 548 would help facilitate preservation and new construction of this 
much needed affordable housing. Some of the key points we see in S. 548 
are outlined below:

      Rural areas often compete with larger urban properties for the 
Affordable Housing Credit. This competition has grown intense and seems 
to be crowding out rural needs. In fact, between 1995 and 2009, only 9 
percent of Affordable Housing Credit financed rental properties were in 
rural markets utilizing Section 515 funding.\5\ Congress has not 
increased Affordable Housing Credit authority in 17 years. This 
legislation would increase the Affordable Housing Credit by at least 50 
percent. Such an expansion would support the preservation and 
construction of 350,000 to 400,000 additional affordable apartments 
over a 10-year period, undoubtedly many in rural areas.
---------------------------------------------------------------------------
    \5\ Jill Khadduri, Carissa Climaco, and Kimberly Burnett, ``What 
Happens to Low-Income Housing Tax Credit Properties at Year 15 and 
Beyond,'' U.S. Department of Housing and Urban Development, August 
2012.

      S. 548 would permit income averaging in Housing Credit 
properties. However, to be fully effective in rural areas, there should 
be an added provision instructing Rural Development to permit income 
averaging in Section 514/515 rural rental multifamily programs. 
Currently, Rural Development does not permit such practices under their 
statutory authorities. Rents that households with incomes above 60% AMI 
(up to the max of 80% AMI) could afford have the potential to offset 
lower rents than households below 40% or even 30% AMI could afford, 
allowing developments to maintain financial feasibility while providing 
a deeper level of affordability. Furthermore, the diversification of 
rents within a given property would broaden the marketability, 
providing more flexibility and responsiveness to local needs. As such, 
projects with tiered rents would be more attractive to Affordable 
Housing Credit investors, potentially attracting more capital to rural 
---------------------------------------------------------------------------
affordable housing projects.

      The legislation would base income limits in rural properties on 
the greater of area median income or the national non-metropolitan 
median income. This would make Housing Bond financed developments more 
feasible in rural areas while streamlining program rules. Housing Bonds 
have been an important tool for preserving and financing multiple 
properties into one transaction, capitalizing on the economies of 
scale. Many existing small 515 properties have been preserved as part 
of a portfolio financing that otherwise would not have a means for 
recapitalization and modernization.

      The bill simplifies the current Affordable Housing Credit 
student rule and better achieves the intended targeting by replacing it 
with a new rule that is aligned with the Department of Housing and 
Urban Development's (``HUD'') rule, which would simplify multiple 
subsidy compliance. Many rural residents seek to re-tool and to improve 
their employment status by pursuing university, college, community 
college and vocational school. CARH has recognized this need for 
skilled training and has created a scholarship fund for residents of 
affordable housing to assist with college and vocational school costs.

      The proposed legislation would provide for a fixed floor rate 
for acquisition credits at no less than 4 percent and should similarly 
remove the uncertainty and financial complexity of the floating rate 
system, simplify state administration, and facilitate preservation of 
affordable housing at little or no cost to the federal government. 
Acquisition credits are currently set by the floating rate system just 
like new construction and substantial rehab credits were before the 
Housing and Economic Recovery Act (HERA) of 2008. A floating rate makes 
it very difficult to plan and assemble capital necessary for 
development. This fixed rate would potentially provide additional 
private capital to preservation transactions, greatly reducing the 
funding gap now being created from reduced credit pricing provided by 
investors.

      S. 548 provides up to a 50 percent basis boost of Affordable 
Housing Credits for developments serving extremely low-income families 
and individuals in at least 20 percent of the units, as well as 
allowing states to provide up to a 30 percent basis boost for Housing 
Bond-financed properties. This provision will provide parity between 
Housing Bond-financed developments and those that use allocated Housing 
Credits. As noted above, rural properties tend to serve very low and 
extremely low income persons with the average annual household income 
in unsubsidized Section 515 properties of only $12,960.

It is also important to note that Affordable Housing Credit properties 
can improve neighborhoods and property values. This very positive 
effect was discussed in ``A Surprising Way to Increase Property Values: 
Build Affordable Housing,'' Washington Post, July 6, 2017 by Tracy Jan, 
which pointed to the November 2016 study by Rebecca Diamond and Tim 
McQuade at Stanford University. Their conclusion, based on their 
research, is that the Affordable Housing Tax Credit revitalizes low-
income neighborhoods, increases housing prices 6.5%, lowers crime rates 
and attracts racially and income diverse populations.
Other Affordable Housing Credit Proposals
While not part of S. 548, it is worth noting that rural housing 
providers and developers have discussed additional ways to potentially 
bring in capital with the Affordable Housing Credit in rural areas:

    (1)  Affordable Housing Credits should be available to S 
Corporations, Limited Liability Companies, and closely-held C 
Corporations to the same degree Affordable Housing Credits are 
currently available to widely held C Corporations, to offset revenue 
with Affordable Housing Credits that would otherwise be taxable when 
passed through to the owners of these businesses. The Federal Internal 
Revenue Code restricts potential Affordable Housing Credit investors 
through passive loss limitations, limiting the ability of associations 
that are not real estate professionals from investing. To ensure high 
standards of oversight, such entities should have at least $10 million 
in annual gross receipts, be formed for reasons other than just 
avoidance of Federal income tax, and have an expectation of reasonable 
asset management. This proposal is aimed at accessing substantial 
investment capital available from sophisticated financial institutions 
and businesses that happen not to be widely-held Schedule C 
corporations. Indeed, this change would allow the 1,954 commercial 
banks and 55 savings institutions to invest in low-income housing tax 
credits in the communities in which they operate.

    (2)  Another barrier to preservation and tenant protection is an 
unintended one, resulting from a conflict between the tax code and 
market forces. Almost all Rural Development (RD) Section 515 properties 
were constructed through limited partnership arrangements whose 
structure makes it exceedingly difficult to introduce new capital into 
these properties, either through additional capital contributions from 
current owners or through the transfer of such properties to new 
owners. Most were also created before the 1986 Tax Reform Act. Because 
rent restrictions limit cash flow, new capital contributions would only 
generate additional passive losses that cannot be utilized by current 
investors. Yet, if the current owners sell a property it is almost 
impossible to generate sufficient cash to pay off the steep recapture 
taxes that would be owed. The best alternative for current limited 
partners is to hold the investment until death, enabling their heirs to 
acquire the property with a stepped up basis that avoids any recapture 
taxes. While that is a perfectly rational decision at the partner 
level, it is not consistent with sound housing policy and risks 
imposing far higher costs on the federal government, as these capital-
starved properties either continue to deteriorate into substandard 
housing or are sold off as market rate housing as a means of generating 
cash on the sale to pay exit taxes for investors.

        A modest change in the tax rules must be adopted to preserve 
the stock of Section 515 affordable housing. This could be accomplished 
by waiving the depreciation recapture tax liability where investors 
sell their property to new owners who agree to invest new capital in 
the property and to preserve it as affordable housing for another 30 
years. Since very few investors subject themselves to recapture taxes 
today, opting instead to pass the property to their heirs at a stepped-
up basis, the cost of this proposal should be modest while the benefit 
to the federal government of extending the affordability restrictions 
will be far-reaching. During the 111th Congress, legislation was 
introduced, H.R. 2887, the Affordable Housing Tax Relief Act of 2009, 
which if enacted, would have embodied this concept.
Other Essential Tools Needed With the Affordable Housing Credit
Rural housing is dependent on several sources of funding for 
construction and preservation of the existing housing stock. While much 
focus deservedly is on the Affordable Housing Credit, there needs to be 
a tool box with a variety of tools. Just like needs and resources can 
differ in different places, there must be a broad set of tools to mix 
and match to get the most effective solution.

RD has the Section 538 guaranteed loan program, HUD has the HOME 
program, both widely used in rural rental housing. But the existing 
portfolio under stress is the Section 515 Rural Multifamily Housing and 
Section 514 Farm Labor Multifamily properties which are a lynchpin for 
affordable rural housing. These 514/515 programs supply mortgages to 
more than 14,000 apartment communities. However, RD calculates 74 
projects with 1,788 units are maturing out of the program each year 
over the next 12 years. This not only means a loss to the program, the 
project based Section 521 rental assistance (``RA'') provided to the 
tenant is also lost when the Section 514/515 mortgage matures because 
these programs are tied together by statute.

The RA program has been adjusted solely through the appropriations 
process for about two decades. While we appreciate the hard work of 
appropriators in both the House and Senate, we believe it is time for a 
thorough review through the Congressional authorizing committees (the 
House Financial Services and the Senate Banking, Housing and Urban 
Affairs Committees), and that hearings on the Agency programs and 
proposals should be a priority for the Congress.

Congressional review should also include program updates such as the 
ability to utilize flexible rents and longer term rent incentives to 
more efficiently occupy vacant units at turnover. Another simple 
improvement to make RA more efficient is to provide 20 year contracts, 
subject to annual appropriations. Not only would this reduce the costs 
associated with reprocessing contracts on an annual basis without 
increased appropriations, it would also create a more reliable subsidy. 
This will help attract potential investors and lenders to Section 514 
and 515 properties. Most of these properties are 35+ years old and are 
ready for modernization.
Affordable Rural Housing Is Part of a Healthy Economy and Provides Jobs
In 2002, RD estimated that 4,250 Section 515 properties with 85,000 
units ``will physically deteriorate to the point of being unsafe or 
unsanitary within the next 5 years.'' At that time, RD estimated it 
would need $850 million to maintain just this portion of the portfolio, 
and that as much as $3.2 billion will be required for portfolio-wide 
rehabilitation. Little progress has been made since 2002. Adjusted for 
inflation, the 2002 $3.2 billion estimate is now approximately $5.5 
billion. Due to RD's policies over the past 6 years, the RD multifamily 
portfolio is under 15,000 projects for the first time in 20 years. In 
2016, RD contracted for its own study, which confirmed the existence of 
significant deferred maintenance. At this rate of lost properties, we 
encourage preservation prioritization of existing properties ahead of 
new construction, as it is much more cost effective to complete a 
substantial rehabilitation compared to the cost of building new.

Providing for this portfolio will not only care for the extremely low 
income families and elderly residents, but will improve infrastructure 
and create jobs. For each 100 apartment units, 116 jobs (plus an 
additional 32 recurring local jobs) are created, generating more than 
$3.3 million in federal, state and local revenue. Moreover, many rural 
areas are facing worker shortages due to the lack of available 
affordable housing near rural jobs.

In conclusion, affordable housing plays a critical role in rural 
communities across America. There is not a single solution to this 
national affordable housing crisis. It takes a village. And thus, we 
encourage and support the continued Congressional efforts to do your 
part in prioritizing the protection of the essential housing stock in 
rural areas.

Thank you for this opportunity to provide written testimony to the 
Committee.

                                 ______
                                 
          Council of Large Public Housing Authorities (CLPHA)

                455 Massachusetts Avenue, NW, Suite 425

                       Washington, DC 20001-2621

                          phone: 202-638-1300

                           fax: 202-638-2364

                           web: www.clpha.org

            Statement of Sunia Zaterman, Executive Director

The Council of Large Public Housing Authorities (CLPHA) is pleased to 
submit the following statement for the record to the Senate Finance 
Committee and appreciates the opportunity to weigh in on this important 
topic.

CLPHA is a non-profit organization committed to preserving, improving, 
and expanding the availability of housing opportunities for low-income, 
elderly, and disabled individuals and families. CLPHA's members 
comprise more than 70 of the largest housing authorities, in most major 
metropolitan areas in the United States These agencies act as both 
housing providers and community developers, effectively serving over 1 
million households, managing almost half of the nation's multi-billion 
dollar public housing stock, and administering over one-quarter of the 
Section 8 Housing Choice Voucher program.

We are grateful to the Committee for calling attention to the deepening 
affordable housing crisis facing many American families. We applaud 
Finance Committee Chairman Orrin Hatch's and Committee member Senator 
Maria Cantwell's leadership in championing legislation to expand and 
strengthen the Low-Income Housing Tax Credit (LIHTC), our nation's 
primary tool for encouraging private investment in affordable rental 
housing.

America's affordable rental housing crisis is growing.

A lack of stable, affordable housing is one of the biggest threats to 
economic success that any American can face. Stagnating wages along 
with declines in homeownership rates have exacerbated the demand for 
rental housing to its highest level since the mid-1960s, driving up 
rents, especially in areas with low vacancies. Stable, affordable 
housing also plays a crucial role in improving outcomes for low-income 
families across sectors like health and education. Research has shown 
that housing stability is foundational to academic achievement for 
children; securing and maintaining employment for adults; and accessing 
health and prevention services.

Currently, there are more than 11 million renter households--
approximately one out of every four--who spend more than half of their 
income on rent. This leaves little room for other necessary expenses 
like transportation, food, medical bills, and education. Additionally, 
low-income renters that spend more than 50 percent of their rent on 
housing are at increased risk of becoming homeless. According to the 
Harvard University Joint Center for Housing Studies, the number of 
households spending more than 50 percent of their income on rent is 
expected to rise at least 11 percent from 11.8 million to 13.1 million 
by 2025. This is coupled with the fact that the affordable housing 
supply is not keeping up with the demand. For every 100 extremely low-
income (ELI) renter households in 2015, there are only 31 available and 
affordable units, amounting to a shortfall of 7.2 million available and 
affordable homes. This trend is further confirmed in HUD's recently 
released Worst Case Housing Needs 2017 Report to Congress which found 
that ``despite continued signs of a strengthening national economy . . 
. severe housing problems are on the rise.''

Public housing and the Low-Income Housing Tax Credit are vital tools to 
address the nation's affordable housing needs and bolster economic 
activity.

As one of the nation's largest sources of affordable housing, public 
housing plays a central role in providing stable housing to America's 
most vulnerable citizens; connecting low-income workers to economic 
opportunities; and spurring regional job creation and economic growth. 
A multibillion dollar public asset for local communities; public 
housing is home to over 1.1 million low-income families, including 
800,000 children. Over half of public housing households are elderly or 
disabled, and more than half of non-elderly, non-disabled households 
consist of working families.

Despite the growing need for and proven benefits of affordable housing, 
federal appropriations for the maintenance and capital repair of public 
housing has declined severely over the past several years, making it 
impossible even to keep up with the new repair needs that arise each 
year for public housing properties. This adds to the backlog of capital 
needs, which currently stands at over $26 billion nationwide. Increased 
disinvestment has led to the substantial loss of over 300,000 public 
housing units since 1990, and approximately 12,000 units each year, 
resulting in fewer and fewer people served by the program.

The Low-Income Housing Tax Credit (LIHTC) program, authorized in 1986, 
has become the nation's primary source of funds for the production and 
rehabilitation of affordable housing. As a model private-public 
partnership program, LIHTC has employed private sector resources, 
market forces, and state-level administration to finance more than 3 
million affordable apartments--nearly one-third of the entire U.S. 
inventory. Particularly as federal appropriations for the public 
housing capital funds have decreased, LIHTC has proven to be an 
essential tool in leveraging private investment to redevelop distressed 
public housing across the country.

Since the federal Capital Fund dollars appropriated are insufficient to 
redevelop public housing, housing authorities heavily depend upon tax 
credit investment to improve and rehabilitate their properties. 
Important platforms such as the Choice Neighborhoods Initiative (CNI), 
the Moving to Work (MTW) program, mixed financing, and most recently, 
the Rental Assistance Demonstration (RAD) program, have been the only 
mechanisms available to housing authorities to partner with non-profit 
and private developers in using tax credits to revitalize much-needed 
public housing properties. Through these platforms, housing authorities 
are able to combine scarce public housing capital funding with private 
and other public resources, including tax credits, in a layered 
financing process in order to rehabilitate properties and revitalize 
communities. Under the RAD program, housing authorities have been able 
to rehabilitate and convert over 61,000 public housing units to date, 
leveraging approximately $4 billion in new private and public funds, 
which equates to a 9:1 ratio of private dollars to public housing 
dollars.

Additionally, the revitalization of public housing provides positive 
economic benefits to families and communities. Research has shown that 
for every $1 spent on rehabilitation funding for public housing, an 
additional $2.12 is generated in regional economic activity, 
contributing to local tax revenue and supporting job creation and 
retention. Per $1 million spent, public housing outpaces other sectors 
when it comes to job creation and generating economic activity.

However, a lack of affordable housing has been shown to negatively 
impact economies. Researchers estimate that the growth in GDP from 
1964-2009 would have been 13.5 percent higher if families had better 
access to affordable housing. This would have led to a $1.7 trillion 
increase in total income, or $8,775 in additional wages per worker. 
Overall, the shortage of affordable housing in major metropolitan areas 
costs the American economy about $2 trillion a year in lower wages and 
productivity.

Congress should expand and strengthen the Low-Income Housing Tax 
Credit.

The LIHTC program continues to be an extremely important preservation 
tool for public housing and for the overall production and 
rehabilitation of affordable housing. CLPHA strongly supports the 
efforts of Senator Hatch and Senator Cantwell and others on the 
Committee to expand and strengthen the LIHTC program. Housing 
authorities have a long history of leveraging private equity through 
LIHTCs to fill the funding gap created by decreased federal 
appropriations. Housing authorities have acknowledged that without the 
LIHTC program, the preservation of their public housing stock would not 
be possible.

To meaningfully grow our economy and address our nation's growing 
affordable housing needs through tax reform, we urge the Committee to 
support Senator Cantwell and Senate Finance Committee Chairman Hatch's 
Affordable Housing Credit Improvement Act of 2017 (S. 548). This 
legislation would increase LIHTC allocation authority by 50 percent 
phased in over 5 years, and enact roughly two dozen changes to 
strengthen the program by streamlining program rules, improving 
flexibility, and enabling the program to serve a wider array of local 
needs.

CLPHA is well aware that competition for more valuable 9% LIHTC is 
fierce in many states and that there have been concerns within the 
affordable housing community about increased demand from the public 
housing portfolio. Increasing the allocation authority by 50 percent 
would support the preservation and construction of up to 400,000 
additional affordable apartments over a 10-year period, including vital 
public housing units that are at-risk. Additionally, the legislation 
allows for an increased basis boost for projects serving extremely low-
income households. This would be particularly beneficial to housing 
authorities, as 75% of public housing residents are extremely-low 
income.

The legislation would also generate a host of benefits for local 
communities, including increased local tax revenue, local income, and 
jobs, all benefits that meet the Committee's goals for tax reform. An 
investment in LIHTC is an investment in individuals, local communities, 
and the economy. CLPHA applauds the leadership the Senate Finance 
Committee has shown in support of LIHTC to date and urges the Committee 
to expand and strengthen the program.

Thank you for the opportunity to submit our views for the record, and 
we ask that you give them your full consideration.

                                 ______
                                 
              Local Initiatives Support Corporation (LISC)

                     1825 K Street, NW, Suite 1100

                          Washington, DC 20006

The Local Initiatives Support Corporation (LISC) is pleased to provide 
a statement for the record with respect to the Committee's hearing on 
``America's Affordable Housing Crisis: Challenges and Solutions,'' held 
on August 1, 2017.

As one of the largest national nonprofit housing and community 
development organizations in the country, LISC often relies upon 
public-private partnerships to engage in the type of comprehensive 
community development work that is needed in low-income communities. 
The Low-Income Housing Tax Credit (Housing Credit) is the single most 
important federal resource available to encourage private sector 
investments in the development and rehabilitation of affordable housing 
for low, very-low and extremely low-income renter households. As 
discussed further below, Congress must act to preserve and strengthen 
this successful program; and should also consider enacting a new tax 
incentive, the Neighborhood Homes Tax Credit, to spur investments in 
single family homes in communities characterized by high rates of 
vacancy and low property values.

Background on LISC

Established in 1979, LISC is a national non-profit Community 
Development Financial Institution (CDFI) that is dedicated to helping 
community residents transform distressed neighborhoods into healthy and 
sustainable communities of choice and opportunity--good places to work, 
do business and raise children. LISC mobilizes corporate, government 
and philanthropic support to provide local community development 
organizations with loans, grants and equity investments; technical and 
management assistance; and policy support.

LISC has local programs in 31 cities, and partners with 77 different 
organizations serving over 2,000 rural counties in 44 states throughout 
the country. LISC focuses its activities across five strategic 
community development goals:

      Expanding investment in housing and other real estate;
      Increasing family income and wealth;
      Stimulating economic development;
      Improving access to quality education; and
      Supporting healthy environments and lifestyles.

Background on the Housing Credit

Supported on a broad bipartisan basis, the Housing Credit was enacted 
as part of the Tax Reform Act of 1986, the last major overhaul of the 
tax code. The Housing Credits are allocated to the states through a 
formula allocation, and then awarded through competition to developers 
of qualified projects. Developers sell the property to investors to 
raise equity capital for construction of their projects, thus reducing 
the debt service and allowing the projects to provide affordable rents 
to low-income families. Investors claim the credits over a 10-year 
period, and are at risk of tax credit recapture for an additional 5 
years if the property does not remain in compliance with the rules.

To date, the Housing Credit has financed the development of 
approximately 3 million affordable homes across the nation with 
projects in every state, leveraged more than $100 billion in private 
capital, and helped to create well over 3 million jobs in the 
construction and property management industries.\1\ It is the country's 
most successful affordable housing production program.
---------------------------------------------------------------------------
    \1\ ``Low-Income Housing Tax Credit Impacts in the United States,'' 
Affordable Rental Housing ACTION Coalition.

LISC, through its subsidiary the National Equity Fund (NEF), is one of 
the nation's largest syndicators of Housing Credits. To date, NEF has 
invested $13.3 billion in close to 2,500 housing properties, creating 
approximately 159,000 affordable homes for low-income families in 46 
states, and spurring the creation of an estimated 194,000 jobs. In 
recent years, LISC has been able to use the credit to support disaster 
recovery efforts, a veterans housing initiative, and an initiative to 
link housing to critical community health services.

Successful Attributes of the Housing Credits

The Housing Credit has achieved tremendous success in financing 
affordable housing in rural, urban and suburban communities throughout 
the country. Some of the more noteworthy characteristics that have led 
to the success of these credits include:

1.  The credits correct market failures. The potential financial return 
achieved via the tax credit enables investment in projects that would 
not otherwise produce profitable returns. This is clearly evidenced 
with respect to Housing Credit investments, where it's been 
demonstrated that a typical housing project would have to reduce its 
construction costs by 72 percent to be able to serve a low-income 
family at an affordable rent.\2\
---------------------------------------------------------------------------
    \2\ Harvard University Joint Center for Housing Studies (JCHS), 
``America's Rental Housing,'' (2011).

2.  The credits are responsive to locally determined needs. The Housing 
Credits are allocated by state housing finance agencies, which 
determine the state's affordable housing priorities in annual funding 
rounds. Based on the needs within the states and localities, priorities 
in any given year could include elderly housing, veterans housing, 
---------------------------------------------------------------------------
units serving homeless families, workforce housing, rural housing, etc.

3.  The competition for credits produces better outcomes. Applications 
for the Housing Credit typically outpace availability by 3 to 1, and in 
some states this ratio is as high as 7 to 1. This competition drives 
applicants to achieve better outcomes than are minimally required in 
program regulations. Most notably:

       Housing Credit properties must satisfy affordability 
requirements for 30 years after completion, but state allocating 
agencies often require much longer affordability periods as a condition 
of allocation.

       Housing Credit units must be affordable to persons 
making less than 60 percent of area median income (AMI), but states set 
higher goals to achieve deeper income targeting. As a result, the most 
recent Department of Housing and Urban Development (HUD) data indicate 
that 48 percent of Housing Credit units are occupied by families making 
less than 30 percent of AMI and 82 percent are occupied by families 
making less than 50 percent of AMI.\3\
---------------------------------------------------------------------------
    \3\ U.S. Department of Housing and Urban Development, Office of 
Policy Development and Research, ``Data on Tenants in LIHTC Units as of 
December 31, 2013'' (2016).

4.  The tax credit structure allows for more efficient program 
administration. Investors--with their own capital at risk--impose 
underwriting and asset management oversight. The investor due diligence 
leads to a more robust and efficient compliance monitoring system, and 
results in projects that are financially strong. For instance, Housing 
Credit properties far outperform other real estate classes, with 
occupancy rates topping 96 percent nationwide and a cumulative 
foreclosure rate of just 0.66 percent over the program's history.\4\
---------------------------------------------------------------------------
    \4\ ``The Low-Income Housing Tax Credit at Year 30: Recent 
Investment Performance (2013-2014).''

      In addition, investors and developers--not taxpayers--assume the 
financial risks of these projects. If projects are not in compliance 
with statutory requirements, tax credits are forfeited back to the 
Treasury. In the case of the Housing Credit, investors cannot even 
begin claiming credits until the apartments are occupied by low-income 
families at affordable rents. This is in stark contrast to most federal 
grant-making programs, in which grants are advanced and an agency must 
seek a return of funds (often after they are already spent) in the case 
---------------------------------------------------------------------------
of program noncompliance.

5.  The credits provide a great return on investment for the Federal 
government. The National Association of Homebuilders estimates that, on 
an annual basis, the Housing Credit produces 95,000 new, full-time 
jobs, adds $6.8 billion into the economy, and generates approximately 
$2 billion in federal, state and local tax revenues.

Uniqueness Within the Tax Code

The Housing Credit is distinct from almost every other type of tax 
credit, in at least two critical ways:

1.  It spurs activity that would not occur but for the tax incentive. 
Most federal tax benefits reward business behavior that already 
directly aligns with their operational interests. While these tax 
benefits may have some effect on business behavior, it is likely on the 
margins of activities in which they are already likely to engage even 
in the absence of the tax incentive. Conversely, the Housing Credit 
directs investments to activities in which companies would not 
otherwise invest in because: (a) it does not further their normal 
business operations; and/or (b) if not for the benefits provided in the 
tax code, they would not be profitable for the company. So if these 
credits were to disappear, so too would the investments.

2.  The benefits of the credit extend far beyond the investors to 
fulfill a broader public need. The Housing Credit fulfills a 
fundamental public purpose that most other credits do not. As with all 
tax credits and deductions contained within the tax code, the entity 
claiming the Housing Credit does achieve a financial benefit in the 
form of reduced tax payments. However, the Housing Credit is among one 
of very few tax benefits provided in the corporate tax code that focus 
exclusively on improving the lives of low-income persons and low income 
communities (the New Markets Tax Credit being the other most notable 
one). In other words, unlike most other provisions in the tax code 
which solely benefit a corporation's bottom line, the ultimate 
beneficiaries of these credits are the end users: the low-income family 
that is paying significantly below-market rent, thus freeing up more 
resources for the family to cover other critical expenses and to save 
for education, retirement, homeownership or other activities that will 
better enable the family to escape the cycle of poverty.

Priorities for Tax Reform

Protect and expand the Housing Credit. The Housing Credit is a 
permanent part of the tax code, enacted in 1986 as part of the last 
major tax reform effort. However, despite its longevity and its track 
record of success, there may be some who would seek to scale back or 
even eliminate this credit to help offset a reduction to the overall 
corporate tax rate. To do so would put the future of the country's 
strongest program for affordable housing development in great jeopardy 
at a time when demand for affordable housing continues to increase.

It is noteworthy that the Bipartisan Policy Center's Housing 
Commission, which was co-chaired by two former Secretaries of HUD (one 
a Democrat and one a Republican) and two former Senators (one a 
Democrat and one a Republican), released a report in 2013 not only 
citing the critical role of the Housing Credit in supporting affordable 
housing, but also calling for an expansion of the Housing Credit by 50 
percent over current funding levels. While LISC recognizes the 
importance of fiscal restraint as part of the tax reform exercise, we 
also believe that tax reform presents an opportunity for reflection on 
what truly has worked in the tax code, and every consideration should 
be given to expanding this vital initiative.

In considering additional measures to protect and strengthen the 
Housing Credit, the best starting point is The Affordable Housing 
Credit Improvement Act (S. 548), the bi-partisan legislation introduced 
by Senator Hatch and Senator Cantwell which would, among other things:

      Increase the formula for allocating the credit by 50% over 5 
years;
      Streamline program requirements and provide states with 
additional flexibility;
      Facilitate Housing Credit development in challenging markets, 
including rural and Native American communities;
      Increase the Housing Credit's ability to serve extremely low 
income populations;
      Better support the preservation of existing affordable housing; 
and
      Enhance the ``4% credit'' and multifamily housing bond portion 
of the program.

In addition, as the Committee undertakes efforts to reform the broader 
tax code, it needs to consider making adjustments to the applicable 
housing credit rate (i.e., the 9% or 4% rate) to offset the impact that 
a lower corporate tax rate and/or changes to depreciation would have on 
utilization of the Housing Credit. It also needs to retain the 
multifamily housing private activity bonds, which are used in 
conjunction with the 4% credit and account for about 40% of all Housing 
Credit production annually.

Create a new Neighborhood Homes Tax Credit. LISC, along with many other 
organizations, is calling for the creation of a Neighborhood Homes Tax 
Credit (NHTC). The NHTC is designed to attract private capital to 
support investment in single family homes in communities where the 
costs of developing and rehabilitating homes for sale exceed the 
appraised value of the home. The NHTC would provide the developer or 
investor with a tax credit to cover this ``appraisal gap.'' The tax 
credit would work as follows:

  State allocating agencies (most likely the state Housing Finance 
Agencies) would be allocated a new tax credit authority and/or be given 
the flexibility to convert unused private activity bond authority or 
mortgage credit certificate authority into NHTCs.

  The credits would be awarded by the state agencies to eligible 
entities through an annual competition. The eligible entity would 
identify a strategy for developing or rehabilitating properties in 
eligible communities, either for new homes, existing owner-occupied 
homes, or for homes that are vacant and will be brought to market. The 
eligible entities could be developers or financial institutions, 
including non-profit CDF is or other entities looking to capitalize a 
loan pool.

  States would allocate only the tax credits reasonably needed for 
financial feasibility, determined both at the time of application and 
again when homes are sold or owner-occupied rehabilitations are 
completed.

  Program limitations would ensure the credit is benefitting the right 
projects and communities.

      The maximum value of the credit would be 35% of 
construction, substantial rehabilitation, and building acquisition and 
demolition costs.

      The maximum cost basis for calculating the tax 
credits could not exceed the national median existing home sales price 
or four times the area MFI, whichever is higher.

      The credits would generally only be available to 
support homeownership by low income and middle-income homebuyers.

      Only those neighborhoods characterized by some 
combination of high poverty, low median family income and low home 
values would be eligible for investments. In addition, the states would 
be required to further define neighborhood eligibility requirements to 
ensure that the program is not targeting neighborhoods where there has 
been a recent influx of investment marked by improving property values, 
higher rents or a displacement of lower-income families.

The NHTC addresses the need for neighborhood revitalization in 
communities hit with blocks of home foreclosures and vacant properties. 
Vacant properties inflict heavy costs on American communities: blight, 
crime, lowered home values, and decreased property tax revenue. There 
are mounting costs and difficulties associated with vacant and 
abandoned properties, especially when concentrated within 
neighborhoods. There are negative spillover effects ranging from crime 
and safety to reduced property values and increased costs for municipal 
governments. RealtyTrac found that 142,462 U.S. properties in the 
foreclosure process were vacant, representing 25 percent of all 
properties in the foreclosure process. The states with the most owner-
vacated foreclosures were Florida with 35,903 (25 percent of the 
national total), New Jersey (17,983), New York (16,777), Illinois 
(9,358), and Ohio (7,360).\5\
---------------------------------------------------------------------------
    \5\ ``One in Four U.S. Foreclosures are `Zombies' Vacated by 
Homeowner, Not Yet Repossessed by Foreclosing Lender.'' RealtyTrac. 
Feb. 5, 2015.

Part of the reason property abandonment becomes contagious is because 
it lowers nearby home values making it more difficult to attract 
mortgage capital to an area. This makes it harder for people to sell 
their homes, in turn causing lenders to lower appraisals or to deny 
loans entirely. Vacant properties deteriorate and the underlying value 
of the property declines, causing neighboring property values to also 
decline.\6\ These neighborhoods are trapped in a cycle where low 
property values prevent the construction of new homes and the 
renovation of attractive of existing homes, and where the absence of 
these investments keeps property values unsustainably low. Declining 
homeownership rates, property abandonment, the erosion of family 
assets, and concentrated poverty are too often the result. Studies 
attempting to quantify the effect of foreclosures on surrounding 
property values find that foreclosures depressed the sales prices of 
nearby homes by as little as 0.9 percent to as much as 8.7 percent.\7\
---------------------------------------------------------------------------
    \6\ http://www.communityprogress.net/filebin/
CCP_BaltimoreTASP_Final_Report_102616.pdf.
    \7\ W. Scott Frame. ``Estimating the Effect of Mortgage 
Foreclosures on Nearby Property Values: A Critical Review of the 
Literature.'' Federal Reserve Bank of Atlanta, Economic Review, Nov. 3, 
2010.

The NHTC would provide an effective and necessary tool for revitalizing 
blighted neighborhoods. As noted above, the NHTC would fill the gap 
between cost of construction and the appraised value of the property, 
with the private market bearing construction and marketing risks--much 
as is done with the Housing Credit. However, the Housing Credit, which 
was designed to create affordable rental housing for low- and very-low 
income families, cannot readily be utilized to support homeownership 
housing. And while tax exempt private activity bonds and mortgage 
credit certificates (MCCs) do support homebuyers by reducing mortgage 
interest costs, these incentives cannot fill the gap between 
---------------------------------------------------------------------------
development or renovation costs and appraised home values.

Only those neighborhoods characterized by some combination of high 
poverty, low median family income, and low home values would be 
eligible for NHTC investments. In these neighborhoods, where inventory 
is high and appraisals are low, it is simply not possible for the 
private sector to invest in these properties without additional 
subsidy. By creating this incentive through the tax code, financial 
companies will now be able to participate in the recovery of these 
communities.

Although legislation authorizing the NHTC has not yet been introduced 
in the 115th Congress, similar legislation was proposed by the George 
W. Bush administration and was introduced in the 108th Congress and 
received tremendous bi-partisan support. The Senate legislation (S. 
875) had 46 co-sponsors, and the House legislation (H.R. 839, 
introduced by then Congressman Portman and Congressman Cardin) had 304 
co-sponsors.

Conclusion

The Housing Credit has a proven track record of success in producing 
affordable housing, is a unique fixture within the tax code that cannot 
readily be replaced by other public or private sources of capital. The 
corporate investors who will benefit from lower tax rates will not be 
negatively impacted by the elimination of these tax incentives, but 
lower income individuals and communities will. The scaling back or loss 
of this tax incentive would be felt immediately and could be 
irreversible. To this end, it should be the priority of Congress to 
preserve and strengthen these invaluable credits, and to support a new 
Neighborhood Homes Tax Credit to provide a needed incentive to spur 
homeownership in many of these same blighted communities.

Thank you for your consideration of our comments.

Matt Josephs
Senior Vice President for Policy, LISC

                                 ______
                                 
                                 LOCUS

                       1707 L St., NW, Suite 1050

                          Washington, DC 20036

                              202-207-3355

                        www.locusdevelopers.org

Chairman Hatch, Ranking Member Wyden, and Members of the Committee, 
thank you for holding today's hearing on the pressing need for more 
affordable housing in communities across our country.

LOCUS is a national coalition of real estate developers and investors 
who advocate for sustainable, equitable, walkable development in 
America's metropolitan areas. Our members are among our nation's 
leading developers--representing billions of dollars of investment 
annually--and they see every day the pent-up demand for attainable 
residential and commercial development in communities with a great 
sense of place.

As you know, the primary policy for promoting the construction of 
affordable housing today is the Low-Income Housing Tax Credit (LIHTC). 
Many of our members use this vital tool in their work and LOCUS 
strongly supports LIHTC. As evidenced by the unmet need though, we 
believe we can do more.

First, LOCUS supports strengthening the existing LIHTC program. 
Legislation introduced by Senator Cantwell and Chairman Hatch, the 
Affordable Housing Credit Improvement Act of 2017 (S. 548), would 
increase LIHTC allocations by 50% and gives states and developers more 
flexibility to use credits in ways that reflect their local markets.

Second, Ranking Member Wyden's proposal to create a Middle-Income 
Housing Tax Credit (MIHTC) would help fill a critical gap between 
LIHTC-eligible projects and truly attainable housing. The reality is 
that many families that make too much for LIHTC eligible projects still 
struggle to find affordable housing. In addition, both the Cantwell 
Hatch bill and the Wyden proposal would promote more of the mixed-
income housing that our members have seen is crucial for building 
vibrant communities.

Finally, we also believe tax reform presents a unique opportunity to 
create an outcome based framework that encourages greater private 
capital investment in attainable housing and ``making doing the right 
thing profitable'' during neighborhood revitalization projects.

Even though rehabilitating existing buildings and neighborhoods can 
increase the local tax base and save municipalities money by reusing 
and improving valuable public infrastructure, decades worth of deferred 
infrastructure maintenance can make neighborhood redevelopment projects 
cost-prohibitive.

LOCUS believes the most effective way to accomplish this is to convert 
the existing Rehabilitation Tax Credit under Section 47 into a 
Neighborhood Rehabilitation and Investment Credit.

Under the LOCUS proposal, the historic credit would not change, however 
the Rehabilitation Tax Credit in Section 47 of the Internal Revenue 
Code would be converted from a 10 percent credit into a scalable and in 
some cases refundable credit; broadening eligibility to include 
redevelopment and public infrastructure costs beyond those associated 
with a specific building; making residential buildings eligible for the 
credit; rewarding projects that include greater affordable housing and 
community services; and changing the age criteria so that any building 
over 50 years old would be eligible for the credit. Overall, credit 
would be applied to an entire redevelopment project instead of just an 
individual building, including adjacent new construction, 
infrastructure and community services.

In its current form, the Rehabilitation Credit can only be claimed for 
buildings built before 1936, making a huge amount of development 
projects ineligible. In addition, the credit can only be claimed for 
individual buildings and not for larger projects. For many developers, 
this makes the credit too cumbersome to use.

And finally, the credit right now can only be used for commercial 
development. This excludes residential properties, which could also 
obviously benefit from the credit, and also makes using the credit on 
mixed-use development--where part of the property is eligible and part 
is not--extremely challenging.

Under the LOCUS proposal, there will be an incentive for all developers 
and investors to incorporate fiscally responsible and economically 
enhancing place-making principals of rehabilitation, transit 
orientation, mixed-use, affordability and walkability into their plans.

We believe this proposal is consistent with tax reform principles of 
simplification, modernization and pro-growth job creation. But we also 
understand the need for trade-offs in tax reform. LOCUS has also 
endorsed reforms to elements of the federal tax treatment of real 
estate that have encouraged sprawling, drivable development over dense, 
walkable communities. For instance, we support further limitations on 
the mortgage interest deduction and the exclusion of gains from the 
sale of a primary residence.

Thank you for your consideration, and we look forward to working with 
you and your staff.

                                 ______
                                 
       National Affordable Housing Management Association (NAHMA)

                  400 North Columbus Street, Suite 203

                          Alexandria, VA 22314

                             (703) 683-8630

                           (703) 683-8634 FAX

                             www.nahma.org

August 7, 2017

Chairman Orrin Hatch                Ranking Member Ron Wyden
Senate Finance Committee            Senate Finance Committee
U.S. Congress                       U.S. Congress

Dear Chairman Hatch and Ranking Member Wyden,

On behalf of the National Affordable Housing Management Association 
(NAHMA), we greatly appreciate the opportunity to provide this 
Statement for the Record to the Senate Finance Committee for the 
hearing, ``America's Affordable Housing Crisis: Challenges and 
Solutions,'' held on August 1, 2017. NAHMA would like to share our 
perspectives about tax reform and the importance of the Low-Income 
Housing Tax Credit (Housing Credit) with regards to affordable 
multifamily housing programs, which are critical to providing quality 
rental housing to families in need and to improving economic 
opportunity for all Americans. As a member of A Call To Invest in Our 
Neighborhoods (ACTION) Campaign, representing over 2,000 national, 
state, and local organizations and businesses, NAHMA submits the 
subsequent industry recommendations on how Congress can utilize tax 
reform to further strengthen the Housing Credit.

NAHMA is the leading voice for affordable housing management, 
advocating on behalf of multifamily property managers and owners whose 
mission is to provide quality affordable housing. NAHMA supports 
legislative and regulatory policy that promotes the development and 
preservation of decent and safe affordable housing, is a vital resource 
for technical education and information and fosters strategic relations 
between government and industry. NAHMA's membership represents 75 
percent of the affordable housing management industry, and includes its 
most distinguished multifamily owners and management companies.

We are especially grateful for the leadership of Finance Committee 
Chairman Hatch, Committee Ranking Member Wyden, and Committee Member 
Cantwell in championing legislation to expand and strengthen the 
Housing Credit, our nation's primary tool for encouraging private 
investment in affordable rental housing. We strongly urge the Committee 
to advance the Affordable Housing Credit Improvement Act of 2017 (S. 
548) this year, and to protect both the Housing Credit and multifamily 
Housing Bonds--a central component of the Housing Credit program--as 
part of any tax reform effort considered by Congress.

The Housing Credit Has a Remarkable Track Record

President Reagan and the Congress showed remarkable foresight when they 
created the Housing Credit as part of the Tax Reform Act of 1986. The 
Housing Credit is now our most successful tool for encouraging private 
investment in the production and preservation of affordable rental 
housing, with a proven track record of creating jobs and stimulating 
local economies. For over 30 years, the Housing Credit has been a model 
public-private partnership program, bringing to bear private sector 
resources, market forces, and state-level administration to finance 
more than 3 million affordable apartments--nearly one-third of the 
entire U.S. inventory--giving more than 6.7 million households, 
including low-income families, seniors, veterans, and people with 
disabilities, access to homes they can afford. Roughly 40 percent of 
these homes were financed in conjunction with multifamily Housing 
Bonds, which are an essential component of the program's success.

The Housing Credit Is a Proven Solution to Meet a Vast and Growing Need

Despite the Housing Credit's tremendous impact, there are still 11 
million renter households--roughly one out of every four--who spend 
more than half of their income on rent, leaving too little for other 
necessary expenses like transportation, food, and medical bills. This 
crisis is continuing to grow. HUD reports that as of 2015, the number 
of households with ``worst case housing needs'' had increased by 38.7 
percent over 2007 levels, when the recession began, and by 63.4 percent 
since 2001. A study by Harvard University's Joint Center for Housing 
Studies and Enterprise Community Partners estimates that the number of 
renter households who pay more than half of their income towards rent 
could grow to nearly 15 million by 2025.

Without the Housing Credit, there would be virtually no private 
investment in affordable housing. It simply costs too much to build 
rental housing to rent it at a level that low-income households can 
afford. In order to develop new apartments that are affordable to 
renters earning the full time minimum wage, construction costs would 
have to be 72 percent lower than the current average.

The Housing Credit Creates Jobs

Housing Credit development supports jobs--roughly 1,130 for every 1,000 
Housing Credit apartments developed, according to the National 
Association of Home Builders (NAHB). This amounts to roughly 96,000 
jobs per year, and more than 3.25 million since the program was created 
in 1986. NAHB estimates that about half of the jobs created from new 
housing development are in construction. Additional job creation occurs 
across a diverse range of industries, including the manufacturing of 
lighting and heating equipment, lumber, concrete, and other products, 
as well as jobs in transportation, engineering, law, and real estate.

The Housing Credit Stimulates Local Economies and Improves Communities

The Housing Credit has a profound and positive impact on local 
economies. NAHB estimates the Housing Credit adds $9.1 billion in 
income to the economy and generates approximately $3.5 billion in 
federal, state, and local taxes each year. Conversely, a lack of 
affordable housing negatively impacts economies. Research shows that 
high rent burdens have priced out many workers from the most productive 
cities, resulting in 13.5 percent foregone GDP growth, a loss of 
roughly $1.95 trillion, between 1964 and 2009.

Housing Credit development also positively impacts neighborhoods in 
need of renewal. About one-third of Housing Credit properties help 
revitalize distressed communities. Stanford University research shows 
Housing Credit investments improve property values and reduce poverty, 
crime, and racial and economic isolation, generating a variety of 
socio-economic opportunities for Housing Credit tenants and 
neighborhood residents.

Affordable Housing Improves Low-Income Households' Financial Stability

Affordable housing promotes financial stability and economic mobility. 
It leads to better health outcomes, improves children's school 
performance, and helps low-
income individuals gain employment and keep their jobs. Affordable 
housing located near transportation and areas with employment 
opportunities provides low-income households with better access to 
work, which increases their financial stability and provides employers 
in those areas with needed labor.

Families living in affordable homes have more discretionary income than 
low-income families who are unable to access affordable housing. This 
allows them to allocate more money to other needs, such as health care 
and food, and gives them the ability to pay down debt, access 
childcare, and save for education, a home down payment, retirement, or 
unexpected needs.

The Housing Credit Is a Model Public-Private Partnership

The Housing Credit is structured so that private sector investors 
provide upfront equity capital in exchange for a credit against their 
tax liability over 10 years, which only vests once the property is 
constructed and occupied by eligible households paying restricted 
rents. This unique, market based design transfers the risk from the 
taxpayer to the private sector investor. In the rare event that a 
property falls out of compliance during the first 15 years after it is 
placed in service, the Internal Revenue Service can recapture tax 
credits from the investor. Therefore, it is in the interest of the 
private sector investors to ensure that properties adhere to all 
program rules, including affordability restrictions and high-quality 
standards.

The Housing Credit Is State Administered with Limited Federal 
Bureaucracy

The Housing Credit requires only limited federal bureaucracy because 
Congress wisely delegated its administration and decision-making 
authority to state government as part of its design. State Housing 
Finance Agencies, which administer the Housing Credit in nearly every 
state, have statewide perspective; a deep understanding of the needs of 
their local markets; and sophisticated finance, underwriting, and 
compliance capacity.

The Housing Credit Is Critical to Preserving Our Nation's Existing 
Housing Investments

The Housing Credit is our primary tool to preserve and redevelop our 
nation's current supply of affordable housing. Without the Housing 
Credit, our ability to revitalize and rehabilitate our nation's public 
housing and Section 8 housing inventory, decades in the making, would 
be significantly diminished. In addition to putting the residents of 
these properties at risk of displacement, we would lose these 
investments that taxpayers have already made.

In rural areas, where direct funding for rural housing programs has 
been cut significantly, the Housing Credit is the backbone for 
preservation and capital improvements to the existing housing stock. 
Low-income rural residents' incomes average just $12,960, and they are 
often living in areas with extremely limited housing options, making 
preservation of the existing housing stock crucial.

The Demand for Housing Credits Exceeds the Supply

Viable and sorely needed Housing Credit developments are turned down 
each year because the cap on Housing Credit authority is far too low to 
support the demand. In 2014--the most recent year for which data is 
available--state Housing Credit allocating agencies received 
applications requesting more than twice their available Housing Credit 
authority. Many more potential applications for worthy developments are 
not submitted in light of the intense competition, constrained only by 
the lack of resources.

The scarcity of Housing Credit resources forces state allocating 
agencies to make difficult trade offs between directing their extremely 
limited Housing Credit resources to preservation or new construction, 
to rural or urban areas, to neighborhood revitalization or developments 
in high opportunity areas, or to housing for the homeless, the elderly, 
or veterans. There simply is not enough Housing Credit authority to 
fund all of the properties needed, but with a substantial increase in 
resources, many more of these priorities would be addressed--and the 
benefits for communities would be even greater.

Though the need for Housing Credit-financed housing has long vastly 
exceeded its supply, Congress has not increased Housing Credit 
authority permanently in 16 years.

We Urge Congress to Expand and Strengthen the Housing Credit

To meaningfully grow our economy and address our nation's growing 
affordable housing needs through tax reform, we urge Congress to 
increase the cap on Housing Credit authority by 50 percent. Such an 
expansion would support the preservation and construction of up to 
400,000 additional affordable apartments over a 10-year period. We also 
call on Congress to retain the tax exemption on multifamily Housing 
Bonds, which are essential to Housing Credit production.

The Affordable Housing Credit Improvement Act of 2017 (S. 548), which 
would authorize such an expansion, has earned strong bipartisan support 
in the Senate and among Senate Finance Committee members. This 
legislation would increase Housing Credit allocation authority by 50 
percent phased in over 5 years, and enact roughly two dozen changes to 
strengthen the program by streamlining program rules, improving 
flexibility, and enabling the program to serve a wider array of local 
needs. The legislation would also generate a host of benefits for local 
communities, including increased local tax revenue, local income, and 
jobs, all benefits that meet the Committee's goals for tax reform.

An investment in the Housing Credit is an investment in individuals, 
local communities, and the economy. It transforms the lives of millions 
of Americans, many of whom are able to afford their homes for the first 
time--and it transforms their communities and local economies. We 
applaud the leadership the Senate Finance Committee has shown in 
support of the Housing Credit to date and urges the Committee to expand 
and strengthen the Housing Credit and multifamily Housing Bonds.

We look forward to working together with the Committee to preserve and 
improve the Low-Income Housing Tax Credit throughout tax reform; the 
Housing Credit and other multifamily housing programs are critical to 
providing quality rental housing to families in need and to improving 
economic opportunity for all Americans. Please don't hesitate to direct 
any questions to NAHMA's Director of Government Affairs, Larry Keys, at 
(703) 683-8630 ext. 111 or [email protected].

Sincerely,

Kris Cook, CAE
Executive Director

                                 ______
                                 
  National Association of Housing and Redevelopment Officials (NAHRO)

                           630 Eye Street, NW

                       Washington, DC 20001-3736

                             (202) 289-3500

                       Toll Free: (877) 866-2476

                          Fax: (202) 289-8181

                         website: www.nahro.org

                        e-mail: [email protected]

Formed in 1933, NAHRO represents nearly 20,000 housing and community 
development professionals and agencies. Collectively, our members 
manage more than 950,000 public housing units, 1.6 million Housing 
Choice Vouchers, approximately 70,000 Low-Income Housing Tax Credit 
(LIHTC) units, and receive over $1.5 billion in Community Development 
Block Grant (CDBG) and HOME Investment Partnerships (HOME) Program 
funding to use in their communities. In all, NAHRO members provide 
housing for more than 7.9 million low-income people. NAHRO is unique in 
its ability to represent public housing agencies (PHAs), local 
redevelopment agencies (LRAs), and other HUD grantees of all sizes and 
geography. Many NAHRO members depend on LIHTC as a source of funding 
for their affordable housing projects.

LIHTC is a critical tool for PHAs/LRAs preserving and creating 
affordable housing. PHAs own and operate over 1.1 million units of 
federally subsidized public housing, supporting low income families, 
the elderly, disabled persons, and veterans. Although the public 
housing inventory is an integral component of our nation's 
infrastructure, chronic underfunding of the Capital and Operating Funds 
(the two primary funding mechanisms of public housing) has placed the 
inventory at risk, with a mounting capital needs backlog of well over 
$26 billion. PHAs turn to LIHTC to preserve and revitalize their 
distressed public housing inventory, and both PHAs and LRAs often take 
advantage of LIHTC's leveraging power to secure other state, local, 
federal resources (e.g., CDBG) for affordable housing projects that 
revitalize their communities.

Last March, the Housing Authority of Salt Lake gathered alongside their 
public and private partners to celebrate the opening of the 9th Lofts 
at Bennion Plaza--a 68-unit mixed-use LIHTC development that will help 
chip away at the city's 7,500 unit affordable housing deficit. The 
project serves a mix of community low-income housing needs; a third of 
the units are reserved for residents with specific needs beyond 
affordability, including residents with physical disabilities, victims 
of domestic violence, military veterans, and those transitioning out of 
homelessness. Overall, NAHRO estimates that between 1984 and 2014, 
LIHTCs awarded to PHAs/LRAs have supported at least 53,200 low income 
housing units.\1\
---------------------------------------------------------------------------
    \1\ Department of Housing and Urban Development, Office of Policy 
Development and Research: LIHTC Database. (https://www.huduser.gov/
portal/datasets/lihtc.html#about). Accessed on November 16, 2016.

The LIHTC is also important to the success of HUD's Rental Assistance 
Demonstration (RAD). RAD allows PHAs to leverage public and private 
debt and equity to address the capital needs backlog of their public 
housing portfolios. For example, Home Forward (previously known as the 
Housing Authority of Portland) is currently in the process of 
converting 31 public housing properties, with a total of 1,063 units, 
into Project-based Vouchers. Of the 31 properties undergoing 
conversion, 30 of those projects would utilize LIHTCs in their 
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financing to assist with necessary capital improvements.

HUD data shows that the LIHTC has been essential in many of the RAD 
transactions closed by the Department thus far. Notably, 186 closed RAD 
conversions, amounting to almost 21,000 public housing units, had LIHTC 
in their financing.\2\ As a cost-neutral program, Congress has 
supported RAD by expanding its current cap on conversions to 225,000 
units. Without additional action to strengthen the LIHTC, this support 
falls short of its intent.
---------------------------------------------------------------------------
    \2\ Department of Housing and Urban Development, Rental Assistance 
Demonstration Resource Desk: RAD First Component Data. (http://
www.radresource.net/firstcomponent.cfm). Accessed July 27, 2017.

Currently there is a shortage of 7.2 million affordable and available 
rental units for the nation's 11.4 million extremely low-income 
households (those earning below 30 percent area median income [AMI]). 
One in four renter households is spending over half of their income on 
housing costs, and there is no state in the U.S. where a worker earning 
full-time minimum wage can afford a modest, two-bedroom apartment. 
NAHRO urges the committee to support a greater investment in the LIHTC 
as part of any efforts to address the America's affordable housing 
---------------------------------------------------------------------------
crisis.

Additionally, the LIHTC program benefits middle-class families who 
struggle with high housing costs. While the lowest-income renters 
disproportionally make up the largest share of cost-burdened households 
(those spending over 30 percent of income on housing costs), the 
sharpest growth in cost burden shares have been among middle-income 
households. Between 2001 and 2014, the share of cost-burdened 
households in the $30,000-$44,999 income range increased from 37 
percent to 48 percent, while households in the $45,000-$74,999 range 
nearly doubled from 12 percent to 21 percent.\3\
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    \3\ America's Rental Housing: Expanding Options for Diverse and 
Growing Demand. Harvard Joint Center for Housing Studies, 2015.

NAHRO, along with the ACTION Campaign,\4\ urges the Committee to pass 
the Affordable Housing Credit Improvement Act of 2017 (S. 548). 
Provisions strongly supported by NAHRO include:
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    \4\ The ACTION Campaign, of which NAHRO is a Steering Committee 
member, is a national coalition of roughly 1,300 organizations and 
businesses calling on Congress to expand and strengthen LIHTC. Learn 
more at: http://rentalhousingaction.org/.

      Expand the overall LIHTC allocation authority by 50 percent. 
NAHRO supports this expansion since 9 percent LIHTCs are highly 
competitive and difficult for PHAs/LRAs to secure. At a time where 
other federal housing resources are limited, expanding the volume cap 
by 50 percent will allow greater access for PHAs/LRAs, which would be a 
meaningful step towards addressing our nation's growing affordable 
housing deficit.
      Establish a minimum 4 percent credit rate. In 2015, Congress 
provided greater stability in the LIHTC market by establishing a 
minimum 9 percent LIHTC rate. However, NAHRO members often turn to 4 
percent LIHTCs because they are non-competitive and more accessible. 
The current floating 4 percent rate is an impediment to projects. 
Establishing a permanent rate will make project financing more 
predictable and feasible.
      Enable income averaging in LIHTC developments. Housing Credit 
projects currently serve renters with incomes up to 60 percent of AMI, 
and rents are comparably restricted. While states are encouraged to 
give preference to developments that serve the lowest-income 
populations, it can be difficult to make these developments financially 
feasible, especially in certain areas where many of NAHRO's members are 
located. Examples include: rural areas with very low median incomes, 
economically depressed communities pursuing mixed-income 
revitalization, and high-cost markets.

The LIHTC is the most successful tool for enabling and encouraging 
private sector investment in the production and preservation of 
affordable rental housing. It has been a critical source of equity for 
almost 3 million affordable apartments over the last 30 years (almost 
one-third of the entire U.S. inventory), providing over 6.7 million 
low-income households with access to homes that they can afford.

The LIHTC spurs job creation and stimulates local economies. Since 
1986, LIHTC developments have supported over 3.26 million jobs. The 
National Association of Home Builders (NAHB) estimates that for every 
1,000 apartments developed by LIHTC, roughly 1,130 jobs are created--
approximately 96,000 jobs per year. Additionally, LIHTC adds 
approximately $9.1 billion in income to the economy and generates about 
$3.5 billion in federal, state, and local taxes each year.

The LIHTC requires limited federal bureaucracy. The original 
authorizers of LIHTC recognized the importance of local control in its 
administration and decision-making authority. State and local housing 
entities have a much greater understanding of the needs of their local 
markets and possess the sophisticated finance, underwriting, and 
compliance capacity necessary to administer LIHTC.

By preserving affordable housing, producing new housing options, 
creating jobs, and helping struggling low- and moderate-income families 
across the country, LIHTC program is a common-sense approach to 
ensuring a stronger housing infrastructure.

Mr. Chairman and members of the Senate Finance Committee, thank you for 
your interest in meeting the nation's affordable housing needs and 
NAHRO welcomes your continued support of the LIHTC.

                                 ______
                                 
                      National Housing Conference

                      1900 M Street, NW, Suite 200

                          Washington, DC 20036

                             p 202-466-2121

                             f 202-466-2122

                              www.nhc.org

Members of the Senate Finance Committee,

The National Housing Conference thanks the Senate Finance Committee for 
holding a hearing on ``America's Affordable Housing Crisis: Challenges 
and Solutions,'' and appreciates your attention to the challenge of 
housing affordability which affect s too many American households. Much 
of the hearing focused on the Affordable Housing Credit Improvement 
Act, S. 548, which Senator Maria Cantwell (D-WA) and Senate Finance 
Committee Chairman Orrin Hatch (R-UT) introduced earlier this year. 
This crucial piece of legislation would increase Housing Credit 
authority, facilitate Housing Credit development in challenging markets 
and for hard-to-reach populations, support the preservation of existing 
affordable housing, and simplify program requirements. NHC is grateful 
to Senator Cantwell and Chairman Hatch for their leadership, and to the 
other Committee members--Ranking Member Ron Wyden (D-OR) and Senators 
Dean Heller (R-NV), Michael Bennet (D-CO), Rob Portman (R-OH), and 
Johnny Isakson (R-GA)--for their co-sponsorship support. NHC strongly 
urges the Committee to advance the Affordable Housing Credit 
Improvement Act as part of any tax legislation it considers.

The Housing Credit is a proven, effective solution to producing 
affordable housing; strengthening and expanding it will help create and 
preserve more rental homes for families and individuals, revitalize 
neighborhoods, and spur private sector investment.

      The Housing Credit has a remarkable track record, a model 
public-private partnership program that has financed more than 3 
million affordable homes.
      The Housing Credit is a proven solution to meet a large and 
growing need; 11 million renter households are severely cost burdened 
and need affordable housing.
      The Housing Credit stimulates local economies and improves 
communities; Stanford University research shows Housing Credit 
investments reduce poverty, crime, and racial and economic isolation.
      The Housing Credit is state administered with limited federal 
bureaucracy.
      The Housing Credit is our primary tool to preserve and redevelop 
our nation's current supply of affordable housing.
      The demand for Housing Credits exceeds the supply. In 2014, 
state Housing Credit allocating agencies received applications 
requesting more than twice their available Housing Credit authority.

To meaningfully grow our economy and address our nation's growing 
affordable housing needs as part of tax reform, NHC urges Congress to 
increase the cap on Housing Credit authority by 50 percent which would 
support the preservation and construction of up to 400,000 additional 
affordable apartments over a 10-year period. We also call on Congress 
to retain the tax exemption on multifamily Housing Bonds. S. 548 would 
authorize such an expansion and has strong bipartisan support in the 
Senate and among Senate Finance Committee members. This legislation 
would also enact roughly two dozen changes to strengthen the program by 
streamlining program rules, improving flexibility, and enabling the 
program to serve a wider array of local needs.

An investment in the Housing Credit is an investment in people, 
communities, and the economy. It transforms the lives of millions of 
Americans, many of whom are able to afford their homes for the first 
time, and it helps transform their communities and local economies. NHC 
applauds the leadership the Senate Finance Committee has shown in 
support of the Housing Credit to date and urges the Committee to expand 
and strengthen the Housing Credit and multifamily Housing Bonds.

To discuss any of these comments in further detail, please contact 
Rebekah King, Policy Associate, National Housing Conference, (202) 466-
2121 ext. 248, [email protected].

Sincerely,

Chris Estes
President and CEO

                                 ______
                                 
                 National Low Income Housing Coalition

                   1000 Vermont Avenue, NW, Suite 500

                          Washington, DC 20005

                    Diane Yentel, President and CEO

Congress and the Trump administration should use tax reform to address 
one of the most critical issues facing extremely low-income families 
today: the lack of decent, accessible, and affordable housing. Through 
smart, modest reforms to the mortgage interest deduction (MID)--a $70 
billion tax write-off that primarily benefits higher income 
households--Congress can reprioritize and rebalance federal spending on 
housing to make the deeply targeted investments in affordable rental 
housing that our nation needs for the economy, our communities, and 
families to thrive. All without increasing costs to the federal 
government.

Access to an affordable rental home is essential to economic prosperity 
and job creation. An affordable home is necessary for families to 
participate fully in the economy, making it easier for adults to find 
and keep good jobs and contribute to economic growth. Living in an 
affordable home improves children's health and education, increasing 
their economic success as adults. Moreover, federal investments in 
affordable homes boost local economies and create jobs. Despite the 
benefits of affordable homes, three out of four families eligible for 
rental assistance are turned away due to a lack of funding and half a 
million people are homeless on any given night. As a result, 71% of 
extremely low income households those earning less than the poverty 
guideline or 30% of the Area Median Income--pay at least half of their 
limited income on rent, leaving few resources to cover basic needs, 
like food, healthcare, childcare, and transportation.

At the same time, three-fourths of the nearly $200 billion spent by the 
federal government to help Americans buy or rent their homes goes to 
higher income households. In fact, the federal government spends more 
to subsidize the homes of the 7 million households with incomes above 
$200,000 than to assist the 55 million households with incomes below 
$50,000, even though they are far more likely to struggle to afford a 
place to live.

Reprioritizing federal housing policy starts with reforming the MID and 
reinvesting the savings into affordable rental homes for people with 
the greatest needs. Experts from across the political spectrum are 
increasingly calling the MID what it is: a wasteful use of federal 
resources that encourages households to take on higher levels of debt, 
disrupts the housing market by increasing costs for everyone, and 
mostly benefits those who do not need federal assistance to live in a 
stable home. Research confirms that the MID has no impact on 
homeownership.

The National Low Income Housing Coalition (NLIHC) and the United for 
Homes campaign proposes modest reforms to the MID to provide 25 million 
low and moderate income homeowners greater tax relief and to reinvest 
the $241 billion in savings over 10 years to provide affordable rental 
homes to people with the lowest incomes.

President Trump has proposed indirect changes to the MID, including 
doubling the standard tax deduction. This could provide a greater tax 
break to low and moderate income households. However, because the 
resulting MID would become even more regressive, benefiting only the 
wealthiest homeowners with the largest mortgages, Congress should pair 
any proposal to increase the standard deduction with additional MID 
reforms and reinvest the savings into deeply targeted affordable rental 
housing.

By reprioritizing federal housing policy, Congress and the Trump 
administration can help end homelessness and housing poverty once and 
for all, giving all families an opportunity to break through the cycle 
of poverty and climb the ladder of economic success.

The Need for Affordable Housing

The affordable housing crisis in America continues to reach new 
heights. Rents are rising, wages of the lowest income workers are flat, 
and more people are renting their homes than ever before. But the 
supply of affordable housing and rental assistance has not kept pace. 
As a result, record-breaking numbers of families cannot afford a decent 
place to call home. Every state and congressional district is impacted. 
Unless we increase investments in affordable housing to keep up with 
the need, these challenges will only get worse as demand for rental 
housing grows over the next decade.\1\
---------------------------------------------------------------------------
    \1\ Poethig, Erika C. ``Better housing policy could save us all 
money. Why are we ignoring it?'' The Washington Post. Oct. 11, 2016. 
https://www.washingtonpost.com/news/in-theory/wp/2016/10/11/better-
housing-policy-could-save-us-all-money-why-are-we-ignoring-
it?utm_term=.74
1ab09f87cf. Last visited July 28, 2017.

The greatest need for affordable housing--on the local, state, and 
national level--is concentrated among extremely low-income renters who 
earn no more than the poverty guideline or 30% of the area median 
income (AMI). NLIHC's recent report, ``The Gap: The Affordable Housing 
Gap Analysis 2017,'' found a shortage of 7.4 million affordable and 
available rental homes for the nation's 11.4 million extremely low 
income renter households. Nationally, only 35 affordable homes are 
available for every 100 extremely low income renter households. As a 
result, 71% of the poorest families are severely cost burdened, 
spending more than half of their limited income on rent and utilities. 
These 8.1 million households account for 72.6% of all severely cost 
burdened renters in the country. They are forced to make difficult 
choices between paying rent and buying groceries or visiting their 
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doctor. In the worst cases, these families become homeless.

NLIHC's report, ``Out of Reach 2017: The High Cost of Housing,'' shows 
the difference between wages and the price of housing in every state 
and county by estimating each locality's ``housing wage,'' the hourly 
wage a full-time worker needs to earn to afford a modest, two-bedroom 
apartment. In 2017, the national housing wage was $21.21 per hour. A 
worker earning the federal minimum wage would need to work 117 hours a 
week--or 2.9 full-time jobs--to afford a modest two-bedroom apartment. 
While the housing wage changes from state to state and county to 
county, there is no jurisdiction in the United States where a full-time 
worker earning the prevailing minimum wage can afford a modest, two-
bedroom apartment. And it's not just minimum wage workers for whom 
rents are out of reach: the average renter in the U.S. earns $16.38 per 
hour--nearly $5 an hour less than the national housing wage.

The public is looking to the White House and Congress for solutions. 
According to a recent How Housing Matters survey, 81% of Americans 
believe housing affordability is a problem in America, and 60% 
characterize the lack of affordable housing as a serious problem. Three 
out of four (76%) Americans believe it is important for federal elected 
officials to take action on housing affordability, and 63% believe the 
issue is not getting enough attention.\2\
---------------------------------------------------------------------------
    \2\ ``Affordable Housing: An Investment in Kids and Their Future.'' 
How Housing Matters. 2016. https://howhousingmatters.org/articles/
affordable-housing-investment-kids-future/. Last visited July 28, 2017.
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Impact on Economic Mobility

Affordable housing is a long-term asset that helps families and 
children climb the economic ladder. According to the How Housing 
Matters survey, 70% of Americans agree that ``investing in affordable, 
quality housing is investing in kids and their future.'' \3\
---------------------------------------------------------------------------
    \3\ ``Affordable Housing: An Investment in Kids and Their Future.'' 
How Housing Matters. 2016. https://howhousingmatters.org/articles/
affordable-housing-investment-kids-future/. Last visited July 28, 2017.

Increasing the supply of affordable housing and rental assistance--
especially in areas connected to good schools, well-paying jobs, health 
care, and transportation--helps families climb the economic ladder. In 
addition, children who live in stable, affordable homes have better 
health and educational outcomes, gain greater access to economic 
opportunities, enjoy better mental and physical well-being, and benefit 
from stronger communities. Research shows that increasing access to 
affordable housing is the most cost-effective strategy for reducing 
childhood poverty in the United States.\4\
---------------------------------------------------------------------------
    \4\ Giannarelli, Linda et al. ``Reducing Child Poverty in the US: 
Costs and Impacts of Policies Proposed by the Children's Defense 
Fund.'' Urban Institute. January 30, 2015. http://www.urban.org/
research/publication/reducing-child-poverty-us. Last visited July 28, 
2017.

Groundbreaking research by economist Raj Chetty offers persuasive 
evidence of the impact of affordable housing on upward mobility for 
children. Using new tax data, Chetty and his colleagues assessed the 
long-term outcomes for children who moved at a younger age to lower 
poverty neighborhoods. Chetty's study found that children who were 
younger than 13 when their family moved to lower poverty neighborhoods 
saw their earnings as adults increase by approximately 31%, were more 
likely to live in better neighborhoods as adults, and less likely to 
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become a single parent.

Other research shows that children living in stable, affordable homes 
are more likely to thrive in school and have greater opportunities to 
learn inside and outside the classroom. Children in low income 
households that live in affordable housing score better on cognitive 
development tests than those in households with unaffordable rents.\5\ 
Researchers suggest that that is partly because parents with affordable 
housing can invest more in activities and materials that support their 
children's development.\6\ Having access to affordable housing allows 
the lowest income families to devote more of their limited resources to 
other basic needs. Families paying large shares of their income for 
rent have less money to spend on food, health care, and other 
necessities.\7\
---------------------------------------------------------------------------
    \5\ Newman, Sandra J. and C. Scott Holupka. ``Housing Affordability 
and Child Well-Being.'' Housing Policy Debate 25.1 (2014): 116-51. 
Taylor and Francis Online. http://www.tandfonline.com/doi/abs/10.1080/
10511482.2014.899261. Last visited July 28, 2017.
    \6\ Newman, Sandra J. and C. Scott Holupka. ``Affordable Housing Is 
Associated with Greater Spending on Child Enrichment and Stronger 
Cognitive Development.'' How Housing Matters. MacArthur Foundation. 
July 2014. https://www.macfound.org/media/files/Affordable_Housing
_Child_Enrichment_Stronger_Cognitive_Development.pdf. Last visited July 
28, 2017.
    \7\ America's Rental Housing: Expanding Options for Diverse and 
Growing Demand. Rep. Joint Center for Housing Studies at Harvard 
University, 2015. http://www.jchs.harvard.edu/sites/jchs.harvard.edu/
files/americas_rental_housing_2015_web.pdf. Last visited July 28, 2017.
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Impact on the Economy and Job Creation

Beyond the broad benefits to economic mobility, an investment in 
affordable housing for the lowest income households bolsters 
productivity and economic growth. By connecting workers to communities 
with well-paying jobs, good schools, and transit, investments in 
affordable housing can spur local job creation and increase incomes.

Research shows that the shortage of affordable housing in major 
metropolitan areas costs the American economy about $2 trillion a year 
in lower wages and productivity. Without affordable homes, families 
have constrained opportunities to increase earnings, causing slower GDP 
growth.\8\ Moreover, each dollar invested in affordable housing boosts 
local economies by leveraging public and private resources to generate 
income--including resident earnings and additional local tax revenue--
and supporting job creation and retention. Building 100 affordable 
rental homes generates $11.7 million in local income, $2.2 million in 
taxes and other revenue for local governments, and 161 local jobs in 
the first year.\9\
---------------------------------------------------------------------------
    \8\ Hsieh, Chang-Tai and Enrico Moretti. ``Housing Constraints and 
Spatial Allocation.'' UC Berkeley and the National Bureau of Economic 
Research. May 18, 2017. http://faculty.chicagobooth.edu/chang-
tai.hsieh/research/growth.pdf. Last visited July 28, 2017.
    \9\ The Economic Impact of Home Building in a Typical Local Area: 
Income, Jobs, and Taxes Generated. Rep. National Association of Home 
Builders, Apr. 2015. https://www.nahb.org//media/Sites/NAHB/
Economic%20studies/1-REPORT_local_20150318115955.ashx?la=en. Last 
visited July 28, 2017.
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The Need to Reprioritize Federal Housing Policy

Federal investments in affordable housing--at the U.S. Departments of 
Housing and Urban Development (HUD) and Agriculture (USDA)--have lifted 
millions of families out of poverty. Without these investments, many of 
these families would be homeless, living in substandard or overcrowded 
conditions, or struggling to meet other basic needs because too much of 
their limited income would go to paying rent. Despite their proven 
track record, HUD and USDA affordable housing investments have been 
chronically underfunded. Today, of the families who qualify for housing 
assistance, only a quarter will get the help that they need. Every 
state and congressional district is impacted.

There is no silver-bullet solution. Housing challenges differ from 
community to community. Congress and the Trump administration, as well 
as state and local governments, must use every tool available to solve 
the problem. A comprehensive set of solutions to end housing insecurity 
in America includes preserving and rehabilitating our nation's existing 
affordable housing stock, increasing investments in the production of 
affordable rental homes for low income families, and expanding rental 
assistance and other housing programs that help make housing 
affordable.

Underlying all these solutions is the need to increase targeted federal 
investments in affordable housing to help families and communities 
thrive. This can be done--without increasing costs for the federal 
government--by reforming the MID, our nation's largest housing subsidy 
that largely benefits higher income homeowners, and reinvesting the 
savings to serve those with the greatest needs.

Most Federal Housing Resources Are Poorly Targeted to Serve People With 
the Greatest Needs

Each year, the federal government spends almost $200 billion to help 
Americans buy and rent their homes. A full 75% of all these resources--
including both program spending and tax expenditures--goes to subsidize 
higher income homeowners though the MID and other homeownership tax 
breaks. Targeted federal housing resources at HUD and USDA, which have 
seen deep funding cuts in recent years due to the low spending caps 
required by the Budget Control Act, amount to just a quarter of all 
federal spending on housing.\10\
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    \10\ Fischer, Will and Barbara Sard. ``Chart Book: Federal Housing 
Spending Is Poorly Matched to Need.'' Center on Budget and Policy 
Priorities. March 8, 2017. https://www.cbpp.org/research/housing/chart-
book-federal-housing-spending-is-poorly-matched-to-need. Last visited 
July 28, 2017.

Federal housing policy is so unbalanced, in fact, that we as a nation 
spend more to subsidize the homes of the 7 million highest income 
households with incomes above $200,000 than we do to help the 55 
million households with incomes of $50,000 or less, even though these 
families are more likely to struggle to afford housing.\11\
---------------------------------------------------------------------------
    \11\ Fischer, Will and Barbara Sard. ``Chart Book: Federal Housing 
Spending Is Poorly Matched to Need.'' Center on Budget and Policy 
Priorities. March 8, 2017. https://www.cbpp.org/research/housing/chart-
book-federal-housing-spending-is-poorly-matched-to-need. Last visited 
July 28, 2017.

The Center on Budget and Policy Priorities estimates households with 
incomes of $200,000 or more receive an average federal housing benefit 
of $6,076 per year--about four times the average annual benefit of 
$1,529 received by households with incomes below $20,000.

MID Is a Wasteful Use of Federal Resources

The MID is poorly targeted and largely benefits America's highest 
income households. For this reason, experts from across the ideological 
spectrum criticize the MID as a wasteful use of federal resources that 
encourages households to take on higher levels of debt, disrupts the 
housing market by increasing costs for everyone, and mostly benefits 
those who do not need federal assistance to live in a stable home. 
Research confirms that the MID has no impact on homeownership.

The MID Promotes Debt, Not Homeownership

According to estimates by the congressional Joint Committee on 
Taxation, the MID primarily benefits households with the higher 
incomes. Households earning less than $100,000 represent two-thirds 
(68%) of all taxable returns. However, these households amount to one-
third (36%) of all households that claim the MID, and they receive just 
16% of all MID dollars.

In comparison, households with incomes of more than $100,000 represent 
32% of all taxable returns, but more than two-thirds (64%) of all 
households that claim the MID, they receive 84% of all MID dollars. And 
households with incomes above $200,000 file only 8% of all taxable 
returns. They amount to 21% of all households claiming the MID and they 
receive nearly half (46%) of all MID dollars.

The nonpartisan Congressional Budget Office (CBO) reports that 75% of 
the benefits of the MID go to the top 20% of earners. In fact, 15% of 
the benefits of the MID, or nearly $11 billion each year, goes to the 
top 1% of earners, the wealthiest households in America.

Everyone else gets almost nothing. Approximately 70% of all taxpayers 
do not receive the MID, including half of all homeowners who do not 
itemize their tax deductions and instead take the standard deduction.

Economists agree that the MID does little to promote homeownership. 
Higher income households that benefit from the MID would likely choose 
to buy a home regardless of whether they receive a tax break. Instead, 
the MID incentivizes these higher income households to take on larger 
mortgages; greater mortgage debt results in more mortgage interest 
eligible for a tax break. Moreover, the value of the MID corresponds to 
a household's marginal tax rate, so households in higher tax brackets 
receive more than households in lower tax brackets.

For example, in the first comprehensive, long-term study of how tax 
subsidies affect housing decisions, the National Bureau of Economic 
Research found that the MID ``has a precisely estimated zero effect on 
homeownership,'' even in the long term. Instead, the data show that the 
MID encourages homeowners to buy larger and more expensive houses and 
to take on increased levels of debt.

Meanwhile, lower income homeowners receive little to no benefit from 
the MID. These households are far less likely to itemize their tax 
deductions; their mortgages tend to be smaller and, therefore, they 
have less mortgage interest eligible for a tax break. And even if they 
claim the mortgage deduction, because their marginal tax rate is lower, 
the value of the MID is significantly less than homeowners with higher 
incomes.

Households earning more than $1 million receive an average annual MID 
benefit of nearly $9,000, while households earning between $40,000 and 
$50,000 receive an average MID benefit of $528 per year.\12\
---------------------------------------------------------------------------
    \12\ ``Options to Reform the Deduction for Home Mortgage 
Interest,'' Tax Policy Center, 2015.

Economists note that many developed countries without a MID have the 
same or higher homeownership rate as the U.S. As the CBO has reported, 
``Despite the favorable tax treatment that mortgage interest receives 
in the United States, the rate of homeownership here is similar to that 
in Australia, Canada, and the United Kingdom, and none of those 
countries currently offers a tax deduction for mortgage interest.''\13\
---------------------------------------------------------------------------
    \13\ ``Reducing the Deficit: Spending and Revenue Options.'' 
Congressional Budget Office. March 10, 2011. https://www.cbo.gov/
publication/22043. Last visited July 28, 2017.
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The MID Distorts Markets and Increases Costs

The MID distorts the housing and investment markets, increasing the 
cost of homeownership and dampening economic growth. By inflating home 
values, the MID largely benefits households that already own their 
homes at the expense of those who hope to become homeowners in the 
future. While higher income households can absorb higher housing costs 
without a significant impact on homeownership rates, this added expense 
makes it more difficult for low and moderate income families to buy a 
home. Others have also argued that the MID distorts the housing market 
by discouraging investment in one consumer good--homes--at the expense 
of other possibly more productive economic activity.\14\
---------------------------------------------------------------------------
    \14\ ``The Houses of Lobbyists.'' The Wall Street Journal. May 6, 
2017. https://www.wsj.com/articles/houses-of-lobbyists-1494024305. Last 
visited July 28, 2017.
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The MID Increases Income Inequality and Fuels the Racial Wealth Gap

Pulitzer prize-winning author and sociologist Matthew Desmond 
illustrated how the MID has become ``the engine of American 
inequality'' in his recent New York Times magazine article. Dr. Desmond 
notes that the federal government spends about $134 billion to 
subsidize the homes of higher income households through the MID and 
other homeownership tax breaks--more than the entire budgets of the 
U.S. Departments of Education, Justice and Energy combined and more 
than half the entire gross domestic product of countries like Chile, 
New Zealand and Portugal. At the same time, too few low income 
households that use more than half of their limited incomes for rent 
each month, leaving very little left to cover the cost of groceries, 
medicine, and other basic needs.

In his new book, Toxic Inequality: How America's Wealth Gap Destroys 
Mobility, Deepens the Racial Divide, and Threatens Our Future, 
sociologist Thomas Shapiro examines the role the MID has played in 
exacerbating growing income inequality and racial inequity. After 
noting that ``we invest five times more public money in home ownership 
for families that can afford homes than in decent, affordable housing 
for those who cannot,'' Shapiro argues that this public investment in 
homeownership ``flows mostly to the best-off homeowners, redistributing 
wealth at the top, driving wealth inequality, and contributing to toxic 
inequality.''\15\
---------------------------------------------------------------------------
    \15\ Shapiro, Thomas. ``Moyers and Company: How Our Tax Code Makes 
Inequality Worse.'' United for Homes. May 18, 2017. http://
www.unitedforhomes.org/news/moyers-company-tax-code-makes-inequality-
worse/. Last visited July 28, 2017.

While there is less direct data on the racial impact of the MID--
largely because race and ethnicity data are not collected on tax 
forms--there is significant evidence that the MID negatively impacts 
households of color. Recently, the Tax Policy Center examined ZIP codes 
in which high rates of residents claimed the MID; it found that black 
households represent only 5.6% of the population in these areas, less 
than half their national proportion. By comparison, residents of ZIP 
codes with the highest rates of taxpayers claiming the MID are 
disproportionately white.\16\
---------------------------------------------------------------------------
    \16\ Shapiro, Thomas. ``Moyers and Company: How Our Tax Code Makes 
Inequality Worse.'' United for Homes. May 18, 2017. http://
www.unitedforhomes.org/news/moyers-company-tax-code-makes-inequality-
worse/. Last visited July 28, 2017.

Moreover, by examining MID beneficiaries by income bracket, the Tax 
Policy Center found that black households receive only 3.5% of tax 
expenditures in individual wealth building, which includes the MID, 
despite comprising 13.2% of the population. ``African-American families 
would accumulate $35 billion more in wealth each year if their incomes 
were distributed according to their national representation--13.2% in 
each income bracket.''\17\
---------------------------------------------------------------------------
    \17\ Shapiro, Thomas. ``Moyers and Company: How Our Tax Code Makes 
Inequality Worse.'' United for Homes. May 18, 2017. http://
www.unitedforhomes.org/news/moyers-company-tax-code-makes-inequality-
worse/. Last visited July 28, 2017.
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Proposals to Reform the MID

Congress has a clear opportunity to enact tax reform that addresses the 
growing affordable rental housing crisis facing millions of low-income 
people in every state and community. That starts with reforming the 
MID, our nation's largest housing subsidy, and reinvesting these scarce 
resources to serve those with the greatest needs. Experts from across 
the political spectrum agree, including The Wall Street Journal 
editorial board, former President George W. Bush advisor Dennis Shea, 
the CATO Institute, the Ronald J. Terwilliger Foundation, former 
President Obama advisor Michael Stegman, former Labor Secretary Robert 
Reich, Pulitzer prize-winning author and sociologist Matthew Desmond, 
and many others.

NLIHC's United for Homes campaign--which has been endorsed by more than 
2,300 organizations, local governments, and elected officials--proposes 
to reform the MID. The changes are simple and modest. United for Homes 
calls for:

    1.  Reducing the amount of mortgage eligible for tax relief from $1 
million to the first $500,000, generating $87 billion in savings over 
10 years.\18\
---------------------------------------------------------------------------
    \18\ If phased in over 5 years.

An analysis of 2013-2015 Home Mortgage Disclosure Data (HMDA) shows 
that just 6% of new mortgages in the U.S. are over $500,000. And 
homeowners with large mortgages would still receive tax relief on the 
first $500,000 of their mortgage. For example, a homeowner with a 
mortgage of $600,000 would still benefit from a tax break on the first 
$500,000 of their mortgage. Lowering the cap would have ``virtually no 
effect on homeownership rates.'' Economist Edward Glaeser argues that 
capping the MID at the first $500,000 would have only ``modest effects 
on home prices'' in supply-constrained cities like San Francisco and 
virtually no effect in cities with plenty of available land, like 
---------------------------------------------------------------------------
Houston. ``Most homeowners wouldn't even feel it,'' Glaeser says.

    2.  Converting the deduction into a nonrefundable, 15% capped 
credit, generating $191 billion in savings over 10 years.

Half of all homeowners receive no benefit from the MID because they do 
not itemize their tax deductions. By converting MID to a credit, an 
additional 15 million homeowners--99% of whom have incomes under 
$100,000--who currently get no benefit under the MID would receive a 
much-needed tax break. In total, 25 million low and moderate income 
homeowners would receive a greater tax break than they currently do 
under the MID. Converting the deduction to a credit has been proposed 
by several high-level bipartisan groups--President George W. Bush's 
Advisory Panel on Federal Tax Reform, the Simpson-Bowles Deficit 
Commission established by President Barack Obama, and the Bipartisan 
Policy Center's Debt Reduction Task Force--as a way to expand the tax 
break to more low and moderate income homeowners.

    3.  Reinvesting the $241 billion in savings over 10 years into 
affordable rental homes for families with the greatest, clearest 
housing needs.

The UFH reforms would generate $241 billion in savings over 10 years 
\19\ to be reinvested into highly targeted rental housing programs that 
serve families with the greatest needs, including the national Housing 
Trust Fund (HTF), a new renters' credit, Housing Choice Vouchers, and 
other solutions for the lowest income people.
---------------------------------------------------------------------------
    \19\ If phased in over 5 years.
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National Housing Trust Fund

The national Housing Trust Fund is the first new housing resource in a 
generation, targeted to build, preserve, and rehabilitate housing for 
people with the lowest incomes.

NLIHC led a national coalition that played a critical role in the 
creation of the Housing Trust Fund through the passage of the Housing 
and Economic Recovery Act of 2008. In 2016, the first $174 million in 
Housing Trust Fund dollars were allocated to states. This is an 
important step, but far more resources are necessary to meet the need.

The Housing Trust Fund is the only federal housing program exclusively 
focused on providing states with resources targeted to serve households 
with the clearest, most acute housing needs. Because the Housing Trust 
Fund is administered by HUD as a block grant, each state has the 
flexibility to decide how to best use Housing Trust Fund resources to 
address its most pressing housing needs. Each state distributes the 
resources based on its annual Allocation Plan, which identifies the 
state's priority housing needs. States decide which housing 
developments to support.

The Housing Trust Fund is also the most targeted federal rental housing 
production and homeownership program. By law, at least 75% of Housing 
Trust Fund dollars used to support rental housing must serve extremely 
low income (ELI) households earning no more than 30% of the Area Median 
Income (AMI) or the federal poverty limit. All Housing Trust Fund 
dollars must benefit households with very low incomes earning no more 
than 50% of AMI. Most other federal affordable housing programs can 
serve families up to 60% or 80% of AMI. The statute requires that at 
least 90% of the HTF funds be used for the production, preservation, 
rehabilitation, or operation of rental housing. Up to 10% may be used 
for homeownership activities for first-time homebuyers: production, 
preservation, and rehabilitation, and down payment, closing cost, and 
interest rate buy-down assistance.

Currently, the Housing Trust Fund is funded with dedicated sources of 
revenue outside of the appropriations process. The initial source of 
funding designated in the statute is an annual assessment of 4.2 basis 
points (0.042%) of the volume of business of Freddie Mac and Fannie 
Mae, 65% of which goes to the Housing Trust Fund.

The statute also provides that the Housing Trust Fund can be funded by 
other sources of revenue, such as any appropriations, transfers, or 
credits that Congress may designate in the future. However, the Housing 
Trust Fund should be funded with dedicated revenues generated outside 
of the appropriations process so that it does not compete with existing 
HUD programs.

Renters' Credit

NLIHC supports proposals to establish a tax credit to help make housing 
affordable for renters with the lowest incomes.\20\ Our nation has long 
provided mortgage tax relief for higher income homeowners, most of whom 
would be stably housed without assistance. A renters' tax credit that 
could help ensure that the lowest income households can afford a safe, 
decent home is long overdue.
---------------------------------------------------------------------------
    \20\ CBPP proposal: Sard, Barbara and Will Fischer. ``Renters' Tax 
Credit Would Promote Equity and Advance Balanced Housing Policy.'' 
Center on Budget and Policy Priorities. August 21, 2013. https://
www.cbpp.org/research/housing/renters-tax-credit-would-promote-equity-
and-advance-balanced-housing-policy. Last visited July 28, 2017.
    Terner Center proposal: Galante, Carol et al. ``The Fair Tax 
Credit: A Proposal for a Federal Assistance in Rental Credit to Support 
Low-Income Renters.'' UC Berkeley Terner Center for Housing Innovation. 
November 2016. http://ternercenter.berkeley.edu/fair-tax-credit. Last 
visited July 28, 2017.

A renters' tax credit could complement the existing Low-Income Housing 
Tax Credit--which works well as a subsidy for affordable housing 
development, but is rarely sufficient on its own to push rents down to 
levels poor families can pay--and rental assistance programs, such as 
Housing Choice Vouchers--which are highly effective, but reach only a 
modest share of the families in need of such assistance. Any renters' 
credit should benefit individuals with the lowest incomes and the 
greatest needs. Efforts to ensure that extremely low income households 
do not pay more than 30% of their incomes on housing should be 
---------------------------------------------------------------------------
prioritized.

Proposals to establish a renters' tax credit offer a promising 
opportunity to address the affordable housing challenges of the many 
lowest income households who go without assistance and to help these 
families keep more of their incomes for other necessities.

Housing Choice Vouchers

Housing Choice Vouchers are a proven tool in reducing homelessness and 
housing insecurity, as well as helping families climb the economic 
ladder. Housing vouchers help people with the lowest incomes afford 
housing in the private market by paying landlords the difference 
between what a household can afford to pay in rent and the rent itself, 
up to a reasonable amount. Administered by HUD, housing vouchers 
comprise the agency's largest rental assistance program, assisting more 
than 2.2 million households.

Despite the program's proven success in ending homelessness and 
reducing housing insecurity, limited funding means that relatively few 
eligible families receive this needed assistance. Today, just one in 
four eligible families receives the rental assistance they need.

Given the program's effectiveness, we recommend that Congress 
significantly expand housing vouchers to provide families in need with 
housing choice. While housing vouchers offer families the prospect of 
moving to areas of opportunity, barriers to mobility prevent many from 
doing so. Many private-sector landlords refuse to accept housing 
vouchers--whether because of the administrative costs, because vouchers 
do not cover the full cost of rent in high-cost areas, or outright 
discrimination. There are a number of steps that can be taken to 
address these issues, including consolidating public housing 
authorities' administration of vouchers within a housing market, 
directing HUD to adopt small area fair market rents (SAFMRs) with 
strong tenant protections, barring source-of-income discrimination, and 
funding mobility counseling pilot programs, among others.

Proposals to Double the Standard Tax Deduction

President Trump's broad principles for tax reform includes indirect 
changes to the MID, including a proposal to double the standard 
deduction.

If the standard deduction were doubled, many households would no longer 
claim the MID and instead would take the increased standard deduction. 
This change in the tax code could provide a greater tax break to many 
low- and moderate-income households and could lead to higher 
homeownership rates over the long-term.

However, without additional reforms, Mr. Trump's proposal would amplify 
the MID's regressive effect; only higher income Americans with the 
largest mortgages would benefit. NLIHC agrees with the Wall Street 
Journal editorial board that if Congress doubles the standard 
deduction, it should also embrace other reforms to make MID less 
regressive--like reducing the amount of mortgage eligible for the MID 
from $1 million to the first $500,000. The savings from such a change 
must be reinvested into deeply targeted affordable rental housing.

Doubling the Standard Deduction Could Boost Homeownership Rates and 
Home Values

Economists argue that doubling the standard deduction could boost 
homeownership rates over the long-term. Trulia's Chief Economist Ralph 
McLaughlin states, ``While the tax benefits of homeownership will erode 
for some, it might help increase the ability of renters to save up for 
the all elusive down payment. In turn, this could boost home buying 
activity in the long run.''\21\
---------------------------------------------------------------------------
    \21\ McLaughlin, Ralph. ``How the Trump Administration's Tax Plan 
Might Impact Homebuying.'' May 16, 2017. https://www.trulia.com/blog/
trends/trump-tax-proposal-may-17/. Last visited July 28, 2017.

Dennis Ventry from the American Enterprise Institute likewise suggests 
that doubling the standard deduction would increase demand for 
homeownership, especially among low and moderate income families 
because the proposal ``subsidizes taxpayers on the margin between 
owning and renting rather than taxpayers who can purchase a home with 
or without a subsidy.''\22\ Millions of current homeowners would see a 
greater tax break and so would first-time homeowners eager to jump into 
the homeownership market.
---------------------------------------------------------------------------
    \22\ Ventry, Dennis J., Jr. ``The Hill: Trump's Tax Plan Can Boost, 
Not Reduce, Homeownership.'' United for Homes. May 23, 2017. http://
www.unitedforhomes.org/news/hill-trumps-tax-plan-can-boost-not-reduce-
homeownership/. Last visited July 28. 2017.

Some industry groups have warned that doubling the standard deduction 
could dampen home values--a claim that experts dispute. While Ventry 
concedes that home prices may decrease initially, this effect would be 
temporary and would be outweighed by a longer-term increase in the 
demand for homeownership: ``Positive effects on homeownership rates 
from lower home prices would more than offset negative effects from 
loss of the deductions, particularly in high-priced, space-
constricted markets.'' Ventry argues that, in most parts of the 
country, doubling the standard tax deduction would ``have no negative 
effect on prices and might even raise prices due to the purchasing 
power of the new tax-free dollars.''\23\
---------------------------------------------------------------------------
    \23\ Ventry, Dennis J., Jr. ``The Hill: Trump's Tax Plan Can Boost, 
Not Reduce, Homeownership.'' United for Homes. May 23, 2017. http://
www.unitedforhomes.org/news/hill-trumps-tax-plan-can-boost-not-reduce-
homeownership/. Last visited July 28, 2017.
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Additional Reforms Are Needed if Congress Doubles Standard Deduction

Today, about 70% of taxpayers do not benefit from the MID. This 
includes half of all homeowners who do not itemize their tax 
deductions. The National Association of Realtors estimates that if the 
standard deduction is doubled, as proposed by President Trump, 95% of 
taxpayers will choose to take the standard deduction. The higher 
standard deduction would provide them with a greater tax break than 
itemizing their tax deductions. As a result, only 5% of taxpayers--
primarily higher income households with the largest mortgages would 
continue to claim the MID.\24\
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    \24\ Gopal, Prashant and Joe Light. ``25 Million Americans Could 
Find Mortgage Tax Break Useless Under Trump's Plan.'' Bloomberg. May 
16, 2017. https://www.bloomberg.com/news/articles/2017-05-16/trump-tax-
plan-would-make-mortgage-break-worthless-for-millions. Last visited 
July 28, 2017.

Prashant Gopal and Joe Light estimate that a married couple would need 
a mortgage of at least $608,000 before it would make sense to itemize 
rather than use the standard deduction, assuming that the couple did 
not have any other itemizable deductions, which was proposed by the 
Trump administration.\25\ Only higher income Americans--those who would 
likely become homeowners without a tax break and who would likely have 
stable housing without federal assistance--would benefit from the MID.
---------------------------------------------------------------------------
    \25\ Gopal, Prashant and Joe Light. ``Trump Tax Proposal Would Make 
Mortgage Deduction Useless for Most Homeowners.'' The Seattle Times. 
May 16, 2017. http://www.seattletimes.com/business/real-estate/trump-
tax-proposal-would-make-mortgage-deduction-useless-for-most-
homeowners/. Last visited July 28, 2017.

Because the resulting MID would become even more regressive after the 
standard deduction was doubled, Congress should pair any proposal to 
double the standard deduction with additional MID reforms, including 
reducing the amount of mortgage eligible for the MID from $1 million to 
the first $500,000 and reinvesting the savings into deeply targeted 
---------------------------------------------------------------------------
affordable rental housing.

                                 ______
                                 
            National Multifamily Housing Council (NMHC) and 
                  National Apartment Association (NAA)

                      1775 Eye St., NW, Suite 1100

                          Washington, DC 20006

                              202-974-2300

                      https://weareapartments.org/

The National Multifamily Housing Council (NMHC) and the National 
Apartment Association (NAA) respectfully submit this statement for the 
record for the Senate Finance Committee's August 1, 2017, hearing 
titled ``America's Affordable Housing Crisis: Challenges and 
Solutions.''

For more than 20 years, the National Multifamily Housing Council (NMHC) 
and the National Apartment Association (NAA) have partnered in a joint 
legislative program to provide a single voice for America's apartment 
industry. Our combined memberships are engaged in all aspects of the 
apartment industry, including ownership, development, management and 
finance. NMHC represents the principal officers of the apartment 
industry's largest and most prominent firms. As a federation of more 
than 160 state and local affiliates, NAA encompasses over 73,000 
members representing nearly 9 million apartment homes globally.

Rental Housing--The Supply-Demand Imbalance

Housing affordability is a significant challenge facing many Americans 
today who seek to rent an apartment home. The number of families 
renting their homes stands at an all-time high and is still growing 
strongly, placing significant pressure on the apartment industry to 
meet the demand. This is making it challenging for millions of families 
nationwide to find quality rental housing that is affordable at their 
income level.

Affordability has been a longstanding problem in housing. The total 
share of cost-burdened apartment households (those paying more than 30 
percent of their income on housing) increased steadily from 42.4 
percent in 1985 to 54.8 percent in 2015. Also during this period, the 
total share of severely cost-burdened apartment households (those 
paying more than half their income on housing) increased from 20.9 to 
29.2 percent.\1\ This housing cost burden also places pressure on a 
household's ability to pay for basic necessities, including food and 
transportation, and ultimately impacts their future financial success.
---------------------------------------------------------------------------
    \1\ NMHC tabulations of American Housing Survey microdata (1985-
2015).

This issue is not unique to households receiving federal subsidies and, 
in fact, is encroaching on the financial well-being of households 
earning up to 120 percent of area median income. Consider that the 
median asking rent for an apartment constructed in 2015 was $1,396. For 
a renter to afford one of those units at the 30 percent of income 
standard, they would need to earn at least $55,840 annually.\2\ As a 
basis of comparison, the median household income in 2015 was 
$56,516.\3\ Accordingly, this is an issue also impacting those 
supporting the very fabric of communities nationwide, including 
teachers, firefighters, nurses and police officers.
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    \2\ NMHC calculation based on U.S. Census Bureau, Survey of Market 
Absorption Detailed Tables, Table 2.
    \3\ U.S. Census Bureau, Current Population Survey, 2015 and 2016 
Annual Social and Economic Supplements.

Setting aside that real (inflation-adjusted) incomes in the U.S. have 
been stagnant for the past three decades--clearly the key factor 
driving the affordability crisis--housing industry leaders agree that 
promoting construction, preservation and rehabilitation are three of 
the vital ways to meet the surging demand for apartment homes.

Changing Housing Dynamics

The U.S. is in the midst of a fundamental shift in our housing dynamics 
as changing demographics and housing preferences drive more people 
toward renting as their housing of choice. Today, demand for apartments 
is at unprecedented levels as the number of renters has reached an all-
time high. Since 2010, the number of renter households has increased by 
an average of more than 800,000 annually--almost as much as 1.2 million 
a year, by some measures.\4\ Meanwhile, apartment vacancy rates as 
measured by MPF Research fell or remained the same for 7 straight years 
from 2009 to 2016.\5\
---------------------------------------------------------------------------
    \4\ NMHC tabulations of American Community Survey and Current 
Population Survey microdata.
    \5\ MPF Research.

Changing demographics are driving the demand for apartments. Married 
couples with children now represent only 19 percent of households. 
Single-person households (28 percent), single parent households (9 
percent) and roommates (7 percent) collectively account for 43 percent 
of all households, and these households are more likely to rent.\6\ 
Moreover, the surge toward rental housing cuts across generations. In 
fact, nearly 73 million Baby Boomers (those born between 1946 and 
1964), as well as other empty nesters, have the option of downsizing as 
their children leave the house and many will choose the convenience of 
renting.\7\ Over half (58.6 percent) of the net increase in renter 
households from 2006 to 2016 came from householders 45 years or 
older.\8\
---------------------------------------------------------------------------
    \6\ 2015 Current Population Survey, Annual Social and Economic 
Supplement, U.S. Census Bureau, ``America's Families and Living 
Arrangements: 2015: Households'' (H table series), table H3/Family 
groups (FG series), table FG6.
    \7\ Annual Estimates of the Resident Population by Single Year of 
Age and Sex for the United States: April 1, 2010 to July 1, 2015, U.S. 
Census Bureau. Baby Boomers are defined as those born 1946 through 
1964.
    \8\ NMHC tabulations of 2016 Current Population Survey, Annual 
Social and Economic Supplement, U.S. Census Bureau.

Unfortunately, the supply of new apartments is falling well short of 
demand. Just-released research by Hoyt Advisory Services, Dinn Focused 
Marketing, Inc. and Whitegate Real Estate Advisors, LLC, U.S. Apartment 
Demand--A Forward Look, commissioned by NMHC/NAA shows that the nation 
will need 4.6 million new apartments by 2030, or an average of 328,000 
units a year.\9\ Just 244,000 apartments were delivered from 2012-
2016.\10\
---------------------------------------------------------------------------
    \9\ Hoyt Advisory Services, Dinn Focused Marketing, Inc., and 
Whitegate Real Estate Advisors, LLC, U.S. Apartment Demand--A Forward 
Look, May 2017, p. 38.
    \10\ NMHC tabulations of 2016 Current Population Survey, Annual 
Social and Economic Supplement, U.S. Census Bureau.

[GRAPHIC] [TIFF OMITTED] T80117.007


Building more apartment homes will help improve the supply-demand 
imbalance that drives these affordability challenges, but developers 
and localities must work together to remove obstacles to development. 
Even if local officials and planning boards agree that new, affordable 
apartments must be built, land costs, entitlement expenditures, labor 
expenses, building materials and property taxes all contribute to 
making their construction extremely costly.

Why Are Rents so High?

As the discussion above demonstrates, the nation faces a significant 
shortage of affordable rental housing. Addressing this challenge will 
require new development and the preservation and rehabilitation of the 
existing housing stock. Barriers to these activities, described below, 
only serve to slow down the market response to our housing supply 
challenges. Before discussing these barriers, however, it is worthwhile 
to assess the reasons why Americans are facing high rents and why there 
is too little available rental housing that is affordable.

First and foremost, America's housing affordability issue is more than 
just a housing problem. It is not only that rental housing has gotten 
more expensive to produce and operate, but also that other economic 
factors have suppressed household income growth. On an inflation-
adjusted basis, median renter household income today is little changed 
from its 1980 level.

Because income stagnation is such a significant part of the equation, 
simply building more housing cannot be the sole solution to this 
affordable housing shortage. In fact, in many markets where demand is 
strongest, even if, hypothetically, developers agreed to take no 
profit, the cost to build still exceeds what people can afford to pay.

Second, today's strong rent growth is a temporary situation in what is 
a highly cyclical market driven by factors largely outside of the 
industry's control. For example, the collapse of the U.S. financial 
markets in 2008 virtually shut down new apartment construction for a 
number of years, severely constricting supply right at a time when 
rental demand surged to levels not seen for decades. Development is 
only now beginning to meet the annual increase in apartment demand.

Finally, as mentioned above, apartment construction has increased. As 
new units are delivered, rent growth will moderate. That said, even 
with more apartments in the pipeline, construction activity remains, at 
best, at the low end of the level needed to make up for supply deficits 
in previous years. Many non-financial obstacles to new development 
continue to stifle new construction and raise the costs of those 
properties that do get built, contributing to higher rents for our 
residents. Many of these are imposed by localities and have to be 
addressed by those jurisdictions.

Barriers to Multifamily Development

Developing real estate, whether it is multifamily, single-family or 
commercial, is difficult. Production of any kind has its natural 
barriers. Those are, for the most part, objective barriers that can, 
and often do, fluctuate, but are predictable enough to still meet a pro 
forma. Multifamily however, brings with it a level of entitlement 
subjectivity layered on top of these common barriers and is much more 
difficult to predict.

Plainly stated, many municipalities have a development preference that 
works against multifamily housing production. Multifamily development 
often faces stiff community resistance, competes with other forms of 
real estate that produce sales tax revenue desired by municipalities, 
and is subject to increasing regulatory barriers.

Community resistance to proposed multifamily developments typically 
takes the form of organized community resistance efforts commonly known 
as ``Not In My Back Yard'' or NIMBY. The narrative of NIMBY typically 
focuses on a handful of themes outside of the normal zoning approval 
process, including:

    b  Traffic impact;
    b  Homeowner property values;
    b  School overcrowding; and
    b  Community character.

There is also a revenue subjectivity often found at the municipal level 
when it comes to multifamily versus other forms of real estate. Local 
governments faced with the annual task of balancing budgets feel 
obligated to derive as much tax revenue as possible from scarce 
developable land. This places multifamily in stiff competition with 
commercial real estate developments that produce sales tax revenue.

All these factors contribute to the uncertainty of any multifamily 
development. In a speech before the Urban Institute in November 2015, 
Jason Furman, then chairman of The White House Council of Economic 
Advisers for President Obama, said that the U.S. could build a lot more 
apartments, but noted ``multifamily housing units are the form of 
housing supply that is most often the target of regulation.'' As an 
industry, we agree with this assessment.

Below is a brief summary of the most notable barriers to development 
within several broad categories: location, time, bureaucracy, cost and 
environmental assessment. Also included is a brief review of 
affordability mandates, which can actually depress development of new 
multifamily homes.

Location

    b  Land Cost: In an attractive market--take any major metropolitan 
area as an example--land can account for a significant portion of total 
development costs. This cost increase can stretch or stress other 
financial assumptions and, in some extreme cases, even make the 
property impossible right out of the gate.

    b  Zoning Laws: Zoning laws impact what is permitted to be built at 
a site. In some places, zoning requirements can make it extremely 
difficult to build new multifamily housing. Changing zoning can be 
onerous and expensive if it is even possible.

Time

    b  Entitlements: The entitlement process, which covers approvals, 
zoning and nearly everything in between, is an amalgam of outright 
costs, additional fees, land-use regulation and code compliance. During 
the navigation of this often-lengthy process, an apartment developer 
bears both direct and indirect costs with no assurance of a successful 
outcome. The long lead time and significant upfront investment required 
to obtain entitlement on land is leading some investors to rethink 
continued interest in multifamily development. Reduced investor demand 
for multifamily development may lead to fewer units delivered in the 
future and increased cost per unit delivered as remaining investor 
capital becomes scarce.

Bureaucracy

    b  Regulations: Like all of real estate, the apartment industry is 
governed by a flood of regulations issued by many diverse federal 
agencies, as well as state and local governments. Excessive regulation 
and compliance uncertainty results in costly mandates that divert 
resources from the production and operation of multifamily housing.

        Regulations must have demonstrable benefits that justify the 
cost of compliance, and federal agencies should be aware that broad-
stroke regulations often have disproportionate effects on various 
industries. Therefore, those rules and regulations affecting housing 
should reflect the industry's diverse business and operational 
structure and must rely on the latest scientific and/or economic 
evidence.

Cost

    b  Construction Costs: The cost of construction in terms of labor 
and materials is a critical component to the cost of building 
apartments. Depending upon market and materials used, these have a 
significant impact on the viability of a given project.

    b  Cost of Capital: New regulatory regimes, such as Dodd-Frank and 
Basel III, are making access to capital more difficult and costlier. 
Increased capital requirements and conflicting new regulations are 
driving up the cost of borrowing from banks, as well as constricting 
lending in certain markets.

    b  Labor Costs: Federal building programs, as well as some state 
level programs, require the use of prevailing Davis-Bacon wages that 
have proven to be difficult to manage, complex to accurately 
incorporate in preliminary planning and often do not reflect the going 
market. Additionally, as a result of the economic downturn, skilled 
labor migrated away from the construction industry, producing an 
environment today where wages have increased well in excess of 
inflation, which directly impacts the cost of development.

    b  Impact Fees: Impact fees are payments required of new 
development by local governments to providing new or expanded public 
capital facilities required to serve that development. These fees 
typically require cash payments in advance of the completion of 
development, are based on a methodology and calculation derived from 
the cost of the facility and the nature and size of the development, 
and are used to finance improvements offsite from, but to the benefit 
of, the development.

    b  Linkage Fees: A linkage fee is assessed on a development to pay 
for the cost of providing a public service. These fees are attributed 
to select developments to pay for a benefit deemed outside of what is 
recovered from property taxes.

    b  Business License Taxes: These are additional municipal taxes 
assessed on property owners that are not assessed on other forms of 
housing. They are used to justify the cost of impacts not covered by 
property tax assessments.

    b  Assessment and Inspection Fees: These are additional municipal 
fees assessed on property owners to inspect rental housing for 
habitability. While these fees are often assessed annually, the rental 
housing communities often do not realize additional benefits reflecting 
the cost.

    b  Parking Space Requirements: The requirement to build or offer 
parking spaces, especially in urban settings, can significantly impact 
site use and cost.

Environmental Assessment

    b  Environmental Site Assessment: An environmental site assessment 
is a report that identifies potential or existing environmental 
contamination liabilities. In many local jurisdictions, each 
development site requires an environmental site assessment, the results 
of which could require costly remediation and/or project 
reconfiguration. Additionally, these assessments have been used by 
development opponents to frustrate planning and can serve to severely 
hamper or defeat the entitlement process.

Affordability Mandates

    b  Rent Control: There are various forms of rent control outside of 
the traditional version that most are accustomed to seeing: a rent 
control board that sets maximum rent for a unit or the maximum amount 
that rent can be raised annually. Rent control, in this context, is any 
mechanism that obligates a property owner to set rental rates for all 
or a portion of the units on a property. In any form, this policy works 
as a disincentive to investing and developing the diversity of housing 
units that a community requires. There are alternatives to rent 
control, such as mandatory inclusionary zoning, that take slightly 
different approaches but have the same effect.

    b  Mandatory Inclusionary Zoning: Mandatory inclusionary zoning 
refers to municipal and county planning ordinances that require a given 
share of new construction to be affordable to people with low to 
moderate incomes without an investment from the municipality. It is 
normally a condition of approval of the development. Depending on the 
requirements, the overall feasibility of a project could be threatened.

Bottom Line for Policymakers

The bottom line is that policymakers at all levels of government must 
recognize that addressing local housing affordability needs requires a 
partnership between government and the private sector. Municipalities 
have the difficult task of trying to most efficiently manage their 
resources to the greatest benefit of their constituents, often 
challenged with balancing shrinking budgets and growing needs. However, 
local governments also have a tool box of approaches they can take to 
support affordable housing production. They can do this by 
incentivizing for-profit entities to produce the necessary multifamily 
units at a price point that households can afford.

Municipalities can defer taxes and other fees for a set period of time 
to help the developer reduce the price point. They also own tangible 
assets--buildings, raw land and entitled parcels--some of which can be 
leveraged to bring down the cost of construction or redevelopment. 
Finally, they can help streamline the development and approval 
processes with fast-tracking programs.

As is outlined in the following section, however, the Federal 
Government also has a key role to play. When both the public and 
private sides bring all their tools and assets into play, there will be 
a greater likelihood of finding viable solutions to meet our rental 
housing challenges.

Key Federal Solutions to the Nation's Housing Challenges

The nation's challenge is to reduce the barriers and obstacles that 
inhibit the expansion of the housing stock. While the preceding section 
made it clear that new construction is often impeded at the local 
level, there are federal solutions that may be beneficial as well. At 
NMHC/NAA, we believe the solution at the federal level requires a 
three-pronged answer of new development, preservation and 
rehabilitation:

    1.  New development is absolutely critical to address the scarcity 
of units available for the population of Americans whose household 
incomes are below the average for their areas--and the one receiving 
much of attention and criticism.

    2.  Preservation means ensuring that the financing and subsidy 
programs that currently keep units available at below market rents 
continue to be there in the future, providing some degree of certainty 
in the affordable housing market.

    3.  Rehabilitation is vital because it can keep existing apartment 
stock from dwindling further.

Federal Initiatives and Programs Vital to Addressing Affordability

Congress should play an integral role in addressing housing 
affordability. The Senate Finance Committee has jurisdiction over the 
Low-Income Housing Tax Credit (LIHTC), the nation's singular tool for 
developing new affordable housing. The Finance Committee is currently 
also keenly focused on tax reform. In the sections below, NMHC/NAA make 
recommendations with regard to both the LIHTC and tax reform. We also 
then examine programs outside of the Finance Committee's jurisdiction.

Programs Within the Finance Committee's Jurisdiction

Expand and Enhance the Low-Income Housing Tax Credit (LIHTC) and Enact 
the Middle-Income Housing Tax Credit (MIHTC) to Support Workforce 
Housing

The Low-Income Housing Tax Credit (LIHTC) has a long history of 
successfully generating the capital needed to produce low-income 
housing while also enjoying broad bipartisan support in Congress. This 
public/private partnership program has led to the construction of 
nearly 3 million units since its inception in 1986. It is the nation's 
principal driver of new affordable housing.

The LIHTC program also allocates units to low-income residents while 
helping to boost the economy. According to a December 2014 Department 
of Housing using and Urban Development study, Understanding Whom the 
LIHTC Program Serves: Tenants in LIHTC Units as of December 31, 2012, 
the median Income of a household residing in a LIHTC unit was $17,066 
with just under two-thirds of residents earning 40 percent or less of 
area median income.\11\ Finally, the National Association of Home 
Builders reports that, in a typical year, LIHTC development supports 
approximately: 95,700 jobs; $3.5 billion in federal, state and local 
taxes; and $9.1 billion in wages and business income.\12\
---------------------------------------------------------------------------
    \11\ Department of Housing and Urban Development, ``Understanding 
Whom the LIHTC Program Serves: Tenants in LIHTC Units as of December 
31, 2012,'' December 2014, p. 23.
    \12\ Robert Dietz, The Economic Impact of the Affordable Housing 
Credit, National Association of Home Builders, Eye on Housing, July 15, 
2014. http://eyeonhousing.org/2014/07/the-economic-impact-of-the-
affordable-housing-credit/.

Maintaining and bolstering the LIHTC's ability to both construct and 
rehab affordable housing is critical given acute supply shortages. 
Indeed, the Harvard Joint Center for Housing Studies estimated that 
there were only 45 affordable units for every 100 very low-income 
households (those earning up to 50 percent of area median income) in 
the United States in 2015.\13\
---------------------------------------------------------------------------
    \13\ NMHC tabulations of 2015 American Community Survey public use 
microdata, IPUMS-USA, University of Minnesota, www.ipums.org.

First and foremost, Congress should retain the LIHTC as part of any tax 
reform legislation. In so doing, Congress must take care to offset any 
reduction in equity LIHTC could raise attributable to a reduction in 
the corporate tax rate. Furthermore, NMHC/NAA reminds Congress that 
tax-exempt private activity multifamily housing bonds are often paired 
with 4 percent tax credits to finance multifamily development, and that 
such tax-exempt bonds should be retained in any tax reform legislation 
---------------------------------------------------------------------------
as they play a critical role in making deals viable to investors.

Second, Congress should also look to strengthen the credit by both 
increasing program resources so that additional units can be developed 
or redeveloped and making targeted improvements to the program to 
improve its efficiency. Congress could increase program authority by 
allocating additional tax credits. Further, program rules should be 
adjusted that require owners to either rent 40 percent of their units 
to households earning no more than 60 percent of area median income 
(AMI) or 20 percent to those earning no more than 50 percent of AMI. If 
program rules were revised to allow owners to reserve 40 percent of the 
units for people whose average income is below 60 percent of AMI, it 
could serve a wider array of households.

In this regard, the multifamily industry strongly supports the 
Affordable Housing Credit Improvement Act of 2017 (S. 548) and commends 
Senator Cantwell and Chairman Hatch for its introduction. We also thank 
Finance Committee Senators Wyden, Bennet, Heller, Isakson and Portman 
for their cosponsorship. This legislation, which would increase tax 
credit allocations by 5.0 percent, would enable LIHTC to help build or 
preserve 1.3 million units over 10 years, 400,000 more units than is 
possible under current law. The measure also includes the income 
averaging proposal.

Finally, we would also urge the Committee to strongly consider the 
Middle-Income Housing Tax Credit Act of 2016 (S. 3384) that Ranking 
Member Wyden introduced during the 114th Congress to address the 
shortage of workforce housing available to American households. A 
worthy complement of measures to expand and improve LIHTC, the Middle-
Income Housing Tax Credit (MIHTC) takes over where LIHTC leaves off. 
LIHTC is currently designed to serve populations of up to 60 percent of 
area median income. MIHTC is designed to benefit populations earning 
below 100 percent of area median income. In fact, approximately 40 
percent of renter households earning between $35,000 and $49,999 were 
cost burdened in 2015. This population is exactly the one Ranking 
Member Wyden's legislation would serve.

Tax Reform Must Not Disrupt the Industry's Ability to Construct and 
Operate Housing Across All Income Levels

Congress is rightly continuing to develop proposals to reform the 
nation's overly complex tax code to foster economic competitiveness and 
economic growth. That said, much is potentially at stake for the 
apartment industry and its ability to meet the nation's multifamily 
housing needs given that apartment firms pay tax when they build, 
operate, sell or transfer communities to their heirs. We believe that 
any tax reform legislation should not disrupt the industry's ability to 
construct and operate affordable and, workforce housing and, therefore, 
must:

    b  Protect Flow-Through Entities. The multifamily industry is 
dominated by ``flow-through'' entities (e.g., LLCs, partnerships, S 
Corporations, etc.) instead of publicly held corporations. This means 
that the company's earnings are passed through to the partners who pay 
taxes on their share of the earnings on their individual tax returns. 
Accordingly, Congress must not reduce corporate tax rates financed by 
forcing flow-through entities to pay higher taxes through subjecting 
them to a corporate-level tax or by denying credits and deductions.

    b  Maintain Like-Kind Exchanges. Like-kind exchange rules enable 
property owners to defer capital gains tax if, instead of selling their 
property, they exchange it for another comparable property. These rules 
encourage property owners to remain invested in the real estate market 
while providing them with the flexibility to shift resources to more 
productive properties, different geographic locations or to diversify 
or consolidate holdings. Any proposal to revise or restrict like-kind 
exchanges may have a significantly harmful effect on the value and 
trading of property. As a result, Congress should not change present 
law.

    b  Ensure Depreciation Rules Avoid Harming Real Estate. Cost 
recovery rules should reflect the life of properties. Depreciation 
periods that overstate economic lives would reduce development and 
investment, leading to lower real estate values and stifling the 
industry's role in job creation. Tax reform should reflect the critical 
role cost recovery plays in our ability to create new jobs.

    b  Retain the Deduction for Business Interest. Efforts to prevent 
companies from overleveraging are leading to calls to scale back the 
current deduction for business interest expenses. Unfortunately, 
reducing this deductibility would greatly increase the cost of debt 
financing necessary for large-scale projects, curbing development 
activity when the nation is suffering from a shortage of apartment 
homes.

Programs Outside of the Finance Committee's Jurisdiction

GSE Reform

While outside of the Finance Committee's purview, the first and 
foremost priority to addressing housing affordability is getting 
multifamily right in housing finance reform and recognizing its unique 
characteristics; it is the single most important factor to ensuring 
that the apartment industry can meet the nation's growing rental 
housing demand.

The very successful multifamily programs of the Government-Sponsored 
Enterprises (GSEs), Fannie Mae and Freddie Mac, were not part of the 
2008 financial meltdown and have actually generated over $26 billion in 
net profits since the two firms were placed into conservatorship. 
Preservation of the mortgage liquidity currently provided by the GSEs 
in all markets during all economic cycles is critical. NMHC/NAA urge 
lawmakers to recognize the unique needs of the multifamily industry.

We believe the goals of a reformed housing finance system should be to:

    b  Maintain an explicit federal guarantee for multifamily-backed 
mortgage securities available in all markets at all times;

    b  Ensure that the multifamily sector is treated in a way that 
recognizes the inherent differences of the multifamily business; and

    b  Retain the successful components of the existing multifamily 
programs in whatever succeeds them.

These principles can be achieved through a reformed structure that 
preserves the high quality and value of the current multifamily 
secondary mortgage market's activities.

Multifamily Federal Housing Administration (FHA) Programs

FHA Multifamily is best known for offering an alternative source of 
construction debt to developers that supplements bank and other private 
construction capital sources. It also serves borrowers with long-term 
investment goals as the only capital provider to offer 35-40 year loan 
terms. FHA lending is essential to borrowers in secondary markets, 
borrowers with smaller balance sheets, new development entities, 
affordable housing developers and non-profit firms, all of which are 
often overlooked or underserved by private capital providers.

It is important to the apartment industry that FHA continues to be a 
credible and reliable source of construction and mortgage debt. FHA not 
only insures mortgages, but it also builds capacity in the market, 
providing developers with an effective source of construction and long-
term mortgage capital. The FHA Multifamily Programs provide a material 
and important source of capital for underserved segments of the rental 
market, and do so while maintaining consistently high loan performance 
standards. NMHC/NAA encourage Congress to continue funding FHA's 
Multifamily Programs.

Finally, we believe a special note is warranted regarding the 221(d)(4) 
program. Providing flexible loan terms, is beneficial in supporting the 
development of workforce and affordable housing. However, we note that 
the program includes a bevy of restrictions, including loan size, 
allowable prevailing Davis-Bacon wage requirements, and other 
associated fees and disbursement restrictions. We ask to have a 
dialogue with Congress regarding feasible ways to make modest 
modifications to this program to make it even more effective in 
encouraging the production of workforce and affordable housing.

Funding for Affordable Housing Programs

Housing costs continue to grow, demand for rental housing continues to 
escalate, but incomes for many low-income families remain stagnant. 
Given these realities, demand for subsidized affordable housing has 
increased dramatically through the economic crisis and into the 
recovery years since, However, federal funding for the primary programs 
serving low income households has been virtually flat or declining.

Programs like Tenant Based Section 8 and Project Based Rental 
Assistance allow low income families to rent market rate housing, 
taking advantage of the broad offering of privately owned and operated 
properties in a given market. Meanwhile, programs like HOME and CDBG 
allow developers to address financing shortfalls often associated with 
affordable housing properties, and stimulate meaningful development and 
preservation activity as a result. To address housing affordability 
challenges for all Americans, across the income spectrum, adequate 
funding for these programs is essential.

Section 8 Housing Choice Voucher Program

This public-private partnership has the potential to be one of the most 
effective means of addressing our nation's affordable housing needs and 
supporting mixed-income communities. However, the program's potential 
success is limited by too many inefficient and duplicative 
requirements, which discourage private providers from accepting 
vouchers. These include a required three-way lease between the 
provider, resident and the public housing authority; repetitive unit 
inspections; resident eligibility certification; and other regulatory 
paperwork. Collectively, these make it more expensive for a private 
owner to rent to a Section 8 voucher holder.

It is also imperative for lawmakers to reinforce the voluntary nature 
of the program. Congress specifically made participation voluntary 
because of the regulatory burdens inherent in the program. However, 
state and local governments are enacting laws that make it illegal for 
a private owner to refuse to rent to a Section 8 voucher holder. Recent 
examples include ``source of income discrimination'' provisions passed 
by a number of cities. While often well intentioned, such mandates are 
self-defeating because they greatly diminish private-market investment 
and reduce the supply of affordable housing.

Rental Assistance Demonstration (RAD) Program

NMHC/NAA support RAD, which was established in 2011 as an affordable 
housing preservation strategy for public housing authorities (PHAs). 
The program allows PHAs to convert public housing properties at risk of 
obsolescence or underfunding into project-based vouchers or rental 
assistance contracts under the Section 8 program. Once the units are 
re-designated from public housing (Section 9 of the 1937 Housing Act) 
to Section 8 housing, housing authorities are able to leverage private 
capital to address capital needs. This allows housing authorities to 
work with private sector developers and managers to preserve their 
affordable housing stock. RAD is designed to reverse the trend of lost 
affordable units by accessing private capital to make up for related 
funding shortfalls.

Government-Supported Preferred Equity

Investor equity for development transactions is the most expensive type 
of capital. Reducing the required return for this portion of capital 
would reduce the cost of developing multifamily units and could help 
spur the construction of additional workforce housing. NMHC/NAA would 
like to work with Congress on a plan that would enable a federal entity 
to provide developers with preferred equity to help offset the cost of 
workforce housing production. NMHC/NAA believe that such a program 
could be integrated into the very successful multifamily programs run 
by Fannie Mae and Freddie Mac and implemented at minimal cost.

Modifying the Community Reinvestment Act

The CRA could be modified to include greater incentives for banks to 
provide loans for multifamily apartments that include workforce and 
affordable housing. CRA guidelines currently allow banks to obtain 
Community Development (CD) credit for multifamily units serving 
occupants with incomes of up to 80 percent of area median income. While 
this level captures a significant portion of workforce and affordable 
households, the rules themselves make it difficult to obtain the CD 
credit due to a requirement to report incomes, information that is not 
captured.

Davis-Bacon Wage Determination

Under current law, developers must adhere to Davis-Bacon wage rates for 
construction financed by federal dollars. Unfortunately, the Department 
of Labor's methodology of determining these so-called prevailing wages 
suffers from structural defects related to the availability of data. 
For example, the methodology frequently produces wage rates that exceed 
prevailing market-based wages, which only exacerbates the cost of 
developing multifamily housing. NMHC/NAA request that Congress urge the 
Department of Labor to reexamine and modify its methodology.

Conclusion

In closing, NMHC/NAA look forward to working with the Finance Committee 
and the entire Congress to address the nation's affordable workforce 
housing challenges. On behalf of the apartment industry and our 38.8 
million residents, we stand ready to work with Congress to ensure that 
every American has a safe and decent place to call home at a price that 
enables individuals to afford life's necessities.

                                 ______
                                 
  National Trust for Historic Preservation, National Trust Community 
       Investment Corporation, and Historic Tax Credit Coalition

                     The Watergate Office Building

                  2600 Virginia Avenue, NW, Suite 1100

                          Washington. DC 20037

                        E [email protected]

                             P 202-588-6000

                             F 202-588-6038

                       https://savingplaces.org/

The Honorable Orrin Hatch           The Honorable Ron Wyden
Chairman                            Ranking Member
Committee on Finance                Committee on Finance
U.S. Senate                         U.S. Senate
Washington, DC 20510                Washington, DC 20510

Re: Affordable Housing Crisis: Challenges and Solutions

Dear Chairman Hatch and Ranking Member Wyden:

The National Trust for Historic Preservation (``National Trust''), the 
National Trust Community Investment Corporation (``NTCIC''), and the 
Historic Tax Credit Coalition (``HTCC'') are pleased to submit joint 
comments to the Senate Finance Committee noting the role the federal 
Historic Tax Credit (``HTC'') plays in the production of affordable 
housing for inclusion in the record for the hearing titled, 
``Affordable Housing Crisis: Challenges and Solutions'' that occurred 
on August 1, 2017.

The National Trust is a private, nonprofit organization chartered by 
Congress in 1949 to facilitate public participation in the preservation 
of our nation's heritage. With headquarters in Washington, DC, 9 field 
offices, 27 historic sites, more than 1 million members and supporters, 
and a national network of partners in states, territories, and the 
District of Columbia, the National Trust works to save America's 
historic places and advocates for historic preservation as a 
fundamental value in programs and policies at all levels of government.

NTCIC is a wholly owned for-profit subsidiary of the National Trust and 
enables tax credit equity investments that support sustainable 
communities nationwide. NTCIC places qualified tax credits for federal 
and state historic (HTC), new markets (NMTC), solar (ITC) and low-
income housing (LIHTC). Since its inception in 2000, NTCIC has provided 
tax credit financing of over $1 billion in capital for HTC, NMTC, ITC, 
and LIHTC investments for 142 transactions with over $4 billion in 
total development costs.

The HTCC is a nonprofit organization comprising 78 member firms 
including leading historic tax credit developers, investors, 
syndicators, tax attorneys, accountants and preservation consultants 
who came together in 2009 to advocate for the modernization of the HTC. 
It works to educate Congress, engage with the IRS and the National Park 
Service on regulatory issues and conduct research on the economic 
impact of the HTC.

Communities throughout the nation demonstrate time and again the value 
of historic buildings and neighborhoods in community-strengthening 
efforts, whether it be producing homes for low-income residents or 
housing small businesses that are important to a neighborhoods economic 
vitality. Old and historic buildings are resources that already exist 
in many communities and can serve as a foundation for an area's housing 
program. Rehabilitation and maintenance of existing building stock is a 
key factor in breaking the cycle of deterioration, disinvestment, and 
loss that reduces our affordable housing supply. Outlined below are 
several ways of analyzing the value the HTC adds to existing programs 
that seek to address the lack of affordable housing for too many 
Americans.

Twinning the HTC With the Low-Income Housing Tax Credit (LIHTC)

A primary way of measuring the impact the HTC has on the production of 
affordable housing is to examine data on how often the HTC and LIHTC 
are used together to make an affordable housing transaction feasible 
when the building is historic. According to the most recent National 
Council of State Housing Agencies (``NCSHA'') statistical report 
(2014), approximately 95,000 affordable units were completed that year 
with 5.5 percent of those transactions also utilizing the HTC. That 
equates to 5,525 affordable units created in historic buildings in 
2014.

While statistics on the types of historic properties that are 
repurposed as affordable housing are not readily available, we know 
anecdotally that many of these projects involve the rehabilitation of 
vacant historic schools. These schools are often located in the heart 
of their communities. The effect of rehabilitating historic schools 
into affordable housing, as one example, is not only that these 
residential units are in high demand because of their unique character, 
but also because of the memories that community residents have of 
attending these schools. Developers take advantage of these factors to 
market these properties to local residents while creating a sense of 
renewal and continuity for the surrounding communities.

It is important to note that twinning the HTC with the LIHTC helps make 
historic affordable housing developments possible that likely would not 
occur using just one of the credits. If only the LIHTC were available, 
historic properties would likely be passed over or razed in favor of 
new construction, while if only the HTC were available, most of the 
housing in historic properties would be unaffordable to low-income 
families. Each tax credit advances an important public policy objective 
in its own right, but the ability to twin tax credits enables 
communities to preserve their heritage and provide needed affordable 
housing on the same property resulting in reduced NIMBY opposition.

Rutgers University Research on the HTC and Affordable Housing Outcomes

Another way of understanding the HTC's impact on the nation's 
affordable housing supply is to look the annual analysis conducted by 
Rutgers University Center for Urban Policy Research for the National 
Park Service. The FYI 6 report on the economic impact of the HTC 
indicates that over the life of the federal historic tax credit, 
roughly half of all HTC transactions produced housing. From 1978 
through 2016, the HTC was used to create 549,005 housing units. Of the 
total units, 153,255, or 28 percent, were affordable to low- and 
moderate-income families. Further, the 2017 report reflects an increase 
in the number of affordable units created with HTC financing. Of the 
21,139 housing units created utilizing the HTC in 2017, 7,181, or 34 
percent, were affordable.

National Park Service Statistical Reports

Another key source of information about the role of the HTC in 
producing affordable housing comes from NPS's Statistical Reports. The 
above data indicates the average annual affordable housing production 
by the HTC is roughly 4,400 units over the past 39 years. However, this 
number is less than the NCSHA estimate of 5,525 for 2014 alone, which 
only includes twinned HTC/LIHTC transactions. A look at the National 
Park Service's statistical reports over the last 5 years shows that the 
amount of affordable housing units produced in buildings that utilize 
the HTC is trending up significantly. The NPS data is summarized in the 
graph below.

[GRAPHIC] [TIFF OMITTED] T80117.008


The graph indicates that annual affordable housing units associated 
with the HTC is now in the 7,000-8,000 range. Some of these units 
result from combining the HTC and LIHTC. Others, however, are financed 
through a combination of federal and state HTCs and the twinning of 
historic tax credits with the New Markets Tax Credits in mixed-use 
buildings.

In summary, historic buildings are well-suited to help meet the 
nation's affordable housing needs. The units produced are highly 
attractive in the market place due to the special historic features 
that are retained as part of the National Park Service's program 
requirements. As older structures, they are typically found in 
communities well-served by existing public transit, job centers, 
utilities and local schools--benefits that are essential for low- and 
moderate-income households. These developments spur a cycle of renewal 
in communities that have been left behind. Links to three illustrative 
case studies from the National Park Service's website can be found 
below:

https://www.nps.gov/tps/tax-incentives/case-studies.htm#riverside-
plaza.

https://www.nps.gov/tps/tax-incentives/case-studies.htm#toms-brook-
school.

https://www.nps.gov/tps/tax-incentives/case-studies.htm#rockville-mill.

Thank you for the opportunity to submit these comments. For further 
information, please contact us at [email protected], 
[email protected], ormhoopengardner
@ntcic.org.

Sincerely,

Shaw Sprague                        John Leith-Tetrault
Senior Director, Government 
Relations                           Chairman
National Trust for Historic 
Preservation                        Historic Tax Credit Coalition

Merrill Hoopengardner
President
National Trust Community Investment 
Corporation

                                 ______
                                 
 New York City Department of Housing Preservation and Development and 
             New York City Housing Development Corporation

                              Testimony of

                  Maria Torres-Springer, Commissioner

    New York City Department of Housing Preservation and Development

                            100 Gold Street

                           New York, NY 10038

                                  and

                        Eric Enderlin, President

             New York City Housing Development Corporation

                           110 William Street

                           New York, NY 10038

Chairman Hatch, Ranking Member Wyden, and Members of the Committee: 
thank you for holding a hearing on one of the most critical issues 
facing our country--the insufficient supply of safe, decent and 
affordable housing. We appreciate the opportunity to submit the 
following comments for the record regarding America's affordable 
housing crisis and potential solutions.

The New York City Department of Housing Preservation and Development 
(HPD) and Housing Development Corporation (HDC) are the largest 
municipal housing agency and leading local housing finance agency in 
the nation, respectively. Together, HPD and HDC finance the 
preservation and new construction of affordable housing, enforce 
housing quality standards to promote the health and safety of all New 
Yorkers, and ensure sound management of the City's affordable housing 
stock. As we pursue the goal of connecting people to opportunity 
through affordable housing, we strongly urge the Committee to protect 
the Low-Income Housing Tax Credit (Housing Credit) and private activity 
tax exempt bonds for housing as part of any tax reform effort 
considered by Congress. Additionally, we offer our comments on the 
potential benefits of the Affordable Housing Credit Improvement Act, S. 
548, which would mark the first meaningful expansion of affordable 
housing resources in decades.

The Affordable Housing Crisis

The affordable housing crisis is a bipartisan issue impacting cities, 
states, and rural areas across the country. In New York City, more than 
half of all renters are cost-burdened, meaning they pay more for rent 
than they can afford, often at the expense of other necessities like 
food and healthcare. We know that it is not just renters in high-cost 
cities like New York facing these terrible tradeoffs. A recent report 
by the National Low-Income Housing Coalition found only 12 counties 
nationwide where a minimum wage worker can afford a modest two-bedroom 
apartment. Nationally, one in four renter households pay more than half 
of their income on housing costs, leaving more than 11 million families 
one paycheck away from homelessness.

Ongoing trends in the rental housing market further perpetuate the 
housing crisis. In New York City in 2011, there were approximately 
400,000 homes affordable to the more than 900,000 extremely and very 
low income households. The shortage in supply of affordable housing 
drives up rents. Meanwhile, wages haven't kept pace and federal rental 
subsidy resources are shrinking. To reverse this tide, we need to build 
more affordable housing. To do that, we must protect and expand the 
Housing Credit and private activity tax-exempt bonds for multifamily 
housing.

Benefits of the Housing Credit and Tax-Exempt Bonds

The Housing Credit--including both the 9 percent credit, as well as the 
4 percent credit paired with private activity tax-exempt bonds--is the 
strongest driver of affordable housing in the United States, financing 
nearly 90 percent of all new construction and preservation. As one of 
our country's longest standing public-private partnership models, the 
Housing Credit leverages private investment at a rate of three to one, 
supports 96,000 jobs per year, and has financed nearly 3 million 
affordable rental homes nationwide. In New York City alone, Housing 
Credits and tax-exempt bonds have helped to create or preserve more 
than 160,000 safe, quality affordable homes for working families and 
vulnerable populations, such as seniors and homeless families.

Despite this incredible track record, the Housing Credit is in need of 
expansion and refinement in order to keep up with demand, and to 
provide housing agencies and their development partners with maximum 
flexibility in serving the needs in their communities. Each year, 
viable and much needed affordable housing developments go unbuilt due 
to the shortage of Housing Credits available and constrained bond cap 
authority.

Enhancing the Housing Credit: Key Provisions in the Affordable Housing 
Credit Improvement Act

S. 548 builds upon the most productive aspects of the Housing Credit 
while proposing changes to strengthen the program by streamlining 
rules, improving flexibility, and enabling the program to serve a wider 
array of local needs. Among the many significant improvements included 
in the bill that HPD and HDC strongly support are:

      A 50 percent increase in per-capita and small state minimum 
allocations, phased in over 5 years, which is estimated to support 
production and preservation of an additional 400,000 units nationally 
over a 10-year period.
      A permanent minimum 4 percent rate for Housing Credits used to 
finance the acquisition of property or generated by tax-exempt bonds. 
Minimum credit rates are needed in order to increase the predictability 
and financial feasibility of affordable housing development and would 
allow developers to target more units to the lowest income households.
      A new income-averaging election, allowing the current 60 percent 
of Area Median Income (AMI) ceiling to apply to the average of all 
apartments within a property, as long as no apartment exceeds a maximum 
of 80 percent AMI. The higher rents that households with incomes above 
60 percent of AMI could afford have the potential to offset lower rents 
for households below 30 or 40 percent of AMI, allowing developments to 
maintain financial feasibility while providing a deeper level of 
affordability.
      A provision that gives housing agencies discretion to provide 
basis boosts for tax-exempt bond financed developments, allowing more 
of these developments to be financially feasible, and for developments 
serving very low income households.

We strongly support all proposed enhancements to the Housing Credit in 
S. 548 as ways to help meet the growing need for affordable housing. In 
addition, we are pleased to share additional proposals to complement 
the Housing Credit.

Proposals to Increase Private Activity Tax-Exempt Bond Volume Cap

Private activity tax-exempt bonds are essential to the success of the 
Housing Credit, helping to finance roughly 40 percent of Housing Credit 
properties nationwide. In states like New York, affordable housing 
development is constrained by insufficient private activity bond cap 
and limits on the use of recycled bonds.

New York State uses essentially all private activity bond volume cap 
allocated to it each year. With ambitious housing plans at the city and 
state level, and an aggressive preservation plan for the City's Public 
Housing Authority, increased demand for volume cap creates challenges 
in meeting the City's affordable housing pipeline's financing needs. 
Two ways to increase volume cap in order to meet these important 
priorities are making technical changes to bond recycling and creating 
a national reallocation pool for unused private activity bond volume 
cap.
Bond Recycling
As of the passage of the Housing and Economic Recovery Act of 2008 
(HERA), tax-exempt, multifamily housing revenue bonds can be recycled 
to finance new development activity without the need for new private 
activity bond volume cap. Under the law, if a loan that was financed by 
new volume cap bonds is repaid within 4 years from the original issue 
date of the bonds, then a housing finance agency such as HDC has 6 
months to recycle the bonds and use the proceeds to make a new loan for 
another housing project. Unlike new volume cap bonds, recycled bonds do 
not generate 4 percent Housing Credits.

HDC currently issues more than $300M per year in recycled bonds. It is 
estimated that the following changes would allow for $100M-$200M more 
in recycled bonds in New York State each year. Additionally, these 
changes will allow for most, if not all, new volume cap to be used for 
multifamily housing (thus generating 4 percent Housing Credits) without 
reducing other eligible private activity financings such as industrial 
development and single family mortgage revenue bonds:

      Permit recycled bonds to finance economic development projects 
in addition to multifamily rental housing.
      Extend the period during which tax-exempt, multifamily housing 
revenue bonds can be recycled from 6 months to 1 year after repayment, 
as it is often difficult to close a new project's financing within the 
current window.
      Allow housing agencies to recycle more than once within the 
existing 4-year time limit from original issue.
      Permit recycled bonds to be used in conjunction with 9 percent 
Housing Credits in order to help finance projects where bank debt is 
too expensive.
National Reallocation Pool for Unused Bond Volume Cap
A growing list of states use the entire private activity bond cap 
allotted to them every year, leaving shovel ready affordable housing 
developments unbuilt. Meanwhile, other states burn off unused bond cap. 
Creating a National Reallocation Pool for unused volume cap assures 
that critical housing resources are efficiently redeployed to areas 
with the most immediate need and capacity for affordable housing 
development and preservation efforts.

Under current law, unused private activity bond volume cap either 
expires or may be carried forward for just 3 years, after which it 
expires. Unused volume cap and carryforward is not available for 
projects in other states, and approximately $10B in volume cap is 
burned off nationally each year. To induce more private investment to 
help meet the growing demand for affordable rental housing, and to more 
efficiently and effectively utilize federal resources, we propose 
creating a private activity bond cap national reallocation pool for 
affordable housing. This pool would allow states and localities with 
affordable housing projects in their pipeline to recapture unused cap 
from other locations. The reallocation of cap could be similar in 
structure to the reallocation of the national pool of unused Low Income 
Housing Tax Credit authority and the competitive allocation process for 
the Housing Credit dollar amount.

We look forward to partnering with Congress and our housing colleagues 
nationwide to pursue these and other innovations that could provide 
additional support in addressing the affordable housing crisis.

Importance of Additional Federal Housing Resources

As Congress continues with federal budget negotiations, it is crucial 
to note the importance of funding for affordable housing programs of 
the Department of Housing and Urban Development (HUD) and the 
Department of Agriculture. Without adequate funds for public housing, 
rental assistance, HOME Investment Partnerships, rural development and 
Community Development Block Grants, we cannot fully address housing 
needs across this country. In fact, these programs serve as an 
essential complement to the Housing Credit, as most affordable housing 
is financed through a combination of HUD program resources and credits.

Asset Management and Oversight

As affordable housing practitioners, we share the Committee's 
commitment to transparency and oversight in the Housing Credit Program. 
State allocating agencies, syndicators and local housing agencies 
already adhere to the strict requirements of the program and, in many 
cases, exceed those with even more stringent local standards. We 
applaud the work of organizations like the National Council of State 
Housing Agencies (NCSHA) in sharing best practices across the industry 
to ensure the program is managed properly and all commitments to 
affordability are honored throughout the life of the projects under our 
purview.

In closing, we again thank the Committee for keeping affordable housing 
at the center of ongoing discussions around comprehensive tax reform 
and consideration of federal spending commitments in the coming years.

                                 ______
                                 
                            Edgar O. Olsen 
 Department of Economics, University of Virginia,* Charlottesville, VA
---------------------------------------------------------------------------
     *This paper reflects the views of its author. It does not 
represent the official position of the University of Virginia. The 
University does not have an official position on low-income housing 
policy. It is a revised version of a paper presented at a conference on 
housing affordability at the American Enterprise Institute on April 6, 
2017 sponsored by the American Enterprise Institute, Bank of Israel, 
Board of Governors of the Federal Reserve System, Tel Aviv University, 
and UCLA.
---------------------------------------------------------------------------

         Does Housing Affordability Argue for Subsidizing the 
                  Construction of Tax Credit Projects?

The Low-Income Housing Tax Credit (LIHTC) is the largest and fastest 
growing low-income housing program. It subsidizes the construction and 
renovation of more units each year than all other government programs 
combined. The tax credits themselves involved a tax expenditure of 
about $6 billion in 2015 and new commitments of about $7.5 billion. 
However, these projects receive additional development subsidies from 
state and local governments, usually funded through federal 
intergovernmental grants, accounting for one-third of total development 
subsidies (Cummings and DiPasquale 1999). Therefore, the total 
development subsidies associated with the new commitments were about 
$11 billion. Furthermore, many tax credit projects involve substantial 
renovations of older HUD and USDA housing projects that continue to 
receive deep subsidies from the programs involved, and many tax credit 
units are occupied by households with tenant-based housing vouchers 
that provide owners with additional revenue. GAO (1997) found that 
owners of tax-credit projects received subsidies in the form of project 
based or tenant-based rental assistance on behalf of 40 percent of 
their tenants. More recent evidence for 10 states suggests an even 
higher fraction (O'Regan and Horn 2015). To the best of my knowledge, 
the magnitude of these subsidies has never been documented. If their 
per-unit cost were equal to the per-unit cost of tenant-based housing 
vouchers in 2015, they would have added about $7.5 billion a year to 
the cost of the tax-credit program. A program of this magnitude merits 
much more critical scrutiny than it has received to date.

Proposed legislation in the Senate would greatly expand the tax credit 
program, indeed, increase the number of units built or renovated by 50 
percent.\1\ This is billed as a solution to a housing affordability 
problem described in terms of the many households that devote a large 
fraction of their income to housing. The report that attempts to 
justify the expansion also argues that the expansion is necessary to 
house the homeless who clearly have a housing affordability problem.\2\ 
Neither argument holds water.
---------------------------------------------------------------------------
    \1\ https://www.congress.gov/bill/115th-congress/senate-bill/548.
    \2\ https://www.cantwell.senate.gov/imo/media/doc/
Senator%20Cantwell%20LIHTC%20Report
.pdf.

Building new projects is a very expensive solution to the housing 
affordability problem described. We don't need to build new housing 
projects to help households that spend a large fraction of their income 
on housing. They are already housed. If we think that their housing is 
unaffordable, the cheapest solution is for the government to pay a part 
of the rent. HUD's housing voucher program does just that at a much 
---------------------------------------------------------------------------
lower cost than the tax credit program.

Furthermore, it's neither necessary nor desirable to construct new 
units to house the homeless. The number of people who are homeless is 
far less than the number of vacant units--indeed, far less than the 
number of vacant units renting for less than the median. In the entire 
country, there are only about 600,000 homeless people on a single night 
and more than 3 million vacant units available for rent.\3\ Even if all 
homeless people were single, they could easily be accommodated in 
vacant existing units, and that would be much less expensive than 
building new units for them. The reason that they are homeless is that 
they don't have the money to pay the rent for existing vacant units. A 
housing voucher would solve that problem. A major HUD-funded random 
assignment experiment called the Family Options Study compared the cost 
and effectiveness of housing vouchers and subsidized housing projects 
for serving the homeless.\4\ Transitional housing projects were far 
less effective and much more expensive than short-term housing 
vouchers.
---------------------------------------------------------------------------
    \3\ https://www.hudexchange.info/resources/documents/2015-AHAR-
Part-1.pdf.
    https://fred.stlouisfed.org/series/ERENTUSQ176N.
    \4\ https://www.huduser.gov/portal/sites/default/files/pdf/Family-
Options-Study-Full-Report.pdf.

The evidence indicates that the tenant-based housing voucher program is 
by far the most cost effective approach to delivering housing 
assistance.\5\ The best study of HUD's largest program that subsidized 
the construction of privately owned projects indicated the total cost 
of providing housing under this program was at least 44 percent greater 
than the total cost of providing equally good housing under the housing 
voucher program (Wallace and others 1981). This translated into 
excessive taxpayer cost of at least 72 percent for the same outcome. It 
implies that housing vouchers could have served all the people served 
by this program equally well and served at least 72 percent more people 
with the same characteristics without any increase in public spending.
---------------------------------------------------------------------------
    \5\ Olsen (2008, pp. 9-15) summarizes the evidence.

We don't have a cost-effectiveness study of this quality for the LIHTC 
program. The best evidence available suggests that tax credit projects 
cost 16% more than the voucher program to provide units with the same 
number of bedrooms in the same metro area (GAO 2001). This is almost 
surely an underestimate because it omits some of the public subsidies 
to developers of tax credit projects such as land sold to them by local 
governments at below-market prices, local property tax abatements 
received by some developers, and later subsidies for renovating the 
---------------------------------------------------------------------------
projects.

The best evidence available also indicates that occupants of tax credit 
projects capture a small fraction of the subsidies provided to 
developers. Burge (2011, p. 91) finds that the present value of the 
rent saving to tenants (the difference between the market rent of the 
unit and the rent paid by its tenant) is only 35% of the present value 
of the tax credits provided to developers. Combining this result with 
Cummings and Di Pasquale's finding that tax credits account for about 
two-thirds of development subsidies for tax credit projects leads to 
the conclusion that tenants capture at most 24% of the development 
subsidies.

A recent PBS Frontline documentary called ``Poverty, Politics, and 
Profit'' illustrates one of the reasons for this outcome, namely, LIHTC 
fraud.\6\ A follow-up piece with NPR, Department of Justice news 
releases, and articles in The Miami Herald provide more details.\7\ One 
investigation of several developers revealed excess subsidies of $36 
million for 14 projects.\8\ Because subsidies are proportional to 
development cost, developers have an incentive to overstate them. In 
the fraud uncovered in this investigation, the developer who was 
awarded tax credits persuaded contractors to provide inflated bids for 
their work on the projects combined with kickbacks to the developers. 
Due to the difficulty of determining true development cost and lax 
enforcement by state housing agencies, developers succeed in greatly 
overstating them. Because the fraud involved is difficult to detect, 
the few cases uncovered so far are surely the tip of the iceberg.\9\ 
Recent investigations have uncovered fraud in Los Angeles, New York 
City, Dallas, and Maine, and other investigations are underway.\10\
---------------------------------------------------------------------------
    \6\ http://www.pbs.org/video/3000723710/.
    \7\ http://www.npr.org/2017/05/09/527046451/affordable-housing-
program-costs-more-shelters-less.
    https://www.justice.gov/usao-sdfl/pr/seven-defendants-sentenced-
federally-their-role-36-million-fraud-scheme-involving-low.
    http://www.miamiherald.com/news/local/community/miami-dade/
article29949909.html.
    \8\ https://www.justice.gov/usao-sdfl/pr/seven-defendants-
sentenced-federally-their-role-36-million-fraud-scheme-involving-low.
    \9\ Since LIHTC has subsidized the construction and renovation of 
more than 40,000 projects, it is reasonable to believe that fraud has 
accounted for a substantial sum over the program's history.
    \10\ http://www.latimes.com/local/lanow/la-me-ln-housing-
indictment-20160205-story.html.
    https://www.justice.gov/usao-edny/pr/real-estate-developer-
sentenced-6-months-imprisonment-soliciting-300000-kickbacks-nyc.
    https://www.justice.gov/archive/usao/txn/PressRel10/
DCC_potashnik_brian_cheryl_sen_pr.
html.
    http://www.pressherald.com/2016/04/14/maine-man-admits-embezzling-
80000-in-low-income-housing-funds/.
    https://www.bizjournals.com/southflorida/news/2017/06/16/federal-
investigation-widens-into-affordable.html.

The reasons for the excess cost of tax credit projects go beyond fraud. 
The combination of programs that provide subsidies to them offer excess 
profits to honest developers (that is, much larger profits than can be 
earned in the unsubsidized market) and distortions in the combination 
of inputs used to provide housing (specifically, expensive new 
buildings that are built on inexpensive land and poorly maintained). 
The excess profits explain why many more developers submit proposals 
than can be funded with the tax credits allocated to the state. It's 
why developers of tax credit projects spend so much on their proposals. 
It's why almost all commit all of the units in their buildings to the 
tax credit program. It's why some pay bribes to get their projects 
approved. The layering of subsidies on tax credit projects makes it 
---------------------------------------------------------------------------
particularly difficult to prevent excess profits.

Clearly, Congress should not authorize the expansion of the tax credit 
program unless existing evidence on the cost-effectiveness of the tax 
credit program is far from the mark. If Congress wants to serve 
additional households, it should expand the much more cost-effective 
housing voucher program. Furthermore, given the large current public 
spending on tax credit projects, Congress should insist on, and 
appropriate the money for, independent analyses of the highest quality 
that compare the cost-effectiveness of housing vouchers with the 
various types of tax credit projects, including ones that renovate 
private and public housing projects built under HUD and USDA programs. 
The cost of these studies would be trivial compared with public 
spending on tax credit projects.

It's often argued that the large expense of subsidizing the 
construction of new tax credit projects is justified by low vacancy 
rates that prevent potential recipients from using housing vouchers. 
Table 1 shows that the location of new tax credit projects is 
inconsistent with this justification. The construction of tax credit 
projects is not focused on metro areas with low vacancy rates. Over the 
past decade, the majority of tax credit units were built in metro areas 
with vacancy rates in excess of 8%. Almost 40% of all tax credit units 
were built in metro areas with vacancy rates in excess of 10%. The 
location of tax credit projects indicates that market tightness is not 
a serious argument for the tax credit program.


               Table 1. Tax Credit Units v. Vacancy Rates
          75 largest metro areas, HVS vacancy rates, 2005-2014
------------------------------------------------------------------------
Vacancy Rate   Tax Credit Units Placed in     Tax Credit Units as % of
     (%)                 Service                Occupied Rental Units
------------------------------------------------------------------------
2.0-3.9                            13,931                          0.24
4.0-5.9                           117,729                          0.20
6.0-7.9                           145,076                          0.27
8.0-9.9                            84,894                          0.21
10.0-                             223,220                          0.25
------------------------------------------------------------------------
Total                             584,850                          0.24
------------------------------------------------------------------------
Note: Each observation refers to a single metro area in one year.
Sources: Vacancy rates, https://www.census.gov/housing/hvs/data/
  ann15ind.html.
Tax credit units placed in service, https://www.huduser.gov/portal/
  datasets/lihtc.html.
Occupied rental units, http://factfinder.census.gov/faces/nav/jsf/pages/
  index.xhtml.


Furthermore, there are good reasons to expect that subsidized 
construction will work poorly in tight housing markets because it 
crowds out unsubsidized construction to a considerable extent. When 
vacancy rates are low in a market, rents will be high. This is when 
unsubsidized construction will be most profitable. In the absence of 
subsidized construction, unsubsidized construction would be high, and 
unemployment among construction workers and equipment would be low. 
Subsidized construction would divert workers and equipment from 
unsubsidized construction.

The evidence indicates that subsidized construction largely crowds out 
the unsubsidized housing stock to a considerable extent (Murray 1983, 
1999, Malpezzi and Vandell 2002, Sinai and Waldfogel 2005, and Eriksen 
and Rosenthal 2010). In tight markets, it mainly crowds out 
unsubsidized construction. In markets with high vacancy rates, it 
mainly results in the withdrawal of existing units from the housing 
stock.

It's reasonable to believe that all subsidized housing programs lead to 
some increase in the number of dwelling units by increasing the demand 
for distinct units. The offer of housing assistance of any type induces 
some individuals and families living with others to live in their own 
units. Abt et al. (2006, pp. 23, 76) indicate that about 26 percent of 
the families on the housing voucher waiting list were living with 
friends or relatives and 2 percent were living in a homeless shelter or 
transitional housing, and voucher usage resulted in corresponding 
decreases in these numbers. Since doubling up and homelessness are more 
common among the poorest households, the programs that serve the 
poorest households will have the greatest net effect on the number of 
housing units. The voucher program serves somewhat poorer households 
than public housing and much poorer households than privately owned 
subsidized projects as judged by per-capita household income (Picture 
of Subsidized Households).\11\ Consistent with this explanation, Sinai 
and Waldfogel (2005) find that tenant-based vouchers lead to a larger 
increase in the housing stock than construction programs. This 
phenomenon also explains Eriksen and Rosenthal's finding of almost 
complete crowd out for the LIHTC. This program serves families with 
much higher incomes than the other programs.
---------------------------------------------------------------------------
    \11\ https://www.huduser.gov/portal/datasets/assthsg.html.

Contrary to popular perceptions, housing vouchers work reasonably well 
in tight housing markets. Many families offered vouchers already occupy 
apartments meeting the program's standards. We don't need vacant 
apartments for these families. They can participate without moving. 
Other families offered vouchers live in housing that doesn't meet 
program's minimum housing standards, but their landlords are willing to 
repair them to meet the standards. Similarly, vacant apartments that do 
not initially meet the program's standards can be upgraded to meet 
them. About half of the units occupied by voucher recipients were 
repaired to meet the program's minimum housing standards (Kennedy and 
Finkel 1994). The tenant-based voucher program substantially increases 
the supply of apartments meeting minimum housing standards without 
---------------------------------------------------------------------------
building new units for the households involved.

The Housing Assistance Supply Experiment of the Experimental Housing 
Allowance Program (EHAP) provides additional evidence on the ability of 
tenant-based vouchers to increase the supply of apartments meeting 
minimum housing standards even in tight housing markets.\12\ The Supply 
Experiment involved operating an entitlement tenant-based housing 
allowance program in two metropolitan areas for 10 years. During the 
first 5 years of the experiment, about 11,000 dwellings were repaired 
or improved to meet program standards entirely in response to tenant-
based assistance (Lowry 1983, p. 24). This represented more than a 9 
percent increase in the supply of apartments meeting minimum housing 
standards.
---------------------------------------------------------------------------
    \12\ Olsen and Zabel (2015, pp. 903-904) provide a brief account of 
the experiment and its main results.

Given the available evidence on program performance, we should 
certainly not expand the tax credit program. The existing evidence 
argues for terminating it or phasing it out. If we want to serve 
additional households, we should expand the much more cost-effective 
housing voucher program. lf the tax credit program is retained, 
Congress should insist on independent analyses of the highest quality 
that compare the cost-effectiveness of housing vouchers with the 
various types of low-
---------------------------------------------------------------------------
income housing tax credit projects.

References

A bt Associates Inc. 2006. Effects of Housing Vouchers on Welfare 
Families. Washington, DC: U.S. Department of Housing and Urban 
Development, Office of Policy Development and Research.
B urge, Gregory S. 2011. ``Do Tenants Capture the Benefits From the 
Low-Income Housing Tax Credit Programs?'' Real Estate Economics 39(1): 
71-96.
C ummings, Jean L., and Denise DiPasquale. 1999. ``The Low-Income 
Housing Tax Credit: An Analysis of the First Ten Years.'' Housing 
Policy Debate 10: 251-307.
E riksen, Michael D., and Stuart S. Rosenthal. 2010. ``Crowdout Effects 
of Place-Based Subsidized Rental Housing: New Evidence from the LIHTC 
Program.'' Journal of Public Economics 94 (11-12): 953-966.
K ennedy, Stephen D., and Meryl Finkel. 1994. Section 8 Rental Voucher 
and Rental Certificate Utilization Study, Washington, DC: Office of 
Policy Development and Research, U.S. Department of Housing and Urban 
Development.
L owry, Ira S., ed. 1983. Experimenting With Housing Allowances: The 
Final Report of the Housing Assistance Supply Experiment, Cambridge, 
MA: Oelgeschlager, Gunn, and Hain.
M alpezzi, Stephen, and Kerry Vandell. 2002. ``Does the Low-Income 
Housing Tax Credit Increase the Supply of Housing?'' Journal of Housing 
Economics 11(4): 360-380.
M urray, Michael P. 1983. ``Subsidized and Unsubsidized Housing Starts: 
1961-1977.'' The Review of Economics and Statistics 65(4): 590-597.
-- ------. 1999. ``Subsidized and Unsubsidized Housing Stocks 1935 to 
1987: Crowding Out and Cointegration.'' Journal of Real Estate Finance 
and Economics 18(1): 107-124.
O lsen, Edgar O. 2008. ``Getting More From Low-Income Housing 
Assistance,'' The Brookings Institution, Hamilton Project, Discussion 
Paper 2008-13. http://www.brookings.edu/papers/2008/
09_low_income_housing_olsen.aspx.
O lsen, Edgar O., and Jeff Zabel. 2015. ``U.S. Housing Policy,'' in 
Giles Duranton, J., Vernon Henderson, and William Strange (eds.), 
Handbook of Regional and Urban Economics, Volume 5. Amsterdam: North-
Holland.
O 'Regan, Katherine M., and Keren Horn. 2013. ``What Can We Learn About 
the Low-Income Housing Tax Credit Program by Looking at the Tenants?'' 
Housing Policy Debate 23(3): 597-613.
S inai, Todd, and Joel Waldfogel. 2005. ``Do Low-Income Housing 
Subsidies Increase the Occupied Housing Stock?'', Journal of Public 
Economics 89(11-12): 2137-2164.
U .S. General Accounting Office (GAO). 1997. ``Tax Credits: 
Opportunities to Improve Oversight of the Low-Income Housing Program,'' 
GGD/RCED-97-55. Washington, DC: GAO.
-- ------. 2001. ``Federal Housing Programs: What They Cost and What 
They Provide,'' GA0-01-901R, Washington, DC: GAO (July 18).
W allace, James E., Susan Philipson Bloom, William L Holshouser, 
Shirley Mansfield, and Daniel H. Weinberg. 1981. Participation and 
Benefits in the Urban Section 8 Program: New Construction and Existing 
Housing, Vol. 1 and 2. Cambridge, MA: Abt Associates Inc. (January).

                                 ______
                                 
                    Winkler Development Corporation

                      210 S.W. Morrison, Suite 600

                        Portland, OR 97204-3150

                  Tel: 503-225-0701 FAX: 503-273-8591

On behalf of Winkler Development Corporation, a developer of affordable 
housing in Oregon, we ask that you prioritize the Low-Income Housing 
Tax Credit (LIHTC) and tax-exempt multifamily Housing Bonds as Congress 
considers comprehensive tax reform and investments in our nation's 
infrastructure.

Our firm has developed numerous award-winning affordable housing 
projects that measurably improve the lives of our community members, 
and we aim to continue building affordable housing that serves both 
families and seniors. However, from our vantage points as developers, 
LIHTC and similar programs have become increasingly difficult to 
implement as construction and other costs have increased while the 
value of the tax credits have declined. Additional policy measures are 
necessary to produce enough affordable housing supported by LIHTC.

Every state in our country faces an affordable rental housing crisis. 
In Oregon, more than 10 percent of households (164,000) spend more than 
half of their monthly income on rent, leaving too little for other 
necessities like food, medical care, and transportation.

The Housing Credit has financed nearly 3 million apartments nationwide 
since 1986, which have provided roughly 6.7 million low-income 
families, seniors, veterans, and people with disabilities homes they 
can afford. It has provided affordable housing to all 50 states and all 
types of communities, including urban, suburban, and rural. More than 
one million of these apartments were financed using tax-
exempt multifamily Housing Bonds.

As the 115th Congress and the new Administration consider tax reform 
and infrastructure investments, we call on Congress to: (1) ensure that 
the Housing Credit and Housing Bonds are held up as positive examples 
of the power of the tax code to improve communities by maintaining 
their viability under tax reform; and (2) expand and strengthen the 
Housing Credit to increase the availability of safe and affordable 
housing and revitalize local economies.

The Housing Credit enjoys bipartisan support nationwide because of its 
proven ability to effectively and efficiently build affordable rental 
homes for low-income households. For 30 years, it has been a model 
public-private partnership program, bringing to bear private sector 
resources, market forces, and state-level administration in order to 
give low-income families, seniors, veterans, and people with 
disabilities access to homes they can afford.

The Housing Credit has been so successful that Oregon Housing and 
Community Service, as well as housing agencies in other states, must 
turn down viable and sorely needed Housing Credit developments each 
year because the cap on Housing Credit authority is far too low to 
support the demand.

For the families paying more than half of their income towards 
housing--choosing between paying the rent or their medical bills, 
making repairs to their cars, or enrolling in job training classes--
your support of the Housing Credit and Housing Bonds is critical.

Sincerely,

Julia Winkler
Winkler Development Corporation, Principal

                                  [all]