Like many who follow the news, Walter Zisette, the associate director of real estate development at Capitol Hill Housing, is watching the GOP tax bills hurtling through a distinctly abnormal legislative process with an uneasy eye.
The deeply unpopular tax plan has something for almost everyone to hate. Want to go to graduate school? This would make it even less affordable. Thinking about getting a better job? Costs of your search and moving expenses are no longer deductible. Enjoying health insurance? The bill is expected to kick 13 million people off their plans and result in increased premiums for those who remain.
But Zisette and others involved in the affordable housing industry have another focus: the threat that the House and Senate versions of the tax plans pose to affordable housing, and the fact that few people, at the national level, are talking about it.
All told, the impacts of the House and Senate bills could significantly slow the production of affordable housing in the region even as a housing and homelessness crisis continues to worsen.
Changes in the House and Senate bills include cuts to corporate taxes and the elimination of bonds that could reduce the amount of investment in affordable housing.
All told, the impacts of the House and Senate bills could significantly slow the production of affordable housing in the region even as a housing and homelessness crisis continues to worsen.
“It’s scary stuff,” Zisette said.
Private activity
Housing providers are particularly worried about a nuclear option, present only in the House bill, that would remove a certain kind of bond that contributes more than half of the affordable rental housing built each year in the United States, according to figures from the Seattle Housing Authority (SHA).
The bond is used in conjunction with The Low Income Housing Tax Credit, the government’s primary program to encourage private investment in affordable housing. The program allows developers of affordable housing to attract private investment by selling tax credits, which, in turn, reduce the amount of federal taxes the investor pays.
The tax credit provides equity equal to 30 percent of a housing project and must be used in conjunction with tax-exempt bonds.
In 2017 alone, the city of Seattle leveraged $143 million from private sources for projects using these credits, Seattle Office of Housing spokesperson Robin Koskey wrote in an email.
The House bill eliminates the bonds and reduces incentives for investors to purchase tax credits.
Because the bond program would end after Dec. 31, 2017, funding for projects already in the works could disappear overnight. SHA and Capitol Hill Housing use these credits in many of their projects. If private activity bonds were eliminated on Jan. 1, 2018, it could throw projects into chaos.
This could lead to the loss of 63 percent of tax credits available to build affordable housing in the state of Washington, according to the Washington State Housing Finance Commission.
If those bonds go away, SHA would not be able to build four new buildings with 453 units of housing as planned at Yesler Terrace
If those bonds go away, SHA would not be able to build four new buildings with 453 units of housing as planned at Yesler Terrace, a massive mixed-income housing project that leverages private activity bonds. The project would lose $100 million in private equity, and the region would shed roughly 4,000 construction jobs, SHA estimates.
The potential loss has caused a scramble as housing developers make plans to draw down bonds in order to save their project budgets.
“We’re not the only one paying attorneys,” said Kerry Coughlin, director of communications at the Seattle Housing Authority. “What does one do in this unusual situation that we just haven’t faced?”
The cost of losing tax credits
If the House bill is a bomb on affordable housing, the Senate bill is slow poison.
As it stands, the Senate version of the tax plan reduces the corporate tax rate from 35 percent to 20 percent. There are many, many impacts that such a large change in corporate tax burden could have, but experts believe that it will lead to an immediate drop in the amount of investment in affordable housing in Washington.
The logic goes like this: Investors buy tax credits because they want to lower the amount of taxes they pay. If their tax burden becomes lower because of this plan — in this case, 15 percent lower — they are less likely to want or need tax credits.
The loss of demand drives the prices of tax credits down, leading to less private money for affordable housing.
“All that means a lot less affordable housing,” said Washington State Housing Finance Commission Executive Director Kim Herman.
Seattle’s projections are dire. The city expects a 20 percent loss of leverage as a result of the cut, which translates to between $12 million and $15 million fewer dollars for affordable housing development, Koskey wrote.
Capitol Hill Housing estimates that this could open a $1.3 million funding gap in its typical 100-unit project.
Capitol Hill Housing estimates that this could open a $1.3 million funding gap in its typical 100-unit project.
The link between the tax cut and the loss of investment isn’t direct — it involves human judgment, which means the market is susceptible to fluctuations based on what people anticipate will happen.
But the promise of lower taxes has already led to a loss in funding for affordable housing. When Donald Trump succeeded in becoming the 45th president, anticipation of a corporate tax cut drove investors away from projects.
Zisette of Capitol Hill Housing experienced that firsthand. A major bank that has collaborated on projects in the past just stopped answering phone calls after the election. The price paid for credits dropped by almost 13 percent.
“Nonprofits are pretty scrappy. We figure it out,” Zisette said. “These are the kinds of problems I’ve never seen before in terms of funding gaps. In a realistic, tangible way, it means we slow down.”
Slowing down
Seattle’s and King County’s poorest residents can’t afford for things to slow down.
At last count there were 11,585 people homeless in King County. Despite moving thousands into housing each year, the number keeps growing. There is widespread acknowledgement that the most effective way of getting people out of homelessness is to give them a unit they can afford.
Those are in very short supply in one of the hottest rental markets in the country.
And it’s likely that the poorest Americans’ lives will get worse under this plan.
The Tax Policy Center’s analysis showed that by 2027, the lowest 20 percent of income earners would see a tax increase as a result of this plan, while the top 0.1 percent will get a tax cut.
And the Joint Commission on Taxation, a nonpartisan congressional commission, found that this huge redistribution of wealth from the poorest to the richest will add $1 trillion to the national debt over 10 years. Republicans have consistently said that it would pay for itself through increased economic growth.
For reference, that’s more than the entire 2009 federal stimulus package, which Republicans fought because of its implications for the national deficit.
The plan is either a deliberate move to enrich donors — a theory borne out by statements of Republican members of Congress — or another attempt at trickle-down economics.
It won’t provide tangible benefits for low-income people, Coughlin said.
“That theory has been tried many, many, many times, and the economists will all agree that it hasn’t come to pass. It doesn’t work,” Coughlin said.
Ashley Archibald is a Staff Reporter covering local government, policy and equity. Have a story idea? She can be can reached at ashleya (at) realchangenews (dot) org. Twitter @AshleyA_RC
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