[Senate Hearing 117-877]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 117-877

                      THE ROLE OF TAX INCENTIVES 
                         IN AFFORDABLE HOUSING

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







                                HEARING

                               before the

                          COMMITTEE ON FINANCE
                          UNITED STATES SENATE

                    ONE HUNDRED SEVENTEENTH CONGRESS

                             SECOND SESSION
                               __________

                             JULY 20, 2022
                               __________









               [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]                                 







                                     

            Printed for the use of the Committee on Finance 
                                ______

                  U.S. GOVERNMENT PUBLISHING OFFICE 

56-312--PDF               WASHINGTON : 2024 
















                          COMMITTEE ON FINANCE

                      RON WYDEN, Oregon, Chairman

DEBBIE STABENOW, Michigan            MIKE CRAPO, Idaho
MARIA CANTWELL, Washington           CHUCK GRASSLEY, Iowa
ROBERT MENENDEZ, New Jersey          JOHN CORNYN, Texas
THOMAS R. CARPER, Delaware           JOHN THUNE, South Dakota
BENJAMIN L. CARDIN, Maryland         RICHARD BURR, North Carolina
SHERROD BROWN, Ohio                  ROB PORTMAN, Ohio
MICHAEL F. BENNET, Colorado          PATRICK J. TOOMEY, Pennsylvania
ROBERT P. CASEY, Jr., Pennsylvania   TIM SCOTT, South Carolina
MARK R. WARNER, Virginia             BILL CASSIDY, Louisiana
SHELDON WHITEHOUSE, Rhode Island     JAMES LANKFORD, Oklahoma
MAGGIE HASSAN, New Hampshire         STEVE DAINES, Montana
CATHERINE CORTEZ MASTO, Nevada       TODD YOUNG, Indiana
ELIZABETH WARREN, Massachusetts      BEN SASSE, Nebraska
                                     JOHN BARRASSO, Wyoming

                    Joshua Sheinkman, Staff Director
                Gregg Richard, Republican Staff Director

                                  (II) 












                                  
                            C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page
Wyden, Hon. Ron, a U.S. Senator from Oregon, chairman, Committee 
  on Finance.....................................................     1
Crapo, Hon. Mike, a U.S. Senator from Idaho......................     3

                               WITNESSES

Bell, Andrea, Director, Oregon Housing and Community Services, 
  Salem, OR......................................................     5
Konter, Jerry, founder and president, Konter Quality Homes; and 
  chairman of the board, National Association of Home Builders, 
  Washington, DC.................................................     7
Ohanian, Lee E., Ph.D., senior fellow, Hoover Institution, 
  Stanford University; and distinguished professor of economics, 
  University of California, Los Angeles, Los Angeles, CA.........     8
Roberts, Benson (Buzz), president and CEO, National Association 
  of Affordable Housing Lenders, Washington, DC..................    10
Wade, Hon. Dana T., chief production officer, FHA finance, Walker 
  and Dunlop, Bethesda, MD.......................................    11

               ALPHABETICAL LISTING AND APPENDIX MATERIAL

Bell, Andrea:
    Testimony....................................................     5
    Prepared statement...........................................    37
    Responses to questions from committee members................    43
Crapo, Hon. Mike:
    Opening statement............................................     3
    Prepared statement...........................................    49
Konter, Jerry:
    Testimony....................................................     7
    Prepared statement...........................................    50
    Responses to questions from committee members................    71
Ohanian, Lee E., Ph.D.:
    Testimony....................................................     8
    Prepared statement...........................................    75
    Responses to questions from committee members................    79
Roberts, Benson (Buzz):
    Testimony....................................................    10
    Prepared statement...........................................    83
    Responses to questions from committee members................    90
Wade, Hon. Dana T.:
    Testimony....................................................    11
    Prepared statement...........................................    94
    Responses to questions from committee members................    97
Wyden, Hon. Ron:
    Opening statement............................................     1
    Prepared statement...........................................   101

                             Communications

AHEPA Affordable Housing Management Company......................   103
Capital One......................................................   105
Center for Fiscal Equity.........................................   111
Housing Development Center.......................................   116
National Community Renaissance...................................   117
National Multifamily Housing Council and National Apartment 
  Association....................................................   118
New York State Homes and Community Renewal.......................   123
UMH Properties...................................................   125
U.S. Mortgage Insurers...........................................   127

 
                      THE ROLE OF TAX INCENTIVES 
                         IN AFFORDABLE HOUSING

                              ----------                              

                        WEDNESDAY, JULY 20, 2022

                                       U.S. Senate,
                                      Committee on Finance,
                                                    Washington, DC.
    The hearing was convened, pursuant to notice, at 10 a.m., 
in Room SD-215, Dirksen Senate Office Building, Hon. Ron Wyden 
(chairman of the committee) presiding.
    Present: Senators Carper, Cardin, Brown, Bennet, Casey, 
Warner, Hassan, Cortez Masto, Crapo, Thune, Portman, and Young.
    Also present: Democratic staff: Adam Carasso, Senior Tax 
and Economic Advisor; and Joshua Sheinkman, Staff Director. 
Republican staff: Jamie Cummins, Tax Counsel; Catherine Fuchs, 
Senior Counsel; Gregg Richard, Staff Director; and Jeffrey 
Wrase, Deputy Staff Director and Chief Economist.

     OPENING STATEMENT OF HON. RON WYDEN, A U.S. SENATOR 
         FROM OREGON, CHAIRMAN, COMMITTEE ON FINANCE

    The Chairman. The Finance Committee meets this morning to 
discuss housing. This hearing comes at a time when Americans 
are getting clobbered by climbing rents and home prices, key 
drivers of inflation.
    Data released last week showed that rents increased in June 
at the fastest rate since 1986. Buying a home is getting more 
expensive. Many young people who have modest incomes or big 
student loan debt feel like the dream of home ownership has 
slipped out of their reach.
    The root cause is the United States is not building enough 
housing. It has been that way for decades, and the shortage is 
affecting citizens and cities all over America. For example, my 
hometown of Portland has skyrocketing rents and low supply of 
suitable housing. It is also an issue though in central Oregon, 
southern Oregon, and eastern Oregon, where they cannot build 
enough housing fast enough to keep up with demand. I would be 
willing to bet that every member on this panel is hearing the 
same story.
    Now, we are going to talk about a number of issues this 
morning, and I would just like to raise a relatively new issue 
that deserves real scrutiny, and that is: private equity firms 
and sophisticated companies armed with terabytes of housing 
data are hoovering up properties nationwide. They are jacking 
up rents. They are using algorithms to outbid Americans who 
just want to own a home.
    Why do these big guys want to get into our housing market? 
Because there are upward of 330 million people in the country, 
and there are not enough homes for all of them. Huge demand, 
limited supply--typically, people on a budget are going to come 
out on the losing end of that sort of thing every time.
    The cost of housing is also pushed up by the snarls of 
State and local red tape. Zoning rules too often ban the kind 
of construction that is most needed and perpetuate segregation. 
In some places it can take years of tireless work to get a 
ruling on permits and approval for new construction, and then 
you have the big up-front costs.
    Fortunately, my home State of Oregon is one of the States 
that is stepping up on this issue. Others need to do the same. 
It is also a fact that when housing costs go up, homelessness 
goes up. You can save a lot of individual suffering and 
taxpayer dollars tomorrow by building more affordable housing 
today.
    The bottom line when it comes to housing? The U.S. needs to 
build and then build some more. The Finance Committee plays an 
important role in helping get shovels in the ground. That's 
because much of housing policy deals with tax policy.
    I have proposed the DASH Act, the Decent, Affordable, and 
Safe Housing for All bill. It is about getting help to the most 
vulnerable: children and families experiencing homelessness. It 
would also create a credit for more affordable rental units; 
boost LIHTC, the Low-Income Housing Tax Credit; and encourage 
the construction of more middle-income housing, without taking 
a single penny away from LIHTC. Local officials in Oregon tell 
me they badly need more incentives to build housing for middle-
class families.
    The Finance Committee has had a bipartisan coalition 
working on important housing issues for a long time. In recent 
years Senator Cantwell has been the champion of LIHTC, leading 
big legislative expansions that are creating more than 150,000 
new affordable homes. I think she would agree that that is a 
good down payment for housing--at the same time, recognizing 
there is lots and lots more to do.
    There is another proposal, the Affordable Housing Credit 
Improvement Act, which I am proud to cosponsor with Senator 
Young and one of our colleagues who is here, Senator Portman. 
That bill adds even more punch and even more flexibility to 
building even more housing--an estimated 2 million new units 
nationwide.
    Senator Cardin and Senator Portman have also proposed an 
important bill called the Neighborhood Homes Investment Act 
that would be a big magnet for new affordable housing in 
struggling communities that very much need it.
    And finally, thanks to my seat mate here, Senator Crapo, we 
continue our bipartisan work with Senator Leahy, Senator 
Collins, and I, offering the LIFELINE Act. Our bill creates 
more flexibility for States, local governments, and Tribes to 
use existing funds to get more affordable housing built. With 
costs where they are today, the alternative is a whole lot of 
unfinished construction and plans that stall out before they 
get out of the gate.
    Finally, while there is bipartisan interest in getting this 
approach done legislatively, the Treasury also has substantial 
authority to accomplish a lot of what we are seeking to do on 
their own with rule changes.
    So today we are going to make sure that the direction is 
getting the Congress and the Treasury Department to move more 
quickly together. And getting it done will provide important 
progress, again ensuring access to more opportunities for 
affordable housing. There are lots of ideas to talk about.
    Every member of this committee has an interest in this. So, 
I hope we will not be here eating our cereal tomorrow morning 
in the Finance room, but I can tell you a lot of our colleagues 
have lots of interest and look forward to our discussion.
    And I want to again thank Senator Crapo for his good work 
on another important issue.
    [The prepared statement of Chairman Wyden appears in the 
appendix.]

             OPENING STATEMENT OF HON. MIKE CRAPO, 
                   A U.S. SENATOR FROM IDAHO

    Senator Crapo. Thank you, Senator Wyden. And I appreciate 
your holding this hearing, as you are highlighting once again 
another of the bipartisan issue areas we are building a strong 
record in this committee of working on, and this is important.
    Last week we learned that consumer price inflation spiked 
to 9.1 percent, the highest rate in more than 40 years. The 
shelter component of the consumer price index was up 5.6 
percent in June relative to a year earlier, and rents were up 
by nearly 6 percent.
    To continue battling inflation, which was fueled by last 
year's partisan American Rescue Plan, the Federal Reserve must 
aggressively raise interest rates, and may raise rates later 
this month by as much as a full percent.
    Inflation must be contained, or we run the risk of the Fed 
having to repeat what it did in late 1980 to combat runaway 
inflation. Painfully then, overnight interest rates were driven 
to nearly 20 percent, which crushed economic activity, 
including housing markets, and helped lead to a deep and long 
recession.
    With higher interest rates set by the Fed, higher mortgage 
rates follow, making it all the more challenging for Americans 
to buy homes. Housing affordability is a critical issue in 
Idaho and all across the country.
    Nationwide, there is a shortage of about 7 million 
affordable rental homes available to lower-income Americans, 
and the gap between demand and supply increases each year. To 
provide more affordable housing, there are existing tools in 
the tax toolbox that provide incentives for builders to create 
more affordable homes.
    The Low-Income Housing Tax Credit or LIHTC, for example, is 
responsible for generating a majority of all affordable rental 
housing created in the United States today and generally enjoys 
bipartisan support in Congress.
    In Idaho, there are currently 284 LIHTC projects located 
across the State, providing 12,000-plus units. These projects 
vary in size and are split roughly between urban and rural, 
with about 72 percent targeted toward families and 28 percent 
for seniors and the elderly. One such project is the Valor 
Pointe Apartments in Boise, which targets chronically homeless 
veterans.
    Several members of this committee have been active in 
working to improve existing affordable housing credits and to 
create new incentives--and as I indicated, on a bipartisan 
basis. Senators Young and Cantwell, as well as several other 
members, introduced the Affordable Housing Credit Improvement 
Act, which would expand and strengthen LIHTC for developing and 
preserving affordable housing.
    Senators Portman and Cardin introduced the Neighborhood 
Homes Investment Act, which would create a Federal tax credit 
that covers the cost difference between building or renovating 
a home in urban and rural areas. Numerous other Finance 
Committee members are also interested in finding affordable 
housing solutions, and I thank all of them for their work.
    While LIHTC and other credits are a part of the solution to 
developing affordable housing, we must address other drivers 
that are increasing housing costs generally. Foremost in the 
current economy is the need to reduce inflation. Unfortunately, 
it has been allowed to run rampant, and necessary Federal 
Reserve actions will probably raise the cost of housing. 
Builders are also feeling inflation's effect through more 
expensive building materials. And, painfully high fuel prices 
continue to put even more pressure on builders' budgets, making 
it even more expensive to get materials to the construction 
sites.
    Additionally, several economic factors have led to a 
shortage of affordable housing. One way to alleviate the 
shortage would be to look into more manufactured housing. 
During his time at HUD, former Secretary Carson created the 
Office of Innovation to evaluate new ways to provide housing, 
and in doing so highlighted the improved efficiency and 
suitability of manufactured homes.
    Zoning laws and regulatory barriers, which are often 
uncoordinated, unnecessary, or overly cumbersome, also present 
challenges to affordable housing by creating excessive costs 
that restrain development of affordable housing. Many of the 
markets with the most severe shortages in affordable housing 
have the most restrictive State and local barriers to 
development.
    We must work to reduce regulatory barriers, which requires 
outside-the-box approaches, as well as teamwork from local, 
State, and Federal Governments, and the private sector. This 
includes initiatives like Opportunity Zones that were part of 
the Tax Cuts and Jobs Act, an area where Senator Scott has done 
a great deal of good work.
    Data released as recently as March of 2022 by the 
Opportunity Zone Fund Directory shows that $49.18 billion has 
been committed to anticipated investments, and 60 percent of 
those funds target investments in affordable housing and 
community development.
    Homes are more than just physical structures. Homes are a 
foundation for wealth building, family stability, and community 
cohesiveness. It is critical that we make the American dream of 
home ownership as attainable for as many people as possible, 
which will continue to foster the economic success of the 
Nation.
    I look forward to discussing ways to ensure affordability 
and accessibility of home ownership with today's witnesses. And 
I thank you all for being here.
    Thank you, Mr. Chairman.
    [The prepared statement of Senator Crapo appears in the 
appendix.]
    The Chairman. Thank you, Senator Crapo, and you are spot-on 
in saying this is another area where we have an opportunity to 
lead the committee to some bipartisan solutions.
    Let me go to our witnesses. Andrea Bell is here from 
Oregon. It is so good to have you here. She is the Executive 
Director of Oregon Housing and Community Services. She has 
served in differing capacities there since 2019. Previously Ms. 
Bell was the Housing Administrator for the Medicaid Health 
Plan. So, we are very glad you are here.
    Our second witness--we welcome him; he has worked very 
closely with us over the years--is Jerry Konter, the chairman 
of the National Association of Home Builders. He has spent 45 
years building homes and commercial buildings in Savannah, GA. 
We are very pleased that he and the Home Builders are 
participating.
    Our third witness is Lee Ohanian, senior fellow at the 
Hoover Institution and distinguished professor of economics at 
the University of California, Los Angeles. I would just say to 
Dr. Ohanian, my late mother worked at the Hoover Institution 
for many years and, with the ultimate compliment, some of the 
executives said, ``Mrs. Wyden is so good, but she still is a 
Democrat.'' So, we are very pleased that you are here.
    Our fourth witness is Benson (Buzz) Roberts--we welcome 
you--president and CEO of the National Association of 
Affordable Housing Lenders. Previously Mr. Roberts was a 
Treasury official working in this area. He has considerable 
expertise, and so we appreciate his leadership.
    Our fifth witness will be Ms. Dana Wade. She is the chief 
production officer at Walker and Dunlop. Ms. Wade previously 
served as the Commissioner of the Federal Housing 
Administration in 2020. She also has extensive experience in 
the executive branch at Management and Budget, but she also has 
Senate roots--the Senate Committee on Banking. So we welcome 
her.
    Because we are going to have so many Senators to 
participate, we are going to have to stick really closely to 
the 5-minute rule.
    Ms. Bell, you traveled the furthest.

      STATEMENT OF ANDREA BELL, DIRECTOR, OREGON HOUSING  
               AND COMMUNITY SERVICES, SALEM, OR

    Ms. Bell. Wonderful. Well, thank you, Mr. Chairman and 
Ranking Member Crapo, and members of the committee. First, I 
just want to acknowledge and appreciate the opportunity to 
testify on the vital role that tax incentives play in our 
Nation's affordable housing delivery system.
    Again, for the record, I am Andrea Bell, Director of Oregon 
Housing and Community Services. We serve as the State of 
Oregon's Housing Finance Agency.
    First off, Mr. Chairman, thank you for your steadfast 
leadership for many years, and continuously elevating the needs 
of the people of Oregon and their housing needs collectively.
    Senator Crapo, I also want to acknowledge and just uplift 
your support for affordable housing. Your leadership certainly 
does not go unnoticed.
    For years our Nation has not built enough rental housing, 
but the conditions and circumstances spurred by the pandemic 
have made our housing crisis particularly acute, and 
individuals with low incomes, individuals and families with 
moderate incomes, are bearing the brunt of that impact.
    With rising interest rates, escalating home prices, 
skyrocketing rents due to the mismatch between supply and 
demand, many would-be homeowners are often left renting. And 
more than 70 percent of extremely low-income renters across the 
United States were spending more than half of their income on 
housing in 2021--70 percent. That is 70 percent of individuals 
who have to make tough decisions every single month throughout 
the year about what bills they will be able to pay, and how 
they are going to get by.
    The Housing Credit and Housing Bonds are by far the most 
essential production tools that we have at our disposal. 
Affordable housing simply relies on these programs. The Housing 
Credit specifically is a highly successful public and private 
partnership. And what we know is, when we stabilize individuals 
and we stabilize families, we also stabilize communities, which 
has an economic benefit.
    In the State of Oregon, nearly 70 percent of all rental 
homes financed in the last 5 years relied on bonds. Costs are 
increasing due to inflation, supply chain disruptions, many 
things that I know that members of this committee are fully 
aware of.
    Housing finance agencies and our partners across the Nation 
are doing everything that we can to prevent deals from falling 
through. But the unfortunate reality is that sometimes 
financing gaps are simply too large, and in some cases there 
are no resources to pull from to help cure the financing gaps.
    The most impactful thing that Congress can do is to pass 
Senator Cantwell's Affordable Housing Credit Improvement Act. 
It would both expand and strengthen the Housing Credit. It 
would significantly increase the Housing Credit authority, 
allowing us to build more properties like River Bend Place in 
rural Ontario, OR.
    The Affordable Housing Credit Improvement Act would also 
provide States greater flexibility to spread existing bond 
resources to more developments by reducing the bond financing 
test from 50 percent to 25 percent.
    I also urge Congress to pass the bipartisan LIFELINE Act 
introduced by Senators Leahy and Collins. This bill would 
enable States and localities to most effectively use Federal 
fiscal recovery funds to fill financing gaps in Housing Credit 
developments.
    I also quickly want to mention two pieces of legislation 
that the Finance Committee should take up on means of home 
ownership. Senator Cortez Masto's Affordable Housing Bond 
Enhancement Act would enact simple and impactful improvements 
to the Mortgage Revenue Bond and Mortgage Credit Certificate 
programs, which are essential to serving low- and moderate-
income first-time home buyers. This is again creating pathways 
to home ownership, a dream that many of us have.
    Senator Cardin's and Portman's Neighborhood Homes 
Investment Act would establish a new tax credit modeled after 
the highly successful Housing Credit. Simply put, the housing 
crisis simply will not get better if Congress does not act.
    In my last few seconds, I would just both urge and elevate 
my appreciation for this committee, and we need Congress to 
act. The action is going to come after this hearing and what 
decisions the committee will be able to make in service to the 
American people.
    I appreciate the time.
    [The prepared statement of Ms. Bell appears in the 
appendix.]
    The Chairman. Well said. Thank you.
    Let's go next to Mr. Konter.

       STATEMENT OF JERRY KONTER, FOUNDER AND PRESIDENT, 
        KONTER QUALITY HOMES; AND CHAIRMAN OF THE BOARD, 
        NATIONAL ASSOCIATION OF HOME BUILDERS, WASHING-
        TON, DC

    Mr. Konter. Good morning, and thank you for the opportunity 
to testify today.
    Every American deserves access to safe, decent, and 
affordable housing. Even after over 40 years in business, I 
still enjoy nothing more than handing over keys to the first-
time buyer.
    Delivering an entry-level product is difficult. Sixty-nine 
percent of American households cannot afford the median price, 
but a year ago, nearly one quarter of new homes were priced 
under $300,000. Today, it is 10 percent.
    We also face challenges with minority home-ownership 
opportunities. Of households under the age of 35, which is your 
typical first-time buyer, 46 percent of White households owned 
a home, but only 17 percent of African American households did 
so. And as a multifamily developer, I also understand how 
affordable rental housing creates stability for tenants.
    The housing affordability crisis is a result of failing to 
produce enough housing to match demand. If we are going to 
solve our housing affordability crisis, we must drive down the 
cost to build, as well as the cost to own or rent. Well-
structured housing tax incentives can help achieve this.
    Many of these incentives that serve the public interest 
remain effective, including the Low-Income Housing Tax Credit. 
However, others have failed to keep up with changes to the tax 
code, such as the mortgage interest deduction.
    For over 100 years, the MID made home ownership more 
accessible. But the MID remains rooted in an increasingly 
outdated space in the tax code--itemized deductions.
    The change brought by the Tax Cuts and Jobs Act--namely, 
doubling the standard deduction--significantly reduced the 
number of taxpayers who itemize. Prior to those reforms, 
typically 70 percent of homeowners with a mortgage claimed MID. 
Today, that number has dropped below 27 percent.
    In 2017, 80 percent of the MID was deducted by taxpayers 
earning less than $200,000. In 2018, that fell to 58 percent. 
The MID is simply missing the mark. The most effective way to 
promote and enable home ownership is to eliminate the mortgage 
interest deduction and replace it with a tax credit. A 15-
percent tax credit claimed against mortgage interest and real 
estate taxes paid would offer a more effective and progressive 
tax incentive.
    The credit should be phased out for single filers with 
incomes above $250,000 and joint filers with incomes above 
$500,000. A credit structured along these lines can be enacted 
on a revenue-neutral basis starting in the 2026 tax year.
    In the next few years, many of the provisions enacted in 
2017 will expire. This presents an opportunity to refocus the 
home-
ownership tax incentives so that the benefit flows to those who 
need it: middle-class, lower-income Americans from all 
backgrounds.
    We also recommend enacting the Affordable Housing Credit 
Improvement Act to boost production of affordable rental 
housing, and we support Chairman Wyden's proposal for a middle-
income housing tax credit which addresses a growing need for 
affordable workforce rental housing.
    Congress should also address the many housing incentives 
that are not indexed for inflation, such as the capital gains 
exclusion. And we urge you to reconsider the current limits on 
the SALT deduction.
    NAHB greatly appreciates the bipartisan Senate support to 
solve our affordable housing crisis. After all, shelter is a 
basic human need. And the headwinds we are facing are strong. 
The index of builder sentiment had its second largest drop ever 
for July, and single-family starts fell to a 2-year low.
    We have an opportunity to do something that not only makes 
good economic sense but will uplift the lives of millions of 
Americans.
    Thank you.
    [The prepared statement of Mr. Konter appears in the 
appendix.]
    The Chairman. Thank you very much for important points, and 
I note that you are the president of your own homebuilding 
firm, so we are very glad that you are here.
    Our next witness will be Dr. Lee Ohanian.

    STATEMENT OF LEE E. OHANIAN, Ph.D., SENIOR FELLOW, HOO- 
      VER INSTITUTION,  STANFORD  UNIVERSITY;  AND  DISTIN- 
      GUISHED   PROFESSOR   OF  ECONOMICS,  UNIVERSITY   OF 
      CALIFORNIA, LOS ANGELES, LOS ANGELES, CA

    Dr. Ohanian. Chair Wyden, Ranking Member Crapo, and members 
of the Finance Committee, thank you for inviting me to testify 
today.
    Significantly increasing housing affordability requires 
progress on two fronts. One is expanding housing supply. The 
other is building new housing at much lower costs than current 
cost levels. There are policy reforms that may be implemented 
using government incentives that would advance these goals. 
Today I will focus on two reform areas.
    One is increasing the use of manufactured housing, which is 
much less expensive to build than traditional housing. The 
other is in the process of building subsidized housing, which 
has become very expensive in some States, including my State of 
California.
    Residential construction costs are high in part because the 
process of homebuilding has not changed all that much over time 
compared to other sectors in the economy. It has not advanced 
nearly as much as modern production methods.
    Interestingly, this point has been made within the Federal 
Government for at least the last 85 years. Now, in terms of 
documenting how construction costs are so high, I note that the 
Bureau of Labor Statistics reports labor productivity growth in 
residential construction grew just 11 percent between 1987 and 
2016. This stands in sharp contrast to a 150-percent 
productivity growth in durable manufacturing over the same 
period, which reflects substantial and continued technology 
innovations in our factories that lower costs.
    Manufactured homes are much lower-cost alternatives to 
traditionally built homes. The use of factory-built homes 
produces modern cost-saving technologies. Census data shows 
that production costs of manufactured homes are about 60 
percent lower than traditionally built homes.
    Because of substantially lower costs, manufacturing housing 
production boomed after World War II, accounting for about 60 
percent of construction in 1972. But since then, regulatory 
burdens have reduced this adoption. Removing these burdens 
could substantially increase this importance.
    One important HUD requirement is that these homes sit on a 
permanent chassis. This imposes a negative aesthetic on the 
home, as they are pejoratively labeled as mobile homes or 
trailers. The undesirable aesthetic of a home placed on a 
chassis induces cascading negative effects, including local 
zoning ordinances excluding manufactured housing from many 
neighborhoods. This means these homes are often placed in 
mobile home parks, which in turn means they are financed with 
personal loans or chattel loans, both of which tend to be more 
expensive than longer-duration traditional mortgages, and 
neither of which would provide homeowners with mortgage 
interest tax deductibility.
    Recommendations to reduce burdens placed on manufactured 
housing date back at least to President Reagan's 1982 Housing 
Commission Report. These recommendations for manufactured 
housing were also made in a 2011 report commissioned by HUD.
    Eliminating the chassis requirement, together with creating 
specific programs that incentivize State and local agencies to 
accept manufactured housing outside mobile home parks, could be 
a game changer, increasing affordability, and would be squarely 
consistent with President Biden's recently announced proposals 
to increase affordability.
    I will now discuss the importance of reducing the costs of 
building subsidized housing. Construction costs of subsidized 
housing have grown enormously, particularly in the western 
United States. One San Francisco subsidized project is costing 
nearly $1.1 million per small apartment unit, just for 
renovation and refurbishment.
    The 2018 GAO study of LIHTC projects found extremely large 
cost disparities in subsidized construction across States, 
ranging from a minimum of below $100,000 per unit in one Texas 
allocation location to a maximum of $750,000 per unit in 
California, based on 2011-2015 data.
    The GAO found that only a few allocating agencies have 
requirements to guard against misrepresentation of costs, which 
is a fraud risk. The GAO also found weaknesses in data quality, 
inconsistencies in measuring and reporting cost-related 
variables, and the practice of not including the full extent of 
some indirect costs.
    The GAO also found financing inefficiencies, particularly 
the fact that there are typically many lenders. UC Berkeley's 
Terner Center for Housing Innovation estimates that each 
additional lender adds an additional $6,400 in cost per unit.
    Lawsuits also delay affordable development and increase 
costs. In California, lawsuits against affordable housing are 
often filed under the auspices of the California Environmental 
Quality Act, which is recognized within my State and is often 
used to block and delay development, rather than being used for 
its expressed purpose of protecting the environment.
    I recommend Congress revisit the GAO recommendations, 
including standardization of cost data from agencies that are 
collected and analyzed by a single Federal entity.
    American home affordability can be increased substantially 
by the adoption of low-cost production techniques, improving 
efficiency, and helping State and local agencies create 
acceptable building development opportunities in areas that are 
in high demand.
    Thank you so much.
    [The prepared statement of Dr. Ohanian appears in the 
appendix.]
    The Chairman. Thank you very much, Dr. Ohanian.
    Mr. Roberts?

      STATEMENT OF BENSON (BUZZ) ROBERTS, PRESIDENT AND 
        CEO, NATIONAL ASSOCIATION OF AFFORDABLE HOUSING 
        LENDERS, WASHINGTON, DC

    Mr. Roberts. Well, good morning, Chairman Wyden, Ranking 
Member Crapo, and other members of the committee. And thank you 
very much for your leadership on affordable housing.
    The National Association of Affordable Housing Lenders is 
an alliance of major banks, nonprofits, and other mission-
driven lenders and investors in affordable housing and 
inclusive neighborhood revitalization. Our member banks in 2020 
provided over $180 billion to finance affordable low-income 
housing and other community development activities, and our 
members are the primary investors in Low-Income Housing Tax 
Credits.
    So today we have bad news and good news. The bad news of 
course is the tremendous cost of housing, increasing the 
affordability problem. According to the National Association of 
Realtors, prices and rents rose nearly 20 percent last year. 
But housing is not just a casualty of inflation, it is a cause 
of inflation. Even in 2020, home prices went up 11 percent when 
the CPI was rising only 1.4 percent.
    So, building housing is really essential if we are going to 
get our long-term inflation challenges under control. Last 
October, about half of all Americans said that affordable 
housing in their communities was a major problem, and that 
exceeded what they cited for other really important problems, 
like drugs, crime, and the COVID-19 health and economic 
consequences.
    The good news, though, is we know what to do. The Low-
Income Housing Tax Credit is widely considered the most 
effective and successful United States policy to produce 
affordable rental housing ever: 3.6 million units so far, and 
about 130,000 annually. That is virtually all the affordable 
production over the last 35 years, and it is equivalent to more 
than one-third of all comparably rent-priced multifamily 
housing in the United States. So it has had a major impact, and 
it could do much more.
    It has also performed exceedingly well. The cumulative 
foreclosure rate on Housing Credit properties is 0.57 percent. 
That is not an annual foreclosure rate, that is a cumulative 
foreclosure rate. As far as we know, that is the best-
performing asset class in all real estate. Pretty amazing for 
low-income housing.
    The proposed Neighborhood Homes Investment Act would take 
many of the lessons learned from the Housing Credit and apply 
them to a different problem, which is to revitalize struggling 
communities and provide home-ownership opportunities there, by 
building starter homes and rehabilitating homes.
    And so, we urge Congress to pass the bipartisan Senate bill 
98, sponsored by Senators Cardin, Portman, and 20 other 
Senators. That would produce half a million homes for home 
ownership in struggling communities over the next 10 years.
    The broad increases in housing prices really mask 
tremendous diversity across this country. The median price of a 
home in San Jose is $1.6 million. In Toledo, OH, it is one-
tenth of that, less than $160,000. And every State has 
communities that are struggling. In those communities, it is 
not economical to rehab or construct new homes. The numbers 
just do not pencil out. We need to have Neighborhood Homes to 
fix that.
    The Housing Credit too has been so effective. Our priority 
for the Housing Credit, of course, would be to pass the 
Cantwell-Young bill, the Affordable Housing Credit Improvement 
Act. The key elements to address are to, first, restore the 
temporary 12.5-percent increase in Housing Credit allocation 
authority that expired at the end of last year. And so, we are 
actually losing ground rather than gaining ground today. 
Second, to increase the State allocation caps by 50 percent 
over 2 years. That would help every State in the country to 
produce more. Third, as Ms. Bell suggested, reduce the bond 
financing requirement to access tax credits from 50 percent to 
25 percent. And finally, to reform the Qualified Contract and 
right-of-first-refusal provisions in order to preserve 
affordability and expand nonprofit control of properties.
    So, we do know what to do. We just need to do more, and we 
hope you will do it.
    Thank you.
    [The prepared statement of Mr. Roberts appears in the 
appendix.]
    The Chairman. Thank you very much, Mr. Roberts.
    We will have questions in a moment. But we have Ms. Wade. 
Welcome.

    STATEMENT OF HON. DANA T. WADE, CHIEF PRODUCTION OF-
      FICER,  FHA FINANCE,  WALKER AND DUNLOP, BETHESDA, 
      MD

    Ms. Wade. Thank you. Good morning. And, Chairman Wyden, 
Ranking Member Crapo, thank you for your bipartisan leadership 
on this issue.
    My name is Dana Wade. I am a chief production officer at 
Walker and Dunlop. I am a former FHA Commissioner. I am a 
former Assistant Secretary at the Department of Housing and 
Urban Development. And, Mr. Chairman, as you mentioned, I am 
also a former Senate staffer. So, it is a real honor for me to 
be on the other side of the dais.
    Walker and Dunlop, where I work, is one of the largest 
providers of capital to the multifamily industry, and the 
fourth largest lender for all commercial real estate. We 
employ, at Walker and Dunlop, 1,400 people in 40 offices across 
the country. As a top affordable housing lender and the sixth 
largest Low-Income Housing Tax Credit syndicator, we see every 
day both the need to build more affordable housing and the 
barriers that stand in the way.
    This panel has already talked a lot about the data, which 
is pretty clear, on the need to build more affordable housing. 
One recent report showed a shortage of 3.8 million homes in the 
United States. Ten million low-income households spend more 
than half of their income on rent. And the list goes on. Add to 
that the kind of everyday struggles. Millions of Americans 
spend more time getting to work--transit, in their cars, on 
buses, on trains--than they do with their family. So there are 
definite and very real hardships that are presented by the lack 
of affordable housing.
    That is why the conversation on increasing the housing 
supply that this committee is having today is so important. The 
Affordable Housing Credit Improvement Act is a very important 
step forward, and very briefly--I know, Mr. Roberts, you 
mentioned the benefits of that, but specifically we think it 
will be very helpful to increase the already over-subscribed 9-
percent tax credit, lower the threshold for Private Activity 
Bonds from 50 percent to 25 percent, as well as making 
important reforms to allow the 4-percent tax credit to more 
easily be used for rehab projects.
    Increasing the housing supply, using these tax credits, as 
we have seen, has translated into better economic 
opportunities, a better quality of life. As one real-world 
example, if you will allow me, of the differences these tax 
credits make in people's lives, Walker and Dunlop recently 
financed an apartment complex in Portland, OR, called 
Kentonwood. One hundred percent of the units in Kentonwood were 
income-restricted to those making 60 percent or less of the 
area's median income, something made possible with LIHTC. All 
units have access to high-speed Internet and energy-
efficient appliances. And Kentonwood is a walkable, transit-
oriented project close to a light rail station.
    That is just one example. We have many, many examples. From 
where we sit, there are other benefits of LIHTC, including, as 
Mr. Roberts mentioned, very low cumulative foreclosure rates, 
low vacancies, as well as a strong compliance for 
affordability.
    While LIHTC is very important--I think it will be a big 
topic today--as the ranking member alluded to, it is just one 
side of the equation. We must cut through regulatory barriers 
at the Federal, State, and local level that are holding back 
housing supply. An estimated 40 percent of development costs 
can be attributed to regulation at all levels. Record-high 
costs for labor and materials are only adding fuel to the fire.
    Federal obstacles include long time frames for 
environmental and labor decisions, as well as some antiquated 
rules. One example is HUD's noise restrictions. Local policies 
like zoning, density limits, lengthy permitting and approval 
processes, and other land use restrictions are all examples.
    While zoning and other issues are in the hands of local 
citizens and their governments, as they should be, Federal 
policymakers can provide a forum for best practices. Congress 
can and does leverage the supply of Federal resources like 
LIHTC to increase the housing supply.
    Governments can also work together at all levels to 
standardize policies, practices, and timelines across different 
programs.
    In conclusion, you know I think everyone on this panel will 
agree that we need a combination of a lot of smaller, local 
ideas as well as the big ideas to solve the housing crisis.
    Thank you again for the opportunity to be here, and I look 
forward to answering your questions.
    [The prepared statement of Ms. Wade appears in the 
appendix.]
    The Chairman. Thank you very much. You have been an 
excellent panel.
    Mr. Konter, let me start with you. I have town hall 
meetings in each of my 36 counties, and overwhelmingly what 
employers tell me their top issue is, is that they cannot find 
enough workers. And invariably that involves that folks cannot 
get housing. And my concern is particularly for the missing 
middle this morning, the 
middle-class folks--nurses and firefighters would be a pretty 
good example.
    And I want to ask you, and my colleagues--we always try to 
operate under the theory that you've got to build a bipartisan 
coalition and focus on what works. We have all been talking 
about LIHTC, the Low-Income Housing Tax Credit program.
    So what I have said is--quaint idea--why don't we build on 
what works? And that is what my Middle-Income Housing Tax 
Credit is all about: to try to get shelter for folks like 
nurses, firefighters, and middle-income people across the 
country. And when we talk about middle-income people, we are 
talking about families with incomes between 60 percent and 100 
percent of median income. Obviously, it depends on the area in 
which people live.
    But I would like your thoughts on how home builders feel 
about the Middle-Income Housing Tax Credit. I heard you touch 
on it a little bit, but I understand that you all support it, 
and that is some good news.
    As you know, in the Pacific Northwest this also relates to 
the well-being of the wood products industry, because it 
creates more opportunities in rural communities for timber and 
forestry.
    So, your thoughts?
    Mr. Konter. First, I would start with that we strongly 
support your bill. We believe that the missing middle is the 
hardest area to serve, because typically they buy entry-level 
homes if they are on the home-ownership side. And if they are 
on the multifamily side, they do not qualify for LIHTC or other 
subsidies, even direct subsidies such as the section 8 program.
    So they have a disproportionate amount of their income 
spent towards shelter. And they do not have the ability to 
accumulate down payments for even the lowest-priced housing 
that is available within the private sector.
    So this tax credit would solve part of that problem, and 
that is why we do strongly support it. But many of the people 
on the panel have already talked about the regulatory burden in 
producing housing, and, you know, NIMBYism is a large part of 
that also. I know that in my community I experience people who 
want school teachers and police officers and fire people to 
serve their community, but they put in restrictions that affect 
housing prices that force them not to live within that 
community.
    And so, I will tell you that my colleagues in the building 
industry want to build for every sector of America. We do not 
concentrate on one sector over another.
    The Chairman. We will be working with you, and we very much 
appreciate your support with respect to the Middle-Income 
Housing Tax Credit. And obviously we need to have fresh 
approaches in terms of trying to unsnarl some of that red tape 
at the local level.
    Let me get one more question in. I am going to ask this of 
you, Mr. Roberts. You heard me say I am very concerned about 
this trend of some in the private-equity industry. What some 
are doing in the industry is exploiting loopholes in the tax 
code to maximize their own returns, while jeopardizing the low-
income purpose of affordable housing. And I want to walk you 
through this, because as far as I can tell, we are losing 
something like 10,000 affordable housing units per year just 
with one of these loopholes involving something called the 
Qualified Contract.
    Low-Income Housing Tax Credit properties are supposed to 
remain affordable for 30 years. However, this loophole allows 
LIHTC operators to sell their properties after 15 years to 
private developers who are going to go out and rent the units 
at higher prices. And as I say, thousands of units apparently 
are already being lost per year, and projections are that it is 
going to go up.
    I have proposed legislation to close that loophole. I would 
like your thoughts on why that is important.
    Mr. Roberts. It is critically important, Chair Wyden, 
because it is so hard to build and rehabilitate homes. To be 
losing them through what has really become a loophole, is just 
taking us back in the wrong direction.
    The problem is that that formula under the Qualified 
Contract provision was written in 1989 when the Low-Income 
Housing Tax Credit was very young and immature, and the real 
estate markets were very different. And it no longer serves its 
purpose and now has become an unintended exit ramp.
    This is not something that the original investors have been 
involved in, but sometimes we see new investors come in, after 
the close of the 15-year compliance period, for the purpose of 
making----
    The Chairman. My time is up, but I think what Mr. Roberts 
is highlighting is that a lot of these programs, and 
essentially the infrastructure of the rules, were written 
decades ago. And you heard me mention algorithms being used to 
outbid Americans who just want to own a home.
    When you were talking about 1989, nobody was thinking about 
algorithms. So, I very much appreciate the input.
    Senator Crapo?
    Senator Crapo. Thank you, Mr. Chairman.
    Senator Portman, do you want me to----
    Senator Portman. Thank you. I appreciate----
    Senator Crapo. I will yield about 30 seconds of my time.
    Senator Portman. I will take 30 seconds.
    The Chairman. In the parlance of the Senate, you can yield.
    Senator Portman. I apologize. I have to go to this meeting 
with Mrs. Zelensky. I am just going to say I really appreciate 
all the comments that were made today about the need for us to 
rehabilitate existing housing. And single-family homes are left 
out of the process right now. It is a piece of the puzzle we 
need to fix. So that is why I think the Neighborhood Homes 
Investment Act is so important.
    Cleveland has 3,000 of these homes that are vacant, not 
being used. If they could be fixed up, it would really help 
toward this effort that everybody has acknowledged today, which 
is that increasingly the dream of owning a home is becoming out 
of reach for so many Americans. So I just want to acknowledge 
the work, Mr. Roberts, you have done, and others on the panel. 
We appreciate your help on this, with Senator Cardin. And I 
thank my colleague for his willingness to yield.
    Senator Crapo. Thank you, Senator Portman.
    Let me go to you first, Mr. Konter. The Net Investment 
Income Tax serves as a surtax on small businesses and, under 
recent proposals, would subject active business income to the 
surtax. And I think you agree, that would result in higher 
rental housing costs.
    Can you explain how expanding the NIIT to include active 
investment income would result in higher rents?
    Mr. Konter. Sure. The consequences are especially acute for 
renters because it is just another cost associated with 
operation of an apartment complex. So previously, that active 
income was not taxed. Now it will be. And that will be passed 
along as part of the cost and will put upward pressure on rents 
to cover it.
    There is no magic wand in how much rents are charged. They 
are absolutely directly related to revenue versus expenses.
    Senator Crapo. Thank you.
    And, Ms. Wade, you have alluded to this already, but what 
do you think the possibility of persistently high inflation 
means for affordable housing? And how would higher long-term 
inflation affect housing development and utilizing Federal tax 
credits?
    Ms. Wade. Well, Senator, that is a great question, and 
thank you. Persistently high inflation will mean persistently 
high rent increases. It is no surprise that if you think of 
inflation as a tax on everyone and everything, it impacts rent 
prices as well. And as Mr. Roberts stated in his testimony, 
higher rent prices also factor into CPI calculations.
    In fact, inflation is also very important in considering 
the efficacy of Low-Income Housing Tax Credits. Persistently 
high inflation will mean that these tax credits are less 
effective, and it will decrease their value as well.
    Senator Crapo. Thank you very much.
    And, Dr. Ohanian, you discussed today with us as well the 
impact of regulatory and zoning policies, however well-
intentioned, on the ability for us to deal with the affordable 
housing needs in the country.
    Could you discuss any studies you are aware of that have 
analyzed the effects of these State and local deregulatory 
efforts to determine which land use and supply-promoting 
strategies are the most effective?
    Dr. Ohanian. Yes, Senator; great question. Regulatory 
burdens are expanding housing costs substantially. When we look 
at zoning regulations, what we find is the States with the most 
severe zoning restrictions, such as my State of California, 
have the highest home prices. They have the highest 
construction costs. Construction costs rise as development is 
delayed due to lots of litigations and lawsuits that are often 
based on ``not in my back yard'' types of arguments.
    We look at States and locations with much laxer zoning 
regulations--such as Texas, Kansas, States in the Midwest--and 
they have much lower construction costs, much lower housing 
costs.
    So there have been a number of peer-reviewed studies. They 
all come to the same conclusion, which is that land use 
regulations substantially drive up home prices, construction 
costs, and depress American welfare. And there is a lot of 
progress that could be made.
    Senate bill 1416 is an important step in that direction by 
requiring agencies to compile data and report on how they are 
managing their land, and being held somewhat accountable for 
how they are dealing with the need to build more housing in 
very high-demand areas.
    Senator Crapo. All right; thank you very much.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Crapo.
    Next is Senator Carper.
    Senator Carper. Thanks, Mr. Chairman.
    I want to back up just a little bit. Every now and then in 
this room we talk about the ``least of these'' in our society 
and what we are doing to help the least of these. ``When I was 
hungry, did you feed me? When I was naked, did you clothe me? 
When I was thirsty, did you give me a drink? When I was sick 
and in prison, did you visit me? When I was a stranger in your 
land, did you welcome me?''
    Matthew 25 says nothing about, ``When I did not have a 
place to live, when I was living out of my car, when I was 
living under a bridge, did you do anything about it?''
    Well, we have an obligation, I think a moral obligation, to 
do something about it. It is not all on the Federal Government. 
It is not all on this committee, as you know. It is a shared 
responsibility with State and Federal and local governments, 
nonprofits, and businesses as well. It is a shared 
responsibility.
    We welcome you here today with that spirit in mind. We 
thank you for joining us to talk about housing affordability. 
It is on top of mind with my constituents in Delaware, and I am 
sure it is in the other 49 States too. In recent decades--I 
have come to this hearing as a recovering Governor of the State 
of Delaware for 8 years. And when I was Governor, as it was 
when I stepped down as Governor, Delaware had the highest home-
ownership rate of any State in the country, something we are 
very, very proud of.
    But in recent decades, rapid growth in retail prices and 
the lack of housing supply made it difficult for a lot of 
people in the State to find affordable housing options, as we 
all know. And it is a problem as our constituents continue to 
feel the effects of the COVID-19 pandemic, and as they face 
price increases in other parts of the economy.
    I would note that the price of gasoline, thank God, is 
beginning to come down. At a lot of convenience stores up and 
down the East Coast, a bunch of them in Delaware, looking at 
the price of gas, I saw yesterday $4.36, which is down almost a 
half-dollar in the last couple of weeks, and hopefully it will 
go a lot lower.
    But I have been working with Senator Chris Coons, my 
wingman from Delaware, and Congresswoman Lisa Blunt Rochester 
in securing $78 million from the American Rescue Plan to help 
to attack the housing crisis in the First State.
    We leveraged private dollars to support development and 
rehabilitation of affordable housing units throughout our 
State, in coordination with our nonprofits, including Habitat 
for Humanity, an outfit called Cinnaire, another one called 
NCALL, and many organizations that are dedicated to addressing 
this same problem.
    One issue that deserves our focus is lack of affordable 
housing for our senior citizens. As our population ages, we 
must meet the specific needs of our seniors, and the low-income 
and fixed incomes who require additional support services.
    My question is a good question for Ms. Bell, and a question 
for Mr. Roberts. The others of you get away scot-free on this 
question.
    How can we ensure that tax incentives and other resources 
meet the unique and growing housing needs of our seniors? Let 
me say that again. How can we ensure that tax incentives and 
other resources meet the unique and growing housing needs of 
our seniors? Ms. Bell?
    Ms. Bell. Well, thank you for that question, Senator. I 
think you are raising a couple of really important points that 
really elevate the unique situation that we are in related to 
supply and demand--and specifically how the issue of supply and 
demand is causing other issues around lack of access, lack of 
affordability.
    I think the reality right now in this moment--as we think 
about tax incentives and we think about all of the options for 
incentives--is there are a couple of things that are worth 
elevating, which are, one, being able to lower the threshold 
when we think about Private Activity Bonds, knowing that there 
is a real restraint that a lot of communities are feeling 
around that.
    When we think about the Low-Income Housing Tax Credit, we 
know what works. We have seen successes with that. We also 
know--when we think about the lack of affordable housing issues 
that so many Americans are facing, particularly our aging 
population--that we have to build affordable housing of all 
shapes and sizes that we can, and be able to have transit-
oriented housing as we think about the needs of our seniors.
    We have some very real policy options in front of us today 
that we think will reduce red tape, increase access to 
affordable housing in a really formative way, and be able to 
build on what has worked and where we have seen the most 
progress across the country for diverse populations, including 
our aging population.
    Senator Carper. Mr. Roberts, the same question; thank you.
    Mr. Roberts. Thank you, Senator. I would just mention also 
that Cinnaire and NCALL are two of our members. And Habitat, of 
course, is a big supporter of Neighborhood Homes.
    Directly to your question, one of the beauties of the 
Housing Credit is it gives States the authority to direct those 
resources to the greatest needs, including elderly housing. We 
have seen tremendous Low-Income Housing Tax Credit properties 
that provide a lot of services to the elderly in conjunction 
with the housing, including assisted living, which is extremely 
hard for low-income elderly people to find.
    Senator Carper. Thanks.
    Mr. Chairman, my time has expired. Can I just take 15 
seconds and ask a question for the record? I just want to say 
to Ms. Bell, which you can submit for the record, so you do not 
have to answer it now but in writing, yes? Here it is: what 
resources are most helpful in setting low-income families up 
for success when buying a home for the first time? And how can 
we expand access to these tools? I ask you that for the record.
    Thank you all for being here.
    The Chairman. Thank you, Senator Carper. And we are very 
proud of Ms. Bell as well. So I think you are going to get a 
good answer, and thank you.
    Senator Cardin?
    Senator Cardin. Thank you, Mr. Chairman. First, let me 
answer Senator Carper's question in part by mentioning the 
Neighborhood Homes Investment Act. You would be disappointed if 
I didn't.
    And, Mr. Chairman, I want to thank you for the kind 
comments that you made. I was not in the committee room at the 
time, because the Senate Foreign Relations Committee is holding 
a hearing on food insecurity. So, we not only have housing 
insecurity, we have food insecurity around the world, but also 
here in the United States.
    I want to thank you very much for holding this hearing. I 
want to talk a little bit about the Neighborhood Homes 
Investment Act. It is bipartisan, and I thank Senator Portman 
for his comments and for his cosponsorship on this, and 
certainly Senator Wyden and Senator Crapo for your help, 
supported by the White House. So we have not only bipartisan 
support, but we have support from both branches of government.
    But I want to acknowledge the work that Mr. Roberts and his 
organization, the National Association of Affordable Housing 
Lenders, have done in regards to developing this legislation. 
We developed it as a need to deal with affordable housing. 
COVID-19 has underscored this need even more. Inflation has 
made it even more urgent that we do something in this regard.
    We are talking about the appraisal gap for communities that 
need investments. They need affordable housing, but the cost of 
building or renovating exceeds the value, and therefore it 
cannot be done under regular commercial circumstances. This 
leads to the decline of neighborhoods, as well as to making 
worse the wealth gap in America.
    So, Mr. Roberts, can you just elaborate as to how the 
current market--which is anything but predictable--and 
investors' willingness to go into communities, how the 
Neighborhood Homes Investment Act would help us deal with that 
challenge?
    Mr. Roberts. Yes. Thank you so much for your leadership on 
this, Senator Cardin. Neighborhood Homes would provide States 
with an allocated amount of tax credits. They would set their 
own strategies and priorities, and run a competition among 
applicants to deploy those credits.
    Once an applicant wins an award, they would go and raise 
private capital and build or rehabilitate homes in distressed 
communities. Once those homes are sold and owner-occupied, the 
tax credits would flow and the developers, of course, are out 
of the picture. There is also a provision to enable existing 
homeowners whose homes need substantial rehabilitation to 
participate as well on a very simplified basis.
    Senator Cardin. Thank you.
    Ms. Bell, if you could, respond on how this particular 
credit would help as it relates to neighborhoods that have been 
traditionally neglected, and try to deal with the wealth gap we 
have in America.
    Ms. Bell. Absolutely. Well, I appreciate that question. And 
as I know this committee is fully aware--and I just appreciate 
your leadership in this particular area--as we think about 
pathways to home ownership, as we think about pathways to 
housing and the impacts of that across the country, we have 
continued to see the racial wealth gap that has continued to 
persist in a lot of communities.
    And so, as we think about Mortgage Revenue Bonds, as we 
think about other resources on the tax-credit side that we have 
to increase the pipeline of affordable housing, this bill helps 
us reduce administrative red tape that exists.
    There is also being able to further leverage the tax 
incentives that we have to make sure that the spur of 
affordable housing that is happening is available and 
accessible to particularly our Black, Indigenous, and People of 
Color communities. And then also from a policy perspective, 
Senator, being able to align those policies in a way that is 
bringing practical alignment in addition to the spurring of 
resources in this particular area.
    Senator Cardin. Thank you.
    Mr. Chairman, I would just conclude by saying that the news 
today is a decline in the housing markets. We are seeing the 
concerns because of rising interest rates, because of rising 
costs, so the urgency of dealing with these issues is even 
greater today than it was when these bills were first 
introduced. And thank you very much for holding this hearing.
    The Chairman. Thank you, Senator Cardin. And thank you for 
your years of good work on these kinds of issues, and I look 
forward to partnering with you in the days ahead.
    Senator Cortez Masto has been a very strong advocate for 
affordable housing. We welcome her, and I can just tell my 
colleagues that I have talked with her about these housing 
issues, and she very much shares the idea that we have to 
increase supply. We understand if we do not increase supply, 
what happens in this kind of market is, it is constricted and 
prices just go up. So a big part of this is increasing supply, 
and I welcome my colleague.
    Senator Cortez Masto. Thank you. Thank you, Mr. Chairman. 
And thank you for holding this hearing. And to the panelists, 
every single one of you, thank you, because this is exactly 
what I have been hearing in Nevada around our challenges when 
it comes to affordable housing.
    And we all know--it runs in my State from homelessness, to 
low-income, to workforce housing; it is all of the above. And 
so, I have been working with so many in my State to figure out, 
what is it that we need to do to address affordable housing?
    And so, there is some great legislation that I support 
here, that I cosponsor, that we need to get done. And I am 
hopeful that, in this committee, we are able to actually do 
something.
    But one piece of legislation that I introduced--and, Ms. 
Bell, I am going to start with you because I cannot thank you 
enough for mentioning it in your opening--is the Affordable 
Housing Bond Enhancement Act, S. 4445. And what it does is, it 
improves the Mortgage Revenue Bonds and Mortgage Credit 
Certificate programs.
    You have talked a little bit about that. Can you do me a 
favor? Can you explain how the Mortgage Revenue Bonds help low- 
and moderate-income families, help them buy homes and sustain 
those homes?
    Ms. Bell. Absolutely. And thank you for your leadership on 
this, Senator Cortez Masto. So essentially, the Affordable 
Housing Bond Enhancement Act would allow State housing finance 
agencies to better utilize our bond resources to serve more 
home buyers.
    So, in using the Mortgage Revenue Bonds, State housing 
finance agencies have been able to help over 3 million 
borrowers. And the Mortgage Credit Certificate programs have 
been able to help more than 360,000 families become homeowners. 
That is significant. And also, within this particular bill, it 
would also be able to help us optimize programs so that they 
work even better for low- and 
moderate-income families as well.
    At this particular time--and we have talked a little bit 
about it already at this committee--when we have rising 
interest rates and a loss of affordable homes, the reality is 
that the dream of home ownership is still moving further and 
further away. And even in my own family that has been a 
reality.
    One of the other facets of the bill, Senator, that I think 
is really important to elevate, that I was happy to see in 
this, is an increase to the Mortgage Revenue Bond improvement 
loan limit. So this increases it to $50,000. As it currently 
stands, it is at $15,000, which I believe has not been updated 
since the early 1980s. So we are talking about home 
improvements, necessary improvements.
    Particularly--and we talked about it earlier--as we talk 
about our aging community and think about improvements and 
modifications they need to make their home not only livable, 
this is also about quality of life.
    Senator Cortez Masto. Thank you. Thank you for the support. 
And let me just say, I appreciate the support of the National 
Council of State Housing Agencies, the National Association of 
Realtors, the Mortgage Bankers Association, the National 
Association of Home Builders, and other organizations, for 
their support of this piece of legislation. I do think it is an 
all-of-the-above approach. How do we make it pencil out for the 
home builders? How do we help the home buyers? How do we give 
them choices? Manufacturing homes--and believe me, this is an 
area that I have focused on as well, more choices for home 
owners, as we address all of these issues.
    One other area--let me just touch on it very briefly 
because I know I am going to run out of time, but I do believe 
that the State and local fiscal relief funds that were provided 
in the American Rescue Plan really provide the ability to make 
a historic investment in desperately needed housing in 
communities across our country.
    So let me just say this: I would love to hear, maybe Ms. 
Wade, your thoughts on the LIFELINE Act, because this is an 
opportunity to take funds that are already there and leverage 
them to support low-income housing.
    Ms. Wade. Absolutely. And I do think that it would be a 
very important use of this funding. It would significantly 
increase the ability of States and local jurisdictions to 
produce more affordable housing.
    I believe Congress has already stated that a lot of these 
COVID relief funds at the State and local level should be used 
for affordable housing. So, pairing that better with a program 
like the Low-Income Housing Tax Credit would certainly be a 
huge step forward in that direction.
    Senator Cortez Masto. Yes. And listen, our Governor and our 
housing leaders support the legislative fix to use, really, 
$500 million that we set aside from our Home Means Nevada 
initiative to do just this.
    We could use it to build more of a supply for low-income 
housing in Nevada. And everybody is ready to do it. So this is 
an opportunity for us to get it right. This is why I support 
the LIFELINE Act--and then for the reasons that you have all 
been talking about, the Low-Income Housing Tax Credit.
    This is the number one thing I also hear as a fix, with its 
potential for increasing our housing supply and addressing our 
needs in Nevada and across the country.
    Thank you all again. Thank you for the good work that you 
do.
    The Chairman. I thank my colleague. I do not want anyone to 
think I am going to wage a filibuster as we wait for more 
colleagues, but I appreciate my colleague from Nevada making 
the point with respect to the LIFELINE legislation, which I 
touched on in my opening statement as well.
    This is a chance to squeeze more housing value out of 
existing dollars. And the fact is that Senator Leahy, Senator 
Collins, myself, my colleague from Nevada, we have got plenty 
of bipartisan support for it. I am very pleased about it, and 
just given that U.S. home prices hit a new record of $416,000 
in June as sales continued to slide, I do not think we really 
need much of a wake-up call, but that certainly drives it home.
    What I am struck by--and I would like to give other 
panelists a chance to talk about it--is my question to Mr. 
Roberts involving some of these examples of loopholes in laws 
that are particularly hurting our ability to offer affordable 
housing.
    And Mr. Roberts said, ``Hey, this stems from a law that was 
written in 1989.'' So we are talking about laws in this area 
that, if not from the Dark Ages, are certainly pretty ancient.
    I would be interested in your thoughts about whether there 
are other examples of laws where you think that the 
bureaucratic barnacles are just getting so thick that it also 
is hampering the ability to offer affordable housing. I think 
some of this relates to Mr. Konter's point involving outdated 
rules at the local level. And I really appreciate Ms. Bell's 
leadership working with local communities as well. She has 
given us almost a little dissertation in the principles of 
supply and demand, and we thank her for it.
    But I also want to make sure that folks understand that, in 
our part of the country, we have worked very hard to try--as 
you have suggested and Ms. Wade touched on as well--to figure 
out how in the future we will not have people working over 
here, and living over here, and going back and forth in 
outdated transportation systems.
    But are there other laws that we ought to be aware of? And 
in fact, here is what we are going to do. Since we have had the 
good fortune of having Senator Young come, I can give him a 
chance to catch his breath briefly. He has been doing very good 
work on semiconductor legislation, which we are glad to partner 
on with him, and he has been part of our little bipartisan 
coalition here on the Finance Committee for housing.
    So, while you contemplate whether there are other outdated 
laws along the lines of that loophole that I asked Mr. Roberts 
about, let's hear from a strong advocate for housing, Senator 
Young.
    Senator Young. Well, thank you, Mr. Chairman, for holding 
this important hearing on affordable housing. I thank every one 
of our witnesses, because I have to tell you, as I travel 
across the State of Indiana, I hear from every community about 
the importance of affordable housing, and about the challenges 
they are experiencing right now.
    This shortage is of course being exacerbated by the current 
inflation challenges more broadly impacting the country. And 
throughout my time in Congress I have done my best to remain 
focused on efforts to address the housing shortage. I have been 
proud to work, in particular, with my Finance Committee 
colleague, Senator Cantwell, on the Affordable Housing Credit 
Improvement Act. This bill, as I think our witnesses know, will 
help strengthen the Low-Income Housing Tax Credit program, also 
known as LIHTC, which remains the most successful affordable 
housing program in the United States, a public-private 
partnership supported in a bipartisan fashion over the years.
    If we want to address our Nation's housing affordability 
crisis, I think it is crucial that we pass the legislation to 
improve the affordable housing program, the LIHTC program, by 
passing the Affordable Housing Credit Improvement Act as soon 
as possible.
    So, I ask our witnesses today--this should be an easy one--
by a show of hands, who supports this Affordable Housing Credit 
Improvement Act?
    [A show of hands.]
    Senator Young. Well, thank you. Let the record show that 
all five of five witnesses support the Affordable Housing 
Credit Improvement Act.
    The Chairman. The record will show it. And I am also going 
to dare anybody to say that they did not, but it is a very 
important piece of legislation that Senator Young and Senator 
Cantwell have led, and I appreciate it.
    Senator Young. Thank you, Mr. Chairman. Let the record also 
show, none of the witnesses is under duress or so forth. 
[Laughter.]
    Okay; thank you. So, let us dive into why this bill, just 
for a moment, and the LIHTC program, has such far-reaching 
support.
    Mr. Roberts, can you kindly explain what it is that makes 
the Low-Income Housing Tax Credit so effective in addressing 
the affordable housing crisis?
    Mr. Roberts. Well, thank you, Senator, and thank you for 
your leadership on the Low-Income Housing Tax Credit 
Improvement Act, as well as the Neighborhood Homes Investment 
Act. They share a common DNA. And what makes these credits work 
so well is a combination of factors.
    First is private-market discipline. The credits only flow 
after the development is completed and public benefits are 
flowing. So, without giving money away and hoping for a good 
result, we are paying only for success.
    Senator Young. Paying for success, which is another thing I 
have been focused on during my time in Congress. My 
constituents insist upon it.
    Mr. Roberts. Yes. And by the way, thank you for your 
leadership on applying this pay-for-success principle 
throughout the Federal system, which has tremendous promise.
    In addition, since it is a very competitive market, credits 
are limited. The States allocate them only for the highest-
priority activities, and then investors have to compete to 
invest in those properties. And if for any reason compliance is 
not followed through, those credits are recaptured. So there is 
tremendous discipline.
    Second, State administration. Ms. Bell and her colleagues 
have done an amazing job in stewarding these resources. We have 
tremendous confidence in them as stewards, and that is why 
Neighborhood Homes would rely on them.
    And Housing Credits and Neighborhood Homes are both 
targeted and flexible. They are targeted to the greatest need, 
and they are flexible in how they are applied, and there are 
tremendous economic and community benefits spinning off.
    Senator Young. Thanks so much for that.
    One of the things I find unifying about the housing 
affordability crisis--and I like to focus on unifying issues. 
The chairman was kind to mention the innovation or China 
competition bill that we were able to advance last night on the 
floor of the U.S. Senate. One reason I was working on that was, 
during this time of tribalized and parlous politics, we can 
rally around solving difficult challenges together, across 
political aisles, across political philosophies. And this 
housing affordability crisis is striking in how it impacts 
various demographic groups, geographic areas. It does not 
really seem to discriminate a lot. The brunt of this crisis 
falls on a diverse population, and it is so important. We 
support programs and ideas that meet the needs of these varied 
communities.
    So, Ms. Wade, just very briefly can you please talk about 
how the LIHTC program helps a range of people in need?
    Ms. Wade. Senator, thank you for the question. And also 
thank you for all that you have done to support affordable 
housing. You are absolutely right that the problem of the lack 
of supply of affordable housing hits everyone, unfortunately.
    And one of the things that we see is that the LIHTC program 
has been very effective at bringing people directly off the 
streets into housing. It is one of the only programs that has 
done so, with the support of the Federal Government. We see a 
range of types of individuals and families living in LIHTC-
supported housing. That includes veterans. So 10 percent of our 
homeless population is made up of veterans. That includes 
people recovering from opioid addiction. That includes seniors, 
people with disabilities. I mean, it really does run the gamut 
of some of our Nation's most vulnerable.
    Senator Young. Thank you so much. I do see I am out of 
time. I see a couple of other leaders as it relates to these 
issues have entered the committee room. So I will look forward 
to continuing discussions about this bill and about other 
housing legislative priorities in my questions for the record, 
Mr. Chairman.
    The Chairman. Senator Young, before you take off and go 
back to prosecute our cause for the semiconductor industry here 
in the United States, I would like to note that what you and 
Senator Cantwell have done with respect to the LIHTC model has 
led people to say this is a solid approach for the housing 
policy of the future. And the home builders, represented by Mr. 
Konter, are responding to the legislation that I proposed, the 
Middle-Income Housing Tax Credit, the LIHTC kind of approach, 
so that a firefighter and a nurse will have a chance to start 
climbing the ladder of upward mobility. So, good work to 
Senator Cantwell and yourself on this, and you will continue to 
have my support in the days ahead.
    Senator Hassan?
    Senator Hassan. Well, thank you, Mr. Chair, for the 
hearing. And thank you to our witnesses for being here today, 
and for the work that you do.
    In New Hampshire, I hear from families and small businesses 
alike about the burden of rising housing costs, and what that 
has done to their ability to live and work in the State; also 
what it has done to their ability to recruit people to come 
work in the State, among other things. So, I am developing a 
package of housing legislation that I plan to introduce soon to 
help bring down these costs. My bill would incentivize 
investments in State affordable housing trust funds.
    Ms. Bell, can you just please speak about what these trust 
funds are and why they are so important?
    Ms. Bell. Yes. Thank you for that, Senator. And I just want 
to acknowledge and uplift your leadership in this.
    So, Oregon is one of 39 States that has a State housing 
trust fund. These funds, typically though not always, have a 
designated revenue source and can be particularly helpful in 
providing additional housing resources for State needs. In the 
State of Oregon, our trust fund is funded by a State general 
fund and lottery funds. And certainly, as you continue to 
pursue work on this bill, we are eager to work with you in this 
area.
    Senator Hassan. Well, I appreciate that very much. My bill 
would also support the construction of new workforce housing, 
creating a new competitive grant program at HUD.
    Mr. Konter, can you expand about how building more housing 
will help lower costs for home buyers, and how Federal support 
can help build more houses?
    Mr. Konter. Absolutely. The crux of the program is very 
simple. We are just not building enough houses. The more houses 
we build, the less pressure we have from rising costs, because 
we are supplying the market.
    Senator Hassan. I appreciate that very much. I would also 
note that the more housing we have, and the more people who are 
housed, the more other issues that we all work on together we 
can address.
    Mr. Roberts, I have also previously introduced bipartisan 
legislation with Senator Blunt, the Middle-Class Mortgage 
Insurance Premium Act, to provide tax cuts for middle-class 
home buyers who use mortgage insurance.
    How does mortgage insurance make home ownership more 
accessible? And how can we continue to cut costs for families?
    Mr. Roberts. Private mortgage insurance is very important 
so that home buyers who do not have 20-percent down payment 
funds can get into the market. And we often see them come in at 
a 5-
percent, even 3-percent down payment. That is much more 
attainable for first-time buyers. And so, cutting the cost of 
that mortgage insurance is very important to making sure they 
can afford the monthly payments as well.
    Senator Hassan. Thank you.
    Ms. Bell, one more question. In response to the COVID-19 
crisis, Congress provided States with financial support to 
assist with their response to and recovery from the crisis.
    While New Hampshire and other States have committed to 
using a portion of these funds to support housing, it is 
difficult to pair these funds with another critical Federal 
housing tool, the Low-
Income Housing Tax Credit. That is why I cosponsored the 
bipartisan LIFELINE Act, to ensure that States have the 
flexibility to utilize both COVID-19 response funds and the 
Low-Income Housing Tax Credit.
    Ms. Bell, how can increased flexibility for States to use 
these funds support housing efforts all across the country?
    Ms. Bell. Yes, thank you for the question, Senator. So 
about 31 States are devoting over $9 billion in coronavirus 
State and local fiscal recovery funds towards affordable 
housing activities. And of course, this total does not include 
what local jurisdictions may also invest in affordable housing 
activities.
    And although the State of Oregon is using these funds for 
other affordable housing activities, about 24 States have 
indicated that they intend to use at least a portion of these 
resources as gap fillers, fulfilling financing gaps, which is 
absolutely the right thing to do. But it does not come without 
difficulty, certainly. And so, within the American Rescue Plan 
Act statute, there is--unintentionally, there is language in 
there that makes it difficult to use these funds for long-term 
loans, which is exactly what you need for affordable housing.
    This is where the LIFELINE Act comes in. It would 
essentially fix the problem by allowing State and local 
governments to utilize these resources for long-term loans, 
which of course supports what we are talking about today: 
financing more affordable housing.
    Senator Hassan. Well, thank you for that. And I look 
forward to working with all of you as we continue to try to 
combat this challenge.
    The Chairman. Thank you, Senator Hassan.
    Next is Senator Thune, and then we want to hear from 
Senator Cantwell, who has been doing extraordinary work on 
these issues for a long, long time.
    Senator Thune?
    Senator Thune. Thank you, Mr. Chairman. And welcome to all 
of our witnesses this morning.
    Mr. Konter, as you know, we are here to talk about the role 
of tax incentives in affordable housing. I would like to start 
out by asking you about tax-related disincentives to affordable 
housing. Specifically, I am talking about tariffs--which are de 
facto taxes--on softwood lumber imports from Canada. Softwood 
lumber is a critical input to home construction, and the 
current 17.9-percent tariff rate on these imports increases 
U.S. home-building costs, harms affordable housing, and fails 
to increase supply.
    Earlier this week, Senator Menendez and I sent a letter to 
the Department of Commerce and to USTR urging the Biden 
administration to prioritize lumber trade to reduce housing 
costs.
    So, Mr. Konter, do you agree that reducing tariffs on 
softwood lumber would help make home construction and home 
ownership more affordable?
    Mr. Konter. Thank you for the question, Senator, and thank 
you and Senator Menendez for your leadership on this issue. 
Yes, I do believe reducing tariffs on the imports of Canadian 
softwood lumber would make home construction and home ownership 
more affordable.
    Lumber represents one of the most significant material 
inputs to the construction of the home. Trade measures that act 
as a tax on these inputs are necessarily going to increase the 
cost of the final product. Conversely, anything that you can do 
to remove these trade barriers is going to reduce the cost of 
the final product. And, if I could, also Senator Wyden earlier 
asked, ``What kind of regulations are outdated?'' Our trade 
policies go back to the Smoot-Hawley Act.
    So, if you think that maybe, if they are not working, if we 
cannot get agreements, and the structure built into the review 
process of that trade program does not have the effect of us 
being able to act quickly on modifications to trade policies, 
then maybe we need to look at the overall picture of how we 
create our trade policy.
    Senator Thune. Thank you. And I was going to follow up with 
a question about what we could do in a more general sense, and 
how a renewed U.S.-Canada softwood lumber agreement could 
benefit affordable housing. But I think you kind of addressed 
that in your last answer.
    I would just say, hopefully, that the administration takes 
timely action on these issues. These are practical, bipartisan 
ways to help with affordable housing and the U.S. housing 
community at large.
    Let me just speak, if I might, for a minute to South 
Dakota. Housing availability, affordability are a huge issue 
for South Dakotans. I hear about these issues all the time from 
constituents, especially in communities like Rapid City, which 
is quickly expanding. And with construction costs and supply 
prices significantly inflated, this is making it more and more 
difficult to start and complete new housing projects. And 
according to the National Association of Realtors, the average 
cost of housing in the western States from 2013 to 2021 
increased by more than $80,000.
    So, if I might, Ms. Wade, you touched on this in your 
written testimony, but could you share your insights into the 
U.S. housing deficits in terms of data, and how it is impacting 
families and livelihoods across the country?
    Ms. Wade. Yes, Senator, that is a great question. By one 
estimate--and by the way, I have seen this estimate doubled--we 
have a shortage of 3.8 million homes in the U.S., which is 
staggering. I think it is almost hard to grasp.
    There are a lot of things that have to come together to 
address this urgent need, both at the Federal level--so the 
legislation this committee is discussing, things that you have 
worked on, Senator--and at the State and local level, as well 
as in the private sector. I think the Low-Income Housing Tax 
Credit brings together all of those various components, and is 
one way to effectively increase the supply of affordable 
housing. It also takes a lot of reform at the local level when 
it comes to things like zoning, when it comes to things like 
permitting delays and other policies at the local level, and 
all of this kind of has to be viewed holistically as part of 
the housing ecosystem in order to truly solve this problem.
    Senator Thune. Well, and I would, just to follow up--my 
time is expiring here. But I just want to say with respect to 
that, one of the things we have heard in the South Dakota 
housing development authority is just that people who 
participate in these multiple Federal housing programs 
simultaneously--like the Low-Income Housing Tax Credit program, 
the combination of programs at HUD--the rules governing these 
programs are not uniform. And they can create challenges for 
State housing authorities, and also disincentivize property 
managers to participate in some of these programs.
    So I hope that that is one of the things, Mr. Chairman, 
too, that we can contemplate trying to work on with these 
programs, to ensure that they are functional and workable, and 
do not impose these heavy burdens, compliance requirements that 
make it very difficult for those out there who are tasked with 
trying to create more affordable housing options, so they are 
not buried in a mountain of Federal paperwork.
    So, thank you, Mr. Chairman.
    The Chairman. We are definitely going to be following up 
with respect to the rules and regulations.
    Next is Senator Bennet.
    Senator Bennet. Thank you, Mr. Chairman; I appreciate it. 
And thank you for having this hearing.
    In Colorado, 14 years ago I guess, I was the Superintendent 
of the Denver Public Schools, and it was very uncommon to meet 
a teacher who did not live in Denver if they worked in the 
Denver Public Schools. Today, it is impossible for a teacher to 
afford to live not only in Denver, but in suburban Denver.
    I had the Colorado Teacher of the Year come visit me a 
month or so ago. She is from Glenwood Springs, which is a rural 
community on the western slope of Colorado. And in passing--she 
was not complaining, but she just made the observation that 70 
to 80 percent of her colleagues in the middle school and the 
high school where she teaches have to have two or three jobs 
just to live in Glenwood Springs.
    So this is a real failure on the part of our society, I 
think, to be able to create workforce housing in our State. It 
is getting to the point where we are losing businesses, losing 
medical practices, because people simply cannot afford to live 
in the State of Colorado anymore. Housing costs are far 
outpacing incomes in every single Colorado community.
    In metro Denver, the average rent increased more than 14 
percent last year, and the median home price in Denver, CO 
recently topped $600,000, which is up 20 percent from the 
previous year. But in Durango--which is on the western slope of 
Colorado in the southwestern, rural part of our State--the 
median price for an in-town home hit $650,000 last year, a 30-
percent increase from the previous year.
    Employers across Colorado, especially in rural areas, tell 
me they cannot hire because of the shortage of housing. In 
2021, last year, I convened a diverse bipartisan group of 30 
leaders from across the State to develop solutions to the 
housing crisis. These are experts in housing who were looking 
at it from all different vantage points. Their top 
recommendation will not surprise anybody on this panel. It is 
to do everything in our power to increase housing supply, 
including expanding existing programs that work.
    We need to do more to modernize our government's response 
at every level, give communities greater flexibility, and 
embrace innovation and promote housing stability, as my 
Eviction Crisis Act with Senator Portman would do.
    The Low-Income Housing Tax Credit is our most effective 
existing program to build new affordable housing. Ms. Bell, I 
am actually coming to a question for you, but that is why I 
strongly support Senator Cantwell's and Young's Affordable 
Housing Credit Improvement Act to expand LIHTC. I am also 
pushing for swift implementation of one improvement Congress 
already has passed to expand LIHTC-developed housing to more 
families.
    Back in 2018, Congress created the average income test that 
enabled LIHTC to serve households earning up to 80 percent of 
median family income. In May, Senator Young and I led a 
bipartisan, bicameral group of colleagues calling on IRS and 
Treasury to expedite release of a final workable rule on the 
average income test.
    Ms. Bell, how would finalizing the average income test rule 
expand affordable housing to more families in this country?
    Ms. Bell. Thank you for the question, Senator. I know that 
we have a collective solidarity and alignment in the 
experiences of folks in the State that you serve around 
affordable housing.
    So, the average income test which Congress enacted for the 
Housing Credit in 2018 was actually an important new tool that 
would make Housing Credit properties more economically diverse. 
And this is done by allowing owners to serve households earning 
up to 80 percent of the area median income, while at the same 
time still making sure that units are underwritten to be 
affordable for some of our individuals and families with the 
lowest incomes.
    And so, the average income test does this by using rental 
income that is charged by the higher-income, but still lower-
income households, to essentially offset the lower rents 
charged to households who may be very low-, or in some cases 
extremely low-income.
    The proposed rule implementing the average income test 
historically was simply unworkable. And I think some of the 
interest has chilled on that. But there are some very 
meaningful, positive steps forward within the average income 
test, and we are certainly grateful to you and the other 
Senators who have signed on to urge Treasury and IRS to really 
focus on this particular area.
    Senator Bennet. And I hope this committee will keep 
pushing.
    Mr. Chairman, I had another question, but I am conscious of 
my colleagues. So, Ms. Wade, I will submit a question on 
homelessness for the record, and I will yield.
    The Chairman. I thank my colleague. We have been working 
together on these issues for a long time, we westerners.
    Senator Brown is next, and I believe we can get in Senator 
Warner and Senator Cantwell. Senator Brown is on the Banking 
Committee, which works very closely with us.
    Senator Brown. Thank you to the witnesses today for joining 
us. As chair of the committee to which Chair Wyden referred, 
housing affordability is not only a priority--I think for 
certainly everybody on this side of the aisle, but perhaps 
beyond that--but a moral imperative. Too many people are paying 
too much to keep a roof over their head. A quarter of renters--
and I think most of you know these statistics--a quarter of 
renters pay more than half their income in rent.
    Home ownership is increasingly out of reach for far too 
many families. I am glad for what Senator Wyden and Senator 
Crapo are doing in scheduling this hearing so that we can work 
on this.
    So I partnered with Senator Wyden to introduce the Renters 
Tax Credit Act. This bill is intended to complement LIHTC and 
make sure that extremely low-income renters do not have to pay 
more than 30 percent of their income towards housing. You know 
what happens in families like that. Everything is upside down 
when they are evicted.
    So my first question is for Mr. Roberts. In Cleveland, we 
have a lot of homes that could provide good, affordable home-
ownership opportunities. These homes, many of them, need 
repairs. Some of you have heard me say in this committee, as I 
say in the other committee, that the ZIP code my wife and I 
live in had more foreclosures in 2007 than any ZIP code in 
America--a ZIP code in Cleveland.
    So, when homeowners cannot make these repairs themselves, 
the houses sit empty, or they are snapped up by out-of-State 
investors exploiting the tax code to turn a profit. And the 
problems with that are evident.
    So, Mr. Roberts, how could the Neighborhood Homes 
Investment Act--a bill I have worked on with Senator Cardin, 
and I know he referred to it--help address the shortfall of 
affordable single-family homes and keep homes in the hands of 
lower-income and aspiring homeowners?
    Mr. Roberts. Well, thank you so much, Senator, for your 
leadership on Neighborhood Homes and the Low-Income Housing Tax 
Credits, and everything you do in the Banking Committee. It has 
been really remarkable to see the comprehensiveness of your 
strategy.
    Neighborhood Homes can fill the gap between what it costs 
to build or rehab a home in a struggling neighborhood and what 
the local market there can support. And without that help, it 
is just not feasible for private developers, or even existing 
homeowners, to improve their homes and, by extension, the 
neighborhoods. The entire neighborhood suffers when these homes 
are deteriorated, because most of the land use in most of these 
neighborhoods is single-family homes. So we cannot really fix 
up those neighborhoods without addressing this problem. And 
Neighborhood Homes would allow States to deploy credits in just 
the right amount to cover that gap.
    Senator Brown. Thank you.
    Mr. Konter, I want to talk to you about your industry, 
about the Home Builders. We hear from people around the country 
what zoning regulations have done on the ability to build new 
homes across the county.
    Comment on that, and then comment on what--if we were to 
provide funding to support communities and update zoning 
regulations, would that help increase the supply of housing?
    Mr. Konter. Thank you, Senator. There is a great deal of 
NIMBYism. In fact, some of your colleagues have supported the 
YIMBY Act, which is ``Yes In My Back Yard.'' And because of 
that, there tend to be zoning regulations that are put in 
place, whether intentional or disparate, and the result is that 
they raise the cost of housing, and therefore we cannot build 
affordable housing through those zoning requirements.
    So, it is a great problem. Our members face it constantly--
things such as a design standard being added to zoning, which 
has really nothing to do with zoning but increases the cost of 
housing. So zoning is a tremendous problem.
    Senator Brown. So my question, though, was--and I 
understand that, and I agree with you, and I think that is 
pretty much believed across the board. Would funding to support 
communities to update their zoning regulations have an impact? 
Is there a way of doing that? Are you proposing ways of making 
that happen?
    Mr. Konter. Yes. Funding to the local associations, to 
local municipalities that reform their zoning regulations so 
that they will allow more affordable housing to be built, and 
as long as the property is zoned for single family, or 
multifamily, restrict any further regulations. That would help 
add to housing stock.
    Senator Brown. Dr. Ohanian, do you agree with that, sir?
    Dr. Ohanian. Yes, I do, Senator. There is a massive body of 
peer-reviewed research that studied zoning regulations and how 
those increased the cost of housing and depressed construction. 
And yes, my own research has looked at that as well. And my 
coauthors and I find that affordability was substantially 
increased, and inflation-adjusted GDP would rise in the U.S. as 
a consequence of rolling back zoning regulations and land use 
regulations back to what they were in the 1990s or the early 
2000s.
    Senator Brown. That's recently. Thank you.
    And not a question, but, Ms. Bell, your senior Senator has 
been a really good partner in these housing issues between the 
committee that I chair and this committee, and I thank him for 
that.
    The Chairman. What an inflationary comment, and I thank my 
colleague. We love working together.
    Okay, we have a vote on, but we are going to be able to get 
in both of our Senators with a long interest in housing, 
Senator Warner, and then it is so appropriate that Senator 
Cantwell will wrap it up, given her leadership all these years.
    Senator Warner?
    Senator Warner. Well, thank you, Mr. Chairman. And I do 
thank my friend, the chairman of the Banking Committee, which I 
am on. That was a gratuitous plug for you in terms of the 
senior Senator from Oregon. And I want to thank both of you, 
and Senator Cantwell.
    This is an area where we all have approaches--and this 
hearing is so important. I am going to skip the part about the 
gaps that all of us have indicated. I want to indicate--I know 
Senator Cantwell has been great on the Low-Income Housing Tax 
Credit, the home investment tax credit, the New Markets Tax 
Credit, but I want to very quickly get to two items.
    One is something Senator Brown actually worked with me on 
when we thought more of the President's agenda would get 
through, something I thought was very creative. We worked 
closely with the Civil Rights Committee on something called the 
LIFT Act, which would have created for first-generation, first-
time home buyers--which unfortunately in this country are 
still, by default, 60 percent people of color. If they could 
qualify for a traditional 30-year mortgage, we would provide 
literally a 20-year mortgage so that it would be a wealth 
accumulation at twice the rate, because I think the racial 
wealth gap in this country is an extraordinarily challenging 
issue, and unfortunately, home ownership is a huge, huge 
component part of that. And I do hope that program, the LIFT 
Act, combined with my support as well for down-payment 
assistance, is a good one-two combination.
    What I am going to take my time on--Mr. Roberts, I want to 
start with you, and if somebody else wants to weigh in as well. 
And I am going to get to another area that I have been working 
on--and the chairman has been very supportive, as well as the 
ranking member--which is additional support for CDFIs and MDIs: 
Community Development Financial Institutions and Minority 
Depository Institutions, MDIs. We do not have nearly enough of 
them anymore. We were able to get $12 billion in grants, and $9 
billion in tier 1 equity into those institutions--really, I 
think, an interesting initiative.
    But it is still not going to be enough. So, in a bipartisan 
way, we recently put together a CDFI tax credit that would give 
a tax credit to those private-sector entities--and I think in 
terms of many of the companies that said in the aftermath of 
the murder of George Floyd they wanted to do something on 
racial equity, and we have done a pretty crummy job of making 
sure they actually put their money where their promises were.
    But what this would say is, you put in long-term, more than 
10-year patient money, and we are going to give you a tax 
credit. We will give you a larger one at 20 years. I think this 
is, again, no single silver bullet, but a very, very effective 
tool to take what has historically been a relatively narrow 
niche of the financial sector, the CDFIs, and try to expand 
their capacity.
    Mr. Roberts, since you were kind enough to work in my 
office on putting this CDFI tax credit together, I would love 
to get your comments and suggestions on why you think it is a 
good idea.
    Mr. Roberts. We are tremendously excited by this proposal, 
Senator Warner, and I want to thank you, as well as Senators 
Wicker and Hyde-Smith, for all of your leadership on this, and 
Senator Van Hollen, my Senator and neighbor.
    This can make a huge difference. The CDFIs do the hardest 
work in community development finance. They are designed to 
fill the gaps that other private-sector financial services 
providers cannot fill on their own. But they are great in 
partnership together. And what your tax credit proposal would 
do would be to build those partnerships between capital 
providers and the CDFIs that are on the ground to do it. The 
CDFIs need long-term capital, because community development 
requires it. It is the hardest kind of capital to get, but it 
has to be available at a cost that make sense.
    And your tax credit would lower the cost of that capital to 
enable CDFIs to really greatly expand their impact.
    Senator Warner. I appreciate the work, and hopefully we can 
move on this. And I will use my last 55 seconds before I yield 
to Senator Cantwell to also make a slight pitch to the 
committee members and others on another small initiative in 
this space, section 113 reform that would take the Riegle Act 
of 1994 and basically, with a very small amount of money, 
literally in the millions, start experimenting on whether we 
could actually securitize some of the CDFI debt, which again 
would be another tool to make sure we spread this capacity 
more.
    In the spirit of Senator Bennet, I will yield--actually, he 
yielded back when he was already in the red. I will yield back 
while I am still in the yellow. Thank you, Mr. Chairman.
    The Chairman. I thank my colleague. And I have been 
supportive of community development efforts, and I am going to 
continue to be.
    How fitting to have Senator Cantwell wrap this up after her 
years of leading our committee and being out on the floor 
leading America to make sure that we have semiconductors in the 
United States.
    Senator Warner. Make sure you give credit for her big win 
yesterday.
    The Chairman. A huge win.
    Senator Cantwell?
    Senator Cantwell. Thank you, Mr. Chairman. And thank you 
for holding this hearing on incentives for affordable housing. 
And I thank you for your leadership on the legislation that you 
introduced on middle-income housing. Clearly the 2009 downturn 
pushed a whole lot of people into different categories, and the 
consequences of that are still being felt. And so, I definitely 
appreciate your past help and support on the Low-Income Housing 
Tax Credit and your legislation, and I certainly want to remind 
people that Senator Hatch, when he was with us, was a great 
leader on this. I always loved that Utah did a Housing First 
Initiative, probably one of the first Housing First 
Initiatives, part of the veterans community there, and showed 
great success in driving down the cost. If you house people 
first, you are driving down the cost of that population that we 
would otherwise be seeing impacts from.
    I certainly want to thank my colleague, Senator Young, for 
his leadership with us on trying to increase the Low-Income 
Housing Tax Credit by 50 percent.
    I guess people do not realize we got a little bump a few 
years ago, and that expired at the end of last year. So we are 
actually going to go down in the amount of money that we are 
putting towards the tax credit. Ninety percent of the 
affordable housing that gets built gets built with the tax 
credit.
    So it really is a governor, if we do not increase it, on 
solving the problem. I feel like we just--I do not know why we 
cannot get this out there. I just do not understand why. I feel 
like painting a big ``supply'' message across, maybe one of the 
avenues out here. ``It is just supply.'' Or ``it's supply, 
stupid,'' or you know--I do not know what you don't get about 
it. It is really just about supply.
    And it is so frustrating, because there are so many people 
who have written reports. I could probably get a stack this 
high [indicating] of reports saying it is a supply problem.
    So, I would just like to hear from the witnesses why. Why 
is it that we are not breaking through on the supply message? 
When you talk about it, it is pretty easy on the demographics. 
You know, you have elderly people living longer, and that 
increases the demand. You have returning veterans from the war. 
That increases demand. You have workplace issues like we do in 
Seattle. That increases the demand. We had a bunch of people 
fall out of middle-income into low-income. That increased the 
demand.
    I do not get why we cannot just admit that we have a supply 
problem, and do something about it. So, anybody have an idea 
why we cannot--why we are not getting this across the goal 
line?
    Ms. Wade. Well, Senator, I just want to--and I think you 
bring up some excellent points. I sit on a board at the 
Bipartisan Policy Center. They recently conducted a poll that 
had a very specific question: do you support increasing the 
Housing Tax Credit?
    And it was overwhelmingly bipartisan. It was somewhere like 
70 percent of all Americans support it who were surveyed; 55 
percent of Republicans. So it is a bipartisan issue. I think it 
is one where, you are right, the data overwhelmingly states 
that it is a problem with housing supply. It is directly tied 
to affordability. And you know, there are a variety of 
challenges.
    I think the LIHTC is an important step forward, though, in 
increasing the supply. Everything that you have done in your 
leadership will be a huge step forward.
    Senator Cantwell. Anybody else want to talk about this?
    Dr. Ohanian. Senator, as an economist, what strikes me as 
somewhat tragic is that we have had a housing crisis almost for 
100 years. The average price of a Midtown Manhattan home in 
1929 at today's dollars was $1.2 million.
    Our housing is expensive to build. There are some 
efficiency-
enhancing reforms we can implement. We can also implement 
zoning reforms that will make it easier and less costly to 
build in areas of high demand.
    And one thing that we have seen evolve over the years is 
that a growing number of Americans are really focusing on a 
relatively small number of locations to move to, including 
Seattle, including the West Coast, including some parts of the 
Southwest. And sadly, in some of those areas--for example in my 
home State of California--we make building very, very 
expensive.
    In my testimony I mention that, in one project in San 
Francisco, it is costing $1.1 million just to renovate an 
existing small apartment unit--per unit. And when you look at 
those types of costs, you've got to scratch your head and say, 
``There's got to be a better way.''
    And I think as technologies advance and there are 
opportunities to increase the use of manufactured homes and 
change some regulatory requirements--the height requirement of 
a chassis--I think that we have reason to be optimistic that we 
can make the right choices. And your committee here is very 
much focused on that, and I am optimistic that you can do that, 
and the future is very bright from that standpoint.
    Senator Cantwell. Well, I think we have an inflation 
problem, and part of it is housing. And if you think about, 
again back to--I like your details, but I think the details are 
almost irrelevant--they are not totally irrelevant if we do not 
get across the supply issue, if we do not get people to 
understand that it is a supply issue. Now yes, can you make it 
more efficient and affordable? Yes, let's do that. But somehow 
all that discussion stops people from really understanding that 
it is a supply crisis.
    And again, if 90 percent of the affordable homes are going 
to be built with the tax credit, then unless we increase the 
tax credit, we are not going to get out of this. No matter how 
many people in Seattle pledge to spend millions of dollars on a 
project, we are not going to get out of this.
    And so, I do think it is--I don't know. I have a suspicion 
that the derivative market crash has more to do with this. I 
think it had a chilling effect for several years, when we 
should have realized what the crisis was going to do. My 
colleagues Senator Bennet and Senator Brown talked about it a 
little bit. You know, the crisis made everybody freak out about 
housing in general, because people commoditized, or 
securitized, I should say, some way to make, they thought, more 
housing supply. And literally it was a house of cards that 
collapsed.
    And then people were blaming all sorts of people. And then 
we did nothing. But at that very moment, we also pushed more 
people into that demand market, because they literally fell 
out. They fell out of the economy. They literally fell out of 
the economy. And we did not do anything to meet demand.
    So, it used to be in this Nation that in the 1970s, or 
1980s, or even 1990s you would hear ``housing; let's build 
housing.'' Where did that cheer go?
    Dr. Ohanian. Well, it very much is a supply issue. And to 
get back to the idea of cost, the more we can reduce costs, 
just economic costs, the more we can expand supply. One study 
in California showed that if California LIHTC construction 
costs were not even at the average of other evaluated locations 
by a GAO study, but were close to that average, California 
could have built 12,000 more units under LIHTC funding.
    So I think, until we recognize that our construction costs 
are remarkably high, it is going to be hard to expand. It is 
going to be hard to expand supply unless we are really going to 
push on the subsidy throttle and really push a lot more dollars 
into producing what is an expensive commodity, and a commodity 
that----
    Senator Cantwell. Well, listen, I met with some people in 
Seattle who were very charged with this mission. I asked them 
and they said, ``I think it is going to cost us $15 billion to 
get out of this problem.''
    I said, ``$15 billion? Like over 10 years?'' And they said, 
``No, probably over 5.''
    So, quantifying how problematic this really is, I am all 
for new ideas on how to drive down costs. But, Mr. Konter, I am 
going to give you the last word, if there is anything you 
wanted to add. I saw you had your hand up.
    Mr. Konter. Well, thank you, Senator. I think your 
instincts are probably correct. After the crash, we under-built 
by about 400,000 houses a year over a 10-year period. There was 
delayed entry-level market interest, because millennials had 
household formations that were much later in life, and they all 
hit at the same time.
    And if you look at the demographics between boomers and 
millennials, it is significant. So that all hit at the same 
time when we were building up a deficit just to meet what 
household formation would be in the future.
    So I think you are dead-on with what you said. And there 
was a change in the public sector's view of housing, and I 
agree we have not had a true housing policy in this country 
since the 1980s, but the aspiration for single-family home 
ownership never went away. And that is where all of those 
things collided, and that is why we have a problem with one 
group not understanding exactly the significance of the crisis.
    Senator Cantwell. I know we have to run to vote, Mr. 
Chairman, but we should not forget how important home ownership 
is as economic stability for families. And so I hope we can 
rectify this. I appreciate this hearing, and I appreciate your 
middle-income tax policy too. And the chairman and I come from 
a part of the country, the Northwest, that is very plagued, not 
that some of you--the Texans and the Californians and others--
have not been too, but we have got to step up to this and get 
some solutions.
    Thank you.
    The Chairman. Senator Cantwell, just one comment. As usual, 
you are spot-on with respect to this being all about supply. It 
is always going to be about supply.
    I would also like everybody to note Senator Cantwell's 
comment with respect to how some of the high-flyers used the 
derivative market back in 2009, and that contributed to some of 
the market crash problems.
    And, Senator Cantwell, before you came, I talked about 
private equity and powerful interests now apparently using 
algorithms to out-bid Americans who just want to own a home.
    So we have some equity issues to pursue, and we are going 
to do that in a way that is consistent, as Mr. Konter and I 
have been talking about, with strengthening the private-public 
partnership in order to build more housing supply.
    Lots to do. Special thanks to Ms. Bell for coming such a 
long way for this and giving us your expertise.
    And with that, the Finance Committee is adjourned.
    [Whereupon, at 12:06 p.m., the hearing was concluded.] 
    
    

                            A P P E N D I X

              Additional Material Submitted for the Record

                              ----------                              


             Prepared Statement of Andrea Bell, Director, 
                 Oregon Housing and Community Services 
                 
    Mr. Chairman, Ranking Member Crapo, and members of the committee, 
thank you for this opportunity to testify on the vital role tax 
incentives--specifically the Low-Income Housing Tax Credit (Housing 
Credit) and tax-exempt private activity Housing Bonds--play in our 
Nation's affordable housing delivery system. These programs are by far 
the most important tools we have to finance affordable rental housing 
and help low- and moderate-income families become home buyers.

    I am Andrea Bell, Director of Oregon Housing and Community Services 
(OHCS), which is the State of Oregon's Housing Finance Agency (HFA). 
HFAs are State-chartered, mission-driven agencies that address the full 
spectrum of affordable housing need, from homelessness to home 
ownership. For more than 50 years, HFAs have played a central role in 
the Nation's affordable housing system, delivering more than $500 
billion in financing to make possible the purchase, development, and 
rehabilitation of more than 7.5 million affordable homes.

    OHCS administers the Housing Credit and Housing Bond programs, as 
well as other Federal housing programs from the Department of Housing 
and Urban Development and State-level resources for affordable housing. 
During the COVID-19 pandemic, OHCS and many other HFAs also stood up 
Federal emergency assistance programs, such as Emergency Rental 
Assistance and the Homeowner Assistance Fund. HFAs were able to do this 
because we are nimble and high-capacity organizations that have a 
strong track record of meeting multifaceted housing challenges.

    I want to begin by thanking you, Mr. Chairman, for being a 
steadfast champion of the Housing Credit and Housing Bonds for many 
years and for continuously elevating the housing needs of Oregonians. 
In particular, we appreciate your vision for solving the affordable 
housing crisis, as outlined in the Decent, Safe, Affordable Housing for 
All (DASH) Act. I also want to thank you, Senator Crapo, for always 
being a supporter of State HFAs, and in particular for your support of 
tax-exempt Housing Bonds. Lastly, I want to acknowledge Senators Maria 
Cantwell (D-WA) and Todd Young (R-IL) for their leadership as the 
sponsors of the Affordable Housing Credit Improvement Act, S. 1136, 
passage of which is the most important thing Congress could do to 
address the imbalance between supply and demand for affordable rental 
housing.
  
  the central role of the housing credit and multifamily housing bonds
    
    While HFAs administer various Federal and State affordable housing 
programs, the Housing Credit and Housing Bonds are by far our most 
essential production tools. Few people who are not deeply entrenched in 
affordable housing policy understand that the Federal Government's most 
important housing supply programs are authorized under the tax code and 
not part of the annual appropriations process.

    The Housing Credit is a highly successful public-private 
partnership that draws on State HFAs' sophisticated underwriting, asset 
management, and oversight capacity, as well as private-sector 
experience and investment. It is the most efficient means of increasing 
rental housing supply, while transferring risk to private-sector 
investors rather than taxpayers. Since the Credit's establishment in 
the Tax Reform Act of 1986, it has financed more than 3.6 million 
affordable rental homes for low-income families, seniors, veterans, and 
those with special needs.\1\
---------------------------------------------------------------------------
    \1\ State HFA Factbook: 2020 NCSHA Annual Survey Results, National 
Council of State Housing Agencies.

    In recent years, more than half of Housing Credit homes have been 
financed with the help of multifamily Housing Bonds. In Oregon, 
multifamily Housing Bonds play an even more outsized role, as nearly 70 
percent of all units we have financed in the State over the last 5 
years are bond-financed. The Housing Credit and multifamily Housing 
Bonds are inextricably linked because of the role bonds play in 
---------------------------------------------------------------------------
triggering the 4-percent Credit.

    While the Housing Credit program generally serves low-income 
working households earning 60 percent of area median income (AMI) or 
less, with congressional direction to serve the lowest income 
households possible, in practice the program reaches families with 
incomes much lower than its top-most statutory limits. In fact, 53 
percent of households living in Housing Credit apartments are extremely 
low-income, meaning they earn 30 percent or less of AMI, and another 31 
percent are very low-income, earning between 30 and 50 percent of 
AMI.\2\
---------------------------------------------------------------------------
    \2\ Tenants in LIHTC Units as of December 31, 2019, U.S. Department 
of Housing and Urban Development, Office of Policy Development and 
Research.

    There is a fundamental market failure when it comes to affordable 
housing supply. It simply costs too much to build housing to rent it at 
rates low-income people can afford absent a Federal incentive such as 
the Credit. Developers will tell you that it is economically infeasible 
for them to build rental housing without the equity derived from the 
Credit unless they charge rents that are well out of the reach of low-
income families.
      
      affordable rental housing need in the post-pandemic economy
    
    America has been in the midst of a housing crisis for a long time, 
but never has the need been more acute than it is today. In particular, 
and especially since the Great Recession when many developers left the 
industry, our Nation has drastically underproduced both rental and for-
sale housing. We are currently seeing the repercussions of the extreme 
mismatch between supply and demand.

    Meanwhile, in the 2-year period from early 2020 to early 2022, the 
number of households that rent grew by 1.1 million to 44.2 million.\3\ 
With rising interest rates and escalating home prices, would-be 
homeowners are stuck renting at the same time millennials, many of whom 
put off household formation, are now entering the rental market.
---------------------------------------------------------------------------
    \3\ The State of the Nation's Housing 2022, Joint Center for 
Housing Studies of Harvard University, June 2022.

    The sheer number of new renters, without corresponding housing 
production, has driven historically low vacancy rates and skyrocketing 
rents, with rents in most major markets spiking by double digits 
between 2021 and 2022.\4\
---------------------------------------------------------------------------
    \4\ Ibid.

    While these market dynamics create hardships for renters across the 
income spectrum, low-income households are by far the most vulnerable. 
There is currently a shortage of more than 7 million affordable rental 
homes for extremely low-income renters, with only 37 affordable and 
available units for every 100 extremely low-
income renter households nationwide. Moreover, more than 70 percent of 
extremely low-income renters spent more than half their income on 
housing in 2021.\5\ Sadly, Oregon is even less affordable than the 
national average.
---------------------------------------------------------------------------
    \5\ The Gap: A Shortage of Affordable Homes, The National Low 
Income Housing Coalition, April 2022.

    The housing market in Oregon clearly demonstrates the challenges 
renters face due to basic supply-and-demand economics. Since the Great 
Recession, Oregon has underproduced at least 140,000 homes. More than 
584,000 homes are needed to meet our State's population growth over the 
next 20 years. Even more telling, nearly half of those homes must be 
built affordable to low-income Oregonians. The data is staggering: 
Oregon must increase housing production twofold to address supply 
shortfalls and threefold to address affordable housing supply needs.\6\ 
Without action to increase or improve affordable housing production 
resources, Oregon and other States will continue to see rates of 
homelessness rise.
---------------------------------------------------------------------------
    \6\ Building on New Ground: Meeting Oregon's Housing Need, Oregon 
Housing and Community Services and ECONorthwest, February 2021.
---------------------------------------------------------------------------
               
               barriers to affordable housing production
    
    Unfortunately, the economic fallout of the COVID-19 pandemic has 
made it even harder to produce affordable rental housing. The costs of 
many commodities necessary for construction have gone up drastically, 
while supply chain disruptions create development delays that further 
increase costs, and developers struggle to find skilled workers and 
subcontractors.

    According to the National Association of Home Builders, since 
Spring 2020, prices have gone up for lumber by 75 percent, steel by 107 
percent, gypsum and drywall by 32 percent, ready-mix concrete by 11 
percent, interior paint by 33 percent, exterior paint by 48 percent, 
aluminum by 61 percent, and copper by 57 percent.\7\
---------------------------------------------------------------------------
    \7\ Eye on Housing blog post: ``Rapidly Rising Building Materials 
and Freight Prices Push Construction Costs Higher,'' National 
Association of Home Builders, June 2022.

    Despite the vast and growing need and the escalating costs of 
production, the Housing Credit has actually suffered a cut to 
resources. A hard-won increase in Housing Credit resources, which 
Senator Cantwell was instrumental in achieving in 2018, expired at the 
end of 2021. That means State HFAs have fewer credits to provide to 
developers this year, at a time when their costs have gone up so 
---------------------------------------------------------------------------
substantially and demand is unprecedented.

    Costs are rising so quickly that projects in the pipeline must be 
re-underwritten, sometime several times, before completion to address 
financing gaps. This has caused tremendous problems as States and their 
developer partners try to find creative ways of filling these 
unexpected, gaping holes in project financing.

    In some cases, developers of projects that were initially provided 
credits in prior years are coming back to the HFA asking for a 
subsequent allocation of credits from the State's 2022 authority. But 
by backfilling older deals, it means the State will have far less 
credit authority with which to fund new proposals.

    Unfortunately, sometimes the gaps are too large or additional 
resources are not available, forcing many quality developments to scale 
back unit production.

    Another reason cost increases are particularly problematic is that 
bond-financed projects that see significant cost increases risk missing 
the threshold requirement for maximizing Housing Credit resources. A 
bond-financed property must have at least 50 percent of its costs 
financed with tax-exempt multifamily bonds to access a sufficient 
amount of Housing Credit authority as an equity source. We typically 
provide some cushion to those deals to account for potential cost 
increases. However, with prices going up as quickly as they are, some 
projects risk failing this threshold test, which is devastating, even 
if the developer is fortunate enough to be able to assemble other 
financing sources to fill the gap. This is particularly problematic in 
States like Oregon where bond cap is in very high demand and we often 
do not have excess bond cap to provide a project if its costs go up too 
much.
       
       congressional action to address the rental housing crisis
    
    The Federal Government has delayed far too long in taking the steps 
our Nation needs to address the housing crisis. We are now seeing the 
repercussions of that delay in rapidly escalating rents, and it is our 
most vulnerable residents who pay the price.

    Many States, including Oregon, have already stepped in with 
significant investments in affordable housing. I am proud that our 
State has nearly tripled affordable housing investments biennium over 
biennium, investing in proven and promising practices to support the 
stabilization of families making low wages. But States cannot solve 
this problem without the help of the Federal Government.

    The good news is, we know what works and we have the right tools in 
hand. By far, the most impactful thing Congress could do to meet the 
need is to pass Senator Cantwell and Senator Young's Affordable Housing 
Credit Improvement Act (AHCIA). Half of this committee has already 
cosponsored the bill, and I urge all who have not yet done so to do it 
now.

    The AHCIA is comprehensive legislation that would expand and 
strengthen the Housing Credit. While it includes many policy changes--
some of which are no-cost, common-sense, good governance improvements 
based on over 3 decades of program administration--I'd like to focus on 
how the bill would expand the Housing Credit, as these are the 
provisions that add supply.

    The AHCIA would make a significant increase in Housing Credit 
allocation authority for what we call the 9-percent Housing Credit. The 
9-percent credit is the component of the program that provides the more 
substantial subsidy to developments. These credits are highly 
competitive, and States often use them to finance the most challenging 
and needed properties for the highest-risk populations. For example, 
last week in Oregon, we celebrated the opening of River Bend Place in 
rural Ontario, a new development funded with the 9-percent credit. 
Fifty-six new doors are open, and 16 homes will have wrap-around 
services to help permanently house Oregonians experiencing chronic 
homelessness.

    The other major provision in this legislation that would 
substantially increase supply is the reduction of the bond financing 
threshold, sometimes called the 50-
percent test. For Oregon, this is probably the most impactful action 
Congress could take to increase supply as we continue to leverage 
historic State resources and locally funded housing bonds approved by 
Metro voters. As I mentioned previously, developments that are funded 
with tax-exempt multifamily Housing Bonds can generate what we call 4-
percent Housing Credits. The 4-percent credit provides less subsidy 
than the 9-percent credit, but is an essential tool for financing 
affordable housing. In fact, in 2020, nearly 60 percent of Housing 
Credit homes nationwide were financed with 4-percent credits.

    To maximize the 4-percent credit equity available to an individual 
deal, multifamily bonds must be used to cover at least 50 percent of 
the cost of the development. That means States need to make a 
significant investment of their finite Private Activity Bond (PAB) 
resources in individual developments in order to unlock the 4-percent 
credits. More and more States are like Oregon, which has far more 
demand for PAB cap than we have available. According to research by 
Novogradac and Tiber Hudson, 22 States were oversubscribed for PAB cap 
as of May 2022.

    Moreover, covering at least 50 percent of a project's total cost 
with multifamily bonds makes no sense from a financing perspective. 
Bonds provide debt, but these projects cannot support that much debt 
over the long run. What happens in practice is that we provide bonds 
sufficient to meet the 50 percent test just to trigger the 4-percent 
credits. Then, the developer must refinance the project, paying off the 
bond debt, to put in place permanent financing with a much lower debt 
level that the project can reasonably support. This practice is 
inefficient, adds cost, and prevents States from spreading bond 
resources to more quality affordable housing projects.

    The AHCIA would lower the bond financing threshold to 25 percent, 
which is much more in line with the amount of debt these projects could 
support. According to an estimate by Novogradac that considered the 
time-limited reduction in the bond financing threshold included in the 
Finance Committee's initial proposal for the Build Back Better Act, 
Oregon would be able to finance 11,200 more homes over a 10-year period 
if Congress made this change. It is this type of common-sense reform to 
Housing Credits that will allow Oregon and other States to dramatically 
scale production to address supply challenges.

    The AHCIA also includes other provisions that would increase 
production by providing basis boosts for properties in rural areas, 
those benefiting Tribal populations, and those housing extremely low-
income households, as well as expanding the number of areas where basis 
boosts are allowed because the area qualifies as a Qualified Census 
Tract or Difficult Development Area. The AHCIA also gives States 
discretion to provide a 30-percent boost to 4-percent credit properties 
as needed for financial feasibility.

    Another step Congress should take to address the immediate housing 
cost challenges we face is passing the bipartisan LIHTC Financing 
Enabling Long-term Investment in Neighborhood Excellence (LIFELINE) 
Act, S. 4181, introduced by Senators Patrick Leahy (D-VT) and Susan 
Collins (R-ME).

    Approximately half of States and countless local governments have 
turned to the Coronavirus State and Local Fiscal Recovery Fund (FRF) as 
a source of funds that could be used to fill financing gaps in Housing 
Credit developments, but there are significant challenges to using FRF 
money effectively for long-term loans to Housing Credit developments 
due to unintended statutory barriers. The LIFELINE Act would fix the 
problem by allowing these funds, which Congress has already allocated 
to States and local governments, to be used for loans with maturities 
of at least 30 years.

    While FRF is not a tax incentive, the Finance Committee has 
jurisdiction over these funds, and I strongly encourage all committee 
members to join Chairman Wyden as cosponsors of this bill and to press 
for its enactment.
    
    the housing crisis is impacting home-ownership opportunities too
    
    Our Nation's critical affordable housing shortage is not limited to 
rental housing. According to a recent analysis by Freddie Mac, the 
United States would need to construct nearly 3.8 million for-ownership 
homes to meet demand.\8\ Insufficient supply has substantially 
increased sale prices of single-family homes, pricing many working 
families out of the market. Moreover, recent dramatic increases in 
mortgage interest rates have exacerbated affordability challenges. It 
now costs a home buyer 50 percent more to buy a home than it would have 
to purchase the same home a year ago,\9\ putting home ownership out of 
reach for many households.
---------------------------------------------------------------------------
    \8\ One of the Most Important Challenges Our Industry Will Face: 
The Significant Shortage of Starter Homes, Sam Kater, Freddie Mac, 
April 2021.
    \9\ The Cost of Buying a Home Is Up 50% From a Year Ago--But Here's 
Where You Could Get a Break, Clare Trapasso, Realtor.com, May 16, 2022.

    Another significant challenge facing low- and moderate-income 
households seeking to become homeowners is the lack of starter homes on 
the market. For some time, builders have reported that building smaller 
homes is cost-prohibitive, therefore most new construction is of larger 
luxury homes because that's the only way for developers to make the 
economy of scale work. The average sale price for a new home in May was 
$511,400, up 15 percent from just a year ago.\10\ Only 9 percent of new 
homes sold that month were priced under $300,000, compared to around 30 
percent in January 2021.\11\ Moreover, development costs for single-
family homes are also subject to the same market dynamics as 
multifamily production, including significant inflation of common 
construction materials, supply chain delays, and workforce disruptions.
---------------------------------------------------------------------------
    \10\ Monthly New Residential Sales, May 2002, U.S. Census Bureau, 
June 24, 2022.
    \11\ Ibid.

    These market developments have made it harder to address the 
longstanding home-ownership gap between White households and households 
of color. In 2020, 72.1 percent of White households owned their home, 
compared to 61.7 percent of Asian American households, 51.1 percent of 
Hispanic American households, and 43.3 percent of African American 
households.\12\
---------------------------------------------------------------------------
    \12\ 2022 Snapshot of Race and Home Buying in America, National 
Association of Realtors, February 2022.

    A recent study found that, in each of the Nation's 50 largest metro 
areas, African American residents own a disproportionately small share 
of homes compared with their population.\13\ One of the biggest factors 
historically preventing minority families from purchasing a home is a 
lack of accumulated wealth compared to White households, a legacy of 
our Nation's discriminatory redline policies. The current surge in 
pricing has worsened these disparities by making it even harder for 
minority households to amass the necessary savings to pay for the 
upfront costs of purchasing a home. While State HFA down payment 
assistance programs offer an affordable and sustainable option for such 
borrowers, we need a more comprehensive solution that helps increase 
supply and improve other home-ownership tools.
---------------------------------------------------------------------------
    \13\ Black Americans Own Disproportionately Small Share of Homes in 
50 Largest U.S. Metros, Jacob Channel, Lending Tree, April 5, 2022.

    A healthy and affordable home purchase market is crucial for 
economic growth. Home ownership is many working families' primary means 
of building generational wealth. Further, an active home purchase 
market would open up more rental opportunities for those wishing to 
rent as new home buyers leave their apartments.
        
        congressional action to address the needs of homeowners
    
    While addressing these issues will take concerted and multifaceted 
action, there are two legislative proposals the Finance Committee can 
take up in this Congress to expand the supply of affordable homes and 
improve access to home ownership for low- and moderate-income home 
buyers. These are the Affordable Housing Bond Enhancement Act, S. 4445, 
and the Neighborhood Homes Investment Act, S. 98.

    I want to thank committee member Senator Catherine Cortez Masto (D-
NV) for introducing the Affordable Housing Bond Enhancement Act (AHBEA) 
last month. This important bill would enact simple and impactful 
improvements to two essential tax incentives that help first-time low- 
and moderate-income home buyers: the Mortgage Revenue Bond (MRB) and 
Mortgage Credit Certificate (MCC) programs.

    MRBs historically have been HFAs' primary tool for financing low-
interest mortgages for low- and moderate-income home buyers. Investors 
are willing to accept a lower rate of return for Housing Bonds than 
they would get on other investments because the interest on the bonds 
is exempt from Federal income tax. The lower rate is then passed on to 
lower the interest rate paid by lower-income home buyers.

    In total, MRBs have helped more than 3.3 million working households 
become home buyers. The median income of MRB loan borrowers in 2020 was 
two-thirds of the national median income. OHCS utilized MRBs to help 
more than 430 Oregon families across 29 counties achieve the dream of 
home ownership in calendar year 2021, supporting more than $116 million 
in loans for low- and moderate-income home buyers.

    In addition, HFAs can use their MRB authority to issue Mortgage 
Credit Certificates, which provide a nonrefundable Federal income tax 
credit for part of the mortgage interest qualified home buyers pay each 
year. State HFAs have used MCCs to provide critical tax relief to more 
than 365,000 families.

    AHBEA would improve MRBs and MCCs by, among other changes:

        Increasing the MRB home improvement loan limit;
        Allowing MRBs to be used for refinancing loans;
        Providing HFAs additional flexibility in how they utilize 
housing bond authority;
        Simplifying how a borrower's MCC benefit is calculated;
        Reducing the time period for the MRB and MCC recapture tax 
from 9 years to 5;
        Extending the amount of time HFAs can use converted MCC 
authority from 2 years to 4; and
        Allowing HFAs to reconvert MCC authority back into MRBs 2 
years after the conversion, rather than 1.

    This legislation is a cost-effective way to improve the MRB and MCC 
programs. I urge all committee members to cosponsor this legislation.

    Lastly, I'd like to express our support for the Neighborhood Homes 
Investment Act (NHIA), introduced by committee members Senators Ben 
Cardin (D-MD) and Rob Portman (R-OH). In many census tracts and rural 
areas, developers cannot sell homes for what it costs to construct or 
substantially rehabilitate them, known as the ``value gap.'' This is a 
problem for which we currently do not have a solution. We need a new 
tool in our arsenal.

    The NHIA would establish a new tax credit, the Neighborhood Homes 
Credit, modeled after the highly successful Housing Credit. It would 
incentivize developers to construct new or substantially rehabilitate 
housing by closing the value gap, up to 35 percent of eligible 
development costs. It is estimated that the equity raised by the 
Neighborhood Homes Credit would finance the building and substantial 
rehabilitation of 500,000 affordable homes for low- and moderate-income 
homeowners over the next 10 years.

    Thank you, Chairman Wyden, for including the Neighborhood Homes 
Credit in your DASH Act and working with OHCS to allow the credit to 
more effectively be used to assist homeowners impacted by natural 
disasters.

    I encourage the committee to take up and advance both of these 
bills as quickly as possible.

    The housing crisis will not get better unless Congress acts. 
Enactment of the four bills I've addressed in this testimony--The 
Affordable Housing Credit Improvement Act, the LIFELINE Act, the 
Affordable Housing Bond Enhancement Act, and the Neighborhood Homes 
Investment Act--would truly address the affordable housing crisis for 
both renters and homeowners. OHCS and all HFAs, through our national 
association, the National Council of State Housing Agencies, urge the 
committee to act on these bills and Congress as a whole to enact them 
this year.

    Thank you for your commendable efforts to support affordable 
housing. I am honored to have had this opportunity to testify before 
the committee.

                                 ______
                                 
           
           Questions Submitted for the Record to Andrea Bell
              
              Question Submitted by Hon. Michael F. Bennet
    
    Question. The American Rescue Plan Act, passed last year, is 
providing huge opportunities for States and local communities to 
address their affordable housing challenges. Colorado is dedicating 
more than $500 million of its ARPA State and Local Fiscal Recovery 
Funds to housing. The program provides gap financing for affordable 
housing developments, and supports an innovative manufactured housing 
program, to help groups of mobile home owners purchase the communities 
in which they live.

    Unfortunately, States and localities face limitations to using 
these funds for new development under the Low-Income Housing Tax 
Credit. When Federal funds are used to fill gaps in LIHTC-funded 
construction, it is almost always as long-term loans--yet under current 
law, Fiscal Recovery Funds must be spent on a shorter timeline, by 
2026.

    The bipartisan LIFELINE Act would solve this problem by allowing 
States and localities to loan Fiscal Recovery Funds for LIHTC projects.

    How would passing the LIFELINE Act affect the development of new 
affordable units in the coming years?

    Answer. State Housing Finance Agencies were thrilled when Treasury 
recently announced updates to its Coronavirus State and Local Fiscal 
Recovery Fund (FRF) guidance that would mirror the LIFELINE Act's 
statutory modifications, allowing State and local governments to 
finance affordable housing, including Housing Credit developments, with 
loans made with FRF resources. This change to Treasury guidance would 
not have happened if not for the support in Congress for the LIFELINE 
Act; and we are grateful to you and the other Senators who cosponsored 
this critical legislation.

    The change to Treasury's guidance will unlock what is likely to be 
billions of dollars that States and local governments can use to 
finance affordable rental housing for low-income families, seniors, 
people with disabilities, veterans, and more. The National Council of 
State Housing Agencies expects that thousands of developments in the 
pipeline that had been stalled because of the financing gap will be 
able to access FRF, allowing them to close on their financing and begin 
construction. Moreover, FRF will allow projects that would not have 
previously been financially feasible to be built, increasing supply in 
areas that desperately need it.

                                 ______
                                 
            Questions Submitted by Hon. Robert P. Casey, Jr.
    
    Question. As chairman of the Aging Committee, I champion policies 
that ensure older adults and people with disabilities are fully 
integrated into society. People with disabilities are productive 
members of society and have goals and ambitions like any hardworking 
American. We know people with disabilities have varying mobility needs. 
Some can drive or get around by car, but for many others, living in a 
walkable neighborhood with transit access is crucial for them to 
participate fully in society.

    From your experience on the ground, do you believe it's important 
to connect our housing stock for people with disabilities with access 
to transit? How could Federal policy better support and incentivize 
States and localities that do this?

    Answer. Running simple errands such as driving to the grocery store 
or going to an appointment, and visiting friends is something many of 
us take for granted. Strengthening critical housing investment is one 
the primary avenues for strengthening an integrated built environment. 
for State Housing Credit allocating agencies are often able to impact 
project siting by providing incentives to developers through the 
Qualified Allocation Plan (QAP) scoring process for locating properties 
in areas with access to certain amenities, which may include public 
transportation. In addition to proximity to transit, QAPs often also 
incentivize proximity to employment, resident services, or community 
amenities, such as grocery stores, pharmacies, libraries, health care, 
and schools.

    Oregon's Statewide Housing Plan calls for Oregon Housing and 
Community Services to take advantage of opportunities to provide 
affordable housing in transportation-efficient locations to reduce 
travel time and housing and transportation cost burden for residents of 
OHCS-funded properties, including transit-oriented development and 
areas near affordable transportation. That policy direction becomes 
action in Oregon's QAP, which includes scoring criteria that provides a 
competitive advantage to developments that are near transit stops, or, 
in more rural communities, have access to other means of transportation 
beyond their own car. This helps to prioritize developments that ensure 
access needs for Oregonians with disabilities and encourage a less car-
dependent community. The QAP also provides a competitive advantage to 
organizations that serve residents that are less likely to access 
publicly funded housing, which includes organizations that serve people 
with disabilities. Lastly, OHCS maintains development standards that 
require both Federal accessibility standards and State defined 
visitability standards.

                                 ______
                                 
               Questions Submitted by Hon. Chuck Grassley
    
    Question. In 2018, the GAO released a report at my prompting. Among 
its recommendations were to improve data collection for the LIHTC 
program. Over a series of reports on the issue, they noted the 
program's complexity and identified the need for more transparency.

    The primary recommendation in this 2018 report was for Congress to 
``consider designating a Federal agency to maintain and analyze LIHTC 
cost data.'' To date, this recommendation has not been implemented.

    What can State agencies do to collect and make this information 
public in the absence of congressional action?

    Answer. Since the publication of the GAO report series on the 
Housing Credit, IRS has taken some significant steps to improve its 
data collection. Specifically, it has implemented a new database that 
collects all data provided to the Service in the forms submitted by 
State agencies and taxpayers. This new database allows IRS to better 
see trends and track the usage of Housing Credits.

    Other data about the Housing Credit program is available through 
HUD's two data collection projects--the Housing Credit ``Placed in 
Service'' database, which provides information on Housing Credit 
developments, and the Housing Credit tenant data collection effort, 
which provides information on the households who live in Housing Credit 
properties.

    In addition, the National Council of State Housing Agencies each 
year publishes its Factbook, which provides the results of its annual 
survey of State HFAs, including an entire chapter about the Housing 
Credit with data on all aspects of State administration of the program. 
NCSHA shares copies of the Factbook with IRS and the Joint Committee on 
Taxation and makes the Factbook available for purchase for the general 
public. NCSHA would be happy to provide Senator Grassley's office with 
a copy of the most recent Factbook, should that be useful to you.

    Question. Another GAO report on the LIHTC I requested was released 
on July 15, 2015. While the program is currently administered at the 
Federal level by the Internal Revenue Service, this report recommended 
giving the Department of Housing and Urban Development a joint 
oversight role.

    I have been a strong advocate of oversight as long as I have been 
in Congress. It is impossible to conduct meaningful oversight without 
consistent and available data on how programs preform, however I also 
understand the need to limit unnecessary paperwork for those 
participating in Federal programs.

    What impact would giving HUD a partnering oversight role have on 
the LIHTC program?

    Answer. When Congress enacted the Housing Credit program, it turned 
away from Washington-driven highly bureaucratic housing programs of the 
past by establishing a State-based structure in which IRS and Treasury 
partner with State Housing Finance Agencies on oversight and program 
administration. Nearly 40 years later, it is clear that Congress had 
great foresight in this program design, which has been integral to the 
Housing Credit's long track record of success.

    As envisioned by Congress, State HFAs play a key role in program 
oversight. In fact, GAO's 2016 report on State administration of the 
Housing Credit showed how States not only fulfill congressionally 
required monitoring requirements of the program, but in many cases go 
above and beyond those requirements. One example noted in the GAO's 
report is of States conducting physical inspections and file reviews 
more frequently than the law requires and implementing policies to 
encourage compliance during the extended use period when investors are 
no longer at risk of credit recapture.

    Introducing HUD as a coadministrator of the Housing Credit would 
unnecessarily create a new level of bureaucratic red tape that could 
reduce program effectiveness, slow down the production process, and 
cause uncertainty for private-sector investors and developers who are 
so integral to the Credit's success. HUD has little expertise in or 
experience with the Housing Credit, suffers from its own severe 
resource constraints, and has received negative evaluations from the 
GAO and others on its own program oversight.

    As GAO pointed out in its 2015 report, involving HUD in the 
oversight of the Credit would require additional resources for HUD--not 
only to undertake new programmatic responsibilities, but also to simply 
train staff, who currently have limited knowledge of and experience 
with the Credit program. GAO also noted in that report that the level 
of resources that would be needed for HUD to perform adequate oversight 
is not known. Given that this would be an entirely new program for HUD 
to administer, those resources would likely be substantial and 
considerably more than would be necessary to invest further in Treasury 
and IRS's existing oversight structure.

    If Congress determines that additional Federal oversight of the 
Housing Credit program is needed, I suggest that the best course of 
action would be to provide additional resources to Treasury and IRS for 
program oversight.

    Question. It is no secret that housing costs have been increasing 
well before the current wave of inflation. While LIHTC has an impact on 
bringing more affordable units onto the market, the varied housing 
prices across the country indicate that local policies, such as zoning, 
have possibly the greatest role in determining housing costs.

    In addition, there are a wide variety of regulations at the Federal 
level, including HUD regulations, that increase the price of new homes 
and buildings.

    As Professor Ohanian noted in his testimony, there are currently a 
number of regulations that prevent affordable housing from being 
constructed. In addition to the LIHTC, what other options would be 
available to increase housing supply? How would these other options 
compare to the LIHTC in cost effectiveness? What factors at the State 
or local level are inhibiting the creation of affordable housing?

    Answer. One of the most critical responsibilities of State HFAs is 
to ensure that the Housing Credit dollar amount each property receives 
does not exceed the amount the agency deems necessary for financial 
feasibility and that the property development and operating costs are 
reasonable. As such, HFAs have adopted numerous cost-containment 
procedures and limits, which they balance against other policy 
objectives that might result in higher costs--for example, serving the 
lowest-income households, using durable materials that reduce long-term 
upkeep needs, locating projects in higher opportunity areas, and 
instituting energy efficiency measures.

    While HFAs do what they can to contain costs, the primary factors 
that drive development costs of all apartment projects, including 
Housing Credit properties--costs of land, labor, and materials--are 
driven by market forces, that are unfortunately beyond the control of 
HFAs and affordable housing developers. Local regulations that increase 
costs, such as zoning fees and lengthy approval periods, are also 
beyond State agency control.

    While local regulations certainly vary across the Nation, and can 
impact the variation of development costs, they are not the only reason 
why development costs in certain areas are higher than in others. For 
example, land costs vary widely. Developers seeking to build in higher 
opportunity areas will face steeper competition for sites from market-
rate developers than those building in other areas.

    The most critical question is whether affordable housing is somehow 
more expensive than comparable market-rate housing in the same area. It 
is difficult to ascertain the answer to this question because data on 
market-rate construction is not readily available. In Oregon, Oregon 
Housing and Community Services (OHCS) report to the State Legislature 
on construction costs through our annual Key Performance Measures, and 
usually finds that OHCS funded developments are typically in line with 
national data that includes market rate costs. OHCS also contracted to 
have a study conducted on development costs in 2018, and one of the 
numerous findings was an analysis showing that costs between market 
rate and affordable developments were negligible.

    Regarding your question about alternative strategies for increasing 
housing supply, it is hard to imagine a program that would be more 
effective than the Housing Credit. The Federal Government has certainly 
attempted to build housing in the past through grant programs, such as 
section 8, and government ownership, such as Public Housing. But the 
Housing Credit, with its market-based, public-private partnership 
structure has proven to be a far more effective means of producing 
affordable rental housing than those earlier programs.

                                 ______
                                 
             Questions Submitted by Hon. Sheldon Whitehouse
    
    Question. We have an affordable housing crisis in this country, and 
Rhode Island hasn't been spared. According to HousingWorksRI, there are 
currently no communities in Rhode Island where families earning the 
State's median income of $67,167 or less can afford to buy a home, and 
there's only one community--Burrillville--where Rhode Islanders can 
affordably rent.

    The root of this problem is a supply shortage that pre-dated the 
pandemic. Since 2020, COVID significantly increased the cost and 
difficulty of developing housing by disrupting supply chains and 
increasing the cost of building materials. As a result, construction 
costs in Rhode Island are up more than 18 percent over the past 2 
years, and many affordable developments are facing financing gaps.

    Nationally, 29 States have appropriated nearly $9 billion in State 
Fiscal Recovery Funds for affordable housing, and Rhode Island is one 
of them. The State recently dedicated $250 million in Fiscal Recovery 
Funds to affordable housing and homelessness programs, with $100 
million targeted specifically to housing production.

    These Fiscal Recovery Fund investments would be able to make an 
even greater impact in Rhode Island and nationwide if they were able to 
leverage Low-Income Housing Tax Credit (LIHTC) financing. 
Unfortunately, it is my understanding that Treasury's rules seriously 
limit the effectiveness of combining Fiscal Recovery Funds with LIHTC 
Credits.

    That's why I partnered with Senators Leahy and Collins to introduce 
the bipartisan LIFELINE Act, which would allow State and local 
governments to use Fiscal Recovery Funds to make long-term loans to 
LIHTC developments with long-term deed restrictions.

    Do Treasury's current rules regarding the American Rescue Plan's 
Coronavirus State and Local Fiscal Recovery Fund pose a problem to 
using these resources to help plug funding gaps in LIHTC-financed 
developments?

    Would the bipartisan LIFELINE Act address this problem?

    Are there time constraints to acting on the LIFELINE Act that 
Congress should consider?

    Answer. On July 27th, the week after the Senate Finance Committee 
held its hearing, Treasury released updated guidance allowing State and 
local governments to finance affordable housing development using loans 
made with Coronavirus State and Local Fiscal Recovery Fund (FRF) 
resources, mirroring the LIFELINE Act. Oregon Housing and Community 
Services and all our State Housing Finance Agency colleagues were 
thrilled with this change in direction by the Treasury Department, 
which would not have happened if not for the support in Congress for 
the LIFELINE Act. We are grateful to you and the other Senators who 
cosponsored this critical legislation.

    The change to Treasury's guidance will unlock what is likely to be 
billions of dollars that States and local governments can use to 
finance affordable rental housing for low-income families, seniors, 
people with disabilities, veterans, and more. The National Council of 
State Housing Agencies expects that thousands of developments in the 
pipeline that had been stalled because of the financing gap will be 
able to access FRF, allowing them to close on their financing and begin 
construction. Moreover, FRF will allow projects that would not have 
previously been financially feasible to be built, increasing supply in 
areas that desperately need it.

    Question. The 2018 Consolidated Appropriations Act increased the 
number of Low-Income Housing Tax Credits (LIHTC) available to States 
each year by 12.5 percent for Fiscal Years 2018 through 2021. For Rhode 
Island, that boost enabled the LIHTC program to produce or preserve 
nearly 2,000 affordable homes in this time period--but it expired at 
the end of last year.

    At a time when we need housing investments more than ever to 
increase the supply of affordable housing and offset pandemic related 
cost increases, LIHTC allocations have actually dropped 12.5 percent. 
This means that Rhode Island lost access to roughly $3.5 million in tax 
credit equity that could have been put towards the development and 
preservation of affordable apartments.

    What impact is the reduction in LIHTC allocations having on the 
production and preservation of rental housing?

    Answer. The cut to Housing Credit authority in 2022 came at the 
worst possible time. With development costs increasing at historic 
levels and demand far exceeding supply, we need more Housing Credit 
resources, not less. Sadly, because of increased costs, some State 
Housing Credit agencies are being forced to use 2022 and 2023 credit 
authority to backfill projects initially provided credits in 2020 and 
2021 in order to fill financing gaps. This will leave little credit 
authority left to finance additional developments in 2022 and 2023.

    Oregon Housing and Community Services uses State funds to leverage 
Housing Credit and other Federal resources. Without this important 
component of project financing, the agency estimates hundreds less 
affordable homes will be funded in the next 2 years. OHCS has unlocked 
the full potential of the 4-percent credit by utilizing State resources 
as gap filler and continue to maximize the 9-percent credit resulting 
in historic development over the past 3 years. But it is not enough, 
and reductions to the 9-percent and hitting PAB caps in the 4-percent 
combined with inflationary pressures will likely result in fewer 
development as our housing crisis only intensifies This may have the 
perverse effect of desensitizing State investment in housing without 
the needed Federal funds to make a development pencil.

    I strongly encourage Congress to not only restore the 12.5-percent 
cut in credit authority, but to further expand Housing Credit 
resources, both through a cap increase and by lowering the threshold 
necessary for bond-financed properties to trigger 4-percent Housing 
Credits. It is essential that Congress act quickly, given skyrocketing 
rents resulting from the supply-demand imbalance.

    Question. I am also a cosponsor of the bipartisan Affordable 
Housing Credit Improvement Act (S. 1136), introduced last year by 
Senators Maria Cantwell (D-WA), Todd Young (R-IN), Ron Wyden (D-OR), 
and Rob Portman (R-OH). This bipartisan bill expands the Low-Income 
Housing Tax Credit (LIHTC) program and would finance over 2 million 
additional affordable homes across the Nation over the next decade--
including over 5,000 apartments in Rhode Island.

    How would the Affordable Housing Credit Improvement Act make the 
LIHTC program even more effective at financing housing production and 
preservation?

    Answer. Passing the Affordable Housing Credit Improvement Act 
(AHCIA) is the most important thing Congress could do to increase the 
supply of affordable rental housing and make the Housing Credit an even 
more effective program than it already is.

    The AHCIA has universal support within the affordable housing 
community--including the support of tenant advocates, nonprofits, for-
profit developers, State Housing Finance Agencies, and private sector 
investors. It also has wide bipartisan support in both chambers of 
Congress. But we need Congress to act to advance the legislation.

    The AHCIA would make a substantial investment in affordable 
housing, both by increasing the Housing Credit cap on 9-percent credit 
authority and by lowering the so-called 50-percent test, unlocking 4-
percent credits for more bond-financed developments. In Oregon, 
reducing the 50-percent test would immediately address private activity 
bond constraints on the credit. The AHCIA would also make Housing 
Credit development more feasible in hard to serve areas of the country, 
including rural areas and Tribal lands, and allow more units to be 
produced that would be affordable to extremely low-income households 
without the need for a housing voucher.

    Additionally, the bill includes a host of common sense, no-cost 
improvements to the program that would simplify administration and 
improve efficacy based on lessons learned over nearly 4 decades. In 
particular, many of these modifications would make preservation of 
affordable housing more feasible.

    I and all affordable housing advocates are grateful for your 
support of this legislation.

                                 ______
                                 
                 Questions Submitted by Hon. Todd Young
    
    Question. Thank you for the support you expressed during the 
hearing for Senator Cantwell's and my Affordable Housing Credit 
Improvement Act (S. 1136). I wanted to take this opportunity to solicit 
your thoughts in greater detail regarding my bill and the Low-Income 
Housing Tax Credit (LIHTC) generally.

    Why do you support the Affordable Housing Credit Improvement Act 
and how do you believe it will impact the populations you serve?

    Answer. Oregon Housing and Community Services and all State Housing 
Finance Agencies are so grateful for your leadership in sponsoring the 
Affordable Housing Credit Improvement Act (AHCIA). Passage of this 
legislation is the most important thing Congress could do to increase 
the supply of affordable rental housing, which is so desperately 
needed.

    The AHCIA would make a substantial investment in affordable 
housing, both by increasing the Housing Credit cap on 9-percent credit 
authority and by lowering the so-called 50-percent test, unlocking 4-
percent credits for more bond-financed developments. In Oregon, 
lowering the 50-percent test is probably the most impactful action 
Congress could take to increase supply, as we have far more demand for 
private activity bond (PAB) resources than we have PAB authority 
available. According to an estimate by Novogradac of the provision as 
included in the initial Build Back Better proposal, Oregon alone would 
be able to finance 11,200 more homes over a 10-year period if Congress 
made this change.

    The AHCIA would also make Housing Credit development more feasible 
in hard-to-serve areas of the country, including rural areas and Tribal 
lands, and allow more units to be produced that would be affordable to 
extremely low-income households without the need for a housing voucher.

    Additionally, the bill includes a host of common-sense, no-cost 
improvements to the program that would simplify administration and 
improve efficacy based on lessons learned over nearly 4 decades. In 
particular, many of these modifications would make preservation of 
affordable housing more feasible.

    While Oregon and all State HFAs are eager to see the passage of 
AHCIA, Oregon and many other States could immediately benefit from the 
reduction of the 50-
percent test on bond-funded developments. This provision of AHCIA 
should move forward this Congress to immediately unlock development 
potential across the Nation and allow more Americans to go home to a 
safe, stable, and affordable home.

    Question. Can you please share what it is that makes the Low-Income 
Housing Tax Credit so effective in addressing the affordable housing 
crisis?

    Answer. The Housing Credit is our Nation's most successful tool for 
the production and preservation of affordable rental housing, 
responsible for nearly all of the affordable housing built and 
preserved since the program was authorized in the Tax Reform Act of 
1986. It has financed over 3.6 million affordable homes since then, 
providing approximately 8 million low-income families, seniors, 
veterans, and people with disabilities homes that they can afford.

    The Housing Credit's success is due to Congress's wise decision to 
structure the program as a public-private partnership under State-level 
administration. The program is a pay-for-success model, in which credit 
against a private investor's tax liability can only be taken after 
properties are successfully completed and occupied by eligible tenants. 
Further, should a property become noncompliant, investors risk credit 
recapture. Under this system, private-sector investors--not taxpayers--
bear the financial risk.

    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. State affordable housing investments are often best utilized as 
gap resources to support the 4-percent LIHTC program. This Federal/
State partnership is key to affordable housing development, but 
additional Federal resources are necessary to continue to incentivize 
State and local investment.

    Other programs, including the successful New Markets Tax Credit, 
have been designed using the Housing Credit structure as a model due to 
its long track record of success.

    The Affordable Housing Credit Improvement Act, which you have 
sponsored with Senator Cantwell, would make the program even more 
effective.

    Question. What are some of the positive externalities you believe 
the Affordable Housing Credit Improvement Act would have on communities 
in Oregon and across the country?

    Answer. The Affordable Housing Credit Improvement Act (AHCIA) would 
undoubtedly have a major positive impact on communities across the 
Nation. It would provide State agencies more Housing Credit resources 
so that they could finance projects in all geographies within their 
States, including rural, suburban, and urban areas.

    The Housing Credit has far-reaching economic benefits for local 
communities. Since its creation, the Housing Credit has generated 
approximately $643 billion in wages and business income and $233 
billion in tax revenues, supporting approximately 5.68 million jobs 
nationwide.

    But by far, the most important impact of the Housing Credit is the 
impact it has on the people who live in Housing Credit properties. With 
affordable housing, families can stabilize their finances, people with 
disabilities or mental health challenges can access services, children 
can focus on school, and seniors with fixed incomes can feel 
comfortable knowing that they can afford to stay in their homes.

    Question. Why is it important and necessary that we pass the 
Affordable Housing Credit Improvement Act this year?

    Answer. Never has the need for affordable housing been greater than 
it is now. Our Nation is facing an ever-worsening housing crisis With 
rents skyrocketing and vacancy rates at historic lows due to an extreme 
imbalance between supply and demand, low-income households are being 
forced to choose which bills to pay and many are at risk of 
homelessness.

    Furthermore, these unprecedented rents are a key driver of overall 
inflation. But unlike other drivers of inflation, which can be 
addressed through Federal monetary policy, housing costs will not 
recede unless we are able to increase supply. As Senator Cantwell said 
during the hearing, ``supply, supply, supply.'' States cannot solve 
homelessness and create stabile communities without a more robust 
supply of affordable housing.

    In particular, since the Great Recession, when many developers left 
the industry, our Nation has drastically underproduced both rental and 
for-sale housing. We are seeing the repercussion of this 
underproduction now.

    Unless Congress acts by passing the AHCIA, the situation will only 
get worse. We cannot afford to continue to underproduce affordable 
housing.

                                 ______
                                 
                Prepared Statement of Hon. Mike Crapo, 
                       a U.S. Senator From Idaho
    
    Last week we learned that consumer price inflation spiked to 9.1 
percent, the highest in more than 40 years. The shelter component of 
the consumer price index was up 5.6 percent in June relative to a year 
earlier, and rents were up by nearly 6 percent. To continue battling 
inflation, which was fueled by last year's partisan American Rescue 
Plan, the Federal Reserve must aggressively raise interest rates, and 
may raise rates later this month by as much as a full percent.

    Inflation must be contained, or we run a risk of the Fed having to 
repeat what it did in late 1980 to combat runaway inflation. Painfully 
then, overnight interest rates were driven to nearly 20 percent, which 
crushed economic activity, including housing markets, and helped lead 
to a deep and long recession. With higher interest rates set by the 
Fed, higher mortgage rates follow, making it all the more challenging 
for Americans to buy homes.

    Housing affordability is a critical issue in Idaho and all across 
the country. Nationwide, there is a shortage of about 7 million 
affordable rental homes available to lower-income Americans, and the 
gap between demand and supply increases each year. To provide more 
affordable housing, there are existing tools in the tax toolbox that 
provide incentives for builders to create more affordable homes.

    The Low-Income Housing Tax Credit--or LIHTC--for example, is 
responsible for generating a majority of all affordable rental housing 
created in the U.S. today and generally enjoys bipartisan support in 
Congress.

    In Idaho, there are currently 284 LIHTC projects located across the 
State, providing 12,000-plus units. These projects vary in size and are 
split roughly between urban and rural, with about 72 percent targeted 
toward families and 28 percent for seniors and the elderly. One such 
project is the Valor Pointe Apartments in Boise, which targets 
chronically homeless veterans.

    Several members of this committee have been active in working to 
improve existing affordable housing credits and to create new 
incentives. Senators Young and Cantwell, as well as several other 
members, introduced the Affordable Housing Credit Improvement Act, 
which would expand and strengthen LIHTC for developing and preserving 
affordable housing. Senators Portman and Cardin introduced the 
Neighborhood Homes Investment Act, which would create a Federal tax 
credit that covers the cost difference between building or renovating a 
home in urban and rural areas.

    Numerous other Finance Committee members are also interested in 
finding affordable housing solutions. Thank you all for your hard work. 
While LIHTC and other credits are part of the solution to developing 
affordable housing, we must address other drivers that are increasing 
housing costs generally.

    Foremost in the current economy is the need to reduce inflation. 
Unfortunately, it has been allowed to run rampant, and necessary 
Federal Reserve actions will raise the cost of housing. Builders are 
also feeling inflation's effect through more expensive building 
materials. And, painfully high fuel prices continue to put even more 
pressure on builders' budgets, making it is even more expensive to get 
materials to construction sites.

    Additionally, several economic factors have led to a shortage of 
affordable housing.

    One way to alleviate the shortage would be to look into more 
manufactured housing. During his time at HUD, former Secretary Carson 
created the Office of Innovation to evaluate new ways to provide 
housing, and in doing so highlighted the improved efficiency and 
suitability of manufactured homes.

    Zoning laws and regulatory barriers, which are often uncoordinated, 
unnecessary, or overly cumbersome, also present challenges to 
affordable housing by creating excessive costs that restrain 
development of affordable housing. Many of the markets with the most 
severe shortages in affordable housing have the most restrictive State 
and local barriers to development.

    We must work to reduce regulatory barriers, which requires outside-
the-box approaches, as well as teamwork from local, State, and Federal 
Governments, and the private sector. This includes initiatives like 
Opportunity Zones that were part of the Tax Cuts and Jobs Act, an area 
where Senator Scott has done a great deal of good work.

    Data released as of March 24, 2022, by the Opportunity Zone Fund 
Directory shows that $49.18 billion has been committed in anticipated 
investments and 60 percent of those funds target investments in 
affordable housing and community development.

    Homes are more than just physical structures. Homes are a 
foundation for wealth building, family stability and community 
cohesiveness. It is critical that we make the American dream of home 
ownership as attainable for as many people as possible, which will 
continue to foster the economic success of the Nation.

    I look forward to discussing ways to ensure affordability and 
accessibility of home ownership with today's witnesses.

                                 ______
                                 
 Prepared Statement of Jerry Konter, Founder and President, Konter Qual-
   ity  Homes; and  Chairman of the  Board, National Association of Home 
   Builders
    
    On behalf of the more than 140,000 members of the National 
Association of Home Builders (NAHB), I am Jerry Konter, NAHB's 2022 
chairman of the board and founder and president of Konter Quality 
Homes, based in Savannah, GA. Over my career, my company has built more 
than 2,200 single-family and 700 multifamily homes.

    The Internal Revenue Code currently provides numerous housing-
related rules and incentives covering both owner-occupied and rental 
units. There are key tax provisions geared toward rental housing, which 
help facilitate the production of new rental housing. These include the 
Low-Income Housing Tax Credit (LIHTC); accelerated depreciation; 
section 142 multifamily rental bonds; and carried interest.

    There are also several owner-occupied housing tax incentives that 
help make owning a home affordable and accessible to millions of 
Americans. These include the mortgage interest deduction (MID); the 
deduction for local property taxes; the principal residence capital 
gains exclusion; and mortgage revenue bonds.

    NAHB has spent years researching the housing tax incentives to 
determine how they benefit builders, remodelers, home buyers, home 
owners, and renters. Many assumptions are made about various housing 
policies. NAHB has sought to move away from assumptions to a fact-based 
approach as we evaluate these tax incentives to ensure these long-
standing tax incentives are effective. My testimony explores the 
lessons learned from that research.

    Many of these incentives continue to serve the public interest and 
remain highly effective, including LIHTC, which should be further 
expanded to reflect the need for more affordable rental housing as well 
as increases in development costs.

    On the other hand, some housing tax incentives have failed to keep 
up with changes to the tax code. What was once an effective tax 
incentive may no longer be serving its original purpose--we would put 
forward the mortgage interest deduction as an example of a housing 
incentive that should be updated to reflect today's tax code and better 
serve the segment of prospective home owners that face unprecedented 
affordability challenges.

    The housing affordability crisis is driven by one fact: over the 
past decade, we have failed to produce enough housing to keep up with 
demand. If we are going to solve our housing affordability crisis, we 
must drive down the cost to build as well as the cost to own or rent. 
Well-structured housing tax incentives can help us achieve this goal. 
With the specter of a recession looming over the economy, 
production-focused incentives have the potential to help housing 
recovery quickly and help reduce inflationary pressures.

    Indeed, shelter-based inflation, which makes up 40 percent of the 
CPI, increased in June at the fastest pace since 1986.\1\ While the 
Federal Reserve is increasing interest rates via tighter monetary 
policy to fight inflation, its policy tools are poorly situated for 
addressing the housing element of the inflation challenge. Higher 
interest rates increase the cost of buying a home (thus increasing 
demand for rental housing and generating higher rents), while also 
increasing the cost of financing single-family and multifamily 
construction, thereby restricting housing supply. Only efficient, 
timely and targeted finance and tax policy can address the root causes 
of underbuilding in the U.S., thereby tackling the shelter-based source 
of inflation.
---------------------------------------------------------------------------
    \1\ https://eyeonhousing.org/2022/07/june-inflation-reading-the-
highest-since-1981/.

---------------------------------------------------------------------------
    Given this economic backdrop, NAHB specifically recommends:

        Expanding resources for the Low-Income Housing Tax Credit by 
enacting the Affordable Housing Credit Improvement Act (S. 1136). LIHTC 
is the most effective tool to boost production of affordable rental 
housing. We appreciate the leadership of Senator Cantwell, Chairman 
Wyden, Senator Young, and Senator Portman, along with the many members 
of this committee who have cosponsored this legislation.
        Enacting the Middle-Income Housing Tax Credit as proposed by 
Chairman Wyden as part of the Decent, Affordable, Safe Housing for All 
(DASH) Act. LIHTC typically helps finance projects serving residents 
earning up to 60 percent of the Area Median Income. MIHTC would pick up 
where LIHTC stops by helping to finance the construction of affordable 
rental projects serving residents earning 60 percent to 100 percent of 
AMI.
        Revisiting the home-ownership tax incentives. The mortgage 
interest deduction has been a cornerstone of the tax code since the 
code's inception, but recent tax data suggests the MID is no longer an 
effective means to promote home ownership. NAHB supports converting the 
MID into a targeted and ongoing home-ownership tax credit which could 
be claimed against mortgage interest and property taxes paid. This 
testimony includes detailed policy recommendations on how to structure 
a credit that is targeted, increases progressivity in the tax code, and 
promotes housing opportunity by providing a tax incentive more 
accessible to minority and first-generation home buyers.
        Responding to inflation by indexing the home-ownership tax 
incentives. The existing mortgage interest deduction limit on 
acquisition debt has never been indexed to inflation. The capital gains 
exclusion also has not been adjusted for inflation. This is slowly 
eroding the value of these incentives, and Congress should move to 
begin indexing these limits to inflation immediately.
        Reconsidering the current limits on the SALT deduction. For 
high-cost as well as high-tax States, the $10,000 deduction limit 
effectively increases the ongoing costs of owning a home by denying 
homeowners a full deduction of their property and other State and local 
taxes. Under the principle that taxes paid to State and local 
governments should not be double-taxed as income by the Federal 
Government, NAHB supports eliminating the SALT deduction cap.
      
      balance between rental policies and owner-occupied policies
    
    Questions are frequently raised whether there is a balanced policy 
between rental and owner-occupied housing. There exists justifiable 
reasons to support both forms of housing with policy--be it to ensure 
the availability of high quality, affordable rental housing or to 
support home ownership and unleash the well-documented positive 
externalities that benefit entire communities. However, there is, in 
some circles, an assumption that renters are getting the short end of 
the stick.

    NAHB has looked at the tax and spending policies that affect both 
rental and owner-occupied housing: the mortgage interest deduction; the 
real estate tax deduction; capital gains exclusion; mortgage revenue 
bonds; section 108 relief; and HOME, CDGB, USDA, and other 
appropriations. According to numbers published by the Joint Committee 
on Taxation (JCT) for 2020 and the Congressional Research Service (CRS) 
for Fiscal Year 2018, Federal owner-occupied housing support totaled 
$86.8 billion.

    NAHB also looked at policies supporting rental housing: Low-Income 
Housing Tax Credit; accelerated depreciation on rental housing; bonds; 
like-kind exchanges; the historic credit; tenant-based and project-
based section 8; public housing funding; and other appropriations such 
as HOME, CDBG, and USDA. According to numbers published by the Joint 
Committee on Taxation (JCT) and the Congressional Research Service 
(CRS) for Fiscal Year 2018, rental housing support totaled $84.9 
billion.

    To determine if the appropriate policy balance has been struck, it 
is necessary to look at the U.S. population share living in each type 
of housing. Based on the numbers above, 49.2 percent of the policy 
support goes towards owner-occupied housing; 64.4 percent of the U.S. 
population lives in owner-occupied housing, according to the 2020 
American Community Survey. In comparison, 50.8 percent of the policy 
support is targeted to rental housing; 35.6 percent of the U.S. 
population lives in rental housing.

    Based on the population living in each type of housing, the data 
indicates that policy support between rental and owner-occupied housing 
is currently tilted toward rental housing. NAHB is forecasting declines 
for the home-ownership rate in the quarters ahead. As such, this 
current State of policy balanced needs addressing given the current 
economic environment.
         
         affordable housing development requires policy support
    
    To understand what is needed to address the affordable housing 
crisis, policymakers need to understand the challenges facing the 
development community.

    Where there is growing housing demand, the Nation's home builders 
want to supply inventory to meet 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. And if we want 
to provide affordable rental housing for lower-income households, it is 
financially impossible to do so without a subsidy.

    There is a persistent misperception that developers only seek to 
build higher-end projects. The reality is developers face a pricing 
floor driven by basic development costs that they cannot control. NAHB 
estimates that 69 percent of American households cannot afford the 
median-priced new home.\2\ That is alarming.
---------------------------------------------------------------------------
    \2\ https://www.nahb.org/news-and-economics/housing-economics/
housings-economic-impact/households-priced-out-by-higher-house-prices-
and-interest-rates.

    Home builders are not ignoring 70 percent of the marketplace--
development costs simply make it impossible to produce more affordable 
offerings. Building material prices collectively are up 19.2 percent 
year-over-year and 35.6 percent since the start of the pandemic.\3\ 
Since the spring of 2020, lumber prices are up 75 percent; steel mill 
prices are up 107 percent; gypsum/drywall is up 32 percent; ready-mix 
concrete is up 11 percent; interior paint is up 33 percent and exterior 
paint is up 48 percent; aluminum is up 61 percent; and copper is up 57 
percent.
---------------------------------------------------------------------------
    \3\ https://www.nahb.org/blog/2022/05/building-materials-up-more-
than-19-percent-year-over-year.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] 


    It comes as no surprise that the median price of a newly built, 
single-family home increased 19.7 percent year over year. This country 
was already facing a housing affordability crisis, but the inflationary 
effects of the building material price increases are squeezing home 
buyers even more. A year ago, 23 percent of new home sales were priced 
below $300,000. In May, it was only 10 percent.\4\ We have now seen 
housing affordability fall to a decade-plus low.\5\
---------------------------------------------------------------------------
    \4\ https://eyeonhousing.org/2022/06/new-home-sales-increase-in-
may-before-feds-june-rate-rise/.
    \5\ https://www.nahb.org/news-and-economics/press-releases/2022/05/
new-home-sales-down-on-rising-interest-rates-declining-affordability.

    Solving this challenge will only be possible if Federal, State, and 
local governments work together to remove barriers to new construction 
and create effective incentives to promote affordable housing 
---------------------------------------------------------------------------
opportunities.

    While tax incentives can help create an affordable and accessible 
housing marketplace, which includes access to both rental housing as 
well as owner-occupied housing, Congress must consider all the policy 
decisions that have brought us to where we are today. Within NAHB, we 
often refer to the ``five Ls'' as shorthand for the headwinds facing 
the industry: labor, lending, local regulatory restrictions, lots, and 
lumber. In the past 18 months, the headwinds have begun to turn into 
gale force blasts.

    We also need to recognize the important role affordable housing 
plays in our communities. Breaking the cycle of poverty starts with 
access to stable and affordable housing. There are meaningful social 
effects. Even after 40 years in this business, I still enjoy nothing 
more than handing over the keys to a customer buying their first home. 
As a multifamily developer, I also understand how affordable rental 
housing creates stability for my tenants and their families.

    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.''
                      
                      owner-occupied tax policies 
                      
The Benefits of Home Oownership
    Home ownership offers a wide range of benefits to individuals and 
households.\6\ These include increased wealth accumulation, improved 
labor market outcomes, better mental and physical health, increased 
financial and physical health for seniors, reduced rates of divorce, 
and improved school performance and development of children. These 
beneficial financial and social outcomes are due to the stability 
offered by home ownership, as well as the incentives created by the 
process and responsibilities of becoming and remaining a homeowner.
---------------------------------------------------------------------------
    \6\ R.D. Dietz and D.R. Haurin, ``The social and private micro-
level consequences of homeownership,'' Journal of Urban Economics 54 
(2003) 401-50.

    An important motivating factor in the pursuit of home ownership is 
the investment opportunity it offers for many families. Equity in a 
home constitutes a substantial proportion of a typical American 
family's wealth. According to the 2019 Federal Reserve Survey of 
Consumer Finances (SCF), the median family net worth of a homeowner was 
---------------------------------------------------------------------------
$255,000; for renters, it was $6,300.

    Home ownership also provides advantages for seniors. A significant 
proportion of a household's wealth is in the form of equity of owner-
occupied housing, and this wealth provides significant advantages in 
retirement. Mayer and Simons (1994) indicate that equity in the home 
and the use of a reverse mortgage could increase liquidity for senior 
households by as much as 200 percent.\7\
---------------------------------------------------------------------------
    \7\ C.J. Mayer, K.V. Simons, ``Reverse mortgages and the liquidity 
of housing wealth,'' AREUEA Journal 22 (1994) 235-55.

    These data illustrate the importance of housing wealth and suggest 
caution with respect to policies that would reduce these wealth 
holdings, based on decisions made over a lifetime, via direct policy 
changes (such as weakening the section 121 gain exclusion for principal 
residences) or indirect changes (such as price declines induced by 
---------------------------------------------------------------------------
weakening the mortgage interest deduction).

    Overall, economists, sociologists, and other social scientists have 
found significant, positive home ownership-related impacts on a large 
set of outcomes associated with households and communities.\8\ For 
these and other positive impacts, home ownership has and should 
continue to have a favorable place in the tax code.
---------------------------------------------------------------------------
    \8\ Two comprehensive literature reviews detailing the impacts of 
home ownership are: W.M. Rohe, G. McCarthy, S. Van Zandt, ``The social 
benefits and costs of homeownership: A critical assessment of the 
research,'' Research Institute for Housing America, Working Paper No. 
00-01 (2000). R. Dietz and D. Haurin, ``The social and private micro-
level consequences of homeownership,'' Journal of Urban Economics 54 
(2003) 401-50.
---------------------------------------------------------------------------
                      mortgage interest deduction

Brief History of the Mortgage Interest Deduction
    When Congress created the modern income tax code in 1913, Congress 
recognized the importance of allowing for the deduction of interest 
paid on debt incurred in the generation of income. In this early code, 
taxpayers were permitted to deduct a wide array of interest types from 
business and personal debts, including mortgage interest. The mortgage 
interest deduction came into its own after World War II, when home 
ownership became more accessible and a rite of passage for the middle 
class. Deductions for mortgage interest grew in absolute numbers, home-
ownership rates increased during this period, and today two-thirds of 
American households own a home.\9\
---------------------------------------------------------------------------
    \9\ https://eyeonhousing.org/2022/04/homeownership-rate-stable-at-
65-4/

    In reforming the tax code in 1986, Congress disallowed the 
deduction of interest payments for certain types of debt but maintained 
the popular deduction for mortgage interest. In doing so, ``. . . 
Congress nevertheless determined that encouraging home ownership is an 
important policy goal, achieved in part by providing a deduction for 
residential mortgage interest.''\10\ Aside from some adjustments in 
1987, the mortgage interest deduction remained unchanged until 2017.
---------------------------------------------------------------------------
    \10\ ``General Explanation of the Tax Reform Act of 1986,'' Joint 
Committee Print, prepared by the Staff of the Joint Committee on 
Taxation, May 4, 1987. Pp. 263-264.
---------------------------------------------------------------------------
The $1 Million Cap and Limits to the Mortgage Interest Deduction
    Starting with the first tax code in 1913, there was no limit on the 
amount of home mortgage interest that could be deducted. However, the 
Tax Reform Act of 1986 imposed limits on the deduction. This law 
limited the deduction to interest allocable to debt used to purchase, 
construct, or improve (acquisition debt) a designated primary residence 
and one other residence.

    The Omnibus Budget Reconciliation Act of 1987 further limited the 
deduction to interest allocable to up to $1 million in acquisition 
debt. This limit is not adjusted for inflation. Factoring in the effect 
of inflation, the value of the cap has eroded by more than half since 
1987; in 2022 dollars, the original cap would be equal to just over 
$2.5 million.\11\
---------------------------------------------------------------------------
    \11\ Bureau of Labor Statistics CPI Inflation Calculator. 
$1,000,000 in 1987 equates to $2,528,309 in 2022, http://www.bls.gov/
data/inflation_calculator.htm.

    The acquisition debt cap was further reduced under the Tax Cuts and 
Jobs Act (TCJA). TCJA reduced the acquisition cap to $750,000 and 
eliminated the separate $100,000 deduction for home equity loan debt. 
Homeowners may continue to deduct home equity debt if it is used to 
substantially improve an eligible home and the total amount of mortgage 
and home equity debt does not exceed $750,000.\12\
---------------------------------------------------------------------------
    \12\ https://www.irs.gov/newsroom/interest-on-home-equity-loans-
often-still-deductible-under-new-law.

    Under current law, the acquisition debt limit will be restored to 
$1 million and the separate deduction for home equity loans will return 
---------------------------------------------------------------------------
after December 31, 2025.

    Absent an inflation adjustment, and with rising home prices, NAHB 
anticipates a growing number of home owners with a mortgage will begin 
to bump up against the cap, especially if Congress elects to extend the 
current $750,000 threshold. The median new home sale price was $449,000 
in May, a 15 percent increase since last May. And even prior to the 
current high pace of price increases, a growing share of housing units 
were valued between $500,000 and $1 million.


------------------------------------------------------------------------
                                              2015             2020
------------------------------------------------------------------------
Total Owner-occupied Units                  74,712,091       78,801,376
Less than $300K                                  63.6%            63.5%
$300K-$500K                                      15.8%            20.5%
$500K-$1M                                         8.4%            12.3%
>$1M                                              2.2%             3.7%
 
Number of Homes Valued at $500K+             7,919,482       12,608,220
Increase                                                      4,688,739
------------------------------------------------------------------------


    NAHB strongly believes that the acquisition debt cap must be 
indexed for inflation to ensure that home buyers in high-cost areas 
have the same opportunities as those in more affordable areas.

 The Tax Code Has Evolved, but the Mortgage Interest Deduction Has Not: 
        Rethinking How Home Ownership Is Incentivized
    The mortgage interest deduction proved to be an effective tool to 
reduce the ongoing costs of home ownership--and make home ownership 
more accessible and affordable--for over 100 years. But the MID remains 
firmly rooted in an increasingly outdated section of the tax code: 
itemized deductions. The changes brought by TCJA, namely doubling the 
standard deduction, significantly reduced the number of taxpayers who 
itemize. Perhaps more important to the ongoing policy debate, of the 
remaining itemizers, today's itemizing taxpayers tend to be more 
wealthy than non-itemizers.

    Prior to TCJA, typically 70 percent of homeowners with a mortgage 
claimed the MID. And according to distributional tax expenditure 
estimates from the Joint Committee on Taxation (JCT), 86 percent of 
mortgage interest deduction beneficiaries earned less than $200,000 in 
economic income. The MID was also a progressive element in the tax 
code. Sixty-five percent of the net tax benefits were collected by 
homeowners with economic income of less than $200,000, yet these same 
taxpayers paid only about 40 percent of all income taxes.\13\
---------------------------------------------------------------------------
    \13\ Estimates of Federal Tax Expenditures for Fiscal Years 2012-
2017, https://www.jct.gov/publications.html?func=startdown&id=4504.

    This is no longer the case today. Recent IRS data indicate that 
only 26.7 percent of homeowners with a mortgage now claim the MID.\14\ 
This is consistent with the overall decline in itemizing taxpayers. In 
2017, 32 percent of taxpayers itemized deductions; according to the 
Joint Committee on Taxation, approximately 12 percent of taxpayers will 
itemize in 2022. And that same IRS data suggests that the key target 
population of the MID--first-time home buyers and younger families 
looking to move up--have likely shifted away from claiming the MID and 
instead claim the standard deduction.
---------------------------------------------------------------------------
    \14\ In 2020, there were 48,974,364 owner-occupied units with a 
mortgage and 13,067,000 MID claimants.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] 



    The IRS data reveal this shift when comparing taxpayers 
claiming the MID in 2017 and 2022.\15\ The number of taxpayers claiming 
the MID with income below 200,000 dramatically fell, while those 
earning more than $200,000 continued to benefit.
---------------------------------------------------------------------------
    \15\ 2022 data is based on the Joint Committee on Taxation's July 
11, 2022, report, JCX-15-22.

    And using IRS data to examine the total amount of MID claims in 
2017 and 2018, two effects of the increased standard deduction are 
evident. First, total deductions were reduced by nearly half. This is a 
---------------------------------------------------------------------------
sizeable retreat in home-ownership support through the tax code.

    Second, the negative income distribution effects are laid bare. In 
2017, 80 percent of the MID amount deducted was deducted by taxpayers 
earning less than $200k. In 2018, that fell to 58 percent.

    This wealth disparity is particularly acute when viewed within the 
context of minority home-ownership rates. In the first quarter of 2022, 
the home-ownership rate was 65.2 percent among all U.S. households. But 
the range is large among races. Among White households, the rate was 
73.8 percent while it was 59.4 percent, 49.1 percent, and 43.1 percent 
for Asian, Hispanic, and African-American households, respectively.\16\
---------------------------------------------------------------------------
    \16\ https://fredblog.stlouisfed.org/2022/04/the-latest-on-
homeownership-race-and-region/?utm
_source=series_page&utm_medium=related_content&utm_term=related_resource
s&utm_campaign
=fredblog.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] 


    Although the lifecycle patterns of home ownership by race and 
ethnicity are similar, with home ownership becoming more likely with 
age, the share of households owning a home differs significantly based 
on race and ethnicity. Of White households under the age of 35, 46 
percent owned a home; only 17 percent of African American households 
owned a home.\17\
---------------------------------------------------------------------------
    \17\ https://www.federalreserve.gov/econres/notes/feds-notes/
disparities-in-wealth-by-race-and-ethnicity-in-the-2019-survey-of-
consumer-finances-20200928.htm.

    To some degree, this gap can be linked to generational wealth 
transfers, with White families more likely to receive financial support 
from parents. In looking at this effect, a 2020 paper on disparities in 
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wealth and ethnicity observes this dynamic of family wealth:

        The relationship between housing and family wealth is complex. 
        On the one hand, the ability to purchase a home is a reflection 
        of wealth a family already has (or their parents' wealth, as 
        noted earlier), as significant funds are generally required for 
        a down payment and closing costs. On the other hand, home 
        ownership has also been found to yield strong financial returns 
        on average and to be a key channel through which families build 
        wealth.\18\
---------------------------------------------------------------------------
    \18\ https://www.federalreserve.gov/econres/notes/feds-notes/
disparities-in-wealth-by-race-and-ethnicity-in-the-2019-survey-of-
consumer-finances-20200928.htm.

    The financial challenges of accumulating a down payment and 
adequate savings for closing costs is one reason why minority home-
ownership rates lag.
Family Size Matters
    The lifecycle aspects of home ownership also produce another 
interaction with housing tax preferences. It is often claimed that the 
mortgage interest deduction encourages homeowners to purchase a larger 
home. This presents a rather narrow view.

    Homeowners with a larger family need a larger home and will 
therefore have a large mortgage interest deduction. The need for a 
larger home created the larger mortgage interest deduction, not the 
other way around. And NAHB analysis of SOI data confirms this.\19\ 
Taxpayers with two exemptions--a proxy for size--who claimed the MID 
had an average tax benefit of $1,500. Taxpayers with four exemptions 
had an average benefit of approximately $1,950. In fact, the benefit 
increased correspondingly from one exemption to five-plus exemptions, 
which is intuitive with the notion that larger families require larger 
homes.\20\
---------------------------------------------------------------------------
    \19\ Who Benefits from the Housing Tax Deductions?, http://
www.nahb.org/generic.aspx?
sectionID=734&genericContentID=150471&channelID=311.
    \20\ The data also show that income rises with the number 
exemptions for those claiming the MID. For taxpayers with AGI less than 
$50,000 who claim the MID, the mean number of exemptions was 2.01 in 
2004. It was 2.57 for those with AGI $50,000 to $75,000, 2.89 for those 
with $75,000 to $100,000 in AGI, and 2.98 for those between AGI 
$100,000 and $200,000 and 3.03 for those above these AGI levels.

    Moreover, the cost of living, particularly for housing, varies 
greatly from city to city, so what may appear to be a large deduction 
for a given home in one area, may in fact reflect a modest home in a 
high-cost area. Indeed, the MID and the real estate tax deductions 
reflect one of the few elements in the tax code that account for 
differences in cost of living.
And Age Matters
    Along with the lifecycle associated with family size, we also see a 
direct correlation between the age of the homeowner and their resulting 
benefit from the housing tax incentives. Unlike other itemized 
deductions, the total benefits of housing-
related deductions, such as the mortgage interest deduction, generally 
decline with age. After all, it is younger households who typically 
have new mortgages, less equity, and growing families.

    Using IRS data, NAHB has examined the age characteristics of 
taxpayers claiming the mortgage interest deduction. The chart below 
plots the average mortgage interest deduction \21\ by age cohort.
---------------------------------------------------------------------------
    \21\ This reflects claims prior to TCJA and includes the deduction 
for home equity loans.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] 


    This is consistent with the deduction for mortgage interest 
peaking soon after the taxpayer moves from renting to homeowning and 
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then declines as home owners pay down their existing mortgage debt.

    NAHB believes that any policy change that makes it harder to buy a 
home or delays the purchase of the home until an older age, will have 
significant long-term impacts on household wealth accumulation and the 
makeup of the middle class. Delayed investment in home ownership may 
translate into lower assets at retirement or a later retirement.

    Traditionally, the MID offered large benefits, as a share of 
household income, for younger homeowners. With fewer taxpayers 
itemizing and claiming the MID, the lack of a meaningful home-ownership 
tax incentive means shutting out younger, aspiring middle-class 
Americans from home ownership, which could have far-reaching social and 
economic outcomes.
 Creating a More Equitable and Effective Home-Ownership Tax Incentive
    Efficacy of home-ownership tax incentives should be measured by 
whether they benefit lower- and middle-income first-time buyers as well 
as younger buyers looking to move up the ladder. The home-ownership tax 
incentives should equally benefit minority households whose home-
ownership rates have consistently trailed white households.

    As the data above indicates, shifts away from itemization have 
resulted in fewer itemizing taxpayers, but those taxpayers who continue 
to itemize tend to have higher incomes. As a consequence, the MID is 
now missing the mark. NAHB believes that the trend toward less 
itemization, and a higher standard deduction, which results in a 
simpler, more progressive tax code, is likely to stay.

    Prior to House passage of the Tax Cuts and Jobs Act, NAHB proposed 
a new approach to incentivizing home ownership. We believe the most 
effective way to promote and enable home ownership is to eliminate the 
mortgage interest deduction and replace it with a simplified and 
targeted tax credit.

    Specifically, NAHB supports a 15-percent tax credit claimed against 
mortgage interest paid on up to $750,000 of acquisition debt plus State 
and local real estate taxes paid would offer a more effective and 
progressive tax incentive. To ensure the credit targets those who need 
financial assistance, but also reflecting the regional variations in 
home prices throughout the country, we believe the credit should be 
phased out for single filers with incomes above $250,000 and joint 
filers with income above $500,000.

    Unlike current law, NAHB strongly believes the acquisition debt 
limit, along with the income phase-outs, must be adjusted for 
inflation. We also support retaining the present treatment of second 
homes.

    NAHB believes a credit structured along these lines can be enacted 
on a revenue-neutral basis starting with the 2026 tax year.

    A credit designed in this manner brings additional benefits to home 
buyers: fairness along with predictability via simplicity. With every 
deduction, the tax benefit varies with the taxpayer's marginal tax 
rate. As a result, taxpayers with higher income receive a larger tax 
benefit, which is often raised as a criticism of the existing MID. A 
credit ensures parity amongst eligible taxpayers.

    A credit also has the upside of being easy to calculate, which 
would allow home buyers to predict their tax benefits. Under the 
current system, home buyers must first determine that they will itemize 
and then calculate the additional value of the itemized deductions in 
excess of the standard deduction they would have otherwise claimed in 
order to determine the value received from the MID.

    For many home buyers, they simply know they will get some tax 
benefit under the MID, or perhaps have a rough sense of the dollar 
value. With a credit, this process is greatly simplified, and it will 
allow prospective home buyers to easily determine what their ongoing 
ownership costs will be.

    A targeted, ongoing, easy-to-claim credit based on mortgage 
interest and property taxes paid would direct the home-ownership tax 
incentives to those who most need it: middle-class and lower-income 
Americans from all backgrounds.
            
            second homes and the mortgage interest deduction

Tax Rules for the Second Home
    Homeowners may deduct interest payments on up to two homes in a 
given tax year: a primary residence and one other residence. The amount 
that may be deducted is limited to the combined cap of $750,000 in 
acquisition debt. A second home is one that is not rented \22\ and is 
not the homeowner's primary residence. In addition, a second home can 
also be a home under construction for which the homeowner has an 
outstanding construction loan.
---------------------------------------------------------------------------
    \22\ Interest on debt used to acquire rental units may also in 
general be deducted under the tax code, but not under the mortgage 
interest deduction; it is a general business expense.
---------------------------------------------------------------------------
When Is a Second Home Not a Second Home?
    In practice, the second home deduction is important for many 
households who in fact do not think of themselves as owning two homes. 
For example, the second home deduction facilitates claiming the 
mortgage interest deduction during a period of home-ownership 
transition, such as when a family relocates and will own two separate 
principal residences in a given tax year--even if both homes are not 
owned concurrently. Without the second home MID, this family would only 
be able to claim an interest deduction on a portion of their total 
mortgage interest payment. This would not only act as a tax on moving, 
but it could distort consumer behavior by discouraging relocation or 
leading to home owners moving only at the start or end of a tax year in 
order to minimize the tax implications.

    Further, the second home rules allow up to 24 months of 
construction loan interest on a newly constructed home to be claimed 
while the family resides in their existing principal residence.\23\ 
This rule provides parity for custom home building where the eventual 
homeowner finances the cost of construction. While both of these issues 
are technical and easily fixed as part of a transition, NAHB raises 
them for consideration because no reform proposal that eliminates the 
second home deduction has ever considered the implications on home 
owners who move or take on a construction loan.
---------------------------------------------------------------------------
    \23\ Treasury Regulations 1.163.
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The Geographic Distribution of Second Homes
    When most Americans think of second homes, thoughts typically go to 
expensive beach homes. However, such homes are more likely to be owned 
by higher-income families who own the home free and clear of a 
mortgage--or rent out the home, in which case the owner does not claim 
the mortgage interest deduction. The face of the typical second 
homeowner is more varied than most realize.

    Using Census data, NAHB estimated the stock and share of such tax 
definition-based second homes and the results contrast with the 
stereotyped view of the second home mortgage interest deduction 
favoring beach homes. Nearly every State has areas with significant 
numbers of second homes; 49 States have a county where at least 10 
percent of the housing stock consists of second homes.\24\ As the next 
map shows, second homes are found throughout the country.
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    \24\ Connecticut is the only State that did not have at least one 
county where 10 percent of the housing stock was a second home.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] 


    An examination of the geographic location of second homes also 
shows that many second homes are in areas of the country that are 
generally affordable. Half of the Nation's second homes can be found in 
eight States: Florida, California, New York, Texas, Michigan, North 
Carolina, Arizona, and Pennsylvania. An in-depth analysis of the county 
level data shows that the concentration of second homes expands beyond 
beachfront locations. Fifteen States have at least one county with at 
least half their housing stock as second homes. This includes six 
counties in Michigan; five in Colorado; four in Wisconsin; three in 
Minnesota; two in Alaska, Utah, California, and Massachusetts; and one 
county in New York, Idaho, Missouri, Maryland, New Jersey, and 
Texas.\25\
---------------------------------------------------------------------------
    \25\ https://eyeonhousing.org/2022/05/the-nations-stock-of-second-
homes/.

    Clearly, the issue concerning second homes and the mortgage 
interest deduction is more complicated than many expect. Repeal of the 
second home mortgage interest deduction rules would impact large 
sections of the country and nearly every State. There would be negative 
economic consequences throughout the Nation in terms of lost home 
sales, home construction, as well as price impacts. And those price 
declines would of course be more significantly realized in those areas 
of the country for which second home ownership is more common. As home 
values directly correlate with property taxes, repealing the second 
home mortgage interest deduction would not just touch the homeowner, 
but the broader community, as local governments would face additional 
revenue shortfalls. This is particularly important as many impacted 
communities lack a diverse tax base, and second home owners are the 
ideal taxpayers, often paying a higher property tax rate while not 
placing heavy demands on local government services.
                 
                 state and local real estate deduction
 
 Brief History of the State and Local Real Estate Tax Deduction
    The deductibility of State and local real estate taxes has been 
part of the tax code since the U.S. income tax code was enacted in 
1913. This deduction aligns with a general principle of fair taxation: 
taxes paid to a local or State government should not be taxed as income 
by the Federal Government. If the goal of an income tax regime is to 
tax changes in wealth, income which is ultimately paid out as a tax 
does not represent a change in wealth.

    Housing is taxed in many ways unlike other investments, 
particularly via property taxes. While other investments are taxed when 
sold and the tax is based on their gain in value, housing is the only 
investment which is taxed annually on the value of that investment, 
irrespective of any increase in value. This tax burden faced by home 
owners is often lost in the Federal debate since these revenues are not 
collected at the Federal level. It is not, however, lost on the 
homeowner paying property taxes.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] 


    For 2021, total property tax collections by State and local 
governments summed to $1.86 trillion. NAHB estimates that one-third of 
these collections were due to housing for a total of $672.5 
billion.\26\ Data from the Census Bureau indicates that the average 
homeowner pays property tax at an effective tax rate of 1.03 percent of 
the market value.\27\
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    \26\ https://eyeonhousing.org/2022/07/property-taxes-make-up-more-
than-one-third-of-state-and-local-tax-revenue/.
    \27\ U.S. Census Bureau's 2019 American Community Survey 2019 and 
NAHB calculations.
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 Limits on Property Tax Deduction Penalize Families and High-Cost 
        Regions
    Prior to 2018, taxpayers not subject to the Alternative Minimum Tax 
\28\ faced no limit on the amount of State and local taxes (SALT), 
including real estate taxes, that could be deducted from their Federal 
taxes. Beginning in 2018, itemizing taxpayers are limited to a maximum 
$10,000 deduction for all State and local tax deductions. The $10,000 
cap is set to expire after December 31, 2025.
---------------------------------------------------------------------------
    \28\ The State and local tax deduction is disallowed when 
calculating tax liability under the Alternative Minimum Tax.

    Unfortunately, this cap has had negative effects on housing 
affordability in States with high housing costs. Although the cap is 
often correctly viewed through the lens of high-tax versus low-tax 
States, an interesting counter-factual is offered by comparing Alabama 
and Hawaii. Both States have exceptionally low real estate tax rates, 
with Alabama at 0.37 percent and Hawaii with the lowest rate of any 
State at 0.31 percent. But due to differences in home values, the 
average property tax bill in Alabama is $713, compared to $2,295 in 
Hawaii.\29\
---------------------------------------------------------------------------
    \29\ https://eyeonhousing.org/2021/10/property-taxes-by-state-
2019/.

    Regional differences in housing costs present a challenge to 
crafting balanced housing policy. NAHB believes the current SALT limit 
fails to strike a balance between high-cost and low-cost regions. Worth 
noting is the $10,000 limit is identical for singles and couples, 
imposing a sizeable marriage penalty. As demonstrated earlier in this 
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testimony, home size--and value--correlates with family size.

    NAHB believes Congress must revisit the current limits on the SALT 
deduction. For high-cost as well as high-tax States, the $10,000 
deduction limit effectively increases the ongoing costs of owning a 
home by denying homeowners a full deduction of their property and other 
State and local taxes. Under the principle that taxes paid to State and 
local governments should not be taxed as income by the Federal 
Government, NAHB supports the elimination of the SALT deduction cap.
                         
                         home equity deduction
    
    Prior to 2018, home owners we able to deduct interest allocable to 
up to $100,000 of home equity loan debt. This deduction was separate 
from the mortgage interest deduction. Under the Tax Cuts and Jobs Act, 
this separate deduction was temporarily eliminated. Under current law, 
the deduction is reinstated after December 31, 2025.

    Home equity loans are defined as mortgages that are either used for 
purchase, construction, or improvement purposes or as a means to access 
equity. The type of use of the home equity loan is important in the 
rules for the Alternative Minimum Tax. In general, deductions for 
mortgage interest may be claimed against AMT taxable income. However, 
interest on home equity loans not used for home improvement purposes 
may not be claimed against AMT tax liability.

    Homeowners may continue to deduct home equity debt if it is used to 
substantially improve an eligible home and the total amount of mortgage 
and home equity debt does not exceed $750,000.\30\ However, with 
inflationary pressures--building material prices are up 19 percent year 
over year--and the lowering of the MID acquisition debt cap, alongside 
a lack of inflation adjustment, is placing pressure on homeowners 
seeking to improve their properties. Absent enactment of a credit to 
replace the MID, NAHB urges Congress to restore the separate $100,000 
home equity deduction immediately, or otherwise increase the 
acquisition debt cap for the MID to better enable home owners to make 
substantial improvements to their home.
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    \30\ https://www.irs.gov/newsroom/interest-on-home-equity-loans-
often-still-deductible-under-new-law.

    According to the 2009 American Housing Survey, half of all home 
equity loans are used for remodeling purposes. Remodeling is, of 
course, another form of housing investment which creates jobs and 
improves the Nation's housing stock, particularly with respect to 
energy efficiency. Disallowing a deduction for interest for home 
remodeling provides a disincentive for home owners to improve the 
Nation's existing housing stock and hurts job creation in the 
---------------------------------------------------------------------------
remodeling industry.

    There is no data that indicates what the remaining half of home 
equity loans are used for, but anecdotal evidence suggests that those 
purposes include college expenses, health emergencies and some 
consumption purposes.

    Remodeling and home improvement are important economic activities 
for a Nation with an aging housing stock. A 2019 data analysis of 
remodeling expenditures by ZIP code aligns in many cases with areas of 
the country with older housing stock.\31\ Remodeling also plays a key 
role as the home owners age. From survey data NAHB conducted in 2018, 
interest in remodeling to enable aging-in-place is growing and a 
growing share of remodelers are focusing on this market.\32\ Remodeling 
also has positive economic effects. Every $100,000 in remodeling 
expenditures creates 0.89 full-time equivalent jobs and generates 
$42,383 in taxes according to NAHB estimates.\33\
---------------------------------------------------------------------------
    \31\ https://eyeonhousing.org/2019/05/just-released-nahb-
remodeling-by-zip-code-estimates-for-2019/.
    \32\ https://eyeonhousing.org/2019/05/remodeling-to-age-in-place-
remains-strong-still-mostly-for-older-homeowners/.
    \33\ https://www.nahb.org/news-and-economics/housing-economics/
housings-economic-impact/impact-of-home-building-and-remodeling-on-the-
us-economy.
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                        capital gains exclusion

Brief History of the Capital Gains Exclusion
    Prior to 1997, capital gain due to sale of a principal residence 
was governed by a complicated set of rollover and exclusion rules.

    The Revenue Act of 1951 allowed a taxpayer to ``roll over'' the 
capital gains received from the sale of a principal residence if, 
within 1 year, the taxpayer used the gain to acquire a new residence of 
equal or greater value. The rollover period was later extended to 18 
months under the Tax Reduction Act of 1975 and to 24 months in the 
Economic Recovery Tax Act of 1981. Thus, no capital gains taxes were 
generated until a homeowner purchased a principal residence of smaller 
value than their previously owned residence or ceased to be an owner of 
a principal residence.

    The Revenue Act of 1964 introduced the first exclusion of capital 
gains arising from the sale of a principal residence. Under this law, 
taxpayers 65 years or older could exclude up to $20,000 in capital 
gains if they owned the house for at least 8 years and lived in the 
home for at least 5. The Tax Reform Act of 1976 later increased this 
exclusion to $35,000.

    The Revenue Act of 1978 made a series of additional changes to the 
tax treatment of capital gains on the sale of principal residence. It 
lowered the minimum eligible age for the gains exclusion from 65 to 55 
and increased the exclusion amount to $100,000. It also allowed a 
taxpayer to elect a one-time capital gains exclusion on the sale of a 
principal residence as long as the taxpayer lived in the home for 3 of 
the last 5 years. The Economic Recovery Tax Act of 1981 increased the 
$100,000 exclusion to $125,000.
Simplification Arrives: The Changes of 1997
    The Taxpayer Relief Act of 1997 vastly simplified the complicated 
rollover and gains exclusion rules by repealing them and starting over. 
In their place, Congress allowed a taxpayer to exclude up to $250,000 
($500,000 if married filing a joint return) of gain realized on the 
sale or exchange of a principal residence. The exclusion could be 
claimed no more than once every 2 years. To be eligible for the 
exclusion, a taxpayer must have owned the residence and occupied it as 
a principal residence for at least 2 of the 5 years prior to the sale 
or exchange.

    These changes represented a significant improvement over what was, 
according to the Joint Committee on Taxation, ``among the most complex 
tasks faced by a typical taxpayer.''\34\ As Joint Tax noted, despite 
the fact that most homeowners never paid tax on the sale of their 
principal residence due to the previous rollover and exclusion roll 
rule, it was necessary to keep detailed records of both purchase and 
sales transactions, but also remodeling expenditures in order to 
accurately calculate the tax basis of their home. Adding complexity to 
this recordkeeping requirement was separating expenditures for repair 
and improvement that added basis to the home and those that did not. 
Finally, the deferral of gain based on purchasing a more expensive home 
as a homeowner moved through their lifecycle was also inefficient in 
that it may have deterred some home owners from moving from high-cost 
to low-cost areas.
---------------------------------------------------------------------------
    \34\ ``General Explanation of Tax Legislation Enacted in 1997,'' 
Joint Committee on Taxation, December 17, 1997, JCS-23-97).

    Congress has adopted one subsequent change that was included in the 
Housing and Economic Recovery Act of 2008 (HERA) to prevent speculators 
from abusing the capital gains exclusion. The 1997 reforms established 
the ``two-of-five'' test that defined a principal residence as one 
where a homeowner had used the home as a primary residence for 2 years 
of the 5-year window prior to sale. This created a scenario whereby an 
owner of a residence could hold the property for a long period of time, 
---------------------------------------------------------------------------
reside in it for 2 years, and then claim the gain exclusion.

    While this taxpayer may have owned the residence, they were most 
likely using it as a rental property for the majority of the years of 
ownership. This ``gaming'' of the system was inconsistent with the 
spirit of the law, which had a focus on principal residence ownership.

    NAHB supported the fix Congress passed to prevent a taxpayer from 
excluding the gain earned during periods of nonqualified use. The HERA 
change effectively shut down the ability of speculators to use the gain 
exclusion while protecting the 1997 enacted reduced recordkeeping and 
calculation requirements.
Impacts From Eliminating the Gains Exclusion
    Removing or otherwise weakening the gain exclusion for the sale of 
a principal residence would have two strongly negative effects for 
existing homeowners. First, it would lay a direct and unexpected tax 
bill on homeowners who expected to use housing equity as a source of 
retirement wealth. Second, weakening the gain exclusion would reduce 
demand for housing by increasing the lifetime tax burden on principal 
residences. A reduction in demand would push housing prices down, 
thereby inflicting a windfall loss on existing homeowners. Of course, 
since a significant share of homeowner wealth is due to housing equity, 
eliminating the gains exclusion would have far-reaching consequences.

    It is also worthwhile to note the limitations on claiming a tax 
loss from the sale of a principal residence. In general, a loss 
incurred on the sale of a personal residence is a nondeductible 
personal loss for income tax purposes. This rule is different than 
losses for the sale or exchange of a financial investment for which the 
loss can be deducted against capital gains income.

    Overall, it is also important to remember that there are various--
and sometimes differing--tax benefits and burdens that are levied on 
investments, both housing and financial. Analysts debating Federal tax 
policy often ignore the State and local government tax burden placed on 
housing via property tax. Such tax on property value differs from 
income tax in that the tax is levied on the value of the asset rather 
than a flow of net income. While housing receives some unique benefits 
in the tax code, like the capital gains exclusion, housing also faces a 
tax burden unlike other investments.

    With a minimum 2-year ownership period, the requirement that the 
home be used as a principal residence, and the closing of the second 
home loophole in 2008, the gains exclusion is targeted in a manner 
where real estate speculators or investors seeking a tax shelter will 
find no benefit. This is a tax benefit aimed exclusively at long-term 
owners of a principal residence. As a home is typically the largest 
source of household wealth, the home has become a retirement vehicle 
for many Americans. In some ways, the capital gains exclusion functions 
much like a Roth IRA, where the retirement gains are also completely 
excluded from the taxpayer's income.

    While NAHB strongly supports retaining the gains exclusion, we also 
note this is another tax provision that is not indexed for inflation. 
Since the simplified gains exclusion was enacted in 1997, the lack of 
an inflation adjustment has eroded the value of this tax benefit 
significantly. In 2022 dollars, the original $250,000 limit would be 
equal to approximately $435,000.\35\ Recent gains for home prices mean 
that a growing number of homeowners may lose the tax simplification 
that this provision is intended to provide. Indeed, over the last 
decade, Case-Shiller home price data indicates a gain of 117 percent 
for home values. Accordingly, NAHB encourages Congress to index the 
gains exclusion to inflation moving forward.
---------------------------------------------------------------------------
    \35\ Bureau of Labor Statistics CPI Inflation Calculator. $250,000 
in January 1998 equates to $434,944 in January 2022, http://
www.bls.gov/data/inflation_calculator.htm.
---------------------------------------------------------------------------
                        completed contract rules

Brief History of the Rules
    Under current law, a long-term contract is defined as a building, 
installation, construction, or manufacturing contract that is not 
completed by the end of the taxable year in which it is entered.

    Prior to the changes made in the Tax Reform Act of 1986, taxpayers 
could generally elect to account for income and expenses attributable 
to long-term contracts under the percentage of completion method or the 
completed contract method. Under the completed contract method, the 
gross contract price is included in income in the taxable year in which 
the contract is completed. Under the percentage of completion method, 
income is taxed according to the percentage of the contract completed 
during each taxable year.

    Certain other limitations and rules applied, and there were 
additional rules for ``extended period'' long-term contracts--contracts 
not expected to be completed within 24 months. An exception to these 
``extended period'' rules was provided for contracts for the 
construction of real property if the contract was expected to be 
completed within 3 years, or if the contractor's average gross receipts 
for the previous 3 years did not exceed $25 million.\36\
---------------------------------------------------------------------------
    \36\ ``General Explanation of the Tax Reform Act of 1986,'' 
published by the Joint Committee on Taxation (JCS-10-87), pp. 524-526.
---------------------------------------------------------------------------
Changes in the Tax Reform Act of 1986
    Congress believed that the completed contract method permitted an 
``unwarranted deferral of the income from those contracts.''\37\ 
Specifically, the Joint Committee on Taxation reported to Congress that 
certain large defense contractors had negative tax rates due to net 
operating loss carry forwards generated through use of the completed 
contract method. In response, the Tax Reform Act of 1986 adopted a 
modified percentage of completion method that would apply to all long-
term contracts.
---------------------------------------------------------------------------
    \37\ Ibid, pg. 527.

    The Act did include a modest exception for small construction 
contracts. Contracts for the construction or improvement of real 
property, if the contract is expected to be completed within 2 years, 
could be accounted for under the previous completed contract rules. 
However, the exemption was limited to taxpayers whose average gross 
receipts in the previous 3 tax years fell below $10 million.
 Unintended Impacts on New Home Construction and the Home Construction 
        Contract Exemption
    Congress' intent in changing the completed contract rules was aimed 
largely at defense contractors who were deferring income taxes on 
projects that had a multiyear contract, such as during the lengthy 
construction period for an aircraft carrier. Defense contractors 
generally received substantial progress payments from the government 
and taxing these types of contracts under the percentage of completion 
method is appropriate. In enacting the Tax Reform Act of 1986, Congress 
also attempted to ensure that residential construction was largely 
unaffected by these changes, as seen by the inclusion of the exception 
for small construction contracts. At the time, home builders largely 
believed these changes did not impact them because their agreements 
with their customers were viewed as sales contracts, not construction 
contracts.

    However, in 1988, the IRS released Advance Notice 88-66, which 
would have adversely affected the operations of home builders. NAHB 
realized at this time that the protections Congress included through 
the exemption for small construction contracts fell short. Prior to 
this notice, residential real estate developers took the position that 
the typical agreements of sale entered for the sale of a new home were 
not ``construction contracts'' subject to the accounting rules under 
section 460.

    Home sales agreements differed considerably from a typical 
construction contract, particularly when compared to the contracts of a 
defense contractor. A home sales agreement involves a developer 
agreeing to sell the home to the buyer in the future, with the 
developer retaining title to the property and bearing all economic 
risks until closing, with no progress payments, and typically only 
backed by a small deposit. Builders normally do not realize any profit 
until closing, which occurs after the home is constructed.

    The IRS was proposing to tax home builders on income they had not 
yet received. Due to the length of home construction, it is common for 
a new home to straddle 2 tax years. Although home builders viewed these 
agreements as contracts of sale rather than as construction contracts 
as defined by section 460, the IRS Advance Notice revealed that the 
government viewed these sales contracts as long-term construction 
contracts subject to the new accounting rules. This change would mean 
that home builders would need to significantly alter their business 
model.

    Although buyers put down a deposit, the deposit is generally kept 
in an escrow account and cannot be used to cover construction costs or 
tax payments. Moreover, unlike with defense contracts, progress 
payments are not typical because most homes are financed by a mortgage 
at closing. If these homes were subjected to the new accounting rules, 
most builders are very small businesses, so they would be forced to 
finance the tax payments through a construction loan, which would 
increase the cost of home construction for the buyer.

    The proposed changes would have caused significant cash-flow 
problems for home builders and imposed a larger barrier for smaller 
homebuilders who lack the financial means to cover the tax payments. In 
response, Congress included relief in the conference report for the 
Technical and Miscellaneous Revenue Act of 1988 by clarifying in 
section 460(e) that ``home construction contracts'' were not subject to 
the percentage of completion accounting methods. The conference report 
describes a home construction contract as one where ``80 percent or 
more of the estimated total costs to be incurred under the contract are 
reasonably expected to be attributable to the building, construction, 
reconstruction, or rehabilitation of, or improvements to real property 
directly related to and located on the site of, dwelling units in a 
building with four or fewer dwelling units.''\38\
---------------------------------------------------------------------------
    \38\ H.R. Conf. Rep. No. 100-1104, pg. 118.

    NAHB believes that section 460(e) is consistent with both 
Congress's intent in 1986 to shield the residential construction 
industry but also with the unique contractual agreements used for home 
construction. This is a case where a broad definition of 
``construction'' resulted in unintended consequences that were 
potentially harmful to home builders and buyers alike. NAHB believes 
that it did not make sense to apply an accounting method to home 
builders that was really targeted to address other tax problems, and 
that same rationale continues to support maintaining section 460(e).
                    
                    multifamily rental tax policies

The LIHTC Is a Success Story, but Need 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 3.5 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. Its public-
private partnership model is one that frankly should be replicated in 
other government programs. When a builder starts a LIHTC project, the 
investors and builder 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. 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.

    According to the National Council of State Housing Agencies 
(NCSHA), State housing finance agencies generally receive more than 
$2.5 in requests for every $1 in LIHTCs available. In 2020, State 
agencies received applications for $2,782,533,692 in credits. Total 
allocations were $1,120,921,542.

    But this does not tell the whole story. The application process is 
expensive, and experienced developers 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 2020 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.\39\ 
Even in one of the most challenging times for real estate development, 
demand was still double the amount of available credits. 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.
---------------------------------------------------------------------------
    \39\ State HFA Factbook: 2008 NCSHA Annual Survey Results, pg. 92.

    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 allows 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 \40\ 
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.
---------------------------------------------------------------------------
    \40\ ``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, pg. 4, http://
www.novoco.com/products/special_reports/Novogradac_HAG_study_2011.
pdf.

    To start meeting the growing and significant demand for affordable 
rental housing, we must increase resources supporting production, which 
is why we support the Affordable Housing Credit Improvement Act (H.R. 
2573). Among other key provisions, H.R. 2573 takes a significant and 
needed step to boost supply by increasing LIHTC allocations by 50 
percent. Estimates suggest enacting H.R. 2573 would result in up to 
2,015,000 additional LIHTC units.\41\
---------------------------------------------------------------------------
    \41\ https://static1.squarespace.com/static/
566ee654bfe8736211c559eb/t/607763314b628a205aa
010a4/1618436913622/ACTION-NATIONAL-2021.pdf.

    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. Absent new supply, this 
demand will increase rents and worsen existing affordability issues.
        
        net investment income tax--adding taxes to rising rents
    
    The Net Investment Income Tax (NIIT) is a 3.8-percent surtax on 
income such as capital gains, interest, rental and royalty income, and 
dividends. When the NIIT was enacted as part of the Affordable Care 
Act, Congress explicitly limited its applicability to passive 
investment income.

    Proposals in Build Back Better, and recently reported to be under 
consideration in the Senate, would expand the NIIT to include active 
investment income. This would have negative consequences, particularly 
for renters.

    Multifamily property owners are facing the same financial stresses 
as any homeowner. Operating costs are rising. Higher interest rates 
increase development and rehabilitation costs. Rising real estate 
values often translate into higher tax appraisals resulting in higher 
property tax bills. Some multifamily property owners are reporting 
significant increases in insurance rates as insurers adjust to reflect 
the increased cost of construction, should there be a major event 
requiring reconstruction. Along with ongoing demand for rental housing, 
these inflationary pressures are translating into higher rents.

    Expanding the NIIT to include active investments has the same 
financial effect on property owners as increasing operating costs. If 
Congress moves forward with this proposal, property owners will have no 
choice by to pass on some, if not all, of the additional tax burden to 
their tenants.

    With home prices and rents rising even faster than inflation, 
rising interest rates, and a growing scarcity of both entry-level 
owner-occupied housing as well as affordable rental units, Americans 
are being squeezed hard. Rent inflation increased in June at the 
fastest pace since 1986.

    To solve our housing affordability crisis, Congress should be 
removing barriers, not enacting new ones. NAHB strongly recommends 
against expanding the NIIT to include active investment income.
Carried Interest
    The taxation of a capital gain due to a carried interest is an 
important issue for the real estate industry and particularly for the 
multifamily housing sector, both market-rate rental and Low-Income 
Housing Tax Credit. Under present law, a capital gain classified as a 
carried interest is taxed like any other capital gain. Carried interest 
has come under attack for how it is used by the hedge fund industry, 
but broad attacks on carried interest ignore the key role it plays in 
real estate development.

    The use of partnerships and other pass-through entities is common 
in the home building industry and the construction sector generally. In 
a common arrangement, a builder/developer performs the role of the 
general partner and outside investors act as limited partners, who 
provide much of the initial equity financing. Typically, the general 
partner receives a developer's fee (and possibly subsequent fees for 
owning and operating the property) and the limited partners receive a 
specified rate of return on their investment. Any residual profits are 
split between the multifamily builder/developer/property owner and the 
investors as defined by the partnership agreement. Of course, the 
particulars differ depending on the nature of the project, the types of 
developers, and the role of outside investors.

    In many cases, the developer's share of the residual profit, if it 
is realized (uncertain at the time of the deal), is classified as a 
``carried interest,'' which is an allocation of profit that as a share 
of total profit exceeds the share of the developer's initial equity 
investment in the project.\42\ The carry can be ordinary income or 
capital gain, but the current policy debate is limited to a carried 
interest that is due to a capital gain at the partnership level. 
Carried interest that is paid as ordinary income is unaffected by the 
proposals being debated in Congress. Capital gain typically arises in 
such arrangements through the sale of a tangible, depreciable asset 
that is held for more than 1 year. For example, this situation would 
include a building that was constructed, owned and operated for a 
period of time and then sold to other investors.
---------------------------------------------------------------------------
    \42\ Note that technically this definition describes both promoted 
and carried interests. A ``promote'' is often used to refer to any 
share of profit allocation greater than the initial equity stake, and a 
``carry'' is a type of promote for which there is little or no equity 
stake. However, in the current debate, the term ``carried interest'' 
now captures all of these scenarios.

    Table 1 illustrates this in more detail for a hypothetical 
partnership with $100 million in initial equity financing ($95 million 
from outside interests, and $5 million from the home builder), a 10-
percent preferred return for the limited partners, and a 50-percent-50-
percent division of residual profit. Under this example, the 
multifamily developer's capital gain income is a carried interest 
(portion in excess of 5 percent--the initial equity stake) and would be 
---------------------------------------------------------------------------
subject to additional tax under existing proposals.


                 Table 1: Illustration of Partnership Income Distributions and Tax Consequences
----------------------------------------------------------------------------------------------------------------
                                      Partnership     Home Builder:                Outside Finance:
                                         Level       General Partner     Share     Limited Partners      Share
----------------------------------------------------------------------------------------------------------------
Equity Invested                            $100.00            $5.00       5.00%              $96.00      95.00%
================================================================================================================
Capital Gains Income First                   $9.50            $0.00       0.00%               $9.50     100.00%
 Distribution
Residual Capital Gains                      $10.50            $5.25      50.00%               $5.25      50.00%
Total Return                                $20.00            $5.25      26.25%              $14.75      73.75%
================================================================================================================
Carried Interest Test under H.R.                        26.25% > 5%                    73.75% > 95%
 4213
Carried Interest                                                Yes                              No
================================================================================================================
Tax Rate under Present Law                                      15%                             15%
Taxes Paid under Present Law                                $0.7875                         $2.2125
================================================================================================================
Tax Rate under Proposal                                         35%                             15%
Taxes Paid under Proposal                                   $1.6375                         $2.2125
================================================================================================================
Difference in Taxes Paid                                    $0.8500                         $0.0000
----------------------------------------------------------------------------------------------------------------
Assumptions:
Dollar amounts in millions.
Project yields 20 percent return over time period.
All income is capital gains at partnership level.
LPs receive first 10 percent return.
Residual gains beyond first 10 percent are split 50 percent each to GP and LPs.
Partners face ordinary income tax rate of 35 percent.

    Putting aside the tax issues, the carried interest in the above 
multifamily development example serves two important economic purposes. 
First, it provides an incentive for the multifamily developer and 
property owner to control costs and operate the property efficiently in 
order to generate a profit for the outside investors. This incentive 
makes the investment more attractive for investors, helping to attract 
investment for multifamily projects, particularly those in higher risk 
environments, such as economically distressed areas.

    Second, the carried interest transfers business risks associated 
with the development project to the multifamily builder and owner, who 
may be more familiar with market conditions and in better position to 
manage the risks. These risks include changes in administrative 
expenses, local regulations, and of course local market conditions. 
Further, a multifamily developer may assume additional risk by making 
additional guarantees to the outside investors. For example, the 
developer can guarantee the completion of the project, or the servicing 
of debt used to finance the project. Carried interest allows 
multifamily builders to be compensated for making these guarantees and 
assuming the risks. Hence, partnerships with carried interest 
mechanisms are excellent financial arrangements for allowing 
multifamily developers and outside investors to share business risks 
efficiently.

    Increasing the tax on carried interest for the real estate sector 
also results in a transfer of tax revenue from State and local 
governments to the Federal Government by reducing the value of 
multifamily investments, thereby lowering property tax collections at 
the local level.\43\ Based on proposals considered by Congress in 2010 
which would tax carried interest as ordinary income, NAHB estimated 
that the total amount of property taxes lost to State and local 
governments for the real estate sector would be approximately $1.2 
billion per year.\44\ Given that the Federal revenue estimate for the 
carried interest proposal, at that time, was $24.6 billion, this $12 
billion 10-year estimate demonstrates that the proposal generates a 
significant transfer of tax revenues from State and local governments 
to the Federal Government.
---------------------------------------------------------------------------
    \43\ For more detail on how NAHB calculated the impacts, see: 
http://www.nahb.org/
generic.aspx?sectionID=1081&genericContentID=131457#top2.
    \44\ NAHB's analysis was based on H.R. 4213 in the 111th Congress.

    NAHB supports the current carried interest tax rules as they apply 
to commercial and residential real estate. Should Congress decide to 
make changes to current law, it is absolutely essential that the 
transitional rules include a grandfathering provision for current 
contracts. As many multifamily projects are held for years before a 
gain is realized, a sudden shift in tax policy will have a significant 
and negative impact on real estate.
Depreciation
    Rental property can be depreciated on an accelerated timeframe over 
a period of 27.5 years, versus a 39-year depreciation schedule for 
commercial real estate. In addition, individual components can be 
depreciated under various, shorter time frames through the use of cost 
segregation rules.

    Maintaining a reasonable depreciation period for rental housing is 
critical. If the period is too long, it will increase costs and make it 
harder to develop rental housing. Changes to the depreciation schedule 
will impact the financial viability of existing multifamily buildings, 
which could result in foreclosures and price declines. Depreciation is 
also a key to attracting outside investors.

    For these reasons, NAHB opposes changes to the depreciation rules 
that would extend the depreciation period of property associated with 
residential rental property. It is also worth noting that while 
Congress has enacted and continues to debate the value of various 
expensing proposals (e.g., bonus depreciation), such rules typically 
exclude structures such as apartment buildings (property with more than 
20 years of economic life).

                               conclusion
    
    NAHB is an organization that represents all facets of the 
residential construction industry, including for-sale builders of 
housing, multifamily developers, remodelers, manufacturers, and other 
associate members. As such, NAHB defends housing choice. While home 
ownership offers communities and households numerous benefits, it is 
important to recognize that for every family there is a time to rent 
and a time to own a home.

    For these reasons, NAHB also supports policies that promote a 
healthy rental housing sector, including support for the Low-Income 
Housing Tax Credit, which was created as part of the Tax Reform Act of 
1986 and has become a successful 
public-private partnership that assists in the development of 
affordable housing.

    NAHB also recognizes there are policies that need to be modernized 
to reflect changes in the tax code, including the mortgage interest 
deduction. In the next few years, many of the provisions enacted in the 
Tax Cuts and Jobs Act will expire. This presents an opportunity to 
refocus the home-ownership tax incentives so that the benefit flows to 
lower and middle-class families, making home ownership more accessible.

    And as owning a home is a significant means for savings for most 
homeowners, the capital gains exclusion protects that investment, but 
the value of this provisions is eroding due to inflation. We encourage 
Congress to remedy this.

    Without meaningful home-ownership tax incentives, NAHB believes 
that disparity in economic income will increase, and the middle class 
would continue to shrink. Home ownership is the major path to wealth 
for the middle class. We believe that any policy change that makes it 
harder to buy a home--or delays the purchase of the home until an older 
age--will have significant long-term impacts on household wealth 
accumulation and the makeup of the middle class as a whole.

    With home prices and rents rising even faster than inflation, and a 
growing scarcity of entry-level owner-occupied housing along with 
affordable rental units, and rising interest rates, Americans are being 
squeezed hard. National home prices are growing at an unsustainable 
pace, reaching an all-time high seasonally adjusted annual growth rate 
of 28.2 percent.\45\ Forty percent of core inflation is driven by 
shelter costs.\46\ More cost increases are coming for this category, 
which will add to inflationary forces in the months ahead. And 
prospective home buyers are not only facing higher home prices, but 
also higher carrying costs due to increases in interest rates.
---------------------------------------------------------------------------
    \45\ https://eyeonhousing.org/2022/05/home-prices-surged-in-march/.
    \46\ https://eyeonhousing.org/2022/06/inflation-hits-a-fresh-40-
year-high-in-may/.

    Building material prices collectively are up 19.2 percent year-
over-year and 35.6 percent since the start of the pandemic.\47\ It 
comes as no surprise that the median price of a newly built, single-
family home increased 19.7 percent year over year. This country was 
already facing a housing affordability crisis, but the inflationary 
effects of the building material price increases are squeezing home 
buyers even more. A year ago, 23 percent of new home sales were priced 
below $300,000. In May, it was only 10 percent.\48\
---------------------------------------------------------------------------
    \47\ https://www.nahb.org/blog/2022/05/building-materials-up-more-
than-19-percent-year-over-year.
    \48\ https://eyeonhousing.org/2022/06/new-home-sales-increase-in-
may-before-feds-june-rate-rise/.

    Rising home prices and interest rates are taking a terrible toll on 
housing affordability, with 87.5 million households--or roughly 69 
percent of all U.S. households--unable to afford a new median-priced 
home.\49\ In other words, seven out of 10 households lack the income to 
qualify for a mortgage under standard underwriting criteria. We have 
now seen housing affordability fall to a decade low.\50\
---------------------------------------------------------------------------
    \49\ https://www.nahb.org/News-and-Economics/Housing-Economics/
Housings-Economic-Impact/Households-Priced-Out-by-Higher-House-Prices-
and-Interest-Rates.
    \50\ https://www.nahb.org/news-and-economics/press-releases/2022/
05/new-home-sales-down-on-rising-interest-rates-declining-
affordability.

    While the Federal Reserve is attempting to quell inflation and 
achieve a soft landing, history suggests that based on current rates of 
inflation and labor market tightness, the probability of avoiding a 
recession is small. NAHB is now forecasting a mild recession for the 
coming quarters given current macro conditions. An argument can be made 
that a recession took hold during the first half of 2020 (due to two 
consecutive quarters of GDP decline), led by significant weakening 
including 7 straight months of decline for home builder sentiment, as 
measured by the NAHB/Wells Fargo Housing Market Index (HMI). In July, 
the HMI fell 12 points to 55, which marks the lowest HMI reading since 
June 2020 and the largest single-month drop in the history of the HMI, 
except for the 42-point drop in April 2020.\51\
---------------------------------------------------------------------------
    \51\ https://eyeonhousing.org/2022/07/builder-confidence-plunges-
as-affordability-woes-mount/.

    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 a leading source of 
inflation. Through smart, effective policy, we have an opportunity to 
do something that not only makes good economic sense but will also 
---------------------------------------------------------------------------
uplift the lives of millions of Americans.

                                 ______
                                 
           Questions Submitted for the Record to Jerry Konter
               
               Questions Submitted by Hon. Chuck Grassley
    
    Question. I called for a GAO report on the LIHTC that was released 
on July 15, 2015. While the program is currently administered at the 
Federal level by the Internal Revenue Service, this report recommended 
giving the Department of Housing and Urban Development a joint 
oversight role.

    I have been a strong advocate of oversight as long as I have been 
in Congress. It is impossible to conduct meaningful oversight without 
consistent and available data on how programs preform, however I also 
understand the need to limit unnecessary paperwork for those 
participating in Federal programs.

    What impact would giving HUD a partnering oversight role have on 
the LIHTC program?

    Answer. Administration of the Low-Income Housing Tax Credit is 
overseen by two governmental agencies: federally by the Department of 
Treasury, including the Internal Revenue Service, and at the State 
level by the housing finance agencies (HFAs). Alongside the private 
sector oversight that is a key pillar to the public-private partnership 
driving the success of this program, LIHTC projects face intense 
scrutiny and oversight. The success of these projects partially 
reflects the ever-present threat that the government can recapture tax 
credits if the project fails.

    The July 15, 2015, GAO report included several recommendations that 
are not supported by the evidence included in the report. For example, 
the GAO report suggests that IRS oversight is lax because only seven 
HFAs had been audited. But the GAO provided no evidence of widespread 
noncompliance by HFAs. In fact, GAO's May 11, 2016, report on HFA 
practices was largely positive. The IRS also stays in close contact 
with HFAs on program administration, which may minimize the need for 
formal audits.

    Overall, the GAO views the HFAs as entities the IRS should regulate 
rather than correctly viewing the relationship as a partnership, as 
Congress has tasked both with oversight responsibilities. While the GAO 
is overly focused on IRS audits of the HFAs, the IRS has properly 
focused its LIHTC audit resources on individual taxpayers.

    I do agree, however, with the need for improved data collection so 
Congress can evaluate the effectiveness of the housing credit. Partly 
in response to the GAO report, the IRS created a new database to better 
collect information from Forms 8610, 8609, 8609-A, and 8823. HUD also 
maintains the placed-in-service database and collects tenant data. To 
the extent additional data collection is needed, NAHB supports doing 
so, but not in a manner that is duplicative to the existing efforts, 
which would likely be the outcome of giving HUD a larger oversight 
role.

    Treasury, IRS, and the HFAs have overseen LIHTC for over 25 years. 
In our opinion, the GAO failed to make a convincing case of why the 
existing oversight structure should be expanded to include HUD. As is 
often the case with expanding the Federal Government, such a move will 
likely increase administrative costs, slow down production, and provide 
no meaningful benefit to the housing credit program.

    Question. It is no secret that housing costs have been increasing 
well before the current wave of inflation. While LIHTC has an impact on 
bringing more affordable units onto the market, the varied housing 
prices across the country indicate that local policies, such as zoning, 
have possibly the greatest role in determining housing costs.

    In addition, there are a wide variety of regulations at the Federal 
level, including HUD regulations, that increase the price of new homes 
and buildings.

    As Professor Ohanian noted in his testimony, there are currently a 
number of regulations that prevent affordable housing from being 
constructed. In addition to the LIHTC, what other options would be 
available to increase housing supply? How would these other options 
compare to the LIHTC in cost effectiveness? What factors at the State 
or local level are inhibiting the creation of affordable housing?

    Answer. Regulatory burdens drive up the cost of housing. In June, 
NAHB along with the National Multifamily Housing Council, released an 
updated study on how much government regulation adds to the cost of 
building new multifamily housing. The survey results found an average 
of 40.6 percent of total development costs were attributed to complying 
with regulations imposed by all levels of government.\1\ On the single-
family side, NAHB's research showed that regulation adds nearly $94,000 
to the cost of a typical new home.\2\
---------------------------------------------------------------------------
    \1\ https://eyeonhousing.org/2022/06/regulation-40-6-percent-of-
the-cost-of-multifamily-development/.
    \2\ https://eyeonhousing.org/2021/05/regulation-now-accounts-for-
93870-of-the-average-new-home-price/.

    Easing government regulation, particularly at the local level, 
would bring some relief to the housing affordability crisis, especially 
for middle-income households. It is not, however, the silver bullet 
---------------------------------------------------------------------------
solution for our all our housing challenges.

    Developers face a pricing floor driven by basic development costs 
that they cannot control. Even with a significant reduction of the 
regulatory burden, building new housing targeted to lower-income 
Americans requires a subsidy. The 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.''\3\
---------------------------------------------------------------------------
    \3\ ``America's Rental Housing: Meeting Challenges, Building on 
Opportunities,'' Joint Center for Housing Studies of Harvard 
University, 2011, pg. 23.

    Although this study is more than a decade old, it continues to 
offer a valuable data point. In 2009, the median asking rent for new 
unfurnished apartments was $1,067; for minimum-wage workers, an 
affordable monthly rent using the 30-
percent-of-income standard is just $377.\4\ 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 percent of the current average.\5\
---------------------------------------------------------------------------
    \4\ Pages 23 and 21.
    \5\ Page 24.

    Even with meaningful regulatory changes, development costs will not 
be reduced by 72 percent. In fact, development costs have substantially 
increased since 2009. Building material prices collectively are up 19.2 
percent year over year and 35.6 percent since the start of the 
pandemic.\6\ To solve our housing affordability crisis, unnecessary 
regulatory barriers to housing production must be reduced. But reducing 
regulation is not an alternative to LIHTC, and demand for credits and 
for affordable rental housing will still far exceed supply, even with a 
substantial increase in credits. Without LIHTC, it will remain 
financially infeasible to construct new affordable rental units 
targeted to households earning no more than 60 percent of the area 
median income.
---------------------------------------------------------------------------
    \6\ https://www.nahb.org/blog/2022/05/building-materials-up-more-
than-19-percent-year-over-year.

                                 ______
                                 
                 Questions Submitted by Hon. Todd Young
    
    Question. Thank you for the support you expressed during the 
hearing for Senator Cantwell's and my Affordable Housing Credit 
Improvement Act (S. 1136). I wanted to take this opportunity to solicit 
your thoughts in greater detail regarding my bill and the Low-Income 
Housing Tax Credit (LIHTC) generally.

    Why do you support the Affordable Housing Credit Improvement Act 
and how do you believe it will impact communities across the country?

    Can you please share what it is that makes the Low-Income Housing 
Tax Credit so effective in addressing the affordable housing crisis?

    From a builder's perspective, can you please share how the increase 
in building material prices affects LIHTC projects and why this makes 
passing the Affordable Housing Credit Improvement Act so important?

    Why do you support the Affordable Housing Credit Improvement Act 
and how do you believe it will impact communities across the country?

    Answer. To start meeting the growing and significant demand for 
affordable rental housing, we must increase resources supporting 
production, which is why we support the Affordable Housing Credit 
Improvement Act (S. 1136).

    The root of the problem is simple: we lack enough affordable 
housing. The only effective, long-term solution is to increase supply. 
Among other key provisions, S. 1136 takes a significant and needed step 
to boost supply by increasing LIHTC allocations by 50 percent. 
Estimates suggest enacting S. 1136 would result in up to 2,015,000 
additional LIHTC units.\7\
---------------------------------------------------------------------------
    \7\ https://static1.squarespace.com/static/
566ee654bfe8736211c559eb/t/607763314b628a205aa
010a4/1618436913622/ACTION-NATIONAL-2021.pdf.

    S. 1136 would also enhance rural development opportunities. This 
includes standardizing rural income limits as well as a basis boost for 
projects serving extremely low-income tenants. The basis boost 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.

    We also need to recognize the important role affordable housing 
plays in our communities. There are meaningful social effects. 
Affordable housing creates stability for tenants and their families. 
LIHTC 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. 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.''

    Rental housing demand remains solid, and more housing is needed to 
help address growing affordability challenges. Absent new supply, this 
demand will increase rents and worsen existing affordability issues. 
The Affordable Housing Credit Improvement Act would greatly enhance our 
ability to increase the supply of affordable rental units, and I urge 
the committee to mark up and favorably report out the bill.

    Question. Can you please share what it is that makes the Low-Income 
Housing Tax Credit so effective in addressing the affordable housing 
crisis?

    Answer. LIHTC is the most successful affordable rental housing 
production program in U.S. history. Its public-private partnership 
model is one that frankly should be replicated in other government 
programs. When a developer starts a LIHTC project, the investors and 
the developer 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.

    And this is reflected in the data. The 2021 Affordable Housing 
Credit Study released by CohnReznick reported a 0.57 percent cumulative 
foreclosure rate, with only one new foreclosure reported in 2020.\8\ 
This is a significantly lower rate than market-rate projects and is a 
testament to the scrutiny each LIHTC project undergoes.
---------------------------------------------------------------------------
    \8\ https://www.cohnreznick.com/insights/cohnreznick-publishes-
major-study-housing-tax-credit-property-performance.

    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. 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.

    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 allows 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 facilitates long-term operation.

    Question. From a builder's perspective, can you please share how 
the increase in building material prices affects LIHTC projects and why 
this makes passing the Affordable Housing Credit Improvement Act so 
important?

    Answer. If we are going to solve our housing affordability crisis, 
we must drive down the cost to build as well as the cost to own or 
rent. Shelter-based inflation, which makes up 40 percent of the CPI, 
increased in June at the fastest pace since 1986.\9\ While the Federal 
Reserve is increasing interest rates via tighter monetary policy to 
fight inflation, its policy tools are poorly situated for addressing 
the housing element of the inflation challenge. Higher interest rates 
increase the cost of buying a home (thus increasing demand for rental 
housing and generating higher rents), while also increasing the cost of 
financing single-family and multifamily construction, thereby 
restricting housing supply. Rent inflation increased in June at the 
fastest pace since 1986.
---------------------------------------------------------------------------
    \9\ https://eyeonhousing.org/2022/07/june-inflation-reading-the-
highest-since-1981/.

    Building material prices collectively are up 19.2 percent year over 
year and 35.6 percent since the start of the pandemic.\10\ Updated with 
the latest data since I presented my testimony, since the spring of 
2020, lumber prices are up 75 percent; steel mill prices are up 120 
percent; gypsum/drywall is up 40 percent; ready-mix concrete is up 12 
percent; interior paint is up 33 percent and exterior paint is up 49 
percent; aluminum is up 61 percent; and copper is up 57 percent.
---------------------------------------------------------------------------
    \10\ https://www.nahb.org/blog/2022/05/building-materials-up-more-
than-19-percent-year-over-year.

    This financial pressure is not only driving up development costs, 
but it also further strains the limited resources of the LIHTC program. 
LIHTC is a fixed resource. To maintain production with rising costs, we 
need to increase resources. The program already took a 12.5 percent cut 
at the end of last year. We need to restore that and increase funding, 
which is what the Affordable Housing Improvement Act does and why we 
---------------------------------------------------------------------------
support it.

    Question. In May 2021, I reintroduced my Yes In My Back Yard 
(YIMBY) Act with Senator Schatz to shine a light on discriminatory land 
use policies, encourage localities to cut burdensome regulations, and 
bring a new level of transparency to the community development process. 
This bill would require Community Development Block Grant (CDBG) 
recipients to go on the record with why they are not adopting specific 
pro-affordability and anti-discriminatory housing policies.

    Does the National Association of Home Builders support my Yes In My 
Back Yard Act? Why or why not?

    How would this bill increase housing stock across the country?

    Answer. The housing affordability crisis is driven by lack of 
supply. We need local governments to allow us to build the housing this 
country needs. The YIMBY Act will encourage local governments to 
examine their land development policies and eliminate barriers to 
building affordable housing. NAHB strongly supports this bill.

    In June, NAHB along with the National Multifamily Housing Council 
released an updated study on how much government regulation adds to the 
cost of building new multifamily housing. The survey results found an 
average of 40.6 percent of total development costs were attributed to 
complying with regulations imposed by all levels of government.\11\ On 
the single-family side, NAHB's research showed that regulation adds 
nearly $94,000 to the cost of a typical new home.\12\
---------------------------------------------------------------------------
    \11\ https://eyeonhousing.org/2022/06/regulation-40-6-percent-of-
the-cost-of-multifamily-development/.
    \12\ https://eyeonhousing.org/2021/05/regulation-now-accounts-for-
93870-of-the-average-new-home-price/.

    Rising home prices and interest rates are taking a terrible toll on 
housing affordability, with 87.5 million households--or roughly 69 
percent of all U.S. households--unable to afford a new median-priced 
home.\13\ In other words, seven out of 10 households lack the income to 
qualify for a mortgage under standard underwriting criteria. We have 
now seen housing affordability fall to a decade low.\14\
---------------------------------------------------------------------------
    \13\ https://www.nahb.org/News-and-Economics/Housing-Economics/
Housings-Economic-Impact/Households-Priced-Out-by-Higher-House-Prices-
and-Interest-Rates.
    \14\ https://www.nahb.org/news-and-economics/press-releases/2022/
05/new-home-sales-down-on-rising-interest-rates-declining-
affordability.

    Home builders are not ignoring 70 percent of the marketplace--
development costs simply make it impossible to produce more affordable 
offerings. The YIMBY Act will help us lower development costs, which 
will enable home builders to produce more affordable housing. A year 
ago, 23 percent of new home sales were priced below $300,000. In May, 
it was only 10 percent.\15\ We have now seen housing affordability fall 
to a decade-plus low.\16\ If we are going to solve our housing 
affordability crisis, we must drive down the cost to build as well as 
the cost to own or rent.
---------------------------------------------------------------------------
    \15\ https://eyeonhousing.org/2022/06/new-home-sales-increase-in-
may-before-feds-june-rate-rise/.
    \16\ https://www.nahb.org/news-and-economics/press-releases/2022/
05/new-home-sales-down-on-rising-interest-rates-declining-
affordability.

    Within NAHB, we often refer to the ``five Ls'' as shorthand for the 
headwinds facing the industry: labor, lending, local regulatory 
restrictions, lots, and lumber. Eliminating unnecessary regulations 
alone will not solve the housing affordability crisis, but it is one 
---------------------------------------------------------------------------
the key policy solutions, which is why we support the YIMBY Act.

                                 ______
                                 
  Prepared Statement of Lee E. Ohanian, Ph.D., Senior Fellow, Hoover 
   Institution, Stanford University; and Distinguished  Professor of 
   Economics, University of California, Los Angeles
    
    Chair Wyden, Ranking Member Crapo, and members of the Senate 
Finance Committee, thank you for inviting me to testify at this hearing 
on ``The Role of Tax Incentives in Affordable Housing.''

    America's housing crisis is nearly 100 years old, dating back to 
the 1920s when the average home price in Manhattan was over $1.2 
million in inflation-adjusted dollars.\1\ In the last century, dozens, 
and perhaps hundreds of Federal, State, and local agencies have been 
created to deliver affordable housing, but affordability remains 
elusive, particularly for low- and middle-income households. National 
Association of Realtors data show that affordability has plummeted in 
the last year, particularly in the western United States where the 
median-priced home now requires over $100,000 of liquid assets for a 
down payment and closing costs, and a household income exceeding 
$100,000 annually to qualify for a conventional mortgage.\2\
---------------------------------------------------------------------------
    \1\ Nicholas, Tom and Anna Scherbina, 2013, ``Real Estate Prices 
During the Roaring Twenties and the Great Depression,'' Real Estate 
Economics, 41, no. 2, pp 278-309.
    \2\ National Association of Realtors, ``Housing Affordability 
Index,'' https://www.nar.realtor/research-and-statistics/housing-
statistics/housing-affordability-index.

    Increasing housing affordability requires addressing two related 
issues. We must expand housing supply and we must build new housing at 
a much lower cost. There are key policy reforms that would make 
considerable progress in advancing these goals. I focus on two areas 
for policy responses: (1) increasing the use of manufactured housing, 
which is much more cost efficient than traditionally built housing; and 
(2) reforming the process of building affordable housing, as this has 
become inordinately expensive in some States.
   
   increase adoption of manufactured housing to lower building costs
    
    Summary: Manufactured housing is 60 percent less expensive to build 
per square than traditionally built housing, but regulations and 
financing difficulties have significantly hampered adoption of these 
homes. Tax incentives and regulatory reforms can significantly increase 
affordability by expanding the use of manufactured housing to increase 
U.S. housing supply.

    The development of modern factory production made it possible for 
virtually all Americans, not just those with high incomes, to buy 
automobiles and other mass-produced durable goods. But modern 
production methods are notably absent from our residential construction 
industry, which builds homes in much the same way as they have always 
been built, as described in an important recent study of manufactured 
housing by James A. Schmitz, an economist at the Federal Reserve Bank 
of Minneapolis.\3\ This means that residential construction costs are 
much higher than they could be.
---------------------------------------------------------------------------
    \3\ Schmitz, James A. Jr., 2020, ``Solving the Housing Crisis Will 
Require Fighting Monopolies in Construction,'' Federal Reserve Bank of 
Minneapolis Working Paper No. 773.

    The Bureau of Labor Statistics \4\ reports that worker productivity 
(inflation-
adjusted output per worker) rose by only 11 percent between 1987 and 
2016 in 
single-family home construction. By comparison, BLS data show that 
worker productivity in durable goods manufacturing industries rose by 
about 150 percent over the same period. The cost savings enjoyed by 
consumers of manufactured durable goods have evaded residential home 
building because building practices have not adopted cost-saving 
technological advances prevalent in manufacturing.
---------------------------------------------------------------------------
    \4\ Bureau of Labor Statistics, ``Measuring Productivity Growth in 
Construction,'' Monthly Labor Review, January 2018, pp. 1-15, https://
www.bls.gov/opub/mlr/2018/article/measuring-productivity-growth-in-
construction.htm.

    The high cost of traditional home building has been documented 
since at least 1937. A.C. Shire, the chief engineer of the Federal 
Housing Administration, wrote at that time that ``In an age of large-
scale financing, power, and mass production, we have the anachronism 
that the oldest and one of the largest of our industries . . . follows 
practices developed in the early days of handiwork  . . . is bogged 
down by waste and inefficiency, [and] is unable to benefit by advancing 
productive techniques in other fields.''\5\
---------------------------------------------------------------------------
    \5\ Schmitz, 2020, op. cit.

    Manufactured homes are a much lower cost alternative to 
traditionally built homes. Census data show that production costs are 
about 60 percent lower than traditionally built homes.\6\ Because of 
substantially lower costs, manufactured housing production grew 
significantly, rising from 103,700 units built in 1960 (10 percent of 
total single-family units) to 575,900 units in 1972 (60 percent of 
total single-
family units).\7\ This growth led the Commerce Department to predict 
about 800,000 manufactured units by 1980, but only about 220,000 units 
were built that year.
---------------------------------------------------------------------------
    \6\ Bureau of the Census, ``Cost Comparisons: New Manufactured 
Homes and New Single Family Site-Built Homes,'' https://
www2.census.gov/programs-surveys/mhs/tables/2017/sitebuilt
vsmh.xls.
    \7\ Schmitz, 2020, op. cit.

    One factor depressing manufactured housing since that time of rapid 
growth is a HUD requirement that manufactured homes be placed 
permanently on a chassis.\8\ This requirement imposes a negative 
aesthetic on the home, leading them to be known as ``mobile homes'' or 
``trailers.'' The negative aesthetic of a home placed on a chassis has 
often led local zoning ordinances to exclude manufacturing housing from 
many neighborhoods. Manufactured homes typically are placed in ``mobile 
home parks'' that are locally zoned for that purpose. This in turn 
limits financing options, since the homes on chassis are considered 
``mobile,'' which means they are financed by personal loans or chattel 
loans which do not provide the homeowner with interest tax 
deductibility.\9\
---------------------------------------------------------------------------
    \8\ U.S. Department of Housing and Urban Development, ``Frequently 
Asked Questions About Manufactured Housing,'' https://www.hud.gov/
program_offices/housing/rmra/mhs/faqs.
    \9\ Schmitz, 2020, op. cit.

    Increasing manufactured housing would substantially improve 
affordability, given their construction costs are 60 percent less per 
square foot. Removing the HUD requirement that manufactured homes be 
placed on a permanent chassis would considerably change the landscape 
for these homes by making them aesthetically acceptable and broadening 
the options available to finance these homes, including mortgage 
---------------------------------------------------------------------------
financing with interest deductibility.

    A 2011 report by economists at the Center for Housing Research at 
Virginia Polytechnic University, which was commissioned by HUD, 
provides considerable detail on understanding the regulatory hurdles 
facing this low-cost alternative to traditional housing, including the 
permanent chassis requirement.\10\ This report's recommendations are 
also very similar to those from President Reagan's Commission on 
Housing, which produced a 1982 report documenting the cost advantages 
of manufactured housing and the importance of removing regulatory 
impediments so that manufactured homes were accessible in more 
neighborhoods and could be eligible for traditional mortgage 
financing.\11\
---------------------------------------------------------------------------
    \10\ Koebel, Theodore C. et al., 2011, ``Regulatory Barriers to 
Manufactured Housing Placement in Urban Communities,'' https://
www.huduser.gov/portal/publications/affhsg/rb_mhpuc.html.
    \11\ McKenna, William, 1982, ``The Report of the President's 
Commission on Housing,'' Washington, DC, USGPO, https://
www.huduser.gov/Publications/pdf/HUD-2460.pdf.

    The substantial cost advantages of leveraging modern production 
techniques to produce housing are well known and have been discussed 
within the Federal Government for at least 85 years. Expanding the use 
of modern technologies to build housing is also consistent with 
President Biden's recent housing proposals, which focus on rewarding 
jurisdictions that reform land-use policies, deploying new financing 
mechanisms, and working with the private sector to improve building 
techniques and build more efficiently. Modifying local zoning rules 
will be needed but reducing the chassis requirement should make a 
significant difference in the acceptability of these homes.\12\ 
Creating specific programs that incentivize State and local agencies to 
implement manufactured housing in the production of affordable housing 
developments could significantly reduce costs and improve 
affordability.
---------------------------------------------------------------------------
    \12\ The White House, May 16, 2022, Statements and Releases, 
``President Biden Announces New Actions to Ease the Burden of Housing 
Costs,'' https://www.whitehouse.gov/briefing-room/statements-releases/
2022/05/16/president-biden-announces-new-actions-to-ease-the-burden-of-
housing-costs.
---------------------------------------------------------------------------
     reducing the cost of building affordable (subsidized) housing
    
    Summary: Affordable housing, which usually involves the use of the 
Low-Income Housing Tax Credit (LIHTC), and sometimes other subsidies, 
has become more expensive to build than market-rate housing in at least 
some States. Studies show that high costs reflect both above market-
rate construction costs, and high indirect (soft) costs that are 
related to regulatory and other requirements involved with subsidies. 
Expanded collection of cost data, identifying best practices that can 
be levered by all allocation agencies, and incentivizing jurisdictions 
to become more efficient can make better use of taxpayer subsidies and 
expand affordable housing supply.

    Construction costs of affordable (subsidized) housing have 
increased considerably, particularly in the western United States.\13\ 
In San Francisco, one affordable housing project is being renovated at 
a cost of $1.226 million per unit. There are a total of 608 units 
across seven projects in northern California identified in a recent Los 
Angeles Times article costing over $1 million per unit.\14\ These cost 
statistics are challenging to reconcile with the fact that the median 
single-family California home, which includes a parcel of land and more 
finished living space, can be purchased for about $325,000 less.\15\ 
While these statistics are from California, similar issues may be 
impacting affordable housing construction in other States, and thus 
California's experience of escalating costs may be more broadly 
informative.
---------------------------------------------------------------------------
    \13\ California Tax Credit Allocation Committee et al., 
``Construction Costs of Affordable Housing,'' https://
www.treasurer.ca.gov/ctcac/multistate-housing-costs.pdf.
    \14\ Los Angeles Times, 2022, ``Affordable Housing in California 
Now Routinely Tops $1 Million per Apartment,'' https://www.latimes.com/
homeless-housing/story/2022-06-20/california-affordable-housing-cost-1-
million-apartment.
    \15\ California Association of Realtors, 2022, ``May Home Sales and 
Price Report,'' https://www.car.org/en/aboutus/mediacenter/
newsreleases/2022releases/may2022sales.

    A 2018 GAO study found extremely large cost disparities in 
affordable housing construction across States, ranging from a minimum 
of below $100,000 per unit in Texas to a maximum of $750,000 per unit 
in California evaluating data from 2011-2015. They concluded that 
better data collection to understand these cost differences is needed, 
and that improved oversight of the use of subsidy funds should be 
implemented.\16\
---------------------------------------------------------------------------
    \16\ Government Accountability Office, 2018, ``Low-Income Housing 
Tax Credit: Improved Data and Oversight Would Strengthen Cost 
Assessment and Fraud Risk Management,'' https://www.gao.gov/products/
gao-18-637.

    The study found that only a few allocating agencies have 
requirements to guard against misrepresentation of contractor costs, 
which is a fraud risk. Although high-level cost certifications are 
required from developers for LIHTC policies, the cost of multiple 
contractors are combined in the certifications, but the IRS does not 
require detailed certifications. Weaknesses in data quality were also 
found by the GAO and some included inconsistencies in cost-related 
variables and not including the full extent of indirect costs 
associated with fees paid to syndicators acting as intermediaries 
between project developers and investors that IRS requires be 
---------------------------------------------------------------------------
collected.

    The GAO made some recommendations for the issues described above, 
including designating a Federal agency to analyze LIHTC cost data, 
having the IRS require contractor cost certificates, having the IRS and 
other allocating agencies create more standardized cost data, and 
having the IRS communicate to credit allocating agencies on how to 
collect certain information.

    The GAO also noted that ``Even without a designated Federal entity, 
opportunities exist to advance oversight of development costs. In 
particular, greater standardization of cost data would lay a foundation 
for allocating agencies to enhance evaluation of cost drivers and cost-
management practices.''

    The GAO also found financing inefficiencies, particularly related 
to the fact that there are typically many lenders involved in these 
projects, an average of six per project. UC Berkeley's Terner Center 
for Housing Innovation estimates that each additional lender adds an 
additional $6,400 in cost per unit.\17\ The Terner Center found other 
cost drivers, including paying prevailing wage requirements, which they 
found increased costs above market labor rates by $53,000 per unit, a 
lack of government staff which delays approval, more stringent 
environmental requirements and sustainability regulations that add 
$17,000 per unit. They also found delays in approvals that increase 
costs.
---------------------------------------------------------------------------
    \17\ Reid, Carolina, 2020, ``The Costs of Affordable Housing 
Production: Insights from California's 9-Percent Low-Income Housing Tax 
Credit Program,'' https://ternercenter.berkeley.edu/research-and-
policy/development-costs-lihtc-9-percent-california/.

    Reducing reliance on prevailing wage requirements would not only 
reduce costs, but one study found that such requirements limit 
employment opportunities for minority workers.\18\
---------------------------------------------------------------------------
    \18\ Yurlov, Vlad, 2021, ``Why Is Affordable Housing So 
Expensive?'', Cascade Policy Organization, https://cascadepolicy.org/
land-use/why-is-affordable-housing-so-expensive.

    Lawsuits also delay affordable developments in California, 
particularly lawsuits filed under the California Environmental Quality 
Act.\19\ States should study the incidence of litigation against 
development to identify any reforms that may be enacted to reduce such 
lawsuits and/or speed up their resolutions. My previous research 
identifies a large development in California in which plans were 
submitted for approval in 1994, and lawsuits were not resolved until 
around 2017, including lawsuits that were filed after the project had 
been approved in 2012. Most of these lawsuits were filed under the 
California Environmental Quality Act. To date, no homes have been 
completed in this project, making it 28 years since the proposal was 
first received by local government agencies.
---------------------------------------------------------------------------
    \19\ Ohanian op. cit.

    I recommend that Congress revisit the GAO recommendations, 
including standardization of cost data from agencies that are collected 
and analyzed by a single Federal entity. Creating funding opportunities 
that do not require so many funders can reduce costs and speed the 
development and approval timeline. Best practices regarding approval 
and funding sources should be identified and provided to all allocating 
agencies. Providing incentives to do this would be consistent with 
President Biden's recent guidelines to make housing more affordable. 
Senate Bill 1136 and House Resolution 2573 is an important expansion of 
the LHITC. Coupling S. 1136/H.R. 2573 with collecting and analyzing 
cost data and incentivizing allocating agencies to improve efficiency 
---------------------------------------------------------------------------
could have a significant impact on increasing affordability.

    Restrictive zoning rules and other land-use regulations also impede 
the development of new housing. Incentivizing State and local agencies 
to expand the use of higher-density housing would reduce building costs 
and place housing where it is most demanded. Reforming regulations that 
limit urban boundaries, which are present in California, would also 
expand housing where it is in most demand. My research identifies one 
example in which it took about 40 years for a California city to 
purchase undeveloped county land to expand its urban footprint. Homes 
remain to be built.\20\
---------------------------------------------------------------------------
    \20\ Ohanian op. cit.

    From this perspective, Senate Bill 1416, would be an important step 
in collecting and analyzing data on how State and local agencies manage 
their land use. S. 1416 would help these agencies identify and adopt 
best practices that can increase housing supply where it is most 
demanded, while at the same time maintain neighborhood qualities so 
---------------------------------------------------------------------------
that agencies can address the concerns of those who oppose development.

    Thank you for this opportunity to testify to the committee on such 
an important issue. American home affordability can be increased 
substantially by incentivizing the adoption of low-cost production 
techniques, improving efficiency in the building of subsidized housing, 
and helping State and local agencies create building development 
opportunities in areas that are in high demand. I welcome questions and 
comments.

                                 ______
                                 
      Questions Submitted for the Record to Lee E. Ohanian, Ph.D.
            
            Questions Submitted by Hon. Robert P. Casey, Jr.
    
    Question. Nonprofit housing developers fill valuable roles in 
producing housing. However, you testified that in some places, units 
cost up to a million dollars to develop and I have heard from some of 
the non-profit developers in Pennsylvania that the LIHTC process takes 
up to 2 years of pre-development work. Most developers do not get an 
award their first year, meaning the whole process can take 3-4 years 
and often involves hiring consultants to guide them. The process is 
daunting and overwhelming and turns away even experienced developers 
with expertise in managing accessible housing.

    How can we streamline the LIHTC process to lower costs, shorten 
delays, and better incentivize participation by small not-for-profit 
developers?

    Answer. I agree that it has indeed become challenging for non-
profit and small developers to compete within the LIHTC sphere, 
particularly in recent years. HUD reports that the average scale of a 
LIHTC project was about 34 units between 1987 and 1994, whereas the 
average scale rose to 80.3 units between 2000 and 2019.

    As project scale has increased, so has the complexity of the 
planning, permitting, financing, and environmental approval processes 
within LIHTC. As these soft costs have increased, this further 
incentivizes even larger scale projects, so that developers can spread 
the fixed component of these soft costs over a larger scale to help 
keep the project economically feasible. This is becoming a vicious 
circle that needs to be broken.

    Participating in a LIHTC project is complex as well as complicated. 
Novogradac, an accounting firm, produces an annual LIHTC guide that is 
over 1,400 pages in length. The use of multiple financing agencies, 
which is growing in frequency and scope as projects have become larger, 
is viewed by many as increasing costs and delaying projects. LIHTC 
complexity is further increased by the fact that some States have their 
own LIHTC programs, and there are other housing subsidy programs at the 
Federal, State, and local levels that become part of the overall 
increasingly complex LIHTC equation.

    We should make LIHTC less complex and less complicated so that we 
reduce costs and make LIHTC more accessible to a broader set of 
developers. An important first step is obtaining more data from LIHTC 
projects so we can identify the priority areas that are creating drawn-
out and expensive projects, and that is increasing the complexity of 
participating in the process.

    Currently, we don't have the data needed to provide detailed and 
specific reforms on how to do this. I recommend adopting the GAO 
recommendations presented in their September 2018 report. The GAO 
report expressed strong concerns about the cost of LIHTC projects and 
how much these costs varied across LIHTC projects, sometimes across 
projects in the same State. The GAO makes several common-sense 
recommendations to create LIHTC cost databases. If the GAO 
recommendations were adopted, I believe we could make considerable 
progress in creating a simpler and more level LIHTC playing field that 
would not be so cumbersome and difficult for non-profit developers to 
navigate.

    The GAO recommendations are a terrific place to start with the 
process of developing a cost database that can help inform us as to how 
to modify the LIHTC processes. We also should gather data on the length 
of time it takes for different phases within LIHTC. Finally, we should 
review the LIHTC application process to understand where we can make it 
simpler.

    With these data in place, we will be able to make well-informed 
decisions on how to make LIHTC work better and more efficiently and 
make it more accessible to a broader set of developers.

                                 ______
                                 
                 Question Submitted by Hon. Mike Crapo
    
    Question. The issue of affordable housing supply was raised in the 
hearing, with observations that, generally, low supply tends to 
coincide with high prices for a given demand. Questions were raised 
about how to generate increased affordable housing supply, and you made 
observations about cost. Your observations suggested that the path to 
higher supply is through lower costs, and one surefire way to lower 
costs through gains in productivity in the production of housing.

    Do you agree that in order to have increased supply of affordable 
housing, ways must be found to lower production costs, including 
through lowering costs associated with permitting, zoning requirements, 
and the like?

    Answer. I agree wholeheartedly that local land-use regulations, 
including costly and time-consuming permitting processes and 
restrictive zoning rules, substantially drive up the cost of housing 
and create enormous inefficiencies in housing markets that in turn 
burden millions of U.S. families.

    My research shows that if local zoning regulations across the 
United States were rolled back to the levels that prevailed in the 
1990s, then U.S. real GDP would rise by $1 trillion due to lower 
housing costs, which in turn would lead to higher productivity and a 
more efficient allocation of workers in the most productive locations, 
which presently are unaffordable for many. This includes highly 
productive areas such as Silicon Valley in California, where the median 
home price is currently around $1.8 million. Other studies of reforming 
land use regulations reach similar conclusions.

    The permitting process also drives up costs significantly. In 
California, one planned development (Tejon Ranch proposed development) 
that would ultimately be home to about 60,000 people had permit 
applications filed in 1994. The development still has not seen one home 
built due to chronic permitting delays and lawsuits. Lawsuit after 
lawsuit, and hearing after hearing, have delayed this project for 
nearly 30 years. While the Tejon Ranch project is not an LIHTC project, 
this example highlights that States need to be held broadly more 
accountable for building new housing and ensuring that the regulatory 
process is sensible.

    Policy reforms that streamline the permit approval process and 
liberalize zoning rules are central for improving U.S. housing 
affordability.

                                 ______
                                 
               Questions Submitted by Hon. Chuck Grassley
    
    Question. In 2018, the GAO released a report at my prompting. Among 
its recommendations were to improve data collection for the LIHTC 
program. Over a series of reports on the issue, they noted the 
program's complexity and identified the need for more transparency.

    The primary recommendation in this 2018 report was for Congress to 
``consider designating a Federal agency to maintain and analyze LIHTC 
cost data.'' To date, this recommendation has not been implemented.

    As you noted in your testimony, better data collection and 
dissemination would improve our understanding of cost differences 
between states. What other analyses could be done if the 
recommendations on data collection were implemented?

    Answer. I agree strongly with your recommendations for improved 
transparency in the LIHTC. My testimony concurs that the GAO 
recommendations be adopted, as this information would provide much-
needed data that would in turn lead to the adoption of best practices 
in implementing the LIHTC,

    In addition to the important recommendations made by the GAO, there 
are several other valuable analytics that could be produced that would 
be natural extensions of the GAO recommendations. This includes 
providing cost accounting for how much the many different steps and 
procedure involved in LIHTC are increasing development and building 
costs, including how the timeline of development and construction is 
affected by LIHTC. I believe this could be done without overly 
burdensome compliance reporting.

    There is a general presumption that the large number of lenders 
often involved in financing LIHTC projects adds considerably to project 
cost, but data limitations make it difficult to quantify the higher 
costs arising from having so many financing agencies involved. There is 
also a presumption that requiring prevailing wages on LIHTC projects 
drives up costs, but there is a lack of data on construction costs that 
makes it difficult to quantify this factor.

    I believe that reasonable and cost-effective reporting requirements 
could be implemented without overly burdening reporting entities. Part 
of this accounting should include that all LIHTC projects adopt 
standardized accounting definitions and language so that direct 
comparisons can be made across projects. Presently, it is very 
difficult, and perhaps impossible, to make cost comparisons across 
different locales. Having accurate and comparable information on key 
cost items can help the LIHTC become an even more effective tool for 
creating affordable housing.

    Adopting the GAO recommendations is an excellent starting point for 
improving the efficiency of the LIHTC. We all want LIHTC to help as 
many people as possible, but we cannot achieve that goal without much 
more information about costs, delays, and best practices.

    Question. Another GAO report on the LIHTC I requested was released 
on July 15, 2015. While the program is currently administered at the 
Federal level by the Internal Revenue Service, this report recommended 
giving the Department of Housing and Urban Development a joint 
oversight role.

    I have been a strong advocate of oversight as long as I have been 
in Congress. It is impossible to conduct meaningful oversight without 
consistent and available data on how programs perform, however I also 
understand the need to limit unnecessary paperwork for those 
participating in Federal programs.

    What impact would giving HUD a partnering oversight role have on 
the LIHTC program?

    Answer. Implementing HUD oversight could be very effective in 
improving the efficiency of the LIHTC. HUD is a natural agency to 
conduct this oversight since one important component of HUD's mission 
is to facilitate the creation of quality affordable housing for all.

    Creating a highly focused oversight capacity within HUD to assess 
LIHTC projects, particularly with an emphasis on cost, delays, fraud, 
and abuse, is in my opinion a reasonable expansion of HUD's 
responsibilities. Such a department within HUD would be staffed with 
different specialists, including specialists in cost accounting, 
auditing, and forensic accounting, and legal specialists. It would have 
the potential to significantly improve the efficiency and effectiveness 
of the LIHTC by increasing accountability, expanding data collection, 
and improving the identification of problem areas within the LIHTC 
program. The existence of such an agency would also incentivize 
stakeholders within the LIHTC sphere, including developers, local 
approval agencies, funding agencies, and others to improve their 
relative performances.

    Question. It is no secret that housing costs have been increasing 
well before the current wave of inflation. While LIHTC has an impact on 
bringing more affordable units onto the market, the varied housing 
prices across the country indicate that local policies, such as zoning, 
have possibly the greatest role in determining housing costs.

    In addition, there are a wide variety of regulations at the Federal 
level, including HUD regulations, that increase the price of new homes 
and buildings.

    As you noted in your testimony, there are currently a number of 
regulations that prevent affordable housing from being constructed. In 
addition to the LIHTC, what other options would be available to 
increase housing supply? How would these other options compare to the 
LIHTC in cost effectiveness? What factors at the State or local level 
are inhibiting the creation of affordable housing?

    Answer. There are indeed other policy changes at the Federal, 
State, and local level that could significantly expand housing 
affordability, and on a much wider scale than can be done with the 
LIHTC. This includes liberalizing zoning regulations and reforming the 
permitting process, both of which operate primarily at the local level, 
and eliminating a HUD requirement that prevents the adoption of 
manufactured housing in a much broader set of neighborhoods than is 
currently available.

    Local zoning rules and time-consuming and costly permitting 
processes are driving up housing costs by raising building and 
developer costs which in turn reduces housing supply. These cost and 
supply issues are particularly acute in many of the most vibrant 
economic locations in the country, including Southern California, San 
Francisco, Silicon Valley, New York, and other metropolitan areas with 
highly productive businesses that feature high-paying jobs. There is a 
strong demand for workers in these locations, but extremely expensive 
housing is driving a wedge between the businesses that wish to hire, 
and the individuals who are seeking jobs.

    My research finds that rolling back local zoning requirements back 
to levels that prevailed in the 1990s would increase housing 
affordability substantially and would raise U.S. GDP by over $1 
trillion per year, with that amount growing each year at the overall 
rate of economic growth. Other studies also conclude that zoning 
substantially drives up housing costs and reduces economic growth.

    Permitting delays are increasing costs considerably. This problem 
is most endemic in high-income, metro areas such as New York, Los 
Angeles, and San Francisco. To provide you with one example that shows 
just how problematic this issue can, and has become, there is one 
planned development about 40 miles outside of Los Angeles that would 
create a new community of about 60,000 people. Permit applications were 
filed in 1994. The Tejon Ranch development still has not seen one home 
built due to chronic permitting delays and lawsuits. Lawsuit after 
lawsuit, and hearing after hearing, have delayed this project for 
nearly 30 years. While the project, named ``Tejon Ranch,'' is not a 
LIHTC project, this extreme example of delays and chronic litigation 
suggests that states need to be held broadly more accountable for 
building new housing if they wish to compete for Federal tax subsidies.

    An important reason why we don't build more affordable housing is 
because the construction process has become so expensive. Much of the 
way that we build homes today has changed little over time. Eliminating 
the regulation that manufactured homes must be placed on a chassis, a 
regulation that goes back to the 1960s, would make manufactured homes 
much more widely available to consumers, and at a cost savings of 60 
percent to traditionally built home.

    Today's factory production methods provide a much more efficient 
process for building housing than traditional home building methods, as 
traditional methods cannot make use of the scale economies of mass 
production nor the remarkable technological advances that have taken 
place in manufacturing. The HUD requirement that these homes be placed 
on a chassis relegates these homes to mobile home parks, as the chassis 
requirement creates zoning rules that prevent these homes from being 
placed in other neighborhoods. Prior to the chassis regulation, 
manufactured homes were placed on conventional foundations and thus 
were accepted in single family home neighborhoods. They looked just 
like traditionally built homes but were much less expensive because 
they were built with modern production technologies.

    A 2011 special report commissioned by HUD, ``Regulatory Barriers to 
Manufactured Housing Placement in Urban Communities,'' also recommended 
the elimination of the chassis regulation. Eliminating the chassis 
regulation, which appears to have no beneficial purpose for consumers, 
would be a game-changer for millions of families who are now being 
squeezed out of the housing market. With the median U.S. home now 
costing nearly $400,000, eliminating this regulation would be expected 
to reduce housing costs by over $100,000.

    Implementing zoning, permitting, and chassis regulation reforms 
would all substantially improve housing affordability by leveraging the 
remarkable efficiencies now in place within the market process.

                                 ______
                                 
                 Questions Submitted by Hon. Todd Young
    
    Question. In May 2021, I reintroduced my Yes In My Back Yard 
(YIMBY) Act with Senator Schatz to shine a light on discriminatory land 
use policies, encourage localities to cut burdensome regulations, and 
bring a new level of transparency to the community development process. 
This bill would require Community Development Block Grant (CDBG) 
recipients to go on the record with why they are not adopting specific 
pro-affordability and anti-discriminatory housing policies.

    Do you support my Yes In My Back Yard Act? Why or why not?

    Answer. I strongly concur with your assessment, and I strongly 
support the Yes In My Back Yard Act. Land use regulations and zoning 
regulations are driving up costs and restricting housing supply. Often, 
these impediments to building housing are strongest in areas where the 
demand for more housing is the highest, locations such as New York, Los 
Angeles, San Francisco, and the Silicon Valley area. I support using 
the lever of requiring CDBG recipients be held much more accountable 
for their housing policy decisions. Leaving the current status quo in 
housing policies in place will only mean that the forces that are 
driving up home prices will remain in place, creating enormous burdens 
on millions of families, particularly those with moderate to low 
incomes. The NIMBY Act could make a significant difference by helping 
change local regulatory policies to increase housing supply and reduce 
costs.

    Question. How would this bill increase housing stock across the 
country?

    Answer. An important reason why housing costs are so high is 
because zoning requirement and the permitting process restrict housing 
supply by delaying projects, denying projects, and by raising costs to 
the point where a developer finds that the project would be 
unprofitable to build. The NIMBY Act would incentivize local regulatory 
agencies to reform these burdensome rules by requiring those that 
receive CDBG funding to explain why the are not adopting pro-
affordability and anti-
discriminatory policies. By using the lever of CDBG funding, we can 
help local communities move in a direction that increases housing 
supply by changing their regulatory rules that currently prevents some 
housing from being ever being built. The NIMBY Act has the potential to 
be a game changer regarding increasing housing construction and 
improving housing affordability.

    Question. I appreciated your testimony about manufactured housing 
and the need for deregulation to empower Americans through increased 
housing options.

    Can you please discuss how manufactured housing can help address 
the affordable housing crisis?

    Answer. Manufactured housing costs 60 percent less to build than 
traditionally built homes. This is because manufactured housing is 
built within factories using modern production methods and modern 
technologies that are much less costly than traditional home building 
methods. The homes can be built to virtually any quality standard, and 
in many cases to tighter tolerances than in the case of traditionally 
built homes. Moreover, many developers shun building small homes 
because they tend to be less profitable than larger homes. Manufactured 
housing can fill this important shortcoming in our home-building 
process as the manufacturing home process can build smaller homes very 
efficiently.

    Question. What opportunities do we have at the Federal level to 
expand utilization of manufactured housing?

    Answer. Presently, manufactured homes are often not compliant with 
local zoning requirements because they sit on a chassis. The chassis 
requirement was adopted in the 1960s by HUD. Before that, manufactured 
homes would be placed on a traditional foundation and would exist side-
by-side with traditionally built homes in 
single-family neighborhoods. You would not be able to tell the 
manufactured homes apart from the traditionally built homes.

    The chassis requirement has led to most manufactured homes being 
placed within mobile home communities. This means that the cost savings 
afforded by modern manufacturing processes aren't available to 
consumers unless they are willing to live in a mobile home community.

    Eliminating the chassis requirement means that manufactured homes 
could be placed on a traditional foundation and exist within many more 
neighborhoods than are currently permitted by local zoning rules. In 
2011, HUD commissioned a special study from housing specialists at 
Virginal Tech University, who also concluded that the chassis 
requirement should be eliminated.

    The benefits of eliminating this one regulation could be enormous 
by sharply reducing the cost of new housing and making home-buying much 
more affordable than it currently is. I suspect that eliminating the 
chassis requirement could reduce the cost of building new housing 
substantially given the 60 percent cost savings of manufactured housing 
relative to traditionally built housing. This would be a true game-
changer for millions of low- and moderate-income families.

                                 ______
                                 
    Prepared Statement of Benson (Buzz) Roberts, President and CEO, 
           National Association of Affordable Housing Lenders
    
    Thank you, Chair Wyden, Ranking Member Crapo, and members of the 
committee.

    The National Association of Affordable Housing Lenders is the 
alliance of major banks and mission-driven lenders and investors in 
affordable housing and inclusive community revitalization. NAAHL member 
banks provided more than $180 billion in financing for low- and 
moderate-income people and communities in 2020. NAAHL member banks make 
most Low-Income Housing Tax Credit investments.

    I have good news and bad news.
                              
                              the bad news
    
    First the bad news. Housing is less affordable now than it has been 
in 15 years.\1\ Home prices rose 18.8 percent and rent climbed 17.6 
percent in 2021.\2\ Last October, about half of Americans (49 percent) 
called the availability of affordable housing in their local community 
a major problem. That is more than cited drug addiction (35 percent), 
COVID-19 economic and health impacts (34 percent and 26 percent), and 
crime (22 percent), according to Pew Research.\3\ Housing is the single 
largest cost the average household faces.
---------------------------------------------------------------------------
    \1\ https://www.nar.realtor/blogs/economists-outlook/
housingaffordabilitydrops-as-mortgage-payments-spike-51-from-may-2021.
    \2\ https://www.politico.com/news/2022/03/18/housing-costs-
inflation-00015808.
    \3\ https://www.pewresearch.org/fact-tank/2022/01/18/a-growing-
share-of-americans-say-affordable-housing-is-a-major-problem-where-
they-live/.

    Housing costs are not just a casualty of inflation, but also a 
driver of inflation. Home prices rose 11 percent in 2020,\4\ when 
overall inflation was 1.4 percent.\5\ Housing represents more than 30 
percent of the CPI. As economists Mark Zandi and Jim Parrot recently 
wrote: ``If policymakers are serious about reining in inflation, then 
they have little choice but to take on the shortfall in housing supply. 
. . . While the other drivers of inflation are set to ease in the 
coming months, the shortfall in housing isn't going anywhere unless 
policymakers do something.''\6\
---------------------------------------------------------------------------
    \4\ https://www.mba.org/docs/default-source/research-and-forecasts/
forecasts/forecast-commentary-april-2022.pdf?sfvrsn=a5365ab7_2.
    \5\ https://www.bls.gov/news.release/archives/cpi_01132021.htm.
    \6\ https://www.washingtonpost.com/business/2022/01/31/if-
policymakers-are-serious-about-tackling-inflation-they-need-address-
soaring-housing-costs/.

    The affordability problem started in high-growth coastal markets 
but is now nationwide. From 2012 to 2019, supply worsened in 47 States 
and the District of Columbia. Among 310 metropolitan areas nationwide, 
supply was shrinking or shortages were growing worse in three-quarters 
of them heading into the pandemic. Boise, for example, was short 13,000 
housing units in 2019, equivalent to about 5 percent of the region's 
housing stock.\7\
---------------------------------------------------------------------------
    \7\ https://www.nytimes.com/2022/07/14/upshot/housing-shortage-
us.html.

    This problem has been building for years because we have not been 
building enough housing for years, especially lower cost homes and 
apartments. ``Total housing stock grew at an average annual rate of 1.7 
percent from 1968 through 2000,'' but only 0.7 percent over the last 
decade. The shortfall over the past 20 years is as much as 6.8 million 
units.\8\ And, although multifamily construction is now rising, it is 
mostly aimed at the luxury market, while the worst supply shortages are 
for lower cost housing.\9\
---------------------------------------------------------------------------
    \8\ https://www.politico.com/news/2022/03/18/housing-costs-
inflation-00015808.
    \9\ https://www.bloomberg.com/news/articles/2022-07-13/rents-in-us-
rise-at-fastest-pace-since-1986-buoying-inflation?srnd=premium.

    Moreover, in the past, supply increases at the top end of the 
market would ``filter down'' to ease affordability at all price points, 
but now we are seeing some markets where supply shortages are so great 
that prices for older properties are ``filtering up.''\10\
---------------------------------------------------------------------------
    \10\ https://www.huduser.gov/portal/pdredge/pdr-edge-featd-article-
061520.html.

    In other words, we are literally paying the price for failing to 
produce and preserve enough housing, especially for low- and moderate-
income people and communities, where the needs are greatest. Because 
the obstacles to housing production will take years to address, we must 
get started right away.
                             
                             the good news
    
    The good news is that we do know how to expand housing supply for 
the people and communities that need it most. The Low-Income Housing 
Tax Credit (Housing Credit) has produced more than 3.6 million 
affordable rental apartments,\11\ virtually all the affordable 
production over the past 35 years. This total is equivalent to more 
than one-third of the entire multifamily stock with similar rents. The 
Housing Credit is widely considered the U.S. Government's best 
affordable housing production program ever. The proposed Neighborhood 
Homes Investment Act would apply the Housing Credit's successful 
approach to a different challenge: to revitalize struggling communities 
and expand home-ownership opportunities by building and rehabilitating 
starter homes.
---------------------------------------------------------------------------
    \11\ https://rentalhousingaction.org/.

    NAAHL urges Congress to pass the bipartisan Neighborhood Homes 
Investment Act (S. 98) and the Affordable Housing Credit Improvement 
Act of 2021 (S. 1136). Together, these bills would produce up to 2.5 
million additional affordable homes.\12\
---------------------------------------------------------------------------
    \12\ https://rentalhousingaction.org/wp-content/uploads/2021/10/
AHCIA-One-Page-Summary-September-2021.pdf and https://
static1.squarespace.com/static/589b48fbe3df28f7ed63b31b/t/
622909ff205750275598eb8d/1646856704390/
NHIA%2BSummary%2BMarch%2B2022.pdf.

    The Housing Credit and Neighborhood Homes have earned bipartisan 
support because they are based on the same broadly embraced principles:
Private Market Discipline
        Project sponsors use tax credits to raise capital from 
investors to finance home building and rehabilitation.
        Private investors--not the Federal Government--bear 
construction and marketing risks. Investors claim the tax credits only 
after development is successfully completed.
        Tax credits are limited to the minimum amounts required for 
financial feasibility.
        A competitive and efficient investment market minimizes 
investor returns and maximizes public impact.
        Investments leverage other project funds, further improving 
cost-effectiveness.
State Administration
        States have proven to be excellent stewards of the Housing 
Credit and other affordable housing programs. They define their 
specific needs and priorities; allocate tax credit authority on a 
competitive basis; and monitor compliance.
        The Federal Government's role is limited. The IRS develops 
regulations and monitors State and investor compliance.
Targeting and Flexibility
        The Housing Credit and Neighborhood Homes are targeted to 
ensure that rigorous policy goals are met while providing flexibility 
so States, communities, and the private market can address local needs, 
maximize efficient execution, and adapt to changing conditions.
        Metropolitan and rural communities are equitably served.
Positive Economic and Community Impact
        The Housing Credit's 3.6 million apartments have generated 5.7 
million jobs, $643 billion in wages and business income, and $223 
billion in tax revenue.
        Neighborhood Homes is projected to produce 500,000 homes over 
10 years, generating $100 billion in development activity, nearly 
800,000 jobs, $43 billion in wages and business income, and $29 billion 
in tax revenue.
        Other benefits include crime reduction, more income diversity 
in low-income neighborhoods,\13\ and the physical and economic 
stabilization of neighborhoods.
---------------------------------------------------------------------------
    \13\ https://web.stanford.edu/diamondr/LIHTC_spillovers.pdf.
---------------------------------------------------------------------------
                   neighborhood homes investment act
    
    National home price data mask an incredible diversity among and 
within regional housing markets. In 2021, the median home value was 
more than $1.6 million in San Jose but less than $160,000 in 
Toledo.\14\ Moreover, every State has struggling urban and rural 
communities where homes are in poor condition and the cost of 
rehabilitating them or building new homes exceeds their market value. 
Development is not financially feasible in these circumstances without 
governmental support.
---------------------------------------------------------------------------
    \14\ https://cdn.nar.realtor/sites/default/files/documents/metro-
home-prices-q1-2022-ranked-median-single-family-2022-05-03.pdf.

    The absence of quality housing for home ownership has been driving 
economic distress in these communities. Single-family homes are the 
predominant land use in most of these communities, so it is hard to 
revitalize them without attractive, affordable homes. We hear from 
rural communities that they cannot retain or attract growing businesses 
without quality affordable housing for workers. We hear from urban 
neighborhoods that the absence of good housing drives out middle-income 
families, while concentrating poverty and limiting the disposable 
income required to support shopping, services, economic development, 
and a sustainable local tax base. Conversely, we also hear from urban 
and rural communities alike that new or improved housing can replace 
---------------------------------------------------------------------------
decline with revitalization.

    As Christopher Herbert, Managing Director at the Harvard Joint 
Center for Housing Studies, told the House Ways and Means Committee 
last week:

        Expanded public subsidies are needed to increase the supply of 
        deeply affordable housing available both for rent and to own. 
        Particular attention should be given to efforts that expand the 
        supply of affordable housing in lower-income communities where 
        the depressed value of homes impedes both new construction and 
        substantial rehabilitation of existing homes as the costs of 
        these investments exceed current market values. Not only would 
        these communities benefit from such investments, it would also 
        provide residents of these areas with opportunities to own or 
        rent good quality homes in their own neighborhoods. For this 
        reason, the Neighborhood Homes Investment Act deserves serious 
        consideration as a tool for expanding the supply of good 
        quality homes and home-ownership opportunities in these 
        communities.\15\
---------------------------------------------------------------------------
    \15\ https://waysandmeans.house.gov/sites/
democrats.waysandmeans.house.gov/files/documents/Testimony%20-
%20Dr.%20Chris%20Herbert.pdf.

    The bipartisan Neighborhood Homes Investment Act is carefully 
targeted to these struggling communities, based on their lower incomes, 
elevated poverty, and low home values. About 22 percent of metro census 
tracts nationwide, and 27 percent of non-metro census tracts would 
qualify, with additional flexibility for certain other non-metro census 
tracts. Maps of eligible communities in each State are available at 
---------------------------------------------------------------------------
https://neighborhoodhomesinvestmentact.org/.

    Neighborhood Homes meets these communities where they are by 
offering tax credits sized to cover the gap between the cost of 
developing homes and the price at which they can be sold. The credits 
would be capped at 35 percent of development costs for starter homes; 
prices would be limited so they are broadly affordable; and high-income 
buyers would be excluded. These guardrails promote revitalization 
without gentrification.

    Neighborhood Homes is limited to home ownership, but it is 
otherwise very flexible. It can build new homes or acquire and 
rehabilitate homes for sale, and special provisions would also allow 
using credits to rehabilitate homes for current homeowners. It can be 
used for detached homes, townhomes, two- to four-unit homes, 
condominiums, and cooperatives. Manufactured homes are eligible, 
provided they are permanently attached to a foundation and are titled 
as real property. A minimum level of rehabilitation prevents merely 
superficial improvements.

    The credit is also simple enough to accommodate even small-scale 
developments. Homes must only be in eligible communities, meet cost and 
sales price standards, and be occupied by eligible home buyers (or 
existing owners). The tax credits are claimed when the homes are 
completed and owner-occupied. No further compliance is required of 
investors. If a homeowner resells their home within 5 years, they would 
pay a declining portion of their profit to the State for use on future 
homes.

    State housing agencies will administer the credits, by setting 
their own priorities and standards for costs and profits, running a 
competitive process for allocating the credits, and ensuring 
compliance. The States' experience and excellent record of 
administering Low-Income Housing Tax Credits qualifies them well to 
take on these responsibilities.

    No current tax incentive is designed to fill this gap. Tax-exempt 
bonds and the mortgage interest deduction can lower effective mortgage 
payments, but they do not close development cost/sales price gaps. 
Opportunity Zones incentives require long-term investments, not the 
development and immediate sale of properties.

    Neighborhood Homes has support from a wide range of national 
associations representing the housing industry, financial services, 
affordable housing and community development, civil rights, and State 
agencies.\16\
---------------------------------------------------------------------------
    \16\ https://neighborhoodhomesinvestmentact.org/coalition.
---------------------------------------------------------------------------
                     low-income housing tax credits
    
    The Housing Credit is America's primary tool to create and preserve 
affordable rental housing.

    There is a vast and growing demand for affordable housing. More 
than 10 million low-income households spend more than half of their 
monthly income on rent, cutting into other essential expenses like 
childcare, medicine, groceries, and transportation.\17\ Meanwhile, 
there is a growing shortage of affordable housing. For every 100 
extremely low-income households, there are only 37 affordable homes 
available. In total, there is a shortage of 7.1 million rental homes 
affordable and available for households making 50 percent of area 
median income and below, according to the National Low Income Housing 
Coalition.\18\
---------------------------------------------------------------------------
    \17\ https://www.jchs.harvard.edu/sites/default/files/reports/
files/Harvard_JCHS_State_
Nations_Housing_2021.pdf.
    \18\ https://reports.nlihc.org/sites/default/files/gap/Gap-
Report_2021.pdf.

    However, the need for affordable housing has skyrocketed. According 
to the Harvard Joint Center for Housing Studies' just-released ``State 
of the Nation's Housing'' report, last year brought the largest year-
over-year increase in the cost of rental housing in over 20 years, with 
---------------------------------------------------------------------------
rent increases in some metro areas over 20 percent.

    As already noted, the Housing Credit has financed the development 
of 3.6 million affordable rental homes in urban, suburban, and rural 
areas since its inception in 1986. In 2019 and 2020, the Housing Credit 
produced or preserved roughly 130,000 apartments annually.\19\
---------------------------------------------------------------------------
    \19\ https://drive.google.com/file/d/
1HC75l9CQ4WpvAbs5tcZKNeyiKSIPs9tJ/view.

    In total, the Housing Credit has housed over 8 million low-income 
households,\20\ including low-wage workers, veterans of the armed 
forces, senior citizens, formerly homeless families and individuals, 
people recovering from opioid addiction, and people with 
disabilities.\21\ The median income for households living in Housing 
Credit properties is less than $18,200, and approximately 52 percent of 
households are extremely low-income, making 30 percent or less of the 
area's median income, according to the Department of Housing and Urban 
Development.\22\ If forced to pay market-rate rent, many of these 
households would be just one unforeseen event away from losing their 
housing.
---------------------------------------------------------------------------
    \20\ https://rentalhousingaction.org/wp-content/uploads/2021/10/
ACTION-NATIONAL-2021-NEW-LOGO-01-2.pdf.
    \21\ https://www.taxcreditcoalition.org/the-housing-credit/.
    \22\ https://www.huduser.gov/portal/Datasets/lihtc/2019-LIHTC-
Tenant-Tables.pdf.

    The Housing Credit works in all types of communities, including 
large and small urban areas, suburban communities, rural towns, and on 
Tribal land. Roughly 22 percent of properties are in non-metropolitan 
counties, where it has historically been challenging to develop 
affordable housing. The Housing Credit has also been important for 
communities recovering from natural disasters--from California 
---------------------------------------------------------------------------
wildfires to Hurricane Katrina to the floods in Iowa.

    ``Housing Credit properties are financially sound and stable for 
the long term,'' according to the accounting firm CohnReznick. ``Our 
survey showed only a 0.57-
percent cumulative foreclosure rate, which to the best of our knowledge 
is lower than any real estate asset class. This included only one new 
reported foreclosure in 2020, despite the challenges of COVID-19. The 
industry's remarkably low foreclosure rate is attributable primarily to 
the effective public-private partnership and oversight, the pent-up 
demand for affordable housing, and the industry's collaborative efforts 
to enhance underwriting and asset management quality.''\23\
---------------------------------------------------------------------------
    \23\ https://drive.google.com/file/d/
1HC75l9CQ4WpvAbs5tcZKNeyiKSIPs9tJ/view.

    The Housing Credit remains vastly oversubscribed. In 2020, Housing 
Credit developers requested nearly 2.5 times as many Housing Credits as 
there was available allocation. Further, a growing number of States, 
including California, New York, Massachusetts, Washington, Georgia, 
Tennessee, and close to 20 others, are already using or close to using 
all of their bond volume cap, which limits their ability to finance 4-
---------------------------------------------------------------------------
percent Housing Credit developments.

    Here are the most important steps Congress should take to support 
Housing Credits:

        Restore the temporary 12.5-percent increase in Housing Credit 
allocation authority enacted in 2018, which expired at the end of 2021. 
We are losing production now because of this expiration.
        Increase State allocation authority by 50 percent over 2 
years. This expansion would boost production and preservation 
nationwide.
        Allow Housing Credits in conjunction with tax-exempt 
multifamily bonds if bond proceeds exceed 25 percent of expected 
project costs, a reduction from 50 percent under current law. This 
change would allow private activity bonds to support more affordable 
housing.
        Reform the Qualified Contract rules to prevent the premature 
loss of affordability and nonprofit Right-of-First-Refusal rules to 
extend public-mission control of Housing Credit properties. These 
provisions would actually raise Federal revenues by $1 billion, 
according to the Joint Committee on Taxation.\24\ I am appending a more 
detailed explanation of why these changes are urgently needed.
---------------------------------------------------------------------------
    \24\ https://www.jct.gov/publications/2021/jcx-46-21/.

    This concludes my testimony. I would be happy to answer your 
questions.
   appendix: reforming low-income housing tax credit provisions for 
      qualified contracts and the nonprofit right of first refusal
    As policymakers deal with the extreme challenges posed by a 
shortage of affordable housing, the most efficient, cost-effective 
means of addressing this crisis is to adopt policies that prevent the 
loss of existing affordable housing.

    There are two issues with the Low-Income Housing Tax Credit program 
that require the attention of Congress. These issues have been before 
Congress for several years, but enactment has been elusive despite the 
support of Chairman Wyden and Chairman Neal. These are the Qualified 
Contract provision in section 42(h)(6)(E)(i)(II) and the nonprofit 
Right of First Refusal in section 42(i)(7). According to the National 
Council of State Housing Finance Agencies, we have lost more than 
100,000 affordable housing units because of the Qualified Contract 
provision. Meanwhile, outside investors have come into the Housing 
Credit program, obtained control of limited partnership interests, and 
have used ambiguities in the Right-of-First-Refusal law--and the lack 
of IRS guidance--to make demands on nonprofit housing providers which 
have taken hundreds of millions of dollars from nonprofit controlled 
properties. It is well past time for Congress to act to amend section 
42 to eliminate these abuses.
                          
                          qualified contracts
    
    A fundamental feature of the Housing Credit program is that Federal 
tax subsidies are provided to enable the development of properties that 
are rented to qualifying low-income residents at reduced rents for a 
period of 30 years, including a 15-year tax compliance period and 
another 15 years of extended use subject to deed restriction. This is 
the essential structure of the program and it is commonly understood. 
However, there are two little-known exceptions to the requirement that 
Housing Credit properties remain affordable for 30 years: (1) in the 
case of foreclosure; and (2) where a Qualified Contract is presented to 
the State Housing Credit agency. Under the qualified contract 
provision, an owner of a Housing Credit property may, after year 14, 
approach the Housing Credit allocating agency to request a qualified 
contract. This request begins a 1-year period during which the 
allocating agency seeks a qualified buyer to purchase the property and 
maintain it as affordable for the duration of the extended use period. 
The required purchase price for a Qualified Contract is stipulated by 
section 42 and was designed to prevent back-end windfalls to owners and 
investors by limiting them to an inflation-adjusted return on the 
original equity contribution.

    While the original intent of this provision was to create a limited 
return and some liquidity for investors at a time when the Housing 
Credit was an unproven program, for some properties it has come to 
function as a nearly automatic affordability opt-out after just 15 
years of affordability. This is because the qualified contract formula 
price in nearly all cases significantly exceeds the market value of the 
property as affordable housing. As a result, it is rare for the 
allocating agency to find a buyer willing to pay the qualified contract 
price. If the allocating agency fails to identify a qualified buyer 
within 1 year, the property is released from the affordability 
requirements of the Housing Credit program. At that point, the owner is 
free to either sell the property at market value without any deed 
restriction or continue to own and manage the property charging market 
rents after a 3-year rent protection period for existing tenants.

    In recent years, rental markets across the country have heated up 
considerably, resulting in sharply higher market rents. This means that 
in many markets, Housing Credit properties could demand far higher 
rents if they did not have the affordability restrictions required by 
the program. Some owners are now seeking a way to lift the 
affordability restrictions on their properties even though such action 
was not expected when the property was originally financed with Housing 
Credit subsidies. These owners did not build Housing Credit properties 
on the basis that they would be able to get out of the affordability 
restrictions after 15 years because there was no expectation at the 
time of construction that the statutory formula would result in an 
above-market price, and thus function as an ``opt-out.'' This was an 
after-the-fact realization.

    Many States have changed their policies to require a waiver of 
Qualified Contract rights for new developments but in other States 
developers have resisted attempts to close this loophole, particularly 
with the 4-percent credit used in the bond program. In these States, a 
Federal subsidy designed to ensure a minimum of 30 years of rent 
affordability is instead a 15-year rent affordability program.

    Housing Credit properties located in high opportunity areas or 
areas that have gentrified since the property was placed in service are 
most at risk. These neighborhoods are often the most difficult to 
develop new affordable housing in and/or are experiencing high rates of 
displacement of low-income households, so preserving existing 
affordable housing is extremely important.

    Recent analyses indicate that the Qualified Contract process is 
resulting in the premature loss of more than 10,000 low-income homes 
annually, and often more. As of 2021, over 100,000 apartments 
nationwide have already been lost, and the losses continue each year.

    Affordable housing and tenant advocates are deeply concerned that 
unless the qualified contract process is corrected, the number of 
Housing Credit properties lost before fulfilling their intended 30-year 
affordability period will continue to grow at an accelerating rate.

    The House-passed Build Back Better legislation includes language 
closing this loophole identical to bipartisan legislation introduced in 
the last Congress by Chairman Wyden and Senator Young, S. 1956, along 
with other Senators. This legislation would repeal the Qualified 
Contract loophole for future developments while correcting the 
statutory price for the purchase of existing properties so that it is 
based on the fair market value of the property as affordable housing.

    Closing the qualified contract loophole would not only protect 
lower-income residents, but it would also save the Federal Government 
money. According to the Joint Committee on Taxation, the provision in 
the BBB bill would raise $457 million over 10 years.
                    
                    nonprofit right of first refusal
    
    As nonprofit sponsored Housing Credit properties reach the end of 
their initial 15-year compliance period, investors (the limited 
partners) in the property's original partnership generally want to sell 
their interests, and the nonprofit sponsors (the general partners) want 
to gain full control of the property in order to maintain the 
affordable housing use restrictions indefinitely. However, in some 
cases the transfer of properties to nonprofits is causing conflicts 
between investors and nonprofit sponsors as a result of a difference in 
how the parties interpret provisions in section 42 which have not been 
clarified by the IRS. These disputes would be minimized, and the 
original intent of the law carried out, through legislation clarifying 
section 42(i)(7).

    Section 42(i)(7) was designed to permit nonprofit sponsors (as well 
as government agencies and tenant organizations) to obtain full 
ownership of Housing Credit properties at the end of the tax compliance 
period through a Right of First Refusal (ROFR). Under the statute, a 
safe harbor is created that permits the general partner and limited 
partner to negotiate a partnership agreement that permits a nonprofit 
to purchase the Housing Credit property at the end of the compliance 
period for a ``minimum purchase price'' calculated by adding the 
outstanding debt on the property and any taxes attributable to that 
sale.

    Housing Credit limited partnership agreements where a nonprofit 
serves as the general partner almost always include the ROFR language 
as permitted under the safe harbor in section 42(i)(7). In fact, in a 
2007 memorandum for exempt organization determinations, the IRS takes 
the position that nonprofit general partners must have a ROFR in 
Housing Credit deals in which they serve as the general partner. Since 
the ROFR provision was enacted more than 30 years ago, the operating 
assumption of all parties to a Housing Credit deal is that after 15 
years the investor will exit the property as the nonprofit general 
exercises its ROFR rights and take full ownership of the property.

    In most cases, the ROFR has worked as intended to transfer 
ownership to the nonprofit in whose name the ROFR is granted, typically 
an affiliate of the general partner. However, in recent years, outside 
entities without any connection to the Housing Credit program have been 
acquiring control of investor interests, after all credits have been 
claimed, with the purpose of resisting the expected investor exit in 
order to leverage cash payments not contemplated in the partnership 
agreement or payments that would be superseded by the exercise of the 
ROFR. In such disputes, these outside investors--often backed by 
private equity interests--have typically taken the position that the 
section 42(i)(7) ROFR is simply a common law right of first refusal and 
they do not have to recognize the rights established in the partnership 
agreement without a bona fide offer from an unrelated third party that 
the investor has singular authority to accept. In essence, they have 
rejected a bargained-for right in the partnership agreement held by the 
nonprofit. Most nonprofits do not have the resources to litigate these 
issues in court, so a stalemate ensues that the investors use to 
leverage a cash payment or a sale of the property in return for the 
investor leaving the partnership. The payment of such scarce funds 
undermines the continued viability of the property as affordable 
housing in contravention of public policy.

    This situation arises because of ambiguities in Federal law that 
are reflected in unclear partnership agreement language with respect to 
the requirements and scope of the execution of the ROFR. This had led 
to scores of legal disputes, and, in many cases, costly litigation 
which has produced conflicting opinions by State and Federal court 
judges ill-suited to sort through these types of tax issues. There is 
no consistent court interpretation of what is required by section 
42(i)(7) which serves to only accentuate the current legal ambiguities.

    This problem becomes of greater concern as more properties reach 
year 15. Regardless of the contractual issues that arise in these 
disputes, the efforts by these outside interests to take advantage of 
the Housing Credit program to demand a residual return in excess of the 
agreed upon return is contrary to the intent of the program and at odds 
with the understanding of the original parties to the partnership when 
the property was first financed.

    Legislation supported by Chairman Wyden, but not yet passed by the 
Senate, would address this issue. First, by changing the safe harbor to 
permit the partnership agreement to include an option in the name of a 
nonprofit for deals entered into after date of enactment, and second by 
clarifying existing law with respect to existing agreements. These 
clarifications would not change the terms of any existing agreements 
but would clarify ambiguous language that the courts have struggled to 
interpret. Specifically, the law would be clarified that: (a) a ROFR 
may be exercised without the approval of the limited partner and in 
response to any offer to purchase the property, including an offer by a 
related party; (b) that the reference to the property that is purchased 
includes all assets of the partnership; and (c) that the purchase can 
be of the partnership interest as well as of the property.

    These legislative clarifications reflect the work of The Tax Credit 
Equity and Financing Committee of the American Bar Association on 
Affordable Housing and Community Development Law which going back 
several years has requested, to no avail, that the IRS clarify the law. 
This issue was placed on the 2017 Priority Guidance Plan, but no action 
has been taken.

    It is long past time for Congress to act to stop the exploitation 
of the Housing Credit program by outside investors who are taking 
advantage of an unclear law to generate windfall returns at the expense 
of nonprofit affordable housing. This provision, like the Qualified 
Contract provision, would save the Federal Government significant 
money, $553 million over 10 years according to the Joint Committee on 
Taxation.

                                 ______
                                 
      Questions Submitted for the Record to Benson (Buzz) Roberts
            
            Question Submitted by Hon. Robert P. Casey, Jr.
    
    Question. The pandemic taught us that congregate care settings are 
not always safe or the choice that many would make for their home. In 
fact, AARP reports that 90 percent of older adults and people with 
disabilities would choose to remain at home as they age.

    However, only about 10 percent of all homes are accessible for 
people with disabilities. That's a poor fit when our population is 
aging and 2 out of 5 older adults have a disability.

    The Federal Government currently spends over $50 billion every year 
on housing tax subsidies. From your perspective, does this spending do 
enough to incentivize the construction of housing that is accessible to 
the elderly and to people with disabilities?

    Answer. Of the estimated $82.7 billion in housing tax expenditures 
in 2022, only about $11.9 billion is directly associated with 
construction and rehabilitation ($10.9 billion for Low-Income Housing 
Tax Credits plus $1.0 billion for exclusion of interest on State and 
local government qualified private activity bonds for rental housing), 
per the Joint Committee on Taxation (JCX-23-20). State housing agencies 
have broad discretion in allocating these volume-limited development 
incentives, but they must address a wide range of needs. According to 
the National Council of State Housing Agencies, about 25 percent and 6 
percent of Housing Credit units receiving allocations in 2020 are 
targeted to serve elderly and disabled residents, respectively. In 
addition, elderly and disabled people also occupy other properties that 
are not specifically targeted to serve them. Expanding the volume of 
Housing Credits and private activity bonds would enable States to serve 
more low-income elderly and disabled renters. The most helpful changes 
would be to: (1) expand the Housing Credit allocation caps--which 
dropped in 2022 after a temporary 12.5-percent increase in allocated 
Housing Credit authority expired--by making the temporary 12.5-percent 
increase permanent and adding a further 50-percent increase; and (2) 
reduce from 50 percent to 25 percent the percent of project costs 
required to be financed from private activity bond proceeds in order to 
activate the full amount of 4-percent Housing Credits.

                                 ______
                                 
                Question Submitted by Hon. Bill Cassidy
    
    Question. Many federally supported affordable housing projects 
around the country also pair with other incentives, like the Historic 
Tax Credit. In the case of historic buildings, I have long been a 
supporter of the Historic Tax Credit and have a bill--the Historic Tax 
Credit Growth and Opportunity Act--that would make the first meaningful 
improvements to the Credit since it was made permanent in 1986. One of 
those changes, eliminating the basis adjustment, would make it easier 
to use the Affordable Housing Tax Credit and the Historic Tax Credit to 
ensure the most difficult buildings are rehabilitated and used for 
workforce and other housing. I look forward to working with Senator 
Cardin, Chairman Wyden, Ranking Member Crapo, and the rest of the 
committee to move this bill forward. It is my understanding that when a 
project uses both the Affordable Housing Tax Credit and the Historic 
Tax Credit, the tax rules operate to decrease the value of both credits 
because of the Historic Tax Credit's basis adjustment provision.

    Do you think more historic buildings would be made into affordable 
housing if the Historic Tax Credit's basis adjustment were eliminated, 
as it is in my bill?

    Answer. Yes. It would be entirely appropriate to eliminate the 
basis adjustment. The Historic Tax Credit is intended to offset the 
additional cost of rehabilitating historic structures to meet strict 
historic standards, not to make the properties affordable to low-income 
renters. Conversely, the Low-Income Housing Tax Credit is designed to 
enable the substantial rehabilitation (and new construction) of housing 
that is affordable, not to cover the incremental cost of meeting 
historic rehabilitation standards. The basis reduction under current 
law impedes historic rehabilitation of affordable rental housing.

               Questions Submitted by Hon. Chuck Grassley
    
    Question. I called for a GAO report on the LIHTC that was released 
on July 15, 2015. While the program is currently administered at the 
Federal level by the Internal Revenue Service, this report recommended 
giving the Department of Housing and Urban Development a joint 
oversight role.

    I have been a strong advocate of oversight as long as I have been 
in Congress. It is impossible to conduct meaningful oversight without 
consistent and available data on how programs perform, however I also 
understand the need to limit unnecessary paperwork for those 
participating in Federal programs.

    What impact would giving HUD a partnering oversight role have on 
the LIHTC program?

    Answer. We strongly support the reporting of consistent data on 
Federal program performance, including the Low-Income Housing Tax 
Credit. Indeed, HUD already publishes data on LIHTC tenants. To this 
end, we would support more data reporting at the property level, as 
well as specific authority for the Internal Revenue Service to share 
property-level data with HUD to facilitate data reporting and analysis 
without adding substantial new administrative burdens.

    However, we would not support joint administration of LIHTC between 
Treasury/IRS and HUD. In our experience, Treasury and the IRS have done 
a good job in carrying out their responsibilities. Moreover, Congress 
successfully designed LIHTC to limit unnecessary Federal involvement 
and ensure compliance. Instead of HUD selecting, underwriting, and 
monitoring properties--as was the case for previous affordable housing 
programs such as public housing--the States add their own priorities 
and policies to the limited number of Federal requirements and monitor 
and inspect properties. In addition, private investors, usually large 
corporations and their agents, carefully oversee project plans, 
development, and properties to ensure compliance with Federal and State 
rules with maximum efficiency. This approach has been highly 
successful, making LIHTC the Nation's most effective affordable housing 
production program ever. Adding another layer of administrative burden 
is unnecessary and would reduce LIHTC's efficacy.

    Question. It is no secret that housing costs have been increasing 
well before the current wave of inflation. While LIHTC has an impact on 
bringing more affordable units onto the market, the varied housing 
prices across the country indicate that local policies, such as zoning, 
have possibly the greatest role in determining housing costs.

    In addition, there are a wide variety of regulations at the Federal 
level, including HUD regulations, that increase the price of new homes 
and buildings.

    As Professor Ohanian noted in his testimony, there are currently a 
number of regulations that prevent affordable housing from being 
constructed. In addition to the LIHTC, what other options would be 
available to increase housing supply? How would these other options 
compare to the LIHTC in cost effectiveness? What factors at the State 
or local level are inhibiting the creation of affordable housing?

    Answer. We agree that States and localities should do more to 
encourage the production and preservation of affordable housing, 
including by reducing unnecessary regulations, exclusionary zoning, and 
excessively long and uncertain project approval processes. That said, 
building decent, affordable rental housing has not been financially 
feasible without significant public support for a century or longer, 
even in jurisdictions with relatively light regulatory regimes. The 
first Federal interventions, in the Great Depression of the 1930s, 
supported public housing for moderate-income families. Building 
affordable rental housing was not financially possible without 
subsidies then, in 1986 when LIHTC was enacted, or now. According to 
the Harvard Joint Center for Housing Studies, ``to develop new 
apartments affordable to renter households with incomes equivalent to 
the full-time minimum wage, the construction costs would have to be 28 
percent of the current average''--essentially making the financing 
impossible. https://www.jchs.harvard.edu/sites/jchs.harvard.
edu/files/ahr2011-4-stock.pdf.

                                 ______
                                 
                 Questions Submitted by Hon. Todd Young
    
    Question. Thank you for the support you expressed during the 
hearing for Senator Cantwell's and my Affordable Housing Credit 
Improvement Act (S. 1136). I wanted to follow up on our conversation 
with a couple additional questions.

    What are some of the positive externalities you believe the 
Affordable Housing Credit Improvement Act would have on communities 
across the country?

    Answer. We would expect the Affordable Housing Credit Improvement 
Act to amplify the same positive externalities that Housing Credit 
properties have generated for the past 35 years.

        First and foremost, the Act would produce more high quality 
affordable rental apartments--more than 2 million more than would 
otherwise be produced, according to the Novogradac accounting and 
consultancy firm.
        Economic benefits would be substantial. For every 100 new 
Housing Credit units, an estimated 186 jobs are supported and an 
estimated $7.4 million in tax revenue and $21.2 million in wages and 
business income are generated. For every 100 rehabilitated Housing 
Credit units, an estimated 128 jobs are supported and an estimated $4.9 
million in tax revenue and $14.3 million in wages and business income 
are generated.
        Affordable housing also saves Federal, State, and local 
governments' valuable dollars through reductions in Medicare, Medicaid, 
police services, and other spending.
        Stanford University researchers have found that Housing Credit 
properties help to revitalize distressed low-income neighborhoods, 
lifting the value of nearby properties and reducing crime and economic 
and racial isolation.
        Research by staff of the Joint Committee on Taxation shows 
that children residing in Housing Credit properties are more likely to 
increase their educational attainment and these gains increase for each 
year of residency.

    The Housing Credit is a Federal housing policy that delivers much 
more than good housing.

    Question. Why is it important and necessary that we pass the 
Affordable Housing Credit Improvement Act this year?

    Answer. The need for affordable housing is urgent. Housing is less 
affordable now than it has been in 15 years.\1\ Home prices rose 18.8 
percent and rent climbed 17.6 percent in 2021.\2\ Last October, about 
half of Americans (49 percent) called the availability of affordable 
housing in their local community a major problem. That is more than 
cited drug addiction (35 percent), COVID-19 economic and health impacts 
(34 percent and 26 percent), and crime (22 percent), according to Pew 
Research.\3\ Housing is the single largest cost the average household 
faces.
---------------------------------------------------------------------------
    \1\ https://www.nar.realtor/blogs/economists-outlook/
housingaffordabilitydrops-as-mortgage-payments-spike-51-from-may-2021.
    \2\ https://www.politico.com/news/2022/03/18/housing-costs-
inflation-00015808.
    \3\ https://www.pewresearch.org/fact-tank/2022/01/18/a-growing-
share-of-americans-say-affordable-housing-is-a-major-problem-where-
they-live/.

    Housing costs are not just a casualty of inflation, but also a 
driver of inflation. Home prices rose 11 percent in 2020,\4\ when 
overall inflation was 1.4 percent.\5\ Housing represents more than 30 
percent of the CPI. As economists Mark Zandi and Jim Parrot recently 
wrote: ``If policymakers are serious about reining in inflation, then 
they have little choice but to take on the shortfall in housing supply. 
. . . While the other drivers of inflation are set to ease in the 
coming months, the shortfall in housing isn't going anywhere unless 
policymakers do something.''\6\
---------------------------------------------------------------------------
    \4\ https://www.mba.org/docs/default-source/research-and-forecasts/
forecasts/forecast-commentary-april-2022.pdf?sfvrsn=a5365ab7_2.
    \5\ https://www.bls.gov/news.release/archives/cpi_01132021.htm.
    \6\ https://www.washingtonpost.com/business/2022/01/31/if-
policymakers-are-serious-about-tackling-inflation-they-need-address-
soaring-housing-costs/.

    The affordability problem started in high-growth coastal markets 
but is now nationwide. From 2012 to 2019, supply worsened in 47 States 
and the District of Columbia. Among 310 metropolitan areas nationwide, 
supply was shrinking or shortages were growing worse in three-quarters 
of them heading into the pandemic. Boise, for example, was short 13,000 
housing units in 2019, equivalent to about 5 percent of the region's 
housing stock.\7\
---------------------------------------------------------------------------
    \7\ https://www.nytimes.com/2022/07/14/upshot/housing-shortage-
us.html.

    This problem has been building for years because we have not been 
building enough housing for years, especially lower cost homes and 
apartments. ``Total housing stock grew at an average annual rate of 1.7 
percent from 1968 through 2000,'' but only 0.7 percent over the last 
decade. The shortfall over the past 20 years is as much as 6.8 million 
units.\8\ And, although multifamily construction is now rising, it is 
mostly aimed at the luxury market, while the worst supply shortages are 
for lower cost housing.\9\
---------------------------------------------------------------------------
    \8\ https://www.politico.com/news/2022/03/18/housing-costs-
inflation-00015808.
    \9\ https://www.bloomberg.com/news/articles/2022-07-13/rents-in-us-
rise-at-fastest-pace-since-1986-buoying-inflation?srnd=premium.

    Moreover, in the past, supply increases at the top end of the 
market would ``filter down'' to ease affordability at all price points, 
but now we are seeing some markets where supply shortages are so great 
that prices for older properties are ``filtering up.''\10\
---------------------------------------------------------------------------
    \10\ https://www.huduser.gov/portal/pdredge/pdr-edge-featd-article-
061520.html.

    In other words, we are literally paying the price for failing to 
produce and preserve enough housing, especially for low- and moderate-
income people and communities, where the needs are greatest. Because 
the obstacles to housing production will take years to address, we must 
---------------------------------------------------------------------------
get started right away.

                                 ______
                                 
       Prepared Statement of Hon. Dana T. Wade, Chief Production 
                Officer, FHA Finance, Walker and Dunlop
    
    Chairman Wyden, Ranking Member Crapo, and other members of this 
committee, thank you for the opportunity to testify today. My name is 
Dana Wade, and I am a chief production officer at Walker and Dunlop 
(NYSE: WD), and former Commissioner of the Federal Housing 
Administration and Assistant Secretary at the Department of Housing and 
Urban Development. I was also a former staffer for both the Senate 
Banking and Appropriations Committees, so it is a special honor for me 
to be on the other side of the dais.

    Walker and Dunlop, where I work, is one of the largest providers of 
capital to the multifamily industry in the United States, and the 
fourth-largest lender for all commercial real estate. We are based in 
Bethesda, MD and employ over 1,400 people across the country. As a top 
affordable housing lender and the sixth largest Low-Income Housing Tax 
Credit syndicator, we see every day both the need to produce more 
affordable housing and the barriers that stand in the way.

    This committee's hearing on the topic comes at a time when the need 
for decent, safe, and affordable housing has never been more critical. 
Make no mistake about it, our Nation has faced an affordable housing 
crisis for years, which has only been exacerbated by the COVID-19 
pandemic as well as inflationary pressures that have driven up costs 
for food, gas, and other essentials.

    According to nonprofit Up for Growth's report, ``Housing 
Underproduction in the U.S.,'' the housing deficit has more than 
doubled in recent years, resulting in a current shortage of 3.8 million 
homes.\1\ While that number is almost hard to grasp--and some estimates 
even double it--it does paint a very real picture of what Americans 
face in their day-to-day lives. People simply do not have adequate 
access to good, quality housing near their places of work or their 
children's schools.
---------------------------------------------------------------------------
    \1\ Up for Growth, ``Housing Underproduction in the U.S. 2022,'' 
July 18, 2022, https://upforgrowth.org/apply-the-vision/housing-
underproduction/.

    Further, Up for Growth reported, ``In October, 2021, nearly half of 
all Americans said that the availability of affordable housing was a 
significant issue in their local community, up 10 percentage points 
from 2018. In a ranking of community concerns, housing affordability 
outpolled drug addiction, the economic and health effects of COVID-19, 
and crime.''\2\
---------------------------------------------------------------------------
    \2\ Up for Growth, ``Housing Underproduction in the U.S. 2022,'' 
July 18, 2022, https://upforgrowth.org/apply-the-vision/housing-
underproduction/.

    Millions of Americans spend hours and hours in cars, and on trains, 
buses and other means of transit going back-and-forth between work and 
home, because they cannot afford to live closer to work. And most of 
them do not have the option to work virtually. Many spend more time in 
transit than they do with their families, which robs them of the 
ability to do things like have family dinners, help their children with 
homework, and attend school sports games, just to name a few. And the 
alternative is often making the choice to live in less desirable, and 
more distressed neighborhoods, which brings with it a range of problems 
including crime, subpar education, lack of health care, and an aging 
---------------------------------------------------------------------------
housing stock.

    The bottom line is that millions of Americans are just tapped out: 
over 10 million low-income households spend more than half of their 
monthly income on rent.\3\ That's 25 percent of all renters. And this 
is not a problem limited to certain urban areas or high-cost cities 
like New York, San Francisco, and Washington, DC. Lack of affordable 
housing supply is a challenge across the country in urban, suburban, 
and rural areas where a plethora of constraints such as labor 
shortages, land restrictions, and building cost increases have limited 
the creation of new housing units.
---------------------------------------------------------------------------
    \3\ Joint Center for Housing Studies of Harvard University, 
``America's Rental Housing 2022,'' https://www.jchs.harvard.edu/sites/
default/files/reports/files/Harvard_JCHS_Americas_Rent
al_Housing_2022.pdf.

    Given the widespread and acute need for more affordable housing, 
this committee's consideration of legislation, The Affordable Housing 
Credit Improvement Act, which would both expand and improve the Low-
---------------------------------------------------------------------------
Income Housing Tax Credit (LIHTC), is an important step forward.

    Since its enactment by President Ronald Reagan in 1986, LIHTC has 
financed the development of nearly 3.5 million affordable rental homes 
across the country.\4\ The Housing Credit has supported over 8 million 
low-income households.\5\ These include veterans of the armed forces, 
senior citizens, formerly homeless families and individuals, people 
recovering from opioid addiction, people with disabilities, and low-
wage workers.
---------------------------------------------------------------------------
    \4\ Novogradac, ``DASH Act's Middle-Income Housing Tax Credit Would 
Finance 344,000 Affordable Rental Homes for Households Just Above LIHTC 
Income Limits,'' Dirk Wallace and Peter Lawrence, September 2, 2021, 
https://www.novoco.com/notes-from-novogradac/dash-acts-middle-income-
housing-tax-credit-would-finance-344000-affordable-rental-homes-
households.
    \5\ Affordable Housing Finance, Factsheet, August 13, 2020, https:/
/www.housingfinance.com/news/updated-fact-sheets-show-lihtcs-impact_o.

    Virtually no new affordable housing is built today without the 
---------------------------------------------------------------------------
Housing Credit, period.

    I'd like to provide a real-world example of LIHTC's impact in 
communities. We recently financed and provided LIHTC equity for a 100-
unit affordable townhouse development in Cayce, SC called Abbott Arms. 
Ninety-seven percent of Abbott Arms residents use Housing Choice 
Vouchers, and the property will restrict rents on 100 percent of the 
units to 60 percent of area median income (AMI). In addition, the 
owners have partnered with a local non-profit to hire a full-time 
Community Life Director who will focus on creating community 
partnerships and coordinating services and activities for the 
residents. These include monthly community gatherings, holiday events, 
partnerships with local food pantries, children's programs, adult 
education programs, and elderly care. In addition, a full-time on-site 
learning coach will help provide tutoring services for school-age 
children at no cost to residents.

    Having a secure and stable place to live will increase the quality 
of life for these residents and allow them to have a better economic 
future. We have many other examples across-the-board of LIHTC 
properties housing formerly homeless populations, seniors, military 
veterans, as well as working families.

    In addition, there are added benefits of the LIHTC program, 
including lower vacancies in LIHTC properties, very strong protections 
for affordability like a 15-year compliance period and the ability to 
claw back credits, and a low cumulative foreclosure rate of about 0.57 
percent.

    LIHTC, while a cornerstone for affordable housing, is one part of 
the housing ecosystem. The efficacy of LIHTC and other housing programs 
that can bridge the affordability gap and increase the housing stock is 
at risk without serious and meaningful reforms that reduce regulatory 
barriers at the Federal, State, and local levels.

    When you pass an apartment building on a busy street housing 
hundreds of families, it is the outcome of a long, complex, and 
sometimes arduous, process. It involves extensive underwriting and 
diligence to adhere to governmental standards by companies like Walker 
and Dunlop as the tax-credit syndicator, lender, and risk manager. It 
involves layers of planning, reviews, government approvals, and the 
hard work and financial investment of the development partners. It 
involves hundreds of American jobs throughout planning, design, and 
construction, and requires dozens of materials transported and made by 
Americans.

    A lot has to go right to produce multifamily housing, and a lot can 
go wrong.

    Quite literally, unnecessary bureaucratic hurdles can make or break 
a project. An estimated 40 percent of development costs can be 
attributed to regulation at the Federal, State, and local levels.\6\
---------------------------------------------------------------------------
    \6\ National Multifamily Housing Council and National Association 
of Home Builders, Regulation, Paul Emrath and Caitlin Sugrue Walter, 
2022, https://www.nmhc.org/globalassets/research--insight/research-
reports/cost-of-regulations/2022-nahb-nmhc-cost-of-regulations-report.
pdf.

    As one example at the Federal level, HUD's current 75-decibel limit 
on noise at the potential development site is outdated and prevents 
many transit-oriented projects from being built. In addition, the 
unpredictability and lack of clarity when it comes to environmental and 
labor requirements compound timing issues for construction projects. 
All the while, labor and material costs are at record highs, and 
securing contractors and storing building products are especially time-
sensitive tasks. Waiting for governmental reviews and decisions 
involving Federal statutes such as the National Environmental Policy 
Act (NEPA) can take months and jeopardize the project. And that is just 
at the Federal level. The fate of affordable multifamily housing really 
---------------------------------------------------------------------------
rests in the hands of local jurisdictions.

    A recent article in The New York Times, which focuses on the surge 
of homelessness, discusses issues impeding housing at the State and 
local levels. It cites the example of zoning policies across the State 
of California, where laws in both Los Angeles and San Francisco 
restrict 76 and 85 percent of land for single-family housing, 
respectively. The article states that ``California has 23 available 
affordable homes for every 100 extremely low-income renters--among the 
worst rates of any State.''\7\
---------------------------------------------------------------------------
    \7\ The New York Times, ``Homeless in America,'' German Lopez, July 
15, 2022, https://www.nytimes.com/2022/07/15/briefing/homelessness-
america-housing-crisis.html.

    Zoning policies like density limits, requirements for parking, 
height restrictions, lengthy permitting and approval processes, and 
other land-use restrictions create a perfect storm that can often 
---------------------------------------------------------------------------
stymie new development.

    That said, some local jurisdictions have reached their breaking 
point and are making positive reforms. States including California, 
Oregon, and Maine have all recently passed some form of legislation to 
end single-family zoning and allow the construction of more than one 
home per parcel of land.\8\
---------------------------------------------------------------------------
    \8\ NPR, ``There's a massive housing shortage across the U.S.,'' 
Arnold, Benincasa, Ganun, and Chu, July 14, 2022, https://www.npr.org/
2022/07/14/1109345201/theres-a-massive-housing-shortage-across-the-u-s-
heres-how-bad-it-is-where-you-l. 

    Similarly, experts at the Urban Land Institute (ULI) recently 
worked with the city of Boise, ID to tackle the growing affordability 
issues in the area, which accelerated as a result of migration to 
southwest Idaho during the COVID-19 pandemic. In fact, Zillow reported 
a 59-percent increase in housing prices during the first quarter of 
2022 alone.\9\ ULI's recommendations include changing land-use policies 
to allow density in an expanded city core and other commercial centers, 
as well as creating incentives for development and lower-cost units 
like fee and permit waivers, fast-track permitting, and streamlining of 
local reviews for affordable units.\10\
---------------------------------------------------------------------------
    \9\ Up for Growth, ``Housing Underproduction in the U.S. 2022,'' 
July 18, 2022, https://upforgrowth.org/apply-the-vision/housing-
underproduction/.
    \10\ Up for Growth, ``Housing Underproduction in the U.S. 2022,'' 
July 18, 2022, https://upforgrowth.org/apply-the-vision/housing-
underproduction/.

    While zoning and other issues are the purview of local citizens and 
their governments--as they should be--policymakers at the Federal level 
can provide a forum for best practices and use other Federal resources 
such as LIHTC to encourage the development of housing. In addition, 
given the many pieces that must work together to make housing more 
affordable, it is essential that the private sector as well as 
government at all levels standardize policies, practices, and 
---------------------------------------------------------------------------
timelines.

    For instance, during my tenure as FHA Commissioner, HUD announced a 
pilot program that would better integrate FHA financing with Federal 
Housing Credits. It has largely been a success, providing thousands of 
affordable units, but it is just one smaller solution to a bigger 
problem.

    We need both the combination of a lot of smaller solutions as well 
as the big ideas to solve the housing crisis. I appreciate the work of 
this committee in considering policies to make housing more accessible, 
secure, and affordable, and am happy to answer any questions you have.

                      Appendix--LIHTC Case Studies

Kentonwood Apartments (Portland, OR):

Walker and Dunlop financed Kentonwood Apartments, a 44-unit, 100-
percent 
income-restricted development in Portland, OR's Kenton neighborhood.

      To finance the development, our team secured a combination of 
financing sources, including a $3,030,000 Federal Low Income Housing 
Tax Credit (``LIHTC'').

      Kentonwood Apartments will address the needs for affordable 
housing in an expensive market, offering rental housing for low- and 
moderate-income households. The development will offer 44 apartment 
units, comprised of a mix of studio and three-bedroom unit types within 
one, 5-story walk-up apartment building on a 0.13 acre site 
in the Kenton neighborhood of North Portland. The property is also 
located in the Interstate Corridor Urban Renewal Area (ICURA). All of 
the units will be targeted to households meeting 60 percent or less of 
the Area Median Income (AFI) restrictions for the market area.

      Amenities will include a community amenity room, courtyard, bike 
room, and high-speed Internet, all with Energy Star appliances and 
other resource-
efficient measures for sustainable energy use. The subject is located 
very near the Max Light Rail Kenton Station and offers easy bus 
access--this will be a walkable, transit-oriented, and diverse 
community.

Amber Woods (Indianapolis, IN):

Amber Woods, financed by Alliant Capital (now part of Walker and 
Dunlop), involved the acquisition and rehabilitation of 200 LIHTC units 
for families earning less than 60 percent of the area median income in 
Indianapolis, IN.

      Amber Woods is a two-phase development with one-, two-, and 
three-bedroom apartments. Twenty units are set aside for families with 
disabilities and the units are fully accessible.

      Social services will be provided by Pathway, Community Alliance 
of the Far Eastside, and United Way, along with tenant services 
provided through the management company, which will include: quarterly 
resident meetings, holiday events, a monthly development newsletter, 
and a social service coordinator.

      Community Alliance of the Far Eastside will provide residents 
with a food pantry and clothing pantry as referred by the management 
company and summer youth activity referrals. Pathway will provide 
residents with classes in resume building, computer training, and 
after-school activities. The Property Manager will provide residents 
with referrals to agencies providing counseling services.

      All social services are being provided at no cost to the 
residents.

Abbott Arms (Cayce, SC):

Walker and Dunlop recently financed and provided LIHTC equity for a 
100-unit affordable townhouse development in Cayce, SC called Abbott 
Arms.

      97 percent of Abbott Arms residents use Housing Choice Vouchers, 
and the property will restrict rents on 100 percent of the units to 60 
percent of area median income (AMI).

      The owners have partnered with a local non-profit to hire a 
full-time Community Life Director who will focus on creating community 
partnerships and coordinating services and activities for the 
residents. These include monthly community gatherings, holiday events, 
partnerships with local food pantries, children's programs, adult 
education programs, and elderly care.

      In addition, a full-time, on-site learning coach will help 
provide tutoring services for school-age children at no cost to 
residents.

                                 ______
                                 
        Questions Submitted for the Record to Hon. Dana T. Wade
             
             Questions Submitted by Hon. Michael F. Bennet
    
    Question. In Colorado, homelessness increased 2.4 percent in 2020, 
and now affects nearly 10,000 people. The rise in homelessness is 
directly linked to our severe lack of affordable housing. Rents are 
rising faster than incomes in virtually every part of the State, and 
today more than a quarter of Coloradans are ``cost-burdened,'' meaning 
they spend more than 30 percent of their income on housing.

    How would expanding LIHTC and other effective Federal programs 
reduce the number of people experiencing homelessness? What can and 
should the private sector do to be part of the solution to this crisis?

    Answer. As described by the National Alliance to End Homelessness, 
``The solution to homelessness is straightforward: housing.''\1\ I 
agree that the lack of affordable housing and homelessness are 
inextricably linked. Expanding the supply of affordable housing in the 
areas hardest hit by rent and other cost increases is a necessary step 
towards eradicating homelessness.
---------------------------------------------------------------------------
    \1\ The National Alliance to End Homelessness, ``Housing,'' updated 
January 2020: Housing--National Alliance to End Homelessness, https://
endhomelessness.org/homelessness-in-america/what-causes-homelessness/
housing/.

    Working families who are priced out of neighborhoods and at risk 
for dislocation can be given access to decent, safe, and affordable 
housing through programs like the LIHTC in conjunction with private-
sector development, a concerted effort to reduce regulatory barriers to 
---------------------------------------------------------------------------
housing, and other assistance at the Federal, State, and local levels.

    Solving chronic homelessness in cities like Denver, CO requires 
rapid re-housing to immediately get people off the streets as well as 
more permanent, supportive housing once they are back on their feet. 
Every individual has unique challenges which must be addressed not only 
through shelter, but also through supportive services that provide 
health care, substance abuse counseling, job training, and other 
necessary functions. The private sector can and should work with 
nonprofits and governmental entities to combine affordable housing 
development with these supportive services.

    We at Walker and Dunlop and Alliant Capital have financed multiple 
LIHTC properties designed to house formerly homeless populations in 
partnership with local nonprofits and other governmental programs. One 
example is the Olin Hotel, a historic building in downtown Denver, CO. 
We helped to finance the substantial rehabilitation and construction of 
112 units using both LIHTC equity and HUD's section 8 program, as well 
as support from both the city of Denver and the State of Colorado. The 
project produced rental units for formerly homeless and low-income 
seniors and was sponsored by Senior Housing Options, a Colorado 
nonprofit corporation that provides both housing and supportive 
services for at-risk populations.

    The LIHTC is a program targeted towards the Nation's most 
vulnerable populations, including the homeless, many of whom are our 
Nation's veterans, seniors, persons with disabilities, people 
recovering from opioid addictions, and low-income families. Increasing 
the supply of the LIHTC will allow for more of these projects to be 
built and paired with the essential services to keep individuals off 
the streets.

    In addition, we would be happy to meet with you and your staff any 
time in the future to discuss additional ways that Walker and Dunlop 
can help to address the challenging issues of homelessness and the lack 
of affordable housing.

                                 ______
                                 
               Questions Submitted by Hon. Chuck Grassley
    
    Question. I called for a GAO report on the LIHTC that was released 
on July 15, 2015. While the program is currently administered at the 
Federal level by the Internal Revenue Service, this report recommended 
giving the Department of Housing and Urban Development a joint 
oversight role.

    I have been a strong advocate of oversight as long as I have been 
in Congress. It is impossible to conduct meaningful oversight without 
consistent and available data on how programs perform, however I also 
understand the need to limit unnecessary paperwork for those 
participating in Federal programs.

    What impact would giving HUD a partnering oversight role have on 
the LIHTC program?

    Answer. I agree that strong oversight of the LIHTC program is 
essential to protect taxpayers as well as to ensure that the tax 
credits are delivering on the mission to produce much-needed affordable 
housing. Thank you for your leadership in ensuring that Federal dollars 
are used efficiently and effectively.

    As I mentioned in my testimony, since its enactment by President 
Ronald Reagan in 1986, LIHTC has financed the development of about 3.5 
million affordable rental homes across the country and supported over 8 
million low-income households.\2\ It is virtually the only source of 
Federal support for the new construction of affordable housing. In 
addition, by certain measures, the LIHTC has historically performed 
well: LIHTC properties have lower vacancies and a low cumulative 
foreclosure rate of about 0.57 percent.
---------------------------------------------------------------------------
    \2\ Novogradac, ``DASH Act's Middle-Income Housing Tax Credit Would 
Finance 344,000 Affordable Rental Homes for Households Just Above LIHTC 
Income Limits,'' Dirk Wallace and Peter Lawrence, September 2, 2021, 
https://www.novoco.com/notes-from-novogradac/dash-acts-middle-income-
housing-tax-credit-would-finance-344000-affordable-rental-homes-
households; Affordable Housing Finance, Factsheet, August 13, 2020, 
https://www.housingfinance.com/news/updated-fact-sheets-show-lihtcs-
impact_o.

    Strong private-sector oversight of the LIHTC is one important 
component of the program. For example, the program allows for a 
recapture of credits in the event of noncompliance during the 15-year 
affordability period. Specifically, if a property ceases to provide the 
required affordability levels, a portion of the tax credits are 
recaptured, and program participants can be blocked from future credit 
---------------------------------------------------------------------------
allocations.

    In addition to private-sector compliance standards and the 
oversight of the Department of the Treasury, the Government 
Accountability Office (GAO) has recommended that the Department of 
Housing and Urban Development (HUD) provide another layer of 
supervision for the LIHTC. HUD is the primary agency for enforcing 
Federal housing laws and administering Federal housing programs. Should 
HUD receive the authority to oversee the LIHTC program, it has several 
existing enforcement mechanisms in place, including the Real Estate 
Assessment Center (REAC) and the Departmental Enforcement Center (DEC). 
HUD also has several offices with strong program knowledge in 
affordable housing and development, such as the Federal Housing 
Administration (FHA) and the Office of Community Planning and 
Development (CPD).

    While HUD does have strong expertise in these areas, any additional 
oversight of the LIHTC program should complement protections already in 
place, have clearly defined roles and responsibilities, and mitigate 
regulatory and compliance burdens for the private sector.

    Question. It is no secret that housing costs have been increasing 
well before the current wave of inflation. While LIHTC has an impact on 
bringing more affordable units onto the market, the varied housing 
prices across the country indicate that local policies, such as zoning, 
have possibly the greatest role in determining housing costs.

    In addition, there are a wide variety of regulations at the Federal 
level, including HUD regulations, that increase the price of new homes 
and buildings.

    As Professor Ohanian noted in his testimony, there are currently a 
number of regulations that prevent affordable housing from being 
constructed. In addition to the LIHTC, what other options would be 
available to increase housing supply? How would these other options 
compare to the LIHTC in cost effectiveness? What factors at the State 
or local level are inhibiting the creation of affordable housing?

    Answer. Yes, regulatory barriers at both the local and Federal 
level are big determinants of how much housing supply can be brought to 
market. As I mentioned in my testimony, unnecessary bureaucratic 
hurdles can make or break a project. The National Multifamily Housing 
Counsel and the National Association of Homebuilders estimate that 40 
percent of development costs can be attributed to regulation at all 
levels.\3\
---------------------------------------------------------------------------
    \3\ National Multifamily Housing Council and National Association 
of Home Builders, Regulation, Paul Emrath and Caitlin Sugrue Walter, 
2022, https://www.nmhc.org/globalassets/research--insight/research-
reports/cost-of-regulations/2022-nahb-nmhc-cost-of-regulations-
report.pdf.

    At the Federal level, HUD policies such as outdated noise 
requirements as well as the unpredictability and lack of clarity around 
certain environmental and labor rules only compound cost increases 
---------------------------------------------------------------------------
caused by the current unavailability of labor and materials.

    I agree, however, that the fate of affordable multifamily housing 
rests in the hands of local jurisdictions. Zoning policies such as 
density limits, parking requirements, height restrictions, and lengthy 
permitting processes have all had a dramatic impact on the ability to 
build new, affordable housing. Shortages of affordable housing 
exacerbate other problems such as homelessness and also add hours to 
the commuting times of millions of working Americans.

    Federal programs, including LIHTC, will not live up to their 
potential and will end up costing taxpayers more money unless 
communities work to eradicate these barriers to affordable housing.

    I believe that the Federal Government can provide a forum for the 
best practices of local governments, which include policies such as 
fast-track permitting, pilot programs for increased density, and 
``countdown clocks'' for local reviews. No local jurisdiction is alike 
and every community should determine its own zoning rules, but there 
are many examples of commonsense policies that eliminate waste and red 
tape, and can have a meaningful difference in how people live and work.

    Currently, LIHTC is virtually the only Federal program that 
produces new affordable housing. Many other capital sources come 
together in order to increase the overall housing supply, however. The 
multifamily housing market is diverse and has multiple players; 
including developers, HUD, Fannie Mae and Freddie Mac, banks, insurance 
companies, nonprofits, and other financial services entities. LIHTC 
must work with other debt and equity sources that provide the financing 
and capital needed to execute a new construction project. It serves as 
an offset to the cost of providing lower rents; without LIHTC or 
similar programs, such as FHA financing or Federal, State and local 
grants, many properties would lose the ability to offer lower rents as 
doing so would not be financially feasible.

                                 ______
                                 
                 Questions Submitted by Hon. Todd Young
    
    Question. Thank you for the support you expressed during the 
hearing for Senator Cantwell's and my Affordable Housing Credit 
Improvement Act (S. 1136). I wanted to follow up on our conversation 
with a few additional questions.

    Why do you support the Affordable Housing Credit Improvement Act, 
and how do you believe it will impact the populations Walker and Dunlop 
serves?

    Can you please share what it is that makes the Low-Income Housing 
Tax Credit so effective in addressing the affordable housing crisis?

    What are some of the positive externalities you believe the 
Affordable Housing Credit Improvement Act would have on communities 
across the country?

    Why is it important and necessary that we pass the Affordable 
Housing Credit Improvement Act this year?

    Answer. Thank you for leading on the important issue of bringing 
more affordable housing units to market.

    Walker and Dunlop sees every day the urgent need to increase the 
housing supply and make more available decent, safe, and affordable 
rental units for millions of Americans. The bipartisan Affordable 
Housing Credit Improvement Act (AHCIA) would strengthen and increase 
the LIHTC, which is the most effective Federal program for the 
development of new, affordable housing.

    Given the acute need for lower-cost housing, the LIHTC is 
oversubscribed in many states across the country for both 9-percent and 
4-percent credits. As a result, developers are facing costly delays 
that can jeopardize the success of affordable projects.

    AHCIA would relieve the burden on states and help create millions 
of additional rental units by legislating the following: an increase in 
the supply of the 9-percent credit by 25 percent; a decrease in the 
private activity bond (PAB) threshold to improve the feasibility of 
LIHTC projects; and an increase in the basis for 4-percent credits to 
generate more equity.

    As I mentioned in my testimony, the LIHTC is virtually the only 
Federal program that allows for the new construction of affordable 
properties. Since its inception, LIHTC has helped create over 3.5 
million affordable rental homes.\4\ Its success has been possible 
because it is an incentive-based program that allows the private sector 
to take a leading role in financing, development, and risk-taking. 
Multiple entities involved in the deal--from developers, to lenders, to 
nonprofits and community organizations, to Federal and local 
governments--all have a stake in ensuring the project is built and 
affordability targets are met for residents.
---------------------------------------------------------------------------
    \4\ Novogradac, ``DASH Act's Middle-Income Housing Tax Credit Would 
Finance 344,000 Affordable Rental Homes for Households Just Above LIHTC 
Income Limits,'' Dirk Wallace and Peter Lawrence, September 2, 2021, 
https://www.novoco.com/notes-from-novogradac/dash-acts-middle-income-
housing-tax-credit-would-finance-344000-affordable-rental-homes-
households.

    In addition, there are many positive benefits of increasing the 
supply of affordable housing. First of all, stable and secure housing 
leads to positive outcomes such as reduced commuting times, better 
health outcomes, access to better education for children, increased 
labor availability for community-based jobs, and the list continues. I 
give one example in my testimony of the hours and hours many Americans 
spend commuting to and from work, which reduces the amount of time they 
spend with their families and significantly decreases their quality of 
life. Further, families forced to lived in distressed neighborhoods to 
secure housing that they can afford are faced with other problems like 
---------------------------------------------------------------------------
crime, lack of health care, and a shortage of good schools.

    LIHTC is one crucial tool to incentivize the creation of affordable 
housing, which has led to an improved standard of living and the 
ability to climb the economic ladder for millions of American families.

    Question. In May 2021, I reintroduced my Yes In My Back Yard 
(YIMBY) Act with Senator Schatz to shine a light on discriminatory land 
use policies, encourage localities to cut burdensome regulations, and 
bring a new level of transparency to the community development process. 
This bill would require Community Development Block Grant (CDBG) 
recipients to go on the record with why they are not adopting specific 
pro-affordability and anti-discriminatory housing policies.

    Do you support my Yes In My Back Yard Act? Why or why not?

    Answer. I do support increased transparency to the American public 
and Congress for the Community Development Block Grant (CDBG), which 
will lead to better accountability of recipients and the ability to 
track and measure the outcomes of funding allocated.

    The YIMBY Act sheds light on many of the harmful regulatory 
barriers that prevent affordable housing development, such as high-
density zoning, other limited zoning practices, disincentives for 
innovation, minimum lot sizes, height restrictions, certain 
preservation requirements, lengthy permitting processes, noise 
thresholds for transit-oriented communities, and other policies.

    Incentives that break down these barriers to affordable housing 
would improve the ability of communities to increase the housing stock. 
While zoning and other land-use decisions are and should be in the 
hands of local jurisdictions, the Federal Government can encourage best 
practices in order to make housing affordability a ``race to the top'' 
across the country.

    Question. How would this bill increase housing stock across the 
country?

    Answer. My written testimony mentions that the efficacy of LIHTC 
and other housing programs designed to bridge the affordability gap and 
increase the housing stock is at risk without serious and meaningful 
reforms that reduce regulatory barriers at the Federal, State, and 
local levels. Unless action is taken to eradicate these obstacles, the 
housing supply will continue to be insufficient to meet the demands for 
rental units across the country, causing acute shortages and 
exacerbating the affordability crisis in high-cost areas.

                                 ______
                                 
                 Prepared Statement of Hon. Ron Wyden, 
                       a U.S. Senator From Oregon
    
    The Finance Committee meets this morning to discuss housing. This 
hearing comes at a time when Americans' are getting clobbered by 
climbing rents and home prices--key drivers of inflation.

    Data released last week showed that rents increased in June at the 
fastest rate since 1986. Buying a home is also getting more expensive. 
Many young people who have modest incomes or big student loan debts 
feel like the dream of owning their own home is unattainable.

    The root cause is, the U.S. simply isn't building enough housing. 
It's been that way for decades, and the shortage is affecting cities of 
all kinds. For example, my hometown of Portland has skyrocketing rents 
and a low supply of suitable housing. It's also an issue in central 
Oregon, southern Oregon, and eastern Oregon, where they can't build 
housing fast enough to keep up with demand. I'd wager that every member 
of the committee could tell a similar story about their home States.

    I'd like to raise a relatively new issue that deserves real 
scrutiny: private equity firms and sophisticated companies armed with 
terabytes of housing data are hoovering up properties nationwide. 
They're jacking up rents. They're using algorithms to outbid aspiring 
American homeowners. Why do these big guys want to get into the 
American housing market? Because there are upward of 330 million people 
in this country, and there aren't nearly enough homes for all of them. 
Huge demand, limited supply--typical people on a budget are going to 
come out on the losing end of that deal every time.

    The cost of housing is also getting pushed up by the snarls of 
State and local red tape. Zoning rules too often ban the kind of 
construction that's badly needed and perpetuate segregation. In some 
places it can take years of tireless work to get a ruling on permits 
and approval for new construction, and then come the big up-front 
costs. Fortunately, my home State of Oregon is one of the States that's 
stepping up on this issue, and others need to do the same.

    It's also a fact that when housing costs go up, homelessness goes 
up. You can save a lot of individual suffering and taxpayer dollars 
tomorrow by building more housing today.

    The bottom line is, when it comes to housing, the U.S. needs to 
build and build some more. The Finance Committee plays an important 
role in helping get shovels in the ground. That's because much of 
housing policy deals with tax policy, and there are a lot of ideas in 
this room.

    I've proposed the DASH Act. It stands for Decent, Affordable, and 
Safe Housing for All. It's all about getting help to the most 
vulnerable: children and families experiencing homelessness. It would 
also create a credit for more affordable rental units, boost the Low-
Income Housing Tax Credit, and encourage the construction of more 
middle-income housing without taking one single penny away from LIHTC. 
Local officials in Oregon tell me they badly need more incentives to 
build housing for 
middle-class families.

    The Finance Committee has had a bipartisan coalition working on 
important housing issues for a long time. In recent years Senator 
Cantwell has been the champion of LIHTC, leading big legislative 
expansions that are creating more than 150,000 new affordable homes. I 
think she'd agree that's a good down payment for housing, and looking 
ahead, there's so much more to do.

    Her next proposal is the Affordable Housing Credit Improvement Act, 
which I cosponsored with Senator Young and Senator Portman. That bill 
would add even more punch and even more flexibility to build even more 
affordable housing--an estimated 2 million new units nationwide.

    Senator Cardin and Senator Portman have proposed a bill called the 
Neighborhood Homes Investment Act that would be a big magnet for new 
affordable housing in struggling communities that need it most.

    And finally, continuing our bipartisan focus with Senator Crapo's 
help, Senators Leahy, Collins, and I wrote the LIFELINE Act. Our bill 
would create more flexibility for States, local governments, and Tribes 
to use existing funds to get more affordable housing built. With costs 
where they are today, the alternative is a whole lot of unfinished 
construction and plans that stall out before they ever get going.

    While there's bipartisan interest in getting this done 
legislatively, the Treasury also has the authority to accomplish a lot 
of this on its own with rule changes. So, if the Congress and the 
Treasury move forward together, this can get done a lot quicker than it 
would if Congress moves alone, and I'll be discussing this with the 
administration directly.

    Clearly there are a lot of big ideas out there for housing. Every 
member of this committee has an interest in getting more affordable 
housing built back home. So I look forward to our discussion today, and 
I thank our witnesses for joining us.

                                 ______
                                 

                             Communications

                               ----------                              


              AHEPA Affordable Housing Management Company
                         10706 Sky Prairie St.
                           Fishers, IN 46038
                              317-845-3410
                           www.ahepamgmt.com

               Statement of Steve Beck, President and CEO

Chairman Wyden, Ranking Member Crapo, and Members of the Committee, the 
AHEPA Affordable Housing Management Company (AMC), a mission-driven 
nationwide provider of affordable senior living communities, commends 
the Committee for holding a hearing to examine the role of tax 
incentives in affordable housing and appreciates the opportunity to 
provide our perspective on this very important and timely topic.

We simply want to echo the resounding support by senators on both sides 
of the aisle and from the hearing's witnesses for the Low-Income 
Housing Tax Credit program (LIHTC), and the legislation aimed to 
strengthen it, the Affordable Housing Credit Improvement Act (AHCIA). 
We sincerely thank Chairman Wyden, Ranking Member Crapo, and several 
Senate Finance Committee members, for their demonstrated support of 
AHCIA as sponsors and co-sponsors of the bill. We also want to convey 
the important role LIHTC, or Housing Credit, plays in the production 
and preservation of affordable housing for older adults.

A model public-private partnership, LIHTC is our nation's primary tool 
for incentivizing and encouraging private investment in the production 
and preservation of affordable housing and vital to job creation. Since 
1986, the affordable housing credit has leveraged billions in private 
dollars to build and preserve affordable housing in every single state. 
Furthermore, it represents a significant and cost-effective investment 
in affordable housing for older adults. Of the Housing Credit's 3.5 
million homes built and preserved since the program's inception, about 
1.1 million Housing Credit homes are headed by older adults. Finally, 
if enacted, AHCIA could also support nearly three million jobs, and 
generate $346 billion in wages and business income and nearly $120 
billion in tax revenue, leading to the production an estimated two 
million more affordable homes.

Why the Housing Credit Is Important to Our Mission

Almost our entire affordable housing portfolio is comprised of 
affordable independent senior living communities administered by the 
U.S. Department of Housing and Urban Development's Section 202 
Supportive Housing for the Elderly program. We manage 87 HUD Section 
202 properties in 19 states, totaling 4,467 units. We own 6 of the 87 
properties.

As HUD Section 202 communities have aged, the ability to finance major 
renovations to preserve affordable housing for older adults, used to be 
a challenge. However, in the FY2018 Omnibus appropriations bill, 
Congress provided authority for Section 202 communities with Project 
Rental Assistance Contracts (``202/PRACs'') to participate in HUD's 
Rental Assistance Demonstration (RAD) to facilitate the preservation of 
these homes. This policy change provided HUD 202 PRACs with the ability 
to utilize RAD to access private capital for the rehab and preservation 
of our properties. One key financing mechanism utilized in this process 
is the Housing Credit. Thus, will rely upon a strong Housing Credit to 
help us address our preservation needs. In fact, we have ``RAD for 
PRAC'' deals in the works for three properties in Montgomery, Alabama, 
three properties in Mobile, Alabama; and four properties in Columbia, 
South Carolina--and they all involve the 4% Housing Credit.

Furthermore, in recent years, HUD has resumed issuing Notices of 
Funding Opportunity (NOFOs) that provide capital advances to nonprofits 
for the construction of new Section 202 units. These capital advance 
funds often must be augmented, or supplemented, with gap financing, 
such as the Housing Credit, to help complete the capital stack.

How the Affordable Housing Tax Credit Has Helped AMC

We are pleased to share a few examples of how the Housing Credit has 
help us meet our mission.

The Housing Credit helped us to complete development of a HUD Section 
202 property in Ohio. By the time of the project's initial closing, it 
was advisable to utilize the 4% housing tax credit bonds to augment the 
original grant provided in the HUD award to provide the upgrade needed 
for construction materials and to meet Greening Guidelines.

In 2014, we utilized 4% housing tax credits and revenue bonds to rehab 
and add much needed common area space to two of our Mobile HUD 202 
properties in 2014.

In Michigan, the 4% housing tax credit helped us to renovate a HUD 
Section 202 property when it was blended with funding from the Michigan 
State Housing Development Authority.

Moreover, as witness Benson Roberts hinted, assisted living also is a 
beneficiary of the Housing Credit. We proudly have utilized LIHTC to 
bring affordable assisted living services to very low-income older 
adults and people with disabilities in Indiana. There, the Housing 
Credit played an important role with our efforts to expand our mission 
to include the development of four affordable assisted living 
communities, totaling 532 units. Here, the Housing Credit was blended 
with multifamily housing revenue bonds to provide financing. Today, we 
own and manage all four properties, and we aim to grow the affordable 
assisted living model with the help of a strong Housing Credit.

The Need and Demand

We would be remiss if we did not share our experiences with the clear 
need and demand for affordable senior housing with the Committee, which 
is why strong tax incentives, such as LIHTC, are vital. When older 
adults do learn about our HUD Section 202 communities, they are 
oftentimes confronted with the harsh realities of lengthy wait lists 
and wait times, unfortunately.

To demonstrate, our nationwide wait list at our HUD Section 202 
communities is 4,575 submissions, an increase of 339 submissions since 
January 1, 2022. Nationwide, we have 4,467 units. The wait time for our 
applicants range from 6 months to 3 years.

In addition to our alarming nationwide wait list and wait times, here 
is what we are hearing from our professionals out in the field:

        Some inquiring people don't even request an application because 
        our waiting lists are too long. They want and need immediate 
        housing.

        The number of seniors unable to afford a safe place to live in 
        many areas will continue to rise. They are most often faced 
        with choosing between healthcare and paying rent.

Unfortunately, these sentiments expressed by seniors that amplify our 
wait list and wait time statistics will continue as an increased demand 
in HUD-assisted housing, especially for the 202 program, is expected. A 
May 2020 Government Accountability Report (GAO) report on Rental 
Housing found, ``The late middle-aged group (50-64 years) experienced 
the largest estimated increase in the number of renter households--an 
increase of 4 million households--and accounted for more than half of 
the total increase in renter households from 2001 through 2017.''\1\ 
The GAO noted many of these households have not recovered from the 
financial crisis, and the GAO cited a Harvard Joint Center for Housing 
Studies report that this group has lower incomes and higher rentership 
rates than previous generations. Moreover, HUD's Worst Case Housing 
Needs 2021 Report to Congress found that 2.24 million very low-income 
elderly households have worst-case housing needs, paying more than 50% 
of their income in rent.\2\ Finally, a 2021 Urban Institute report 
predicts there will be 13.8 million new older adult households between 
2020 and 2040; 40% of which (5.5 million) will be renter households.\3\
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    \1\ https://www.gao.gov/products/gao-20-427.
    \2\ https://www.huduser.gov/portal/sites/default/files/pdf/Worst-
Case-Housing-Needs-2021.pdf.
    \3\ https://www.urban.org/research/publication/future-headship-and-
homeownership.

AMC thanks the Committee for the opportunity to share our views on how 
and why tax incentives are important to affordable housing, 
specifically for our nation's older adults. We welcome the opportunity 
to work with the Committee to ensure older adults have access to the 
safe and dignified housing they need to age in place, live 
independently, and thrive; and the role tax incentives play in 
providing it. Thus, it is imperative that Congress pass bipartisan-
backed legislation such as the AHCIA that strengthens programs such as 
the Low-Income Housing Tax Credit to help providers like us to meet the 
need and demand. Thank you.

About AMC

AHEPA Affordable Housing Management Company (AMC) is a mission-driven, 
nationwide provider of affordable independent senior living and 
affordable assisted living communities. It has developed and manages 87 
affordable independent senior living communities in 19 states, totaling 
4,467 units, that are administered by the U.S. Department of Housing 
and Urban Development's Section 202 Supportive Housing for the Elderly 
program.

AMC, through its subsidiaries, Hellenic Senior Living, Inc., and 
Hellenic Management, Inc., owns and manages four affordable assisted 
living communities with 532 units located in Indiana.

AMC is a subsidiary of AHEPA National Housing Corporation (ANHC) and is 
based in Fishers, Indiana.

                                 ______
                                 
                              Capital One
                         1600 Capital One Drive
                         McLean, Virginia 22102

Statement of Andy Navarrete, Executive Vice President, External Affairs

Thank you for the opportunity to submit testimony for the record for 
the Senate Committee on Finance's hearing entitled, ``The Role of Tax 
Incentives in Affordable Housing.''

I am Andy Navarrete, Executive Vice President of External Affairs at 
Capital One. Capital One was founded in 1988 by our current Chairman 
and CEO, Rich Fairbank, and went public in 1994. From the beginning, 
we've challenged the status quo. Through a commitment to great 
products, great talent and great technology, Capital One was able to 
revolutionize banking and democratize credit, bringing innovative 
products to consumers across the credit spectrum. Since our founding, 
we have diversified our business, enhanced our technology and analytics 
capabilities, and delivered breakthrough products for customers and 
clients in the U.S., United Kingdom and Canada. More than 50,000 
associates serve millions of customers every day. We are a Fortune 100 
leader, a nationally-recognized brand and a digital innovator on a 
journey to become a leading information-based technology company.

In addition to serving our associates and customers, we believe it is 
equally important to support financial inclusion and well-being 
throughout the communities we serve. To embody this commitment, we 
support community investments, partnerships and grants designed to 
benefit affordable housing developments and their residents. In our 
testimony below, we outline the following recommendations:

      Increase the effectiveness of tax programs through the removal 
or reduction of the 75 percent limit on general business credits, 
permanently extending the carryback period, and allowing general 
business credits to be creditable against any minimum tax.
      Maximize Low-Income Housing Tax Credit (LIHTC) funding 
opportunities by reducing the 50 percent Private Activity Bonds 
financing requirement and prioritizing finalization of treasury 
regulations around the average income test for LIHTCs.

Beyond our ability to provide capital to finance affordable rental 
housing developments, we also invest in enhanced resident services, 
including programs that deliver digital access, health services, 
financial literacy and coaching and entrepreneurial support. Notably, 
Capital One has a robust history as a tax credit investor through:

      Financing LIHTC Developments: One of the most significant ways 
Capital One supports the development of affordable housing is by 
financing new construction and renovation of LIHTC developments. Since 
2007, Capital One's Community Finance team, which specializes in 
affordable housing and LIHTC transactions, has originated more than $16 
billion in debt and equity investments. Through these investments, the 
team has benefited over 154,000 households. In 2021 alone, Capital 
One's Community Finance team lent and invested $1.84 billion in 
affordable housing, financed over 11,000 affordable housing units and 
created an estimated 14,000 jobs.\1\ Since 2007, this team has lent and 
invested $16.8 billion in affordable housing, financed over 154,000 
affordable housing units and created an estimated 177,000 jobs.
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    \1\ Capital One uses www.nahb.org for job creation estimates per 
1,000 rental units. For job creation estimates before 2019, we used the 
ratio of 1.13, and for 2020 and after, we used the updated ratio of 
1.25.

      Serving Low-Income Communities Through NMTC: New Markets Tax 
Credit (NMTC) developments can support solutions to some of the 
toughest challenges low-income communities \2\ face, such as 
employment, food accessibility, education and equity. Working with a 
wide range of businesses, Capital One has funded projects that help 
provide greater access to housing, community facilities, and commercial 
goods and services, in addition to creating jobs. Since 2005, Capital 
One has invested more than $3.2 billion into over 250 NMTC 
developments. These projects, designed to serve or employ low-income 
persons,\3\ are located in 39 U.S. states and territories. In 2021, 
Capital One financed 17 NMTC projects and injected nearly $221 million 
of capital in projects that serve low-income persons in the low-income 
communities in which the projects are located.
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    \2\ For NMTC purposes, a low-income community is a geographic area 
where either the (1) poverty rate is in excess of 20 percent or (2) 
median family income for the tract does not exceed 80 percent of the 
greater of statewide median family income of metropolitan area median 
family income.
    \3\ For NMTC purposes, a low-income person is any individual having 
an income, adjusted for family size, of not more than: (1) for 
metropolitan areas, 80 percent of the area median family income; and 
(2) for non-metropolitan areas, the greater of (a) 80 percent of area 
median family income or (b) 80 percent of the statewide non-
metropolitan area median family income.

      Financing Municipalities: Capital One is a national direct 
municipal lender to U.S. state and local governments. Capital One's 
municipal loan portfolio primarily consists of low-cost tax-exempt debt 
financing products. The tax-exempt nature of the loans reduces interest 
costs to the borrowers. Capital One's more than $7 billion tax-exempt 
municipal loan portfolio includes $2.7 billion to K-12 public school 
districts, $2.5 billion to local governments, $579 million to public 
higher education and $463 million to states. The remaining amount is 
distributed among public housing, special purpose districts, public 
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utilities, municipal health care entities and transit authorities.

      Investing in Renewable Energy Projects: Financing alternative 
energy efforts helps advance Capital One's sustainable energy 
initiatives. Since 2014, Capital One has invested nearly $900 million 
into 12 renewable energy projects comprising utility scale wind and 
solar as well as portfolios of residential solar installations. In 
2021, these projects generated more than 6.2 million MWh, enough to 
power nearly 600,000 homes with renewable power for one year.

As the Committee explores ways to help address the housing 
affordability crisis, Capital One is grateful for the opportunity to 
share our program experiences, recommendations and support for 
improving tax incentives that drive positive affordable housing 
outcomes.

In Action: Recognizing NMTC Resilience Amid Disruption

In 2019, Mosaic Development Partners and Shift Capital, alongside the 
Philadelphia Housing Authority, embarked on a revitalization plan for 
an affordable housing development and shopping center to support 
Sharswood, one of the poorest and most neglected communities in 
Philadelphia, PA. The North Philadelphia neighborhood had an 
unemployment rate of 16 percent--nearly two times the national rate--
and a 23.26 percent area median gross income (AMI).

After decades of experiencing severe distress and access to limited 
resources, the Sharswood redevelopment will provide quality residential 
units and access to healthy food, retail, healthcare and financial 
services through the commercial space. Additionally, it will bring an 
estimated 200 construction jobs and 300 permanent jobs to the 
neighborhood, with an estimated 70 percent of jobs accessible to local 
community members and residents. The grocery store and other commercial 
tenants plan to hire primarily low-skilled workers from the community, 
which will help drive positive outcomes both for individuals and the 
neighborhood.

Capital One invested in a $25 million NMTC transaction for construction 
of the 45,000 square-foot shopping center, which includes 98 
residential units, of which 30 percent are affordable. NMTCs were a 
crucial part of the funding efforts for this development. Because the 
developer and housing authority tailored the shopping center to the 
needs of the neighborhood, the costs were projected to be higher and 
rents projected to be lower than in a traditional development. Without 
NMTCs, the project would not be able to service the debt necessary to 
move forward.

COVID caused tremendous disruption to the development's progress and 
completion, but the developer and project stakeholders have 
demonstrated their commitment to seeing the project to fruition. Though 
the project incurred increased costs and suffered from supply chain 
delays, stakeholders refused to turn their backs on the project because 
of the community's dire need for housing and goods and services. To 
help support the development during a volatile period, government 
officials and the Philadelphia Housing Authority secured additional 
grant funding. The developer pledged a significant amount of its 
developer fee to the project to ensure a successful construction 
completion. And lead investors agreed to accept a lower return on their 
investment to help absorb the increased costs.

Because of stakeholders' creativity and sheer commitment to bringing 
critical housing and services to the neighborhood, the Sharswood 
redevelopment is now on track to open its grocery outlet, bank and 
residential units throughout the rest of this year with a targeted 
completion in December 2022.

Increasing the Effectiveness of Tax Credit Programs

There is an evergreen need across the U.S. for affordable housing. 
Nationwide home prices have increased nearly 19 percent year-over-
year,\4\ and rents have increased year-over-year in all large metro 
markets, ``growing by double digits in 116 out of 150 metro markets and 
by more than 20 percent in 25 markets.''\5\ Given Capital One's history 
as a tax credit investor and our ample experience working alongside 
organizations that leverage the LIHTC and NMTC programs, we have seen 
first-hand the effectiveness of these programs. In fact, these programs 
exemplify the success that comes when the government and the private 
sector partner to reach a common goal.
---------------------------------------------------------------------------
    \4\ The State of the Nation's Housing 2022, Joint Center for 
Housing Studies of Harvard University, 2022 available at: https://
www.jchs.harvard.edu/son-2022-home-price-growth.
    \5\ The State of the Nation's Housing 2022, Joint Center for 
Housing Studies of Harvard University, 2022 available at: https://
www.jchs.harvard.edu/sites/default/files/interactive-item/files/
Harvard_JCHS_State_Nations_Housing_2022_Key_Facts.pdf.

Further, Capital One has witnessed the resiliency of these tax credit 
programs, first through the Great Recession, and now through the 
pandemic. These disruptive moments have shaken--but not broken--the 
investor community's interest in these programs. As the country 
continues to struggle with the economic consequences of COVID, 
investors like Capital One are renewing their focus on LIHTC and NMTC 
investments with the expectation that these programs will continue to 
---------------------------------------------------------------------------
buttress corporate imperatives for social and community engagement.

Still, recent history has shown that investor demand for LIHTC and NMTC 
can be volatile under current law during times of economic duress. 
Predictions related to taxable income--and taxable income itself--can 
quickly and dramatically change during times of economic uncertainty. 
This volatility makes it difficult for investors to commit to future 
tax credit investment activity. For example, during the 2007-2009 Great 
Recession, the demand for LIHTCs plummeted \6\ when most LIHTC 
investors--primarily large, national banks, and Fannie Mae and Freddie 
Mac--swung from profitability to loss and could no longer use tax 
credits. There was an estimated 40 percent decrease in investment in 
tax credits nationally, and investment fell by much more in small 
metropolitan and rural areas.\7\
---------------------------------------------------------------------------
    \6\ Capital One has remained an active market participant in LIHTC 
and NMTC investments since prior to the Great Recession.
    \7\ The Disruption of the Low-Income Housing Tax Credit Program: 
Causes, Consequences, Responses, and Proposed Correctives, Joint Center 
for Housing Studies of Harvard University, 2009 available at https://
www.jchs.harvard.edu/sites/default/files/
disruption_of_the_lihtc_program_
2009_0.pdf.

Now, the pandemic has also impacted investor appetite, especially with 
respect to NMTC investments. Historically, the NMTC investor space has 
been dominated by a small number of large financial institutions that 
invest in NMTC transactions for philanthropic purposes as well as for 
the Community Reinvestment Act (CRA), tax planning and financial return 
reasons. As a result, their sensitivity to economic volatility is much 
greater, especially over the short term. When one or two banks 
``pause'' their investments, it has a very material impact on the 
---------------------------------------------------------------------------
industry.

While one large NMTC investor is pursuing a syndication program within 
the space, there is not a widely functioning syndication market that 
could broaden the investor base similar to what's available in the 
LIHTC market. The complexity of the NMTC structure also impacts the 
development of a true ``yield'' investor marketplace. As such, 
broadening the demand of the existing market is critical to the 
industry's stability.

The volatility that impacts LIHTC and NMTC investment is directly 
influenced by the federal income tax code. The general business credits 
authorized by the Internal Revenue Code of 1986, as amended (the Code) 
typically only offset up to 75 percent of an investor's annual tax 
liability, which shrinks taxpayer tax credit investing capacity so much 
that investors with declining revenues and unclear prospects for future 
profitability may choose to pause their investment activity.

Further, while the Code allows investors to apply unused tax credits to 
the immediately preceding taxable year or the following 20 future 
taxable years, this carryback/carry forward framework has negative 
consequences for bank regulatory capital calculations and does little 
to bolster investor confidence or facilitate investment return 
computations. Generally, tax credit investors commit to individual 
transactions and allocate their total pipeline in a way that will best 
utilize a company's expected tax capacity for any given year without 
exceeding that capacity. As a result, when an economic disruption 
occurs, investors must battle the economic impacts of the disruption 
while armed with only the excess tax capacity that was generated--and 
actively minimized--in the immediately preceding year. This is 
especially challenging considering future taxable income levels are 
either unknowable in the near-term or likely to be depressed.

Because of these Code provisions, tax credit investor appetite is 
constrained by the volatility that accompanies times of economic 
stress. Therefore, it may not rise to the level of investment needed to 
ensure a steady supply of affordable housing units that benefit 
households with low to moderate incomes and support living wage or low-
income community jobs, goods and services.

With these considerations in mind, Capital One recommends the following 
actions:

      Remove or Reduce the 75 Percent Limit on General Business 
Credits: Capital One recommends removing or reducing the 75 percent 
limit on general business credits, which would increase the amount of 
LIHTCs and other general business credits each investor could claim. 
Easing this limit would be impactful during years when macroeconomic 
conditions cause corporate profits to decline, yet safe affordable 
housing is still needed--especially for households with low to moderate 
income.

      Permanently Extend the Carryback Period: Capital One recommends 
permanently extending the carryback period for LIHTCs and NMTCs from 
one to five years to reduce volatility in investor demand. This 
carryback extension would allow investors that experience--or expect to 
experience--losses (or drastically lower profits) to continue to 
utilize credits. It would also shorten the time span over which future 
tax liabilities would need to be predicted, making these tax credit 
investments more attractive and reliable. When surveyed in 2009, 
several of the largest banks with the worst losses at that time 
calculated that a five-year carryback would double their demand for tax 
credits in the near term.\8\ Notably, because LIHTC and NMTC 
investments are already subject to allocation caps versus unlimited 
volumes, the fiscal cost of this change should be limited to the cost 
associated with having few unused or expired credits, which would be a 
minor expense.
---------------------------------------------------------------------------
    \8\ The Disruption of the Low-Income Housing Tax Credit Program: 
Causes, Consequences, Responses, and Proposed Correctives, Joint Center 
for Housing Studies of Harvard University, 2009 available at https://
www.jchs.harvard.edu/sites/default/files/
disruption_of_the_lihtc_program_
2009_0.pdf.

      Allow General Business Credits to be Creditable Against Any 
Minimum Tax: Capital One supports having general business credits be 
creditable against any minimum tax based on book and/or worldwide 
income. For example, as outlined in the Biden Administration's proposed 
budget for fiscal year 2023,\9\ the base erosion anti-avoidance tax 
imposed when certain U.S. taxpayers make deductible payments to 
foreign-related parties would be replaced with an under taxed profit 
rule. This change is intended to ensure income earned by a 
multinational company, whether based in the U.S. or elsewhere, is 
subject to a minimum rate of taxation regardless of where the income is 
earned. As proposed, general business credits would be creditable 
against this minimum tax. Capital One commends Congress and the Biden 
Administration for their continued support of the public policy 
considerations that led to the initial creation of these tax 
incentives.
---------------------------------------------------------------------------
    \9\ General Explanations of the Administration's Fiscal Year 2023 
Revenue Proposals, U.S. Treasury Department, 2022 available at https://
home.treasury.gov/system/files/131/General-Explanations-FY2023.pdf.
---------------------------------------------------------------------------

 In Action: LIHTC Provides Veterans and Grandfamilies with Quality, 
                    Safe Housing

When American Legion Post 139 began working with the Arlington (VA) 
Partnership for Affordable Housing (APAH) to redevelop its Virginia 
Square site, it stayed true to its mission to serve and prioritize 
veterans' needs. The new facility, Terwilliger Place, will add 160 
affordable housing units to the community--half of which will be set 
aside for veterans. According to the APAH, this community is 
``Virginia's largest affordable housing project for veterans and the 
first Housing Credit project in Virginia with a leasing preference for 
veterans.''\10\ The property elected the average income test (AIT) set 
aside to serve households earning between 30 and 80 percent of AMI.
---------------------------------------------------------------------------
    \10\ APAH and American Legion Post 139 Celebrate the Terwilliger 
Place Construction Start, Arlington Partnership for Affordable Housing, 
2020 available at https://apah.org/apah-and-american-legion-post-139-
celebrate-the-terwilliger-place-construction-start/.

The $80 million development includes $25 million in construction debt 
and $37 million LIHTC equity investment originated by Capital One. 
Capital One also provided $70,000 in pre-development grants. Beyond 
creating much needed affordable housing, the community will also offer 
veteran-focused resident services and programming in its community 
spaces. Terwilliger Place will celebrate its grand opening with a 
---------------------------------------------------------------------------
ribbon-cutting ceremony in September 2022.

Less than 10 miles from Terwilliger Place, a second LIHTC development 
is helping support another population. Grandfamilies, or families in 
which grandparents are the primary caregivers for their grandchildren, 
can be impacted by circumstances such as parents' addiction or 
incarceration. At the same time, these households can typically 
struggle to access housing resources and subsidies that are available 
to parents. That's the challenge that Plaza West in Washington, DC, 
aimed to solve when it reserved 50 of its 223 units for grand families 
earning 30 percent, 40 percent and 50 percent of AMI.

According to grandmother and Plaza West resident, Vera Long, the 
community has provided her with support. ``What I can say about Plaza 
West is that it's been a relief to have somewhere to live, to raise my 
grandchildren. It's a joy being here. It's home.''\11\
---------------------------------------------------------------------------
    \11\ Grandfamilies Find Support in DC Development, Affordable 
Housing Finance, 2020 available at https://www.housingfinance.com/
developments/grandfamilies-find-support-in-d-c-development_o.

The development of the property benefitted from a $34 million LIHTC 
equity investment from Capital One in 2016, inclusive of a $200,000 
social purpose investment to help fund support services for residents. 
Beyond supporting grandfamilies, the development includes 173 
additional affordable apartments for individuals and families earning 
less than 60 percent of AMI.

Maximizing LIHTC Funding Opportunities

The LIHTC program is the most important source of funding for building 
affordable housing in the U.S. Leveraging tax credits provides a much-
needed source of capital for developers. Capital One is committed to 
working with industry and policy stakeholders to identify and design 
solutions that create more affordable housing and ultimately strengthen 
communities and advance socioeconomic mobility across the country.

We propose the following recommendations to maximize LIHTC funding 
opportunities:

      Reduce the 50 Percent Private Activity Bonds (PAB) Financing 
Requirement: Under current law, a multifamily property qualifies for 4 
percent LIHTCs only when at least 50 percent of the total development 
cost--including land--is financed with tax-exempt multifamily 
obligations/bonds called Private Activity Bonds (PAB). Capital One 
recommends reducing the 50 percent PAB financing requirement.

       Reducing the 50 percent PAB financing requirement to 25 percent 
would create additional PAB availability, which in turn could be 
allocated to finance more affordable rental properties. In 2021, an 
accounting firm specializing in tax credits estimated that lowering the 
threshold for tax-exempt PABs from 50 to 25 percent for buildings 
financed by obligations in 2022-2026--as was included in the House-
passed version of the Build Back BetterAct--could generate an 
additional 735,500 affordable rental homes according to some estimates. 
Support for reducing the 50 percent PAB financing requirement was also 
proposed in 2021 through The Decent, Affordable, Safe Housing For All 
(DASH) Act and The Affordable Housing Credit Improvement Act of 2021.

      Prioritize Treasury Regulations Around the Average Income Test 
(AIT) for LIHTCs: Capital One recommends prioritizing swift 
finalization of the Treasury guidance needed to fully operationalize 
the AIT for LIHTC qualification.

       For properties to qualify for LIHTCs, a minimum number of units 
must be set aside for households with low incomes. In 2018, Congress 
created a new set aside, the AIT, to increase the supply of affordable 
units.\12\ The AIT allows a property to qualify for LIHTC if the unit 
income designations for the property averages at or below 60 percent of 
AMI, provided that individual units are designated no lower than 20 
percent and no higher than 80 percent of AMI. This allows LIHTC 
properties to serve a wider band of households, including households 
with extremely low income. It is also inclusive of households between 
61 and 80 percent of AMI that have traditionally been excluded from 
LIHTC properties but are cost-burdened for market rate housing, 
especially in high-cost metro areas.
---------------------------------------------------------------------------
    \12\ Code Section 42(g)(1)(C) requires designations at 20, 30, 40, 
50, 60, 70, or 80 percent of AMI.

       President Biden's Housing Supply Action Plan notes, ``this 
`average income test' for LIHTC qualification will enable the creation 
of more financially stable, mixed-income developments and make LIHTC-
supported housing more feasible in sparsely populated rural areas. It 
will also facilitate the production of additional affordable and 
available units for extremely low-income households.''\13\ However, 
guidance released by the Internal Revenue Service in 2020 in the form 
of proposed Treasury Regulations \14\ had a chilling effect on the 
application of this qualification test, in part by prescribing a more 
punitive result for noncompliance with the AIT minimum set aside test 
than the two historic minimum set aside tests.
---------------------------------------------------------------------------
    \13\ President Biden Announces Actions to Ease the Burden of 
Housing Costs, White House, 2022 available at https://
www.whitehouse.gov/briefing-room/statements-releases/2022/05/16/
president-biden-announces-new-actions-to-ease-the-burden-of-housing-
costs/.
    \14\ Proposed Treas. Reg. Sec. 1.42-15 and Sec. 1.42-19; REG-
119890-18 (10/30/2020).

       As it was intended, the AIT benefits residents and helps avoid 
displacement. In its 2021 tax credit application submitted to the 
California Tax Credit Allocation Committee, MidPen Housing Corporation 
elected to the AIT set aside to avoid permanently displacing existing 
residents at Willow Garden Apartments and Greenridge Apartments--now 
known as Willow Greenridge--whose income exceeded 60 percent of the 
area median income. Capital One financed the acquisition and 
rehabilitation of the 70-unit family development in South San Francisco 
in which eight units were set aside at 80 percent AMI, thus permitting 
those residents to stay in their homes. An additional 10 units were set 
aside for households at 30 percent AMI, with another 18 units set aside 
---------------------------------------------------------------------------
for households at 40 percent AMI.

       It's critical to finalize Treasury Regulations that incorporate 
stakeholder feedback and restore widespread use of the AIT minimum set 
aside, as intended by Congress. These regulations are key to expanding 
the housing supply and affordability for households with the lowest 
incomes as well as households with moderate and middle income 
households.

Conclusion

Without tax incentive programs, communities like Sharswood, Terwilliger 
Place, Plaza West and Willow Greenridge Apartments would not be 
accessible to the hundreds of households and residents they serve. And 
these communities are representative of the countless properties that 
tax incentive programs support. Government programs like NMTC and LIHTC 
are critical enablers of investment, and they are driving solutions to 
some of the toughest challenges the U.S. faces today, from affordable 
housing to financial well-being and inclusion.

Capital One appreciates the Committee's continued focus on improving 
affordable housing outcomes through tax incentives and this opportunity 
to share our thoughts. We look forward to working with the Committee in 
the future as we pursue our common goal of building thriving 
communities.

                                 ______
                                 
                        Center for Fiscal Equity
                      14448 Parkvale Road, Suite 6
                          Rockville, MD 20853
                      [email protected]

                    Statement of Michael G. Bindner

Chairman Wyden and Ranking Member Crapo, thank you for the opportunity 
to submit these comments for the record to the Committee on this topic. 
They are ``counter-programming'' in an effort to raise issues that are 
mostly ignored by the invited witnesses. We will address two sets of 
issues: Housing and Income.

HOUSING ISSUES

The Housing Market

Building scientist Belinda Carr highlights why the current economy is 
similar to 2005 in a recent YouTube video at https://www.youtube.com/
watch?v=77g6j
RBG1cI&list=WL&index=4&t=570s. Her five main points against an actual 
housing shortage are:

    1.  Declining population growth: Low birth rate, higher death 
rates. Permits are meeting population growth rates.
    2.  People per unit has declined.
    3.  Number of rental units--large number of investor units, 
especially in minority neighborhoods. Investors driving out individual 
buyers.
    4.  Low interest rates have driven up prices, driving up investor 
incentives.
    5.  Mismatch of housing types and locations. The rise of remote 
work and possibility of large firms linking wages to housing prices if 
a recession occurs (because, as monopsonies, they can).

I recommend asking her for comments or testimony. At least circulate 
the YouTube link.

Her research is in keeping with other analyses, including my own, on 
the prospect of a housing recession.

Starting in 2009, properties that have been seized in foreclosure have 
been purchased with private equity and are so heavily leveraged that 
they cannot be sold until the holding company files for bankruptcy in 
the next Great Recession. See Homewreckers: How a Gang of Wall Street 
Kingpins, Hedge Fund Magnates, Crooked Banks, and Vulture Capitalists 
Suckered Millions Out of Their Homes and Demolished the American Dream, 
by Aaron Glantz. The C-SPAN Book TV discussion with Mr. Glantz will 
give the committee a heads-up on what such testimony would include. See 
https://www.c-span.org/video/?465567-1/homewreckers.

The long and short of it is that many now have to rent or own leveraged 
properties. Our absentee landlords have cashed out and left servicing 
companies to bleed us dry. They essentially own us because we have to 
work harder and longer to have a place to live while those who have 
cashed out live in gated and high-end assisted living communities. In 
the last year, Exchange Traded Funds have been all the rage. Who wants 
to bet on where the latest pool of junk is hiding?

In 2008, the Troubled Asset Recovery Program was enacted, promising aid 
to homeowners. The next year, CNBC Rick Santelli had his ``rant of the 
year'' which put the kibosh on any aid to homeowners, although there 
was little appetite to provide it from the Larry Summers wing of Obama 
economic team anyway. They did, however, stay behind bailing out the 
holders of the bad paper.

Let us not repeat (or rather continue to repeat) the bad practices that 
left the economy in the doldrums. During the pandemic, the Federal 
Reserve has purchased bad paper, but without benefit to those whose 
debts are held in those bonds.

This time around, credit card balances and back rent should be forgiven 
when the Federal Reserve buys the bonds that hold the debt. Loans could 
also be written down, which would stop bondholders from benefiting from 
issuing bonds that should never have been issued in the first place. 
Renters of both commercial and residential property should be offered 
the chance to purchase their locations and homes, with assistance from 
Government Sponsored Enterprises, with their paper replacing the debt 
paper that has been securitized in Exchange Traded Funds.

ETFs may take a hit, but what was falsely sold as AAA paper would 
actually become what was sold. Bad landlords, and Glantz demonstrates 
that Mr. Mnuchin and Mr. Ross truly are bad landlords, degrade 
properties so that the bonds that were issued for them to cash out are 
nowhere near the value at issue.

In 2009, the United States aided and abetted those who created the 
crisis. We are currently repeating the mistake. When the inevitable 
crisis occurs again, doing the right thing will also be the right 
medicine for the economy.

 The Opportunity Zone Program and Who It Left Behind (November 16, 
                    2021)

Opportunity zones are the flavor of the decade, proceeding from 
enterprise, urban renewal and the destruction of neighborhoods in order 
to bring Interstate Highways to cities.

Worse than redlining and segregation, urban renewal, which the civil 
rights community calls Negro Relocation. Hispanic neighborhoods are 
also suffering the same fate. Time and again, poorer residents are 
moved to the suburbs so that coffee shops, high end grocery stores and 
luxury apartments can be built for professionals, also known as the 
creative class. In short, young and middle aged white people with high 
incomes.

Developers bridge the gap between property acquisition and sale so that 
those who are displaced leave with lower payments while the developers 
benefit from any increase in property values. Such actions are why 
Henry George proposed pergovian land value tax, collecting 100% of land 
value each year and then distributing a citizens dividend to everyone 
(so that poorer people benefit from the price loss experienced by high 
end developers.

I usually do not endorse Georgism as the sole solution to inequality. 
Creating cooperatives that democratically give members control of the 
means of production, consumption, human services and finance is more my 
speed; but even I would have the cooperative pay a land value tax to 
fund services for those who continue to live in a Smart Growth area 
dominated by such a cooperative. It would continue to fund services 
after any relocation (unless families wish to join the cooperative.

In the interim, Opportunity Zone provision should be repealed. We need 
no more displacement from here on in. This type of tax incentive is 
counter-productive.

Fair Housing Enforcement

There is a similar matter that needs mention--Fair Housing (especially 
considering recent campaign bloviating). In light of recent Supreme 
Court rulings including sexual orientation in sex for employment law--
there is no reason to believe that this revised definition does not 
apply to every part of the Civil Rights Act--as well as the Fair 
Housing Act.

Are civil penalties enough to force compliance? Experience shows that 
they do not. A former roommate, who got his Section 8 before I did, was 
exposed to possible discrimination couched in the language of credit. 
He complained to the Housing Office and the landlord caved in. This was 
2018 in liberal Montgomery County. The continued need for training by 
the Patricia Roberts Harris National Fair Housing Training Academy 
(where I also worked) is less anecdotal.

When I was the Ward 3 Community Relations Representative in the D.C. 
Office of the Ombudsman, we were given a talk by the Solid Waste 
Management office. Their motto was that there is no better education 
than a ticket. This would be equally true in fair housing, as well as 
all other civil rights enforcement. It is time to quit talking about 
reform and to actually start doing it.

Bias in Housing Policy

When dealing with federal housing, and income support in general, the 
desire for economic justice and environmentalism sometimes conflict. 
Anti-poverty programs are notorious for not funding those with the 
father in the home. This is the result of both racism and the desire to 
limit the number of clients. In short, the Zero Population Growth 
mentality has made it into housing and income support policy.

There should be no conflict here. The ZPG/racist and cost control 
arguments are simply unworthy of American Society, while being endemic 
within them. All people of good conscience should resist such nonsense 
and I will do so with my last dying breath.

Prior to the Wars on Drugs and on Poverty (the Poor?), the model for 
housing in modern America was the three bedroom house. This included a 
bedroom for parents, one for the boys and one for the girls. An oldest 
child may eventually get his or her own room at some point if there 
were a four bedroom or basement/attic space that could be used as a 
bedroom.

Aside from the war on the poor, there is no reason that publicly funded 
housing should have departed from this norm. This includes Section 8 
assistance. If public housing included three bedroom units, there would 
not be a drive toward driving families toward ownership that they 
cannot afford over the long term.

Federal low- and moderate-income housing, including the low-income 
housing my family participated in during the 2000s, gave generous 
assistance to get us in, but was not adequate to keep us there. We 
mistakenly borrowed using a step-up mortgage. This would have been fine 
if the payment itself, rather than the mortgage rate, had ``stepped 
up'' by inflation each year. What we received was unsustainable, which 
ended in foreclosure, bankruptcy and divorce. I doubt we were the only 
ones. See the above discussion on the 2008 bailout for other 
difficulties which could have been dealt with via public policy.

Federal rental and purchase support should be two sides of the same 
program. As with Medicare, some participants should be dual eligible 
for both down payment assistance and rental assistance. Indeed, 
everyone approved for one must be declared eligible for the other. If 
this were the case, my family may have stayed in more affordable 
housing.

The surest way to help federal housing beneficiaries escape the need 
for rental assistance, indeed any assistance--including bankruptcy 
protection--is to make sure that families have adequate incomes. The 
entire low-income housing program--from mortgage subsidies to Section 
8, as well as most other statutory low-income support benefits--could 
be decreased or curtailed with adequate support for families through 
adequate wages, training programs, child tax credits, and the other 
elements of the Build Back Better proposals.

Fix income inequality with higher minimum wages and child tax credits 
and the free market will respond to the real needs of families. Two 
parent families with more than two kids should be able to demand three 
bedroom apartments, all things being equal. End the bias against two-
parent families in current programming and creativity will take care of 
the rest.

INCOME SECURITY

It is time to end the two-tier economy. No one should have to work in 
what Michael Harrington called The Other America. With the end of 
welfare as we knew it, circumstances have actually gotten worse since 
Harrington's seminal work. The rise of delivery services, which require 
drivers to earn tips, and the gig economy, which prevents easy tipping, 
has made things even worse in the name of progress. We are working 
harder for less. This Committee can start the ball rolling to fix this.

Minimum Wage

The best option for food security and low income housing is to increase 
incomes by increasing the minimum wage and the child tax credit and 
indexing them to inflation.

Increasing the minimum wage to $10 should take effect immediately, 
phasing to $12. You can argue about a $15 or $18 minimum after the 
midterm elections. Higher minimum wages increase job growth, as lower 
wage employees spend every dime of the increase, as do higher wage 
workers below the middle-management level whose wages will also rise.

Provisions should also be included in law to hold franchisees harmless 
if minimum wage increases impact their own livelihoods. The conditions 
of franchise employment and agreement deserve attention as well in 
terms of agreed to standards, payment of franchise owners in low wage 
industries and the ability of workers to organize. If some firms decide 
to turn franchise employment into full-time employment, so much the 
better.

It is indeed a poor job where the physical productivity of workers in 
comparison with other factors is under this level, especially when 
child tax credits are excluded from the equation. The intermediate goal 
should be either a $12 minimum wage (so that it is comparable to the 
buying power experienced in 1965) or an $11 wage with a 32-hour work 
week.

The perception that doing the right thing makes a business non-
competitive is the reason we enact minimum wage laws and should require 
mandatory leave. Because the labor product is almost always well above 
wages paid, few jobs are lost when this occurs. Higher wages simply 
reduce what is called the labor surplus, and not only by Marx. Any CFO 
who cannot calculate the current productive surplus will soon be 
seeking a job with adequate wages and sick leave.

The requirement that this be provided ends the calculation of whether 
doing so makes a firm non-competitive because all competitors must 
provide the same benefit. This applies to businesses of all sizes. If a 
firm is so precarious that it cannot survive this change, it is 
probably not viable without it.

Childcare and Paid Leave

Childcare is best provided by the employer or the employee-owned or 
cooperative firm. On-site care, with separate spaces for well and sick 
children, as well as an on-site medical suite to treat sick employees, 
will uncomplicate the morning and evening routines. Making yet another 
stop in an already busy schedule adds to the stress of the day. Knowing 
that, if problems arise at a work-based daycare, they can be right 
there, will help parents focus on work.

Larger firms and government agencies can more easily provide such 
facilities. Indeed, in the Reeves Center of the District Government, 
such a site already exists. Smaller firms could make arrangements with 
the landlord of the building where offices or stores are located, 
including retail districts and shopping malls. For security reasons, 
these would only serve local workers, but not retail customers.

A tax on employers would help society share the pain for requiring paid 
leave. Firms that offer leave would receive a credit on their taxes 
(especially low wage firms). Tax rates should be set high enough so 
that.

Child Tax Credits

The Child Tax Credit should support the income of each dependent child 
at median wage levels and be fully refundable. If a parent participates 
in education and training, their child tax credit should be paid with a 
training stipend set to the minimum wage. Including these benefits with 
pay reduces the need for a $15 minimum wage. $12, which is in line with 
historical averages prior to 1965, should be adequate.

There are two avenues to distribute money to families. The first is to 
add CTC benefits to unemployment, retirement, educational (TANF and 
college) and disability benefits. The CTC should be high enough to 
replace survivor's benefits for children.

The second is to distribute them with pay through employers. This can 
be done with long term tax reform, but in the interim can be 
accomplished by having employers start increasing wages immediately to 
distribute the credit to workers and their families, allowing them to 
subtract these payments from their quarterly corporate or income tax 
bills.

Tax Reform

Tax reform will help both low wage and gig/1099/staffing services 
workers who are essentially full-time but are not treated as such. 
Because these ``vendors'' would have to pay the tax and receive the 
breaks, client firms would have the incentive to hire them instead

Our tax reform plan, which was last adjusted on June 10th of this year, 
features a Subtraction Value-Added Tax. This tax can serve as an 
employer-based vehicle for distributing child tax credit, healthcare 
and childcare benefits.

The S-VAT could be levied at both the state and federal levels with a 
common base and tax benefits differing between the states based on 
their cost of living (which would be paid with the state levy). The 
federal tax would be the floor of support so that no state could keep 
any part of its population poor, including migrants. It is time to end 
the race to the bottom and its associated war on the poor.

Between the CTC and the Earned Income Tax Credit, the CTC is to be 
preferred. Applying for an EITC is part of why it is expensive to be 
poor. For most, outside help is needed to calculate it. Having to get 
such help is a ``poor tax.'' Our proposed changes to individual payroll 
taxes propose a way to end this credit while assuring adequate 
retirement savings and family income. The following paragraphs are an 
excerpt from our current tax reform plan.

Subtraction Value-Added Tax (S-VAT). These are employer paid Net 
Business Receipts Taxes. S-VAT is a vehicle for tax benefits, including

      Health insurance or direct care, including veterans' health care 
for non-
battlefield injuries and long-term care.
      Employer paid educational costs in lieu of taxes are provided as 
either 
employee-directed contributions to the public or private unionized 
school of their choice or direct tuition payments for employee children 
or for workers (including ESL and remedial skills). Wages will be paid 
to students to meet opportunity costs.
      Most importantly, a refundable child tax credit at median income 
levels (with inflation adjustments) distributed with pay.

Subsistence level benefits force the poor into servile labor. Wages and 
benefits must be high enough to provide justice and human dignity. This 
allows the ending of state administered subsidy programs and 
discourages abortions, and as such enactment must be scored as a must 
pass in voting rankings by pro-life organizations (and feminist 
organizations as well). To assure child subsidies are distributed, S-
VAT will not be border adjustable.

The S-VAT is also used for personal accounts in Social Security, 
provided that these accounts are insured through an insurance fund for 
all such accounts, that accounts go toward employee ownership rather 
than for a subsidy for the investment industry. Both employers and 
employees must consent to a shift to these accounts, which will occur 
if corporate democracy in existing ESOPs is given a thorough test. So 
far it has not. S-VAT funded retirement accounts will be equal-dollar 
credited for every worker. They also have the advantage of drawing on 
both payroll and profit, making it less regressive.

A multi-tier S-VAT could replace income surtaxes in the same range. 
Some will use corporations to avoid these taxes, but that corporation 
would then pay all invoice and subtraction VAT payments (which would 
distribute tax benefits). Distributions from such corporations will be 
considered salary, not dividends.

Individual payroll taxes. Employee payroll tax of 7.2% for Old-Age and 
Survivors Insurance. Funds now collected as a matching premium to a 
consumption tax based contribution credited at an equal dollar rate for 
all workers qualified within a quarter. An employer-paid subtraction 
value-added tax would be used if offsets to private accounts are 
included. Without such accounts, the invoice value-added tax would 
collect these funds. No payroll tax would be collected from employees 
if all contributions are credited on an equal dollar basis. If employee 
taxes are retained, the ceiling would be lowered to $85,000 to reduce 
benefits paid to wealthier individuals and a $16,000 floor should be 
established so that Earned Income Tax Credits are no longer needed. 
Subsidies for single workers should be abandoned in favor of radically 
higher minimum wages. If a $10 minimum wage is passed, the employee 
contribution floor would increase to $20,000.

Pro-Life Scoring

The following paragraphs should be familiar to members and staff. Now 
that Roe v. Wade has been overturned, they should be made available to 
everyone.

These reforms MUST be scored as pro-life legislation and be funded more 
broadly than the President has promised. Having served on the staff of 
a major abortion rights organization in the past, I can assure you that 
no such organization would ever oppose higher living standards for 
women and their families!

The chief obstacle for funding families is not the feminist movement. 
It is the so-called right to life movement who would rather women be 
penalized for having abortions than subsidized so that they are not 
necessary. Over the course of many decades, I have had conversations 
with conservative members of the pro-life community. When push comes to 
shove, they oppose the measures above because their objections to 
abortion are more about sexuality than the welfare of children.

In the pro-choice movement, many jump to the defend women's bodies 
argument before first addressing the need for adequate family income. 
Doing so now will shame the leadership of the pro-life movement into 
supporting these provisions to Build Back Better.

Many in the pro-life movement already do. Catholic Charities USA, 
NETWORK and the Catholic Health Association all stand with working and 
poor women. They must be very publicly leveraged to get the U.S. 
Conference of Catholic Bishops behind them as well--and to have the 
bishops insist that these measures be considered must-pass legislation 
for the computation of pro-life voting records.

Catholic members of Congress and the President should also lead on this 
effort. It is time to stop grandstanding on this issue. These measures 
must pass--and on a larger scale than provided for in Build Back 
Better.

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.

                                 ______
                                 
                       Housing Development Center
                    524 E Burnside Street, Suite 210
                           Portland, OR 97214
                              503-335-3668
                        https://www.hdc-nw.org/

August 1, 2022

U.S. Senate
Committee on Finance
Dirksen Senate Office Bldg.
Washington, DC 20510-6200

Re: The Role of Tax Incentives in Affordable Housing--Hearing Date: 
July 20, 2022

Dear Members of the Committee:

I am writing to urge you to continue building on your past work to use 
tax incentives to address our nation's vast unmet need for affordable 
housing. Specifically, I encourage the committee to pass four pieces of 
currently proposed legislation:

      The Affordable Housing Credit Improvement Act (AHCIA),
      The LIFELINE Act,
      The Neighborhood Homes Investment Act, and
      The Affordable Housing Bond Enhancement Act.

AHCIA is bipartisan legislation. It contains critical provisions to 
improve the effectiveness of the two most important production tools 
available to finance affordable rental housing: low-income housing tax 
credits (LIHTCs) and tax-exempt private activity housing bonds. LIHTCs 
have financed more than 3.6 million affordable rental homes for low-
income families, seniors, veterans, and those with special needs since 
its creation in 1986. In recent years, more than half of LIHTC-financed 
homes have been financed with the help of multifamily housing bonds.

I am offering my perspective as the executive director of Housing 
Development Center (HDC), a mission-driven nonprofit that has managed 
the financing of hundreds of rent-restricted affordable housing 
developments in Oregon and southwest Washington. HDC provides 
development services to community-based nonprofits and housing 
authorities operating across our region--organizations that provide 
affordable homes to populations ranging from single adults 
transitioning from homelessness in Portland to farm workers and their 
families in rural southern Oregon.

Nearly all these homes (HDC has helped to develop 7,000+ since 1993) 
are financed in part with equity from the sale of LIHTCs, often in 
addition to tax-exempt private activity housing bonds. Without these 
sources, it would be economically infeasible to create them. Community-
based housing providers would not be able to pay the costs of 
developing and operating the housing without charging rents out of 
reach of their low-income residents.

I encourage the Senate Finance Committee to pass the AHCIA to 
strengthen the impact of low-income housing tax credits and housing 
bonds. Additionally, I encourage the committee to pass the LIFELINE 
Act, which would create more flexibility for states, local governments, 
and tribes to use existing funds to get more affordable housing built. 
Finally, I support Senator Wyden's and Oregon Housing and Community 
Services Director Andrea Bell's calls to pass the Neighborhood Homes 
Investment Act and the Affordable Housing Bond Enhancement Act. These 
bills will further enhance our community's tool kits for creating 
affordable housing for families and individuals who are priced out of 
the market.

Lack of access to affordable housing creates devastating impacts on 
low-income families, seniors, people with disabilities, and others who 
are struggling to meet their basic needs in Oregon, Washington, and 
communities across the country. Thank you for prioritizing these and 
other policies to address our nation's ongoing housing affordability 
crisis.

Sincerely,

Traci Manning
Executive Director

                                 ______
                                 
                     National Community Renaissance
                           9421 Haven Avenue
                       Rancho Cucamonga, CA 91730

             Statement of Steve PonTell, President and CEO

    I am pleased to submit this statement for the record for the July 
20, 2022 Senate Finance Committee Hearing on ``The Role of Tax 
Incentives in Affordable Housing.''

    The purpose of this statement is to ask the Committee to consider 
legislation to create a supportive services tax credit, to complement 
the low income housing tax credit. The purpose of such legislation is 
to fund critically needed supportive services for residents living in 
federally assisted low income housing.

    I am submitting this statement on behalf of National Community 
Renaissance (also known as National CORE). National Core is one of the 
nation's largest non-profit affordable housing developers. We provide 
affordable housing to 25,000 residents in over 8,500 affordable rental 
units. We are proud of the fact that National CORE recently become only 
the second nonprofit affordable housing developer in the country to 
receive an A+ bond rating from Standard and Poors (S&P). We then used 
that rating to issue $100 million in bonds to expand our ability to 
build more affordable housing units.

    The construction of affordable rental housing should be one of our 
nation's highest priorities, at a time of skyrocketing rents and 
historic challenges with housing affordability. For that reason, 
National CORE continues to be a strong supporter of a significant boost 
in the volume of low income housing tax credits, the principal funding 
mechanism for new construction of affordable housing units.

    It is disappointing that the Senate has not acted on the House's 
original Build Back Better provision, which would have created $30 
billion in additional funds, resulting in an estimated 1.4 million 
affordable rental units, serving over 3.5 million Americans.

    However, we note that there is widespread support for this 
provision, so I will focus my statement today on a critical component 
that should go along with the construction of new affordable housing--
which is enriched resident services to serve the families living in 
federally assisted affordable housing.

    Our federal housing policies cannot just be about building more 
affordable housing units. It must also be about improving the lives of 
the families, seniors, and disabled persons living in that housing. To 
that end, a top priority of National CORE is providing enriched 
supportive services to our residents, through our subsidiary Hope 
Through Housing.

    Hope Through Housing is at the forefront in providing family self-
sufficiency and financial literacy services, so families can pull 
themselves out of poverty. Our after-school programs give youth a sense 
of belonging and a constructive way to spend their time. We help 
seniors and persons with disabilities access health care, through 
partnerships with major health care providers like Common Spirt and 
Inland Empire Health Plan (``IEHP'').

    Unfortunately, there is no reliable federal funding source for such 
resident services. In fact, while HUD has programs for service 
coordinators to help access already existing services in the community, 
there is no HUD program that directly funds resident services in low 
income housing. Moreover, the service coordinator programs that HUD 
does have exclude low income tax credit programs from eligibility, with 
most dollars going to public housing agencies.

    That is why National CORE was pleased to support House bill H.R. 
6602, the ``Affordable Housing Resident Services Act of 2022,''\1\ 
which would authorize $300 million for each of the next five years for 
supportive services for residents living in federally assisted low 
income housing. H.R. 6602 is supported by numerous national advocacy 
groups like the Corporation for Supportive Housing, the Housing 
Partnership Network, the Affordable Housing Tax Credit Coalition, and 
the National Leased Housing Association.
---------------------------------------------------------------------------
    \1\ https://www.congress.gov/bill/117th-congress/house-bill/6602/
text.

    National CORE is also pleased that the recent House FY 2023 Labor 
HHS Appropriations bill included a $3 million in funding for 
demonstration program to provide resident services in federally 
assisted housing. Additionally, the House FY 2023 THUD Appropriations 
bill included Report Language that ``recognizes the importance of 
supportive services in affordable housing properties as a proven 
solution to improving housing stability, employment, mental and 
physical health, and other benefits for low-income families'' and asked 
---------------------------------------------------------------------------
for a GAO report on the subject.

    We encourage the Senate to boost the funding level above the $3 
million in demonstration funding in the House bill.

    We also encourage Congress to take authorizing action on H.R. 6602.

    At the same time, a strong case can be made that the simplest and 
most efficient way to provide federal resources for resident services 
in federally assisted housing is to create a supportive services tax 
credit, that complements the low income housing tax credits being used 
for housing construction.

    The Affordable Housing Tax Credit Coalition (AHTCC), a trade 
organization of for profit and non-profit organizations involved in 
developing and financing affordable rental housing using low income 
housing tax credits, is the acknowledged leader in working to 
continuously improve the impact and effectiveness of the housing tax 
credit program. AHTCC would be an ideal organization to ask for 
guidance on how to structure a resident services tax credit.

    From our perspective, an effective supportive services tax credit 
would allocate such tax credits to the states, which could then use 
their housing tax credit allocation process to additionally allocate 
these new tax credits for this purpose.

    Basic components of such legislation could include:

      (1)  Eligible resident services--which should include economic 
self-sufficiency activities (including job training, financial 
literacy, financial counseling), after school programs, youth services, 
health services, assistance with mental health, alcohol and addiction 
problems, childcare and eldercare, and access to services in the local 
community.

      (2)  A specified amount of credit increase for providing the 
supportive services.

      (3)  Existence of an extended supportive services commitment for 
the project--identifying amounts to be spent on different services, 
certification (including re-certification every five years), and annual 
reporting to the housing credit agency on expenditures and outcomes.

      (4)  Responsibilities of the housing credit agency to establish 
criteria to determinate appropriate evidence based supportive services 
and a process for monitoring rule compliance.

      (5)  Provision for credit recapture in the case of non-
compliance.

    In closing, I thank the Committee for the opportunity to present 
this proposal, and would be happy to discuss it in more detail.

                                 ______
                                 
               National Multifamily Housing Council and 
                     National Apartment Association

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 July 20, 2022, hearing titled 
``The Role of Tax Incentives in Affordable Housing.''\1\
---------------------------------------------------------------------------
    \1\ 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 141 state, local, and global affiliates, NAA 
encompasses over 92,000 members representing more than 11 million 
apartment homes globally. One-third of all Americans rent their 
housing, and 36.8 million of them live in an apartment home.
---------------------------------------------------------------------------

ADDRESSING THE HOUSING AFFORDABILITY CHALLENGE

The apartment industry today plays a critical role in housing this 
nation's households by providing apartment homes to 36.8 million 
residents, contributing $3.4 trillion annually to the economy while 
supporting 17.5 million jobs.\2\, \3\ At the same time, it 
is apparent that the nation is experiencing a significant challenge 
surrounding housing affordability that is exacerbated by an 
insufficient supply of multifamily housing.
---------------------------------------------------------------------------
    \2\ NMHC tabulations of 2020 American Community Survey microdata.
    \3\ Hoyt Advisory Services, National Apartment Association and 
National Multifamily Housing Council, ``The Contribution of Multifamily 
Housing to the U.S. Economy,'' https://www.weare
apartments.org/.

Affordability has been a longstanding problem in housing. In 1985, 28.0 
percent of all households were cost-burdened (paying over 30 percent of 
their income on housing), while 12.1 percent had severe cost-burdens 
(paying over half of their income on housing). Over 30 years later, 
these shares of cost-burdened and severely cost-burdened households 
increased to 35.8 percent and 18.0 percent, respectively.\4\ The 
multifamily industry has faced even greater challenges: The total share 
of cost-
burdened apartment households increased steadily from 42.4 percent in 
1985 to 54.6 percent in 2019. During this period, the total share of 
severely cost-burdened apartment households increased from 20.9 percent 
to 29.9 percent.\5\
---------------------------------------------------------------------------
    \4\ NMHC tabulations of American Housing Survey microdata (1985-
2019).
    \5\ Ibid.

A historic unmet demand for multifamily housing reflects the nation's 
overall housing affordability challenges. The United States needs to 
build 4.3 million new apartments by 2035 to meet both future demand and 
the existing shortage of apartments.\6\ Yet, rising costs, construction 
delays and labor shortages are making it increasingly difficult to 
build housing that is affordable to a wide range of income levels. 
Fully 97 percent of apartment developers reported experiencing 
construction delays in NMHC's most recent Quarterly Survey of Apartment 
Construction and Development Activity. A majority of respondents (83 
percent) reported that deals have been repriced up over the past three 
months while 40 percent said labor costs increased more than expected. 
According to the Harvard Joint Center for Housing Studies, between 2012 
and 2019, the price of vacant commercial land doubled, while the 
combined costs of construction labor, materials and contractor fees 
increased by 39 percent.\7\ For comparison, the overall price level 
rose 11 percent.\8\
---------------------------------------------------------------------------
    \6\ Hoyt Advisory Services, ``Estimating the Total U.S. Demand for 
Rental Housing by 2035'' (2022), https://www.weareapartments.org/.
    \7\ Harvard Joint Center for Housing Studies, ``America's Rental 
Housing'' (2020), available at https://www.jchs.harvard.edu/sites/
default/files/reports/files/Harvard_JCHS_Americas_
Rental_Housing_2020.pdf.
    \8\ U.S. Bureau of Labor Statistics, CPI for All Urban Consumers 
(CPI-U), seasonally adjusted.

High regulatory costs are further constraining supply. Recent research 
published by NMHC and the National Association of Home Builders found 
that regulation imposed by all levels of government accounts for an 
average of 40.6 percent of multifamily development costs.\9\ The 
research, which was based on a survey of 49 developers, finds that 
three quarters (74.5 percent) of respondents said they encountered 
``Not In My Back Yard'' (NIMBY) opposition to a proposed development. 
Confronting that opposition adds an average of 5.6 percent to total 
development costs and delays the completion of those new properties by 
an average of 7.4 months.\10\ Identifying duplicative and unnecessary 
regulatory costs is a critical factor as we work to address the 
critical shortage of affordable housing facing this nation.
---------------------------------------------------------------------------
    \9\ National Association of Home Builders and National Multifamily 
Housing Council, Regulation: 40.6 Percent of the Cost of Multifamily 
Development, https://www.nmhc.org/globalassets/research--insight/
research-reports/cost-of-regulations/2022-nahb-nmhc-cost-of-
regulations-report.pdf.
    \10\ Ibid.

While housing affordability is a significant challenge, the multifamily 
industry has long been at the forefront of addressing this issue. NMHC 
published its Housing Affordability Toolkit with HR&A Advisors in 2018 
with the goals of both providing background on the underlying causes of 
the apartment industry's affordability crisis and providing specific 
tools that could be used to help defray the cost of building new 
apartments, allowing more units to be built at a variety of price 
points.\11\
---------------------------------------------------------------------------
    \11\ https://housingtoolkit.nmhc.org/.

We cited three main reasons for the worsening affordability conditions: 
(1) a chronic demand/supply imbalance; (2) a rise in the ``lifestyle'' 
renter (or renter by choice); and (3) an increase in overall 
development costs including materials and regulatory compliance. 
Together, these factors created a scenario that put the brakes on 
affordable housing production. It became increasingly challenging to 
buy land and build a property at rates that were broadly affordable. 
Furthermore, it was exceedingly difficult for lower-income renter 
households to find an apartment without becoming cost-burdened. In the 
time since the publication of the Affordability Toolkit, there has been 
a pandemic-induced economic downturn, one that put lower-income 
apartment residents particularly at risk financially.\12\
---------------------------------------------------------------------------
    \12\ https://www.nmhc.org/research-insight/research-notes/2020/
which-apartment-residents-are-most-affected-by-job-losses.
---------------------------------------------------------------------------

 TAX POLICY CAN PLAY A KEY ROLE IN PROMOTING HOUSING SUPPLY

The multifamily industry wishes to work with Congress and the Biden 
Administration, which in May released a thoughtful Housing Supply 
Action Plan, to address these challenges.\13\ While it will take a 
variety of tax and non-tax approaches to increase supply, we believe 
tax policy can play a critical role in this regard. To this end, we 
strongly urge Congress to:
---------------------------------------------------------------------------
    \13\ https://www.whitehouse.gov/briefing-room/statements-releases/
2022/05/16/president-biden-announces-new-actions-to-ease-the-burden-of-
housing-costs/.

      Expand and enhance the Low-Income Housing Tax Credit;
      Enact the Middle-Income Housing Tax Credit to support workforce 
housing;
      Enhance Opportunity Zones to incentivize the rehabilitation and 
preservation of multifamily buildings;
      Encourage the adaptive reuse of underutilized commercial 
properties into multifamily housing;
      Promote the rehabilitation of multifamily housing located near 
transit; and
      Support measures to help property owners retrofit properties to 
meet building performance goals in line with our national climate 
policy.

Each of these proposals is briefly described in the pages that follow, 
and we note that many have bipartisan support.

 OVERVIEW OF PROPOSALS TO SUPPORT THE DEVELOPMENT AND PRESERVATION OF 
                    MULTIFAMILY HOUSING

Housing production is not a zero-sum game; we need to produce housing 
at prices that are broadly affordable across the income spectrum. Our 
nation's supply of multifamily properties is aging. In fact, 46 percent 
of apartment units were built prior to 1980, and 76 percent were built 
prior to 2000.\14\ The country must build 4.3 million new apartment 
homes by 2035 to meet both projected demand and the existing shortage 
of apartments.\15\ To address housing production and preservation, we 
recommend Congress enact the following policies:
---------------------------------------------------------------------------
    \14\ NMHC tabulations of 2020 American Community Survey microdata.
    \15\ Hoyt Advisory Services, ``Estimating the Total U.S. Demand for 
Rental Housing by 2035'' (2022), https://www.weareapartments.org/.
---------------------------------------------------------------------------
Expand and Enhance the Low-Income Housing Tax Credit
The Low-Income Housing Tax Credit (LIHTC) is a public/private 
partnership that leverages federal dollars with private investment to 
produce affordable rental housing and stimulate new economic 
development in many communities. Since its inception in 1986, the LIHTC 
program has according to the A Call To Invest in Our Neighborhoods 
(ACTION) Campaign financed 3.6 million apartments and served 8 million 
households. The LIHTC program provides critical support to the nation's 
affordable housing production but could be made even more impactful.

NMHC and NAA strongly support the Affordable Housing Credit Improvement 
Act of 2021 (S. 1136/H.R. 2573). Introduced by Senate Finance Committee 
Members Maria Cantwell, Todd Young, Ron Wyden, and Rob Portman (and 
cosponsored by other committee members), this bipartisan bill would, 
among other provisions, make permanent the increased LIHTC credit 
authority enacted in March 2018 to enable the production of new units 
and further augment credit authority by 50 percent. The ACTION Campaign 
estimates this legislation would ``result in the production of over 2 
million additional affordable homes over the next decade, support the 
creation of nearly 3 million jobs, and generate more than $346 billion 
in wages and business income and nearly $120 billion in additional tax 
revenue.''\16\
---------------------------------------------------------------------------
    \16\ https://rentalhousingaction.org/wp-content/uploads/2021/10/
AHCIA-One-Page-Summary-September-2021.pdf.

Additionally, it should be noted that Congress enacted a 12.5 percent 
increase in credit authority for years 2018-2021. Given that this 
increase has now expired, the nation is experiencing a decrease in 
LIHTC resources. If Congress cannot agree to a substantial increase in 
credit authority over 2021 levels, it should at a minimum restore the 
---------------------------------------------------------------------------
reduction in credit authority.

Finally, the multifamily industry encourages Congress to enact the 
LIHTC Financing Enabling Long-term Investment in Neighborhood 
Excellence Act (LIFELINE Act) (S. 4181/H.R. 7078). Introduced by 
Senators Patrick Leahy and Susan Collins and cosponsored by Senate 
Finance Committee members Michael Bennet, Catherine Cortez Masto, 
Margaret Hassan, Sheldon Whitehouse, and Ron Wyden, this legislation 
would facilitate the use of the Coronavirus State and Local Fiscal 
Recovery Fund (SLRF) with the LIHTC program. Although the Treasury 
Department's final rule governing the SLRF technically enables funds to 
be used for affordable housing, it is either extremely challenging or 
impossible to do so in the context of a LIHTC development. The LIFELINE 
Act would address this issue by permitting states and localities to use 
SLRF to make long-term loans to LIHTC developments. Given the shortage 
of affordable housing and rising construction costs confronting the 
nation, it only makes sense to allow SLRF to be used to help make LIHTC 
projects financially feasible.
 Enact the Middle-Income Housing Tax Credit (MIHTC) to Support 
        Workforce Housing
Housing affordability is an issue threatening the financial well-being 
of solidly 
middle-income households in addition to low-income families. According 
to the Joint Center for Housing Studies of Harvard University, ``the 
median asking rent for an apartment completed in the second quarter of 
2021 was $1,669, a 17 percent increase from the same period in 
2016.''\17\ For a renter to afford one of those units at the 30 percent 
of income standard, they would need to earn at least $66,760 annually. 
Moreover, the Joint Center reports that ``Although much lower, the 
cost-
burdened share of middle-income households increased the most in 2014-
2019. The share of renters making between $30,000 and $74,999 with at 
least moderate housing cost burdens rose 4 percentage points to 41 
percent, while the share with severe burdens rose from 7 percent to 8 
percent.''\18\, \19\ Accordingly, this is an issue impacting 
those workers who comprise the very fabric of strong communities 
nationwide, including teachers, firefighters, nurses and police 
officers.
---------------------------------------------------------------------------
    \17\ Joint Center for Housing Studies of Harvard University, 
America's Rental Housing 2022, pg. 28, https://www.jchs.harvard.edu/
sites/default/files/reports/files/Harvard_JCHS_Amer
icas_Rental_Housing_2022.pdf.
    \18\ Joint Center for Housing Studies of Harvard University, 
America's Rental Housing 2022, pg. 32, https://www.jchs.harvard.edu/
sites/default/files/reports/files/Harvard_JCHS_Amer
icas_Rental_Housing_2022.pdf.
    \19\ NMHC has also done some additional tabulations of 2020 
American Community Survey microdata. Looking at the 50 most populous 
metro areas in the 2020 American Community Survey microdata, just 4.4 
percent of apartment units built in 2019 or 2020 were affordable (30 
percent of monthly income or less) to apartment households making 60 
percent of their metro's median apartment household income; 7.8 percent 
of apartment units built in 2019 or 2020 were affordable to apartment 
households making 80 percent of their metro's median apartment 
household income; and 16.8 percent of apartment units built in 2019 or 
2020 were affordable to apartment households making 100 percent of 
their metro's median apartment household income. For this calculation, 
NMHC calculated the median apartment household income separately by 
unit type (e.g., studio, one-bedroom, or two-bedroom) and assumed that 
households would only consider living in an apartment of a similar unit 
type.

Tax policies to spur the production of multifamily housing targeted to 
middle-income Americans should be a part of any legislation that seeks 
to address housing affordability on a comprehensive basis. We urge 
Congress to strongly consider the Middle-Income Housing Tax Credit that 
Senate Finance Committee Chair Ron Wyden introduced as part of the 
Decent, Affordable, Safe Housing for All Act (DASH Act) (S. 2820) 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.
 Enhance Opportunity Zones to Incentivize Rehabilitation of Housing 
        Units
Enacted as part of tax reform legislation in 2017, Opportunity Zones 
are designed to provide tax incentives for investments in distressed 
communities. Opportunity Zones hold great promise for the development 
of multifamily housing. Under the new program, Governors have 
designated over 8,700 qualified low-income census tracts nationwide as 
Opportunity Zones. Up to 25 percent of a state's qualified census 
tracts may qualify as Opportunity Zones, with each state having to 
designate a minimum of 25 Zones.

While we expect the Opportunity Zones program to be beneficial in 
spurring the production of new multifamily housing, the program could 
be improved with respect to incentives for the rehabilitation and 
preservation of existing multifamily units. Current regulations work 
against using this program to rehabilitate properties for affordable 
housing since the developer must double her basis in the property 
without consideration of the cost of land. In many cases, such 
significant renovation is unnecessary to preserve buildings and units 
that might otherwise be lost to obsolescence. Congress could leverage 
the Opportunity Zones program to promote the rehabilitation and 
preservation of multifamily units and, thereby, positively address the 
shortage of apartment units.

NMHC and NAA recommend that Congress consider statutory modifications 
to reduce the basis increase necessary to qualify a multifamily 
rehabilitation project for Opportunity Zone purposes. It is noteworthy 
that to qualify for an allocation under the LIHTC, owners must commit 
to rehabilitations valued at the greater of: (1) 20 percent of adjusted 
basis of a building; or (2) $6,000 ($7,400 in 2022 as adjusted for 
inflation) per low-income unit.
 Encourage the Adaptive Reuse of Underutilized Commercial Properties 
        into Multifamily Housing
With the COVID-19 pandemic modifying where Americans work and shop, the 
multifamily industry believes there is great promise in proposals to 
convert underutilized properties into multifamily housing. Office 
buildings, shopping centers, and hotels, for example, can be 
transformed into new units in places Americans want to live.

Notably, Senate Finance Committee member Debbie Stabenow, joined by 
Senate Finance Committee member Sherrod Brown as a cosponsor, has 
introduced the Revitalizing Downtowns Act (S. 2511) that would provide 
a 20 percent tax credit to convert office buildings into other uses, 
including residential use. Rep. Jimmy Gomez has introduced companion 
legislation (H.R. 4759) in the House of Representatives. The 
multifamily industry is interested in working with Congress on this 
type of proposal but would like to see it modified to enable other 
types of commercial properties (e.g., shopping centers and hotels) to 
qualify for the tax incentive, as well as to ensure REITs could utilize 
the benefit.

Alternatively, the multifamily industry would encourage Congress to 
explore whether tax-exempt private activity bonds could be used as a 
means of promoting adaptive reuse. Housing finance agencies could issue 
such bonds to help facilitate adaptive reuse of underutilized 
properties, particularly in areas that have a plan to track 
discriminatory land-use policies as envisioned by the Yes In My Back 
Yard Act (YIMBY Act) (S. 1614/H.R. 3198).
Promote the Rehabilitation of Multifamily Housing Located Near Transit
NMHC and NAA strongly support bipartisan legislation that would provide 
a new tool aimed at encouraging greater community development and 
inclusive neighborhood revitalization. Introduced by House Ways and 
Means Committee member Earl Blumenauer and cosponsored by committee 
members Mike Kelly, Dan Kildee, and Darin LaHood, the Revitalizing 
Economies, Housing and Business Act (REHAB Act) (H.R. 1483) provides:

      A 15 percent tax rehabilitation credit for buildings that are 
more than 50 years old, not certified historic structures, and are 
within one-half of a mile of a public transportation station;
      Expanded credit eligibility to include building expansion on the 
same block; and
      A bonus credit of 25 percent for expenses related to public 
infrastructure upgrades and rent-restricted housing.
Strengthen Communities through Policies that Support Resiliency
Building utility costs are second only to debt service in terms of 
property expenses. Efficient use of resources, including updating 
building systems and appliances, is key to ensuring that housing 
remains affordable for residents. The multifamily industry has a long 
history of support for building-performance benchmarking and water and 
energy conservation and favors incentive-based strategies that improve 
building energy performance and community-wide resiliency efforts.

Building performance standards that overlook the age of the existing 
apartment stock and fail to consider the inherent efficiencies of 
compact development that is the hallmark of multifamily design 
buildings will exacerbate the shortage of affordable apartment units. 
Policies that provide financial assistance for owners to reinvest in 
higher-performing building systems and components outside of 
replacement pro formas will be critical to advancing building 
performance goals. Layering additional conditions on these investments, 
including requirements about the workforce that must be employed to 
make these renovations, will eliminate the utility of the efficiency 
incentives that have been available under Sec. 45L or Sec. 179D.

As Congress considers legislation to promote resilience and reduce 
greenhouse gas emissions across the economy, programs that address 
building energy performance are an essential element. Policymakers 
should resist applying one-size-fits-all efficiency mandates that will 
exacerbate the shortage of affordable housing in the near term. 
Incentives that enable developers to invest in engineering, 
construction and development costs that are required to build/rehab 
multifamily apartment homes will speed the development of higher-
performing, more resilient housing that is affordable for renter 
households.

Make Permanent the New Energy Efficient Homes Credit (Sec. 45L): This 
tax credit has provided a necessary incentive for builders of apartment 
buildings (3 stories or fewer) to install higher performance building 
systems and upgraded appliances than they otherwise could justify 
within the pro forma for developing the property. While this credit was 
extended through 2021, it has subsequently expired and should be made 
permanent as an essential part of a national plan to boost production 
of high-performance buildings and reduce greenhouse gas emissions.

Improve the Energy Efficient Commercial Buildings Deduction (Sec. 179): 
This tax deduction has primarily been used to encourage energy-
efficient new construction. However, since 179D's initial enactment in 
2005, the intent has also been to encourage private-sector and non-
profit owners to retrofit existing buildings. In this regard, Sec. 179D 
can be improved. Considering the age of current high-rise apartment 
building stock, Sec. 179D should be strengthened to encourage retrofits 
and, thereby, maximize the incentive's potential as an engine for sound 
tax, jobs, energy and environmental policy. Title I of the Energy 
Efficiency Tax Incentives Act (S. 2189), introduced by Senators Ben 
Cardin, Dianne Feinstein, and Brian Schatz in the 113th Congress, 
preserves the deduction's application for new construction and public 
buildings, while also meaningfully incentivizing private-sector and 
non-profit retrofits.

                                 ______
                                 
               New York State Homes and Community Renewal
                    641 Lexington Avenue, 5th Floor
                           New York, NY 10022
                             www.hcr.ny.gov

KATHY HOCHUL
Governor

August 3, 2022

The Honorable Ron Wyden
Chairman
U.S. Senate
Committee on Finance
219 Dirksen Senate Office Building
Washington, DC 20510

The Honorable Mike Crapo
Ranking Member
U.S. Senate
Committee on Finance
219 Dirksen Senate Office Building
Washington, DC 20510

Re: Senate Finance Committee Hearing of ``The Role of Tax Incentives in 
Affordable Housing''

Dear Chairman Wyden and Ranking Member Crapo:

Thank you for conducting the July 20th hearing on ``The Role of Tax 
Incentives in Affordable Housing.'' I write to you as the Commissioner 
and CEO of New York State Homes and Community Renewal inclusive of the 
NYS Housing Finance Agency and the State of New York Mortgage Agency 
which administer the State's housing credit and bond programs and the 
other federal and state affordable housing resources.

New York State, along with New York City, have long been the top two 
issuers of municipal housing bonds in the nation. With this valuable 
resource, the State has been able to finance the creation of much-
needed affordable and supportive housing to low- and moderate-income 
individuals and families, as well as vulnerable populations such as 
those experiencing homelessness, seniors, veterans, and many others 
across the state in need of on-site supportive services in order to 
live independently.

Since 2011, our 4% Low Income Housing Tax Credit (LIHTC) and Private 
Activity Bond program has financed over 66,000 units of affordable 
housing to assist 150,000 New Yorkers. During the same period, our 9% 
Low Income Housing Tax Credit Program has provided $368 million in tax 
credit equity to create nearly 20,000 units.

The Federal Low-Income Housing Tax Credits are the most powerful and 
impactful financing tool in the development of affordable and 
supportive housing. By leveraging significant private investment 
together with tax incentives, these projects have had multiple positive 
impacts and helped address various complimentary policy goals beyond 
the expansion of affordable housing. These range from:

      Boosting community revitalization and countering disinvestment;
      Addressing environmental justice goals through restoration and 
reuse of brownfields;
      Preserving and repurposing historic structures;
      Lowering dependence on fossil fuels through highly energy-
efficient and all-
electric housing design;
      Reducing the concentration of poverty through mixed-income 
projects and creating affordable housing opportunities in well-
resourced areas; and
      Creating jobs in stable, well-paying fields such as 
construction, finance, personal services and property management.

Despite New York's success in utilizing these programs, more needs to 
be done. The economic fallout from the COVID-19 pandemic and increasing 
inflation has resulted in skyrocketing rental costs that put the dream 
of homeownership out of reach for too many families. The affordable 
housing crisis demands more action by all levels of government.

To this end, New York State has taken significant steps on its own to 
tackle this crisis. In the 2022-23 State Budget, Governor Kathy Hochul 
introduced and successfully secured a new $25 billion, five-year, 
comprehensive housing plan that will increase housing supply by 
creating or preserving 100,000 affordable homes across New York 
including 10,000 with supportive services for vulnerable populations, 
plus the electrification of an additional 50,000 homes.

The State recently enacted legislation that will allow the New York 
City Housing Authority (``NYCHA''), the nation's largest public housing 
authority, to create a Public Preservation Trust that will unlock 
additional federal funding through tenant protection vouchers and lead 
to billions of dollars in critical repairs and improvements to more 
than 25,000 apartments in NYCHA developments across the City.

Additionally, the State of New York Mortgage Agency recently agreed to 
provide insurance coverage for a mortgage loan to Co-op City in the 
Bronx, the nation's largest middle-income building cooperative, so it 
could refinance debt to fund major rehabilitations and preventative 
maintenance.

But we must ask that our partners in the federal government provide 
more resources to aid in these efforts. Two immediate actions that can 
be taken are the passage of the Affordable Housing Credit Improvement 
Act (AHCIA) and the Neighborhood Homes Investment Act (NHIA).

The AHCIA, sponsored by Senators Maria Cantwell (D-WA) and Todd Young 
(R-IN), has garnered bipartisan support and, as you know, many members 
of the Committee on Finance have already agreed to co-sponsor it. Put 
simply, the AHCIA would expand and strengthen the federal Housing 
Credit and give a significant increase in credit allocation authority 
in the LIHTC 9% Program. Additionally, this legislation would lower the 
threshold of Private Activity Bond financing--from 50 to 25 percent--
that is required to trigger the maximum amount of 4 percent Low Income 
Housing Tax Credits.

It is estimated that passage of this legislation would result in 2 
million additional affordable homes over the next decade across the 
country. In New York, the State and City would be able to finance 
approximately 100,000 more homes over the next ten years, which would 
go a long way in addressing the State's housing crisis.

On the single-family side, the NHIA, introduced by Committee members 
Senators Ben Cardin (D-MD) and Rob Portman (R-OH), would establish a 
new tax credit, the Neighborhood Homes Credit, modeled after the 
Housing Credit. The NHIA would help incentivize developers to construct 
or substantially rehabilitate 500,000 affordable owner-occupied homes 
over the next 10 years.

The new credit would help close the ``value gap'' in distressed urban, 
suburban, and rural neighborhoods--where the cost of building or 
renovating a home is greater than the post-construction value of the 
property by offsetting up to 35 percent of eligible development costs. 
These credits provide a significant incentive for the private sector to 
invest in struggling neighborhoods across the nation and, moreover, 
help address the financial inequities caused by the racial disparity in 
homeownership rates among minority communities.

New York joins the chorus of state and local governments, housing 
advocates, and private business leaders that believe in strengthening 
and protecting the LIHTC. Incentivizing the creation of affordable 
housing can help reduce the nation's severe shortage of affordable 
rental housing, improve property values, decrease blight in communities 
across the country, and increase family wealth.

We thank you for your work in support of the creation of affordable 
housing and look forward to our continued partnership.

Very truly yours,

RuthAnne Visnauskas
Commissioner/CEO

                                 ______
                                 
                             UMH Properties
                         3499 Route 9, Suite 3C
                           Freehold, NJ 07728

               Statement of Sam Landy, President and CEO

    I am pleased to submit this statement for the record for the July 
20, 2022 Senate Finance Committee Hearing on ``The Role of Tax 
Incentives in Affordable Housing.''

    I am submitting this statement in order to request that the 
Committee consider adoption of legislation to amend the existing 
Opportunity Zone statute to allow the 10 year step-up basis treatment 
that currently exists for investments in Opportunity Zones to apply to 
targeted investments in manufactured home communities--without the 
requirement to link such treatment to a capital gain in the prior 180 
months.

    I am the President and CEO of UMH Properties, one of the premier 
owners and operators of manufactured home communities in the Nation. 
UMH Properties is publicly traded on the New York Stock Exchange. We 
currently own 131 manufactured home communities in 10 states with 
approximately 24,800 developed home sites. Seven of our communities are 
currently located in Opportunity Zones.

    UMH Properties has a 53 year history of providing quality 
affordable housing in manufactured home communities. Videos of our 
communities are available on our website and showcase the high-quality 
affordable housing that can be delivered through the investment in 
manufactured home communities.

    Manufactured housing is the most affordable homeownership option 
available for low and moderate income families in America. The average 
income of a manufactured home buyer is around $35,000--while the 
average income of a home buyer buying a site-built home is over 
$100,000. Commonly manufactured homes are less expensive to own than 
renting. Moroever, ownership of a manufactured home, with a fixed rate 
mortgage, provides protections against the main alternative option of 
renting for such families, where apartment rent increases have averaged 
almost 20% over the last year.

    Manufactured home communities--also known as land-lease 
communities--are a critical model for the delivery of affordable 
manufactured homes. Thirty-one percent of new manufactured homes are 
currently being placed in manufactured home communities. There are more 
than 43,000 land-lease communities in the U.S., representing almost 4.3 
million home sites. These communities offer sites for families to place 
their manufactured homes, with professional management of the community 
and amenities that go with it.

    One of the greatest challenges facing older manufactured home 
communities is the need for an infusion of funds to address neglected 
capital improvements like roads, sewer, and water. UMH Properties has 
been highly successful in purchasing aging manufactured home 
communities in need of significant capital repairs--in order to 
modernize them and thereby protect the value of the investments of the 
manufactured homeowners living in those communities at affordable land 
lease rental rates.

    These purchases and improvements of aging communities require 
significant investments. UMH Properties has a total market 
capitalization of approximately $2 billion, with gross revenue of over 
$190 million per year. UMH invests over $70 million a year in new 
rental homes and capital improvements to improve our manufactured home 
communities. These investments allow us to provide our residents with 
the highest quality affordable housing at the most reasonable rates.

    However, we could do so much more with enhanced access to investors 
that would result from a modest, targeted tweak to the Opportunity Zone 
program.

    UMH is a strong supporter of Opportunity Zones, and we are pleased 
to report that we have secured some investments in Opportunity Zones, 
because of the financial investment incentives they offer.

    However, the investors we do business with indicate that the 
Opportunity Zone requirement that investments be a reinvestment of 
funds from a capital gain in the preceding 180 days is a significant 
impediment, that narrows access to investments.

    Because of the strong economic and social policy benefits of 
manufactured home homeownership, we would like to suggest a narrow 
targeted exemption from that requirement for investments in 
manufactured home communities.

    Our suggestion is to allow investments in manufactured housing 
communities to have the 10-year step-up basis authorized in the 
Opportunity Zone statute--but without the requirement that funds be a 
reinvestment of a capital gain in the prior 180 days. Legislatively, 
this could be achieved in a simple manner, by creating a short new 
subsection in the statute that would grant authority for this.

    With this change, we are confident that UMH Properties and other 
manufactured home communities nationwide could access significant new 
investment funds to help build and modernize communities nationwide 
that facilitate the most affordable homeownership option available--
manufactured homes.

    This approach is narrow and targeted. It would not facilitate 
investments that could be criticized as deviating from the objectives 
and intent of the Opportunity Zone program. It is limited to 
investments that facilitate affordable manufactured housing 
homeownership--a high priority for Congress and the Administration and 
an important public policy objective.

    Finally, it would not allow investors to access the deferment and 
potential permanent elimination for capital gains that have already 
taken place. Since the latter is the most costly component of 
Opportunity Zone tax treatment and since the proposed flexibility is 
narrowly targeted to a specific limited activity, we believe the tax 
scoring cost of this provision would be very, very small, while the 
societal and economic benefits would be substantial.

    In closing, I thank the Committee for the opportunity to submit 
this statement and I would be happy to make myself available to 
Committee staff to discuss this initiative in more detail.

                                 ______
                                 
                         U.S. Mortgage Insurers
                    1101 17th Street, NW, Suite 700
                          Washington, DC 20036
                         https://www.usmi.org/

                                                      July 20, 2022
The Honorable Ron Wyden
Chairman
U.S. Senate
Committee on Finance
221 Dirksen Senate Office Building
Washington, DC 20510

The Honorable Mike Crapo
Ranking Member
U.S. Senate
Committee on Finance
239 Dirksen Senate Office Building
Washington, DC 20510

Dear Chairman Wyden and Ranking Member Crapo:

U.S. Mortgage Insurers (USMI) appreciates the opportunity to submit 
this letter for the record for the Committee on Finance's hearing 
titled ``The Role of Tax Incentives in Affordable Housing.'' We are 
very pleased that the committee held a hearing on this important topic 
and USMI believes that there are tax policies that can be improved in 
order to help American family achieve the American Dream of 
homeownership. More specifically, we strongly support S. 3590, the 
Middle Class Mortgage Insurance Premium Act of 2022, a bipartisan bill 
introduced by Senators Maggie Hassan and Roy Blunt.

By way of brief background, USMI is a trade association comprised of 
the leading private mortgage insurance (MI) companies in the U.S. and 
represents an industry dedicated to a housing finance system backed by 
private capital that enables access to prudent and affordable mortgage 
finance for borrowers while protecting taxpayers.\1\ The private MI 
industry is focused on ensuring that homeready borrowers continue to 
have access to affordable and sustainable mortgages within a well-
functioning U.S. housing finance system. The private MI industry has a 
65-year track record of underwriting and actively managing single 
family mortgage credit risk in order to facilitate access to low down 
payment conventional mortgages. Since 1957, private MI has helped more 
than 37 million families purchase a home or refinance an existing 
mortgage, including nearly 2 million families in 2021 alone.
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    \1\ USMI membership comprises: Enact Mortgage Insurance; Essent 
Guaranty, Inc.; Mortgage Guaranty Insurance Corporation; National 
Mortgage Insurance Corporation; and Radian Guaranty, Inc.

Low down payment mortgages are critical for many families, most notably 
first-time, lower wealth, and minority homebuyers, to secure mortgage 
financing. Affordability remains a persistent barrier to homeownership 
across the country and MI helps bridge the down payment gap for 
borrowers who lack the resources for large down payments. In 2021 
alone, approximately 4.6 million families obtained mortgages with some 
form of MI, including nearly 2 million conventional mortgages with 
private MI, nearly 1.4 million mortgages insured by the Federal Housing 
Administration (FHA), and nearly 1.3 million mortgages guaranteed by 
the U.S. Department of Veterans Affairs (VA). Further, the vast 
majority of borrowers with MI are first-time homebuyers, traditionally 
the driving force of the housing market. For purchase mortgages 
originated in 2021, nearly 60% of mortgages with private MI, 85% of 
FHA-insured mortgages, and 50% of VA-guaranteed loans went to first-
time homebuyers.\2\
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    \2\ GSE aggregate data, VA Lender Loan Volume Reports, and HUD 
quarterly reports to Congress on ``Financial Status of the Mutual 
Mortgage Insurance Fund.''

In order to make homeownership more affordable, USMI has long supported 
the tax provision allowing a deduction for MI premiums paid in 
connection with a mortgage on a qualified residence (MI Deduction). 
Since 2007, the MI Deduction has been a powerful tool in prudently 
promoting homeownership for low- and moderate-income (LMI) families. 
The provision has been extended several times with broad bipartisan 
support, including most recently in the Further Consolidated 
Appropriations Act of 2020. The MI Deduction expired on December 31, 
2021 and, absent congressional action, 2022 will be the first time in 
more than 15 years that qualifying taxpayers cannot claim a deduction 
that has promoted access and affordability in the housing finance 
system. During the time period when MI premiums have been deductible, 
millions of hardworking LMI households have benefited from the MI 
Deduction. For 2019, the most recent tax year for which detailed 
Internal Revenue Service (IRS) data is available, approximately 1.4 
million households claimed the MI Deduction, for an average tax 
deduction of nearly $2,100.\3\ Prior to the doubling of the standard 
deduction as part of the Tax Cuts and Jobs Act of 2017, more than 4 
million households annually benefitted from the MI Deduction and 
utilization will likely return to those levels when the doubling of the 
standard deduction expires at the end of 2025.
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    \3\ IRS, Individual Complete Report (Publication 1304), Table 2.1, 
Tax Year 2019. Available at https://www.irs.gov/pub/irs-soi/
19in21id.xls.

However, two key aspects of the current MI Deduction diminish its 
effectiveness: (1) its temporary nature; and (2) its relatively low 
Adjusted Gross Income (AGI) phaseout. H.R. 6109 would modify current 
law to make the deduction permanent and expand taxpayer eligibility by 
raising the income level at which the phaseout begins, specifically 
increasing the income phaseout trigger to $200,000 for joint filers and 
$100,000 for single filers. This would be the first AGI adjustment for 
the MI Deduction since it took effect in 2007 and be a welcome 
statutory change to take into account the natural erosion of the value 
of the dollar with the passage of time. The MI Deduction is a sound and 
targeted tax policy that provides meaningful benefits to hardworking 
families across the country and should be a permanent part of the U.S. 
tax code. Home ownership remains the primary vehicle for families to 
enter the middle class and build long-term generational wealth, and the 
MI Deduction is an important tool for policymakers to support 
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homeownership opportunities for more Americans.

S. 3590 is included as Annex A and bipartisan companion legislation, 
H.R. 6109, has been introduced by Representatives Ron Kind and Vern 
Buchanan. A June 2021 joint letter of support for making the deduction 
permanent and entirely eliminating the AGI phaseout from the Mortgage 
Bankers Association (MBA), National Association of Home Builders 
(NAHB), National Association of Realtors (NAR), National Housing 
Conference (NHC), and USMI is attached as Annex B.

USMI thanks you for devoting needed attention to the extremely 
important issue of housing, especially around policies that promote 
affordable and sustainable homeownership, and stands available as a 
resource to the committee. We appreciate the opportunity to discuss the 
MI Deduction, a tax policy that has long enjoyed bipartisan support, 
and requests for additional information may be directed to Brendan 
Kihn, USMI's Senior Director of Government Relations, at [email protected] 
or 202-280-1820.

Very truly yours,

Adolfo Marzol
Chairman
_______________________________________________________________________

                                Annex A

_______________________________________________________________________

117th CONGRESS
2d SESSION

                                S. 3590

To amend the Internal Revenue Code of 1986 to increase the income cap 
with respect to the mortgage insurance premium deduction, and to make 
such deduction permanent.
_______________________________________________________________________

                   IN THE SENATE OF THE UNITED STATES

             February 7 (legislative day, February 3), 2022

Ms. HASSAN (for herself and Mr. BLUNT) introduced the following bill; 
        which was read twice and referred to the Committee on Finance

_______________________________________________________________________

                                 A BILL

To amend the Internal Revenue Code of 1986 to increase the income cap 
        with respect to the mortgage insurance premium deduction, and 
        to make such deduction permanent.

      Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

      This Act may be cited as the ``Middle Class Mortgage Insurance 
Premium Act of 2022''.

SEC. 2. INCREASING THE INCOME CAP FOR AND MAKING PERMANENT THE MORTGAGE 
        INSURANCE PREMIUM DEDUCTION.

      (a) In General.--(1) Section 163(h)(3)(E) of the Internal Revenue 
Code of 1986 is amended--

         (1) in clause (ii), by striking ``$100,000 ($50,000'' and 
inserting ``$200,000 ($100,000'', and

        (2) by striking clause (iv).

      (b) Effective Date.--The amendments made by this Act shall apply 
to taxable years beginning after December 31, 2021.

_______________________________________________________________________

                                Annex B

June 17, 2021

The Honorable Ron Wyden
Chairman
U.S. Senate
Committee on Finance
219 Dirksen Senate Office Building
Washington, DC 20510

Dear Chairman Wyden:

The undersigned organizations are writing in regard to the current tax 
treatment of mortgage insurance premiums. Our organizations represent a 
diverse coalition of stakeholders in the housing finance system, 
including lenders, real estate professionals, homebuilders, and 
mortgage insurers, and we appreciate the opportunity to provide our 
collective perspective on this important tax provision. As explained 
further below, to better support existing homeowners and prospective 
homebuyers, we urge you to modify current law to make the mortgage 
insurance premium tax deduction permanent and to eliminate its income 
phaseout.

Affordability remains a persistent barrier to homeownership across the 
country and mortgage insurance helps bridge the down payment gap for 
borrowers who lack the resources for a 20 percent down payment or have 
less than perfect credit. Low down payment mortgages--including 
conventional mortgages with private mortgage insurance and loans with 
government mortgage insurance and loan guarantees through the Federal 
Housing Administration (FHA), U.S. Department of Veterans Affairs (VA), 
and U.S. Department of Agriculture Rural Housing Service (RHS)--have 
proven critical for many first-time, lower wealth, and minority 
homebuyers to secure financing and attain the American Dream of 
homeownership. Using low down payment mortgages allows families to buy 
home sooner than they otherwise would be able and to reap the benefits 
of homeownership, including financial stability and building 
intergenerational wealth. In calendar year 2020 alone, nearly 5 million 
families obtained mortgages with some form of mortgage insurance, 
including more than two million conventional loans with private 
mortgage insurance, nearly 1.4 million FHA-insured mortgages, nearly 
1.4 million VA-guaranteed mortgages, and more than 140,000 RHS-
guaranteed single-family mortgages.\4\ Further, the vast majority of 
borrowers with mortgage insurance are first-time homebuyers, 
traditionally the driving force of the housing market. Low down payment 
lending options are critical for these first-time homebuyers, as 
evidenced by the fact that more than 80 percent of first-time 
homebuyers relied on low down payment options to purchase their home in 
2020.\5\
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    \4\ GSE aggregate data, HUD quarterly reports to Congress on 
``Financial Status of the Mutual Mortgage Insurance Fund,'' VA Lender 
Loan Volume Reports, and Housing Assistance Council Tabulations of RHS 
205 Report Data.
    \5\ Enact MI First-Time Homebuyer Market Reports.

Since 2007, the tax code has treated mortgage insurance premiums as 
qualified residential mortgage interest and they have been tax 
deductible, subject to an income phaseout for taxpayers with adjusted 
gross incomes (AGI) over $100,000 ($50,000 if single or married filing 
separately).\6\ The mortgage insurance premium tax deduction was 
enacted in 2006 to address affordability concerns and has been extended 
on several occasions, including most recently by the Further 
Consolidated Appropriations Act of 2020.\7\ During the time period that 
mortgage insurance premiums have been tax deductible, millions of low- 
and moderate-income homeowners have benefited from this provision of 
the tax code. Based on publicly available data from the Internal 
Revenue Service (IRS), the average deduction for mortgage insurance 
premiums has been approximately $1,500.\8\
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    \6\ 26 USC 163(h)(3)(E).
    \7\ Pub. L. 116-94 (December 20, 2019).
    \8\ For example, for tax year 2017 there were 2,285,440 returns 
that claimed the mortgage insurance premium deduction for a total 
amount of $3.376 billion, with an average deduction of $1,477.

However, two key aspects of the current mortgage insurance premium 
deduction hamper its effectiveness: (1) its temporary nature; and (2) 
its relatively low AGI phaseout. Further, the mortgage insurance 
premium deduction is the only itemized deduction subject to an AGI cap 
and/or phaseout. As you know, the Tax Cuts and Jobs Act of 2017 (TCJA) 
\9\ modified numerous aspects of the tax code and doubled the standard 
deduction. While millions of households still claim this deduction, no 
doubt this change, in concert with the current AGI phaseout, has 
significantly reduced the number of homeowners who benefit from the 
deduction. Prior to the enactment of the TCJA, more than 4 million 
taxpayers claimed the deduction each year and estimates indicate that 
about 2.4 million taxpayers claim the deduction each year post-TCJA 
implementation.\10\ The current AGI phaseout represents a burdensome 
eligibility criterion for American families to claim the mortgage 
insurance deduction and millions more homeowners would benefit from a 
permanent extension that eliminates the AGI phaseout.
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    \9\ Pub. L. 115-97 (December 22, 2017).
    \10\ Analysis of IRS data for tax years 2012-2018.

Thank you for your consideration of our recommendation that the 
mortgage insurance premium tax deduction be made permanent and that the 
AGI phaseout be eliminated. We welcome the opportunity to further 
engage on this important issue to support access to affordable mortgage 
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financing for American families.

Very truly yours,

Mortgage Bankers Association
National Association of Home Builders
National Association of Realtors
National Housing Conference
U.S. Mortgage Insurers

                                   [all]