Surge in Mul­ti­fam­ily Bond Deals Is Linked to Tax In­cen­tives

The Bond Buyer - - Washington - BY BRIAN TUMULTY

WASHINGTON – A surge in is­suance of tax-ex­empt mul­ti­fam­ily hous­ing bonds in 2016 should con­tinue for the fore­see­able fu­ture, ex­perts say.

The only ma­jor po­ten­tial ob­sta­cle is Congress. Law­mak­ers could use tax re­form to elim­i­nate the tax ex­emp­tion for mul­ti­fam­ily hous­ing bonds or other fed­eral in­cen­tives be­ing used by pub­lic hous­ing agen­cies and pri­vate devel­op­ers to help finance mul­ti­fam­ily hous­ing bond trans­ac­tions.

In many cases, mul­ti­fam­ily hous­ing bonds are is­sued in con­nec­tion with fed­eral low-in­come tax cred­its and two pro­grams op­er­ated by the Depart­ment of Hous­ing and Ur­ban Devel­op­ment — the Rental As­sis­tance Devel­op­ment (RAD) pro­gram and Sec­tion 8 low in­come hous­ing rental as­sis­tance vouch­ers.

Michael Bo­daken, pres­i­dent of the non­profit Na­tional Hous­ing Trust, which is ded­i­cated to hous­ing preser­va­tion, said he thinks the fu­ture of hous­ing tax pro­vi­sions are “in jeop­ardy, a con­cern.”

“I think it is very im­por­tant for Congress, HUD and oth­ers to re­al­ize how im­por­tant the hous­ing credit, tax ex­empt bonds and Sec­tion 8 all are,” said Garth Rie­man, di­rec­tor of Hous­ing Ad­vo­cacy and Strate­gic Ini­tia­tives for the Na­tional Coun­cil of State Hous­ing Agen­cies.

Repub­li­can lead­ers of Congress and the Trump ad­min­is­tra­tion have only is­sued a nine-page out­line of their tax plan that pro­poses end­ing many tax breaks as a way of broad­en­ing the base and low­er­ing rates.

It doesn’t men­tion mul­ti­fam­ily hous­ing, nor has mul­ti­fam­ily hous­ing pol­icy been part of the tax de­bate.

Se­nior ad­min­is­tra­tion of­fi­cials re­cently told The Bond Buyer that the tax ex­emp­tion for mu­nic­i­pal bonds will be fully pre­served un­der the Repub­li­can tax plan. That pre­sum­ably would in­clude tax ex­emp­tion for PABs, but Repub­li­cans have not of­fered any writ­ten as­sur­ance.

The House and Se­nate com­mit­tees with ju­ris­dic­tion over tax pol­icy will work out the de­tails of the tax over­haul in the com­ing weeks.

Mul­ti­fam­ily hous­ing bond is­suance more than dou­bled in 2016 to $14 bil­lion from $6.61 bil­lion in 2015, an in­crease of 112%, ac­cord­ing to a re­cent sur­vey by the Coun­cil of Devel­op­ment Finance Agen­cies.

The per­cent­age of Amer­i­can house­holds who are renters has reached a 50year high and is driv­ing the de­mand for mul­ti­fam­ily hous­ing, ac­cord­ing to the Na­tional Hous­ing Trust. The de­mand for rental hous­ing, in­clud­ing the ur­gent need to re­ha­bil­i­tate pub­lic hous­ing, is ex­pected to con­tinue for the fore­see­able fu­ture.

Last year’s $7.39 bil­lion in­crease in is­suance for mul­ti­fam­ily hous­ing bonds was helped by the fed­eral low-in­come hous­ing tax credit pro­gram, ex­perts said.

This tax credit is “one of the fed­eral gov­ern­ment’s pri­mary pol­icy tools for en­cour­ag­ing the devel­op­ment and re­ha­bil­i­ta­tion of af­ford­able rental hous­ing,” ac­cord­ing to the non­par­ti­san Con­gres­sional Re­search Ser­vice, which es­ti­mates its an­nual cost at about $9 bil­lion.

“These non-re­fund­able fed­eral hous­ing tax cred­its are awarded to devel­op­ers of qual­i­fied rental projects via a com­pet­i­tive ap­pli­ca­tion process ad­min­is­tered by state hous­ing finance author­i­ties,’’ Mark Keight­ley, a spe­cial­ist in eco­nomics, wrote in a CRS report is­sued in May.

“Devel­op­ers typ­i­cally sell their tax cred­its to out­side in­vestors in ex­change for eq­uity. Sell­ing the tax cred­its re­duces the debt devel­op­ers would oth­er­wise have to in­cur and the eq­uity they would oth­er­wise have to con­trib­ute. With lower fi­nanc­ing costs, tax credit prop­er­ties can po­ten­tially of­fer lower, more af­ford­able rents,” Keight­ley wrote.

The low-in­come hous­ing tax credit is 4% for re­ha­bil­i­ta­tion projects and 9% for new con­struc­tion.

Kansas, Ken­tucky, New Mex­ico and Wis­con­sin al­lo­cated 100% of their 4% cred­its to hous­ing preser­va­tion projects in 2014, ac­cord­ing to the non­profit Na­tional Hous­ing Trust. Not far be­hind were Michi­gan at 94% and Ohio and 92%.

An­other fed­eral pro­gram op­er­ated by the U.S. Depart­ment of Hous­ing and Ur­ban Devel­op­ment, the RAD pro­gram, is so pop­u­lar that there’s a wait­ing list be­yond the 225,000 hous­ing units au­tho­rized by Congress.

The Trump ad­min­is­tra­tion sup­ports RAD be­cause it tran­si­tions pub­lic hous­ing “to a more sus­tain­able fund­ing and ra­tio­nal reg­u­la­tory en­vi­ron­ment that per­mits debt and pro­motes other non-fed­eral lever­ag­ing,” HUD Sec­re­tary Ben Car­son told law­mak­ers in June.

“The RAD pro­gram re­lies on sig­nif­i­cant lev­er­age of ev­ery dol­lar of HUD fund­ing,’’ Car­son said in his writ­ten tes­ti­mony. “It has lever­aged more than $4 bil­lion in cap­i­tal in­vest­ment in or­der to make crit­i­cal re­pairs and im­prove­ments to this seg­ment of the na­tion’s af­ford­able hous­ing stock.”

Ruth Anne Vis­nauskas, com­mis­sioner of New York State Homes and Com­mu­nity Re­newal,, said her agency has com­pleted two RAD deals this year, has four or five in the works for the re­main­der of this year, and 10 more in the pipe­line for next year.

“We are great fans of RAD and think it is key to in­vest­ing in pub­lic hous­ing which is of­ten hous­ing for the low­est in­come fam­i­lies, se­niors and the dis­abled,” Vis­nauskas said. “It’s sort of an un­prece­dented way to in­vest in large swathes of hous­ing across the coun­try.’’

The $450 mil­lion re­ha­bil­i­ta­tion of the Ocean Bay apart­ment com­plex in the Far Rock­away sec­tion of Queens in New York City, an­nounced in June, used mul­ti­fam­ily hous­ing bonds and was the na­tion’s largest sin­gle RAD trans­ac­tion.

The project in­cluded about $350 mil­lion for up­grades such as new bath­rooms and new kitchens for the 1,395 apart­ments lo­cated in 24 build­ings. The re­main­ing $194.4 mil­lion came from a Fed­eral Emer­gency Man­age­ment Agency grant for storm re­siliency to pre­vent a re­cur­rence of the dam­age caused to the wa­ter­front com­plex by Hur­ri­cane Sandy.

HUD has asked Congress to lift the ceil­ing on the num­ber of mul­ti­fam­ily units el­i­gi­ble for RAD, which cur­rently in 225,000 and has a wait­ing list. The Se­nate com­mit­tee has agreed to elim­i­nate the cap, but House ap­pro­pri­a­tors didn’t ad­dress that is­sue in their fis­cal 2018 fund­ing leg­is­la­tion for HUD.

It’s not clear whether the Se­nate and House will ad­dress RAD if they hold ne­go­ti­a­tions over the 2018 bud­get, ac­cord­ing to Matt Den­nis, spokesman for Rep. Nita Lowey of New York, the rank­ing Demo­crat on the House Ap­pro­pri­a­tions Com­mit­tee.

The gov­ern­ment be­gan fis­cal 2018 on Oct.1 with a stop­gap spend­ing mea­sure that ex­pires af­ter Dec. 8, giv­ing both cham­bers ad­di­tional time to com­plete work on a long-term spend­ing bill.

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