Seniors Housing Business

APR 2018

Seniors Housing Business is the magazine that helps you navigate the evolution of the seniors housing industry.

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32 www.seniorshousingbusiness.com Seniors Housing Business n April 2018 By Bendix Anderson Since the Republican-led Congress passed its comprehensive reform of the nation's tax code at the end of 2017, developers are finding it increasingly difficult to raise money to build new affordable housing for seniors. "You have to look under every rock for fund- ing," says Michelle Norris, executive vice presi- dent of external affairs and strategic initiatives for National Church Residences, a nonprofit developer of affordable seniors housing based in Columbus, Ohio. Nearly all the new affordable housing built in the United States is financed with money raised through the federal low-income hous- ing tax credit (LIHTC) program. The buyers are typically large companies such as national banks. Those corporations are now paying less for tax benefits as a result of the Tax Cuts and Jobs Act signed into law by President Trump on Dec. 22, 2017. That means less available funds for affordable development. Congress increased the amount of LIHTCs available in the federal budget for fiscal 2019, signed into law in March of this year. It will be a big help, but not enough to undo the damage done by tax reform. "While these LIHTC provisions together could increase affordable rental housing pro- duction and preservation by more than 28,400 homes, they would not offset the 235,000 affordable rental home deficit because of tax reform," according to an analysis by Novogra- dac & Co., an accounting firm with a specialty in affordable housing based in San Francisco. In the short term, developers who made plans to build before tax reform now have to fill the holes in their development budgets. They are turning to local and state housing pro- grams for new funding — and that takes time. "It now takes a project six months to maybe a year longer than it once did to get under con- struction," says Norris. In the long term, the shortage of cash will make it even more difficult for seniors housing developers to keep up with the need for afford- able seniors housing, which increases with each passing year. LIHTCs survive tax reform However, developers of affordable housing do have reason to celebrate — they are still in business. Congress not only opted to keep the LIHTC program in place, but passed an expan- sion of the program in March. Developers are even finding new ways to bring health services to their residents (see sidebar). The last time Congress revised the federal tax code in 1986, it removed a whole generation of federal housing programs. Housing advocates worried that this time Congress would wipe out the LIHTC program established under Sec- tion 42 of the Internal Revenue Code. Congress has been trying to pass a reform of the tax code for almost a decade. Through all those years, housing advocates such as the Affordable Housing Tax Credit Coalition and the National Housing Conference have met with legislators, toured affordable housing properties and invited them to ribbon cuttings to show off the LIHTC program. Even with all of that work, the first proposal for tax reform from the House of Representa- tives only preserved half of the program. It kept the competitive LIHTC program, in which state housing officials hand out reservations of tax credits every year to developers, typically in statewide competitions. It erased the federal tax-exempt bond pro- gram, which pairs LIHTCs with low-interest, tax-exempt bond loans — a financing recipe that has become more and more effective in recent years. Since 2016, the tax-exempt bond program has financed half of the housing units built or renovated with LIHTCs The House proposal set off a frantic effort by housing advocates and the affordable housing industry. "There was a six-week sprint to save the bonds," says Jennifer Schwartz, assistant director for tax policy and advocacy for the National Council of State Housing Agencies. The final version of tax reform signed into law late last December includes both of the two parts of the LIHTC program. The tax reform measure also preserved other community development programs such as historic rehabilitation tax cred- its, which help pay for the restoration of historic buildings, and New Markets Tax Credits. Falling prices for LIHTCs But tax reform still creates a challenge for affordable housing developers. The whole aim of tax reform was to lower the top corporate tax rate from 35 percent, in addition to chop- ping away many loopholes and tax benefits. The new corporate rate is 21 percent, an even deeper cut than the 25 percent many investors were expecting. The lower tax rate lessens the value of tax benefits like LIHTCs, which investors receive over a 10-year period. Corporations now have less need to lower their tax burden and less certainty that they will need tax benefits for the long term. Investors responded immediately to the like- Affordable Housing Faces New Headwinds n Development Tax reform eases financial burden on corporations, but reduces their incentive to invest in federal low-income housing tax credit program. Volunteers of America recently opened Meadows at Montbello in Denver. The property includes a service coordinator who can link residents to providers that bring health services to the property without an on-staff nurse.

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