Tax reform adds to housing worries
Building and maintaining affordable homes for low-income Houstonians could become even harder for city
The outlook for affordable housing in Houston is not rosy, nor is it as catastrophic as some had feared it would be.
That’s because the Republican tax reform bill signed by President Donald Trump maintains a type of tax-exempt bond that had been on the chopping block and is key to financing new subsidized housing.
However, Hurricane Harvey destabilized the region’s already fragile low-cost housing market, and local leaders worry a lower corporate tax rate, coupled with an uncertain federal budget, could make building and maintaining affordable homes more difficult.
“The safety net the housing authority provides was full before the storm, and it’s full now,” said Tory Gunsolley, president and CEO of the Houston Housing Authority. “It’s looking like we’ll get our funding cut, and make our safety net full of holes. So, it’s just hard to see how we’re able to actually help all of the people that need help.”
Diane Yentel, president and CEO of the National Low Income Housing Coalition, was similarly apprehensive in a statement about tax reform.
“While the preservation of low-income housing tax credits and private activity bonds avoids an immediate devastating impact on affordable housing, this bill will exacerbate our coun-
try’s already yawning income inequality and will harm efforts to end homelessness and housing poverty,” Yentel said. “At a time when we should be increasing investments in solutions to the housing crisis impacting low-income people across the country, the increased deficits created by these tax cuts puts the national Housing Trust Fund and other vital housing and community development programs at risk of deep spending cuts down the line.”
Houston is known for being affordable, but housing assistance is harder to come by here for very low-income renters than it is in most other large metropolitan areas in the country, according to an August federal report to Congress.
About 55,000 Houston-area families receive some type of rental subsidy, said Jonathan Spader, a researcher with Harvard University’s Center for Joint Housing Studies, leaving hundreds of thousands spending a large portion of their income on housing or living in what the federal government calls “severely inadequate conditions.”
It remains unclear how many of these houses and apartments flooded during Harvey, but studies show the storm hit lower- and middle-income residents hardest by inundating their homes or cutting their earnings. Recovery will be particularly difficult for these families, many of whom are renters.
“The financial circumstances of many of those who were affected by Harvey were tenuous even before the hurricane, and few report having many financial resources to fall back on,” a recent survey from the Kaiser Family Foundation found.
Houston’s capacity to accommodate these families — not to mention low-income households who survived Harvey unscathed — is limited.
The Houston Housing Authority has not been issuing housing vouchers to new families since April because of a funding shortfall, and, Spader said, the affordability requirements for more than 16,000 of the Houston area’s subsidized rentals are set to expire in the next decade.
Meanwhile, disaster recovery funding from the U.S. Department of Housing and Urban Development is months, if not years, away.
“There are still way too many people, thousands of people who are in homes that need to be remediated in some form,” Mayor Sylvester Turner said earlier this month. “That remains a major, major issue.”
Complicating matters is an open federal finding that faults the city for “blocking and deterring affordable housing proposals in integrated neighborhoods,” a violation of civil rights law. The city has denied any discrimination and asked HUD to drop its case.
Layer on an uncertain federal budget and a lower corporate tax rate, and Houston’s chances of maintaining or expanding housing options for poor residents only get worse.
Cutting the corporate tax rate to 21 percent from 35 percent is expected to further devalue low-income housing tax credits, which companies buy to lower their tax liability. Those tax credits are the primary funding source for new affordable housing.
Already, the value of tax credits has dropped 16 cents since Trump was elected, as investors anticipated a hefty tax cut, according to Novogradac & Company, a San Francisco-based public accounting and consulting firm.
Jason Aldridge, vice president of originations for the National Equity Fund, a Chicago-based tax credit syndicator, expects tax reform to drive the price of credits another three or four cents lower, making it harder for builders to finance new subsidized housing. Developers then would need to lean more heavily on outside entities, such as the city housing department, to close their funding gaps.
“These projects that are already difficult to find financing for — especially in times when we have rising construction costs and all of the typical headwinds that developers face — it certainly doesn’t make their job easier,” Aldridge said.