How the omnibus will boost multifamily housing bonds
WASHINGTON – Multifamily housing bonds received a boost from several provisions of the federal omnibus spending bill for fiscal 2018 that was signed into law on Friday by President Trump.
Some of the oomph comes from additional federal funding for public housing agencies which are partners in multifamily bond deals while the remainder comes from programmatic changes in the law.
“I think it was a very good bill for affordable housing,” said Garth Rieman, interim executive director of the National Council of State Housing Agencies. “We are very pleased with the amount of money that the appropriators were able to put into a variety of housing programs.”
David Dworkin, president and CEO of the National Housing Conference, called the omnibus “the biggest and most important housing legislation in several years.”
“Compared to the Trump administration budget, it’s downright dramatic,” Dworkin said. “It’s important because as the home ownership rate has fallen, there’s been increasing pressure on multifamily rental, particularly affordable rental.”
The 2018 omnibus increased the Department of Housing and Urban Development's discretionary budget by $3.9 billion to $42.7 billion.
Among the programmatic changes, private investors who are using the federal low-income housing tax credit (LIHTC) will be able to use income averaging for their rental population and include some renters with incomes of up to 80% of the area median income.
Previously, any project using the low-income tax credit must have had at least 40% of its units at a maximum of 60% of area median income, said Scott Hoekman, senior vice president and chief credit officer of Enterprise Community Investment Inc.
Under income averaging, the average median income for units that qualify for the low-income tax credit must average 60% of median income with the maximum for any one unit set at 80% of area median income.
Hoekman provided a couple of examples of how income averaging will work.
In the New York metropolitan area where the median income for a family of four was $95,400 in 2017 that means the maximum income for a low-income tax credit project is rising to $76,320 from $57,240 as long as the overall average remains no higher than $57,240. The maximum monthly rent for a three bedroom unit would rise to $2,213 from $1,660.
In the Houston metro area where incomes are more modest and the 2017 median income was $71,600 for a family of four, the maximum income would rise to $57,200 from $42,900 and the maximum rent would rise to $1,487 for a family of four from $1,115.
Over half of the projects financed with 4% LIHTC involve private activity bonds, Hoekman said.
Another change that will benefit affordable housing is a 12.5% increase in the volume cap for the 9% LIHTC for each year from 2018 through 2021.
Another provision that should be a boost for tax-exempt multifamily housing bonds is that the cap on the number of units eligible for HUD’s Rental Assistance Demonstration program has climbed to 455,000 from 225,000.
Multifamily housing bonds are often used to finance RAD projects.
HUD Secretary Ben Carson supported raising the cap on RAD units in testimony to Congress last year.
But the Trump administration did not support the increased spending on public housing in the 2018 omnibus.
Local governments and housing authorities will get a $2.8 billion increase in funding to $30.3 billion for Section 8 rental assistance and other public and Native American housing under the omnibus.
Community Development Block Grants will increase by $300 million compared to $3.3 billion in 2017.
The HOME Investment Partnerships Program will increase by $412 million to $1.4 billion for local governments to create affordable housing in partnership with private investors, but that’s still less than 2010 when spending on the program reached its recent peak.
HOME provides block grants that states and localities can use as leverage in other investments, including private capital from public-private partnerships.
“We know the administration is proposing to eliminate the program in fiscal 2019 and that’s counter weight, but it’s clear that the appropriators understand how valuable this program is and are putting more resources into it,” said Rieman.
Other housing highlights include a $176 million increase in housing for the elderly to $670 million and an $83 million increase for housing for people with disabilities to $230 million.