Legislation introduced in the Senate this week by Senators Bob Graham (D-Fla.), Orrin Hatch (R-Utah), Jim Jeffords (I-Vt.), Robert Torricelli (D-N.J.) and John Kerry (D-Mass.) is crucial to restoring the Low-Income Housing Tax Credit (LIHTC) program as one of the most important tools for building affordable apartments nationwide, said the National Association of Home Builders (NAHB).
"Senators Graham, Hatch, Jeffords, Torricelli and Kerry are to be commended for their efforts," said Gary Garczynski, NAHB president and a builder/developer from Woodbridge, Va. "This bill is about increasing the supply of affordable rental housing for hardworking American families."
S. 2006 clarifies specific development costs that may be included when calculating the amount of tax credits for which an affordable multifamily project qualifies under the LIHTC program. The legislation is the companion to House bill H.R. 3324, which was introduced by Reps. Nancy Johnson (R-Conn.) and Charlie Rangel (D-N.Y.) last November.
The LIHTC program, a cornerstone of national housing policy and the most successful tool for producing affordable multifamily housing, has been burdened by uncertainties since the Internal Revenue Service (IRS) two years ago published five Technical Advice Memoranda (TAMs) that essentially disqualified many development costs previously eligible for inclusion under the tax credit program. As a result, the level of equity financing available for each project has been substantially reduced, making a large number of affordable housing properties financially infeasible for developers.
The legislation introduced by Senators Graham, Hatch, Jeffords, Torricelli and Kerry clarifies that certain development costs that have been included in tax credit eligible basis under generally accepted industry practice will continue to be included in basis for the Low Income Housing Tax Credit. To accomplish this, the bill introduces the concept of "development cost basis" and specifically identifies costs that will qualify.
These costs include:
- State and local impact fees;
- Site preparation costs;
- Reasonable development fees;
- Professional fees related to basis items; and
- Construction financing costs (excluding costs to acquire land).
On Feb. 15, the IRS issued a revenue ruling agreeing that impact fees paid by developers are part of the cost of doing business and can be used in calculating the Low Income Housing Tax Credit. "While home builders regard that ruling as a substantial victory for affordable housing, we continue to believe, as Sens. Graham, Hatch, Jeffords, Torricelli and Kerry do, that it is critical for all of the eligible basis costs to be clarified to sustain this important program," said Garczynski.
"We urge the Senate to support and move this legislation, which can make all the difference in helping us meet the critical demand for affordable rental housing in this country."