Affordable Housing Industry Receives Good News from Washington
As 2015 came to a close, the affordable housing industry enjoyed two welcome developments from the federal government. The first is a fiscal year (FY) 2016 omnibus appropriations bill that was considerably kind to affordable housing, as many programs saw funding increases versus 2015. The second was the long-awaited permanent floor for the 9% low-income housing tax credit (LIHTC) interest rate, providing more equity and much-needed certainty for developers nationwide.
In the FY16 omnibus appropriations bill, rental assistance from the U.S. Department of Housing and Urban Development (HUD) and from the U.S. Department of Agriculture were both up versus 2015. USDA 521 rental assistance for FY16 is at $1.39 billion, up from $1.09 billion in FY15. In addition, $75 million of the FY16 amount is set aside for renewal rental assistance contracts that use up their funds before the end of their 12-month contract periods. At HUD, tenant-based rental assistance for FY16 is at $19.63 billion, up from $19.30 billion in FY15. HUD project-based rental assistance is also up for FY16 at $10.62 billion as opposed to $9.33 billion in FY15.
As for soft funding sources, the news from the appropriations bill is also positive. After years of short extensions, the New Markets Tax Credit (NMTC) program received a five-year extension (2015-2019) at its current annual funding level of $3.5 billion, providing welcome certainty. The Community Development Block Grant (CDBG) maintained the same funding level as FY15 at $3 billion. The HOME program was increased from $900 million in FY15 to $950 million in FY16.
After years of advocating, the affordable housing industry finally got its permanent 9% LIHTC fixed interest floor of 9%. In recent years in the absence of the fixed rate, a floating rate was used that hovered around 7.5%, meaning projects were losing a substantial amount of tax credits. With construction costs continuing to rise, the added equity and certainty the permanent fixed rate floor brings is essential and provides a big boost for developers pursuing LIHTC deals. The floor, however, does not help 4% LIHTCs, which still operate on a floating rate.