Message on Tax-Exempt Private Activity Housing Bonds
Protect the tax exemption on private activity Housing Bonds and streamline the program to eliminate unnecessary program rules.
· Housing Bonds address a critical public need. Housing Bonds—including multifamily housing bonds used to finance rental housing production and the Mortgage Revenue Bond (MRB) program, which makes homeownership possible for first-time lower income home buyers—are essential to our efforts to help low- and moderate-income families find affordable housing. While Housing Bonds are issued under “private activity” bond authority, they clearly support the achievement of a vital public purpose.
· The affordable housing crisis affects both renters and would-be home buyers. According to the Joint Center for Housing Studies at Harvard University, 39.6 million U.S households—more than one in four homeowners and nearly half of all renter households—pay an excessive share of their income for housing. While there have been signs of recovery in the single-family housing market, many creditworthy low-and moderate-income borrowers are still struggling to find the affordable loan terms they need to purchase their first home. According to the most recent data from the National Association of REALTORS® (NAR), first-time home buyers accounted for only 31 percent of all home buyers in 2015, the lowest share since 1987. Low levels of entry-level home buyers hold back the housing market’s still-fragile recovery by making it difficult for “move-up” buyers to sell their homes. The nation’s homeownership rate, which peaked at 69.4 percent in 2004, has dropped continuously since to a low of 63.8 percent at the end of 2015. Without the tax-exempt status provided to the MRB program, this rate surely would suffer even more.
· The housing affordability crisis is even more acute and growing for low-income renters. The number of cost-burdened renter households soared to 20.8 million, the highest level on record, in 2013 (the most recent year for which this information is available), with nearly half of all renter households facing this burden. Those impacted most severely are those at the bottom of the income spectrum. In the decade between 2003 and 2013, the rental housing shortfall for extremely low-income (ELI) renters—measured as the gap between the number ELI renters and the number of units available and affordable to those households—nearly doubled. As of 2012, 11.5 million ELI renters competed for only 3.3 million available and affordable units. If current rent and income trends continue, the number of severely cost-burdened renter households will increase by more than 25 percent by 2025. Renter households who are unable to find an affordable apartment are forced to pay a significant portion of their income for housing—often more than half their income—leaving little money left over for other critical necessities like food, transportation, childcare, healthcare, and utilities.
· Housing Bonds have been an unqualified success. In today’s overly tight credit market, MRBs represent about the only hope for credit-worthy families with modest incomes and limited capacity to amass the necessary down payments to access homeownership. Using MRBs, state HFAs have helped over 3 million responsible low- and moderate-income borrowers become homeowners. They help another approximately 75,000 families buy their first homes with MRB mortgages on average each year. HFAs have helped over 200,000 additional consumers by converting some of their bond authority to Mortgage Credit Certificates (MCCs), which provide the homebuyer with a federal tax credit for interest paid on their mortgage.
State HFAs have financed more than 12,000 properties across the country using multifamily bonds to provide affordable rental housing to over 1 million families. State HFA multifamily bonds help finance approximately 30,000 rental apartments annually, many of which house residents with special needs, such as the elderly, those in assisted living, persons with disabilities, the rural poor, and individuals and families experiencing homelessness.
· Many of these investments would not happen without Housing Bonds. Eliminating or curbing the tax exemption would not reduce the need for affordable housing but would lead investors to demand higher interest rates, thus directly and negatively impacting the availability of lower cost financing for low-income working families and special needs populations.
· Housing Bonds create jobs and promote economic growth. According to models formulated by the National Association of Home Builders (NAHB) and the National Association of REALTORS®, in the ten year period between 2005 and 2014, state HFA MRB homeownership programs generated almost 56,000 jobs annually on average. Multifamily bonds also generate important economic growth. Over the same period of time, construction and rehabilitation of rental homes financed with HFA multifamily bonds generated approximately 28,883 jobs and added over $2 billion to GDP annually on average.
· The benefits of the Housing Bond program far outweigh the cost. Not only do Housing Bonds help individual households attain affordable housing, but bonds also provide other important indirect benefits by helping the sales of foreclosed housing inventory; revitalizing distressed neighborhoods; bringing mortgage funds into capital-deprived areas; funding the repair and purchase of homes in older, urban communities; and helping low-income renters move out of public and assisted housing into homes of their own. According to the Office of Management and Budget’s (OMB) FY 2017 budget estimate, for the 10-year period between 2016 and 2025, the total cost of the MRB and MCC programs is $21.3 billion, and the total cost of the multifamily bond program is $17.8 billion. OMB estimates the FY 2016 cost of the MRB and MCC programs at $1.35 billion and the cost of the multifamily bond program at $1.12 billion. The Housing Bond program as a whole represents 1 percent of all, affordable and non-affordable, housing-related federal tax expenditures.
· Congress has the opportunity to build a simpler, more effective Housing Bond program. Congress could further strengthen Housing Bonds by making low or no-cost changes to eliminate outdated rules and give states more flexibility to respond to their unique needs and circumstances. For example, within the MRB program, the purchase price limit is no longer needed, as the income limits Congress later imposed much more effectively control the price of homes MRB borrowers can purchase. The considerable resources HUD and Treasury expend coming up with the purchase price limits annually could be deployed elsewhere. In addition, the MRB home improvement loan program, especially important now given the repair needs of foreclosed properties and the home maintenance families were forced to defer during the recession, would be much more useful if Congress increased its loan limit of $15,000 by an amount at least adequate to reflect the rise in construction costs.