If passed, the Build Back Better bill could be a heyday for affordable housing. The bill—among many things—includes $170 million of funding for housing with an expansion of the LIHTC program, rental assistance and down payment assistance. It is the largest investment in affordable housing in history.
"All eyes have been on the Build Back Better bill; this is really a once in a lifetime opportunity to solve the national housing crisis," Matthew A. Rieger, CEO of Housing Trust Group. "Our hope was to see expansion of the LIHTC program for affordable housing in that. But even if Congress doubled the number of LIHTC credits available to states, keep in mind that it will still take years to create new supply—years to get through the credit drawing, permitting and construction process."
Affordable housing advocates have been waiting for a meaningful government response to the housing crisis, which most experts agree is necessary to create more supply. Affordable housing is notoriously challenging to develop. "Development of affordable housing has gone from difficult to nearly impossible," says Rieger. "The cost of raw land and construction has skyrocketed in the last year, so our expenses have gone up on the one hand. But my revenue is capped; I can only charge so much for rent per HUD rules, so it's made it very difficult to make deals pencil out. Market rate developers can pass those costs on to the end-user, but we cannot."
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To make these deals pencil, affordable housing developers and investors must navigate through a complicated capital stack. "Anyone who works in the affordable space is accustomed to financing challenges and a complicated capital stack, and it hasn't prevented us from moving forward, but it's forced us to proceed very cautiously," says Rieger. A report sponsored by Capital One from the Terner Center for Housing Innovation at the University of California Berkeley called the fragmented capital stack the biggest challenge to creating more affordable housing supply.
The expansion of the LIHTC program under the Build Back Better bill will help to ease some of those funding challenges. "The LIHTC program is by far the most effective tool for creating more affordable housing supply that we have," says Rieger. While there are some local programs that direct funds toward affordable housing, most of these tools are small in comparison to what the LIHTC subsidy is able to do. The 9% tax credit, for example, provides about 80 percent of the capital needed to develop an affordable community. That's significant."
According to Rieger, a government solution at the federal level is the only way to really address the financing challenges that come with affordable housing. "The reality is that the size and scope of the affordable housing crisis in the U.S. is such that a national solution, backed by strong policy leadership, is really the only viable solution," he says. "We have a shortage of seven million affordable apartments in this country, and we need real leadership at the national level to solve this problem."
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Kelsi Maree Borland
