Affordable Housing Archives - The National Law Forum

House Passes $78 Billion Tax Bill that Includes Affordable Housing Help

How long is something called a “crisis” before it just becomes the “new normal?” It is apparent there has been an affordable housing crisis in the United States for decades. One way that the federal government has addressed this is by motivating developers with the 9% Low Income Housing Tax Credit (the “9% LIHTC”) and the 4% Low Income Housing Tax Credit (the “4% LIHTC”) that a developer can receive for building a “qualified low-income building” described under Section 42 of the Internal Revenue Code of 1986, as amended (the “Code”).

These LIHTCs are awarded by a state government (or political subdivision thereof) to eligible participants to offset a portion of their federal tax liability in exchange for the production or preservation of affordable housing. On average, 50% of the total financing for 9% LIHTC projects comes from equity derived from the credit. Many states have used the 9% LIHTC as their primary tool to facilitate the production and rehabilitation of affordable rental housing. However, the 9% LIHTC is incredibly competitive. Each year the federal government allocates 9% LIHTC to each state on the basis of population.

The 4% LIHTC is another viable (and slightly less competitive) option. Currently, the 4% LIHTC is available for acquisition and rehabilitation of existing buildings and for new construction where 50% of the aggregate basis of the land and the building is financed with proceeds of tax-exempt bonds issued pursuant to Section 142(d) of the Code (“Affordable Housing PABs”). Unlike the 9% LIHTC, the amount of 4% LIHTC available is ostensibly unlimited; however, Affordable Housing PABs come with some strings attached, one of which is a Code Section 146 requirement to obtain an allocation of volume cap equal to the higher of the issue price or the par amount of the Affordable Housing PABs issued.

The federal government places a cap on the volume of certain types of tax-exempt private activity bonds, such as Affordable Housing PABs, that each state can issue. This limit is based on the population of the state. Each state has its own procedure for the allocation of and certification as to volume cap. Bonds that are subject to a volume cap limit are generally subject to an overall issuance limit each calendar year within each state. Each year, the IRS publishes a revenue procedure promulgating the volume cap applicable to each state. States then further apportion their allocable volume cap among various issuers and types of tax-exempt bonds that require volume cap within the state. As of March 2, 2023, the volume cap in 18 states and Washington, D.C. was oversubscribed for 2023.[1] Oversubscribed volume cap leads to competition for Affordable Housing PABs, which must be issued to receive the 4% LIHTCs to fund development for affordable housing.

After that primer, these authors can finally cut to the chase![2] On Wednesday, January 31, 2024, the U.S. House of Representatives passed a bill called the Tax Relief for American Families and Workers Act.

What Would This Legislation Do?

In addition to expanding the child tax credit and loosening restrictions on research and development tax deductions, this new legislation would (1) raise the 9% LIHTC through calendar year 2025 and (2) reduce the amount of Affordable Housing PABs needed for the 4% LIHTC from 50% of a project’s aggregate basis to 30% for a period of time.

For those keeping score at home, that is a 40% reduction in the amount of Affordable Housing PABs needed for the 4% LIHTC! If passed by the Senate, this package would be great news because it would free up bond capacity for more Affordable Housing PABs and for other tax-exempt bonds that require volume cap.[3]

But before you get too excited, note we said for a period of time and the Senate has yet to pass this legislation. How long a period? As drafted, the new legislation provides that the reduction of the Affordable Housing PABs requirement to 30% is applicable to projects, which are financed in part (at least 5% of the aggregate basis of the building and land)[4] by Affordable Housing PABs which have an issue date is in 2024 or 2025. So, the 40% reduction would be much like those endless infomercials we endured during COVID (available for a limited time only!). The reduction would be available from the date that the legislation takes effect for Affordable Housing PABs issued through December 31, 2025 (or for about a year to a year and a half). So, while this is a step in the right direction, this is not a permanent reduction in the amount of Affordable Housing PABs required to obtain the 4% LIHTC.

Recall that Congress has extended programs like this before. For example, the Qualified Zone Academy Bond program was established by the Taxpayer Relief Act of 1997 in order to promote private-sector investment in primary and secondary public education in areas with scarce public resources. Initially authorized only for 1998 and 1999, the program ended up being extended every two years right up through 2017. These types of extensions would make it a lot harder to plan yearly volume cap requests, but the new legislation is still a positive development.

The public policy and municipal bond sectors think this legislation does have a chance in the Senate, but it will likely take a while. Not surprisingly, Congress has other crises to address beyond affordable housing, including the laddered continuing resolutions funding the government that will expire on March 1and March 8. As Brian Egan, the director of government affairs for the National Association of Bond Lawyers said, this “overwhelming House vote demonstrates a momentum that the deal’s advocates will not want to squander. It also proves that members on both sides of the aisle want to get something done on tax before the end of the 118^th Congress.”

Stay tuned for more on this and our expanding coverage of affordable and workforce housing in the coming weeks!

[1] https://www.novoco.com/notes-from-novogradac/population-figures-increase-multiplier-mean-record-pab-cap-2023-small-state-recipients-largely.

[2] You probably would never want to listen to the authors of this blog post tell any sort of suspenseful story. You would be here for days!

[3] Like the 25% volume cap requirement for qualified carbon dioxide capture facilities. We are all still waiting for that guidance on how to implement those provisions of the Code; we are looking at you Internal Revenue Service.

[4] Note that the new legislation also attempts to provide a transition rule for projects that already have some Affordable Housing PABs issued (but not the full 50% required prior to the enactment of this legislation) by permitting the reduced 30% requirement to be applied if at least 5 percent or more of the aggregate basis of the building and land is financed by Affordable Housing PABs with an issue date in 2024 or 2025. See the H. Rept. 118-353 – TAX RELIEF FOR AMERICAN FAMILIES AND WORKERS ACT OF 2024.

Washington’s Model Toxics Control Act: Transforming Contaminated Sites into Community and Environmental Assets

The Model Toxics Control Act (MTCA) has been cleaning up contaminated sites in Washington State for 30 years. On December 10, 2019, Beveridge & Diamond and the Environmental Law Institute will be hosting a seminar (MTCA 30) to celebrate the success and examine the future of the state’s cleanup statute with an all-star program featuring some of the state’s leading experts. In advance of the seminar, B&D is publishing a series of articles focused on MTCA.

MTCA’s Many Triumphs

MTCA has been spurring the cleanup of contaminated sites in Washington for 30 years. Since MTCA went into effect, over 7,000 sites have been cleaned up. While the workhorse statute is not going to take a rest anytime soon, with more than 6,000 sites requiring further action before closure and over 200 new sites identified each year, the citizen’s initiative already has amassed an impressive legacy. Below are just a few of the many examples where MTCA has been instrumental in turning contaminated properties into productive community and environmental assets – on both large and small scales and in urban and rural areas of Washington.

Mount Baker Housing Association – Restoring Brownfields to Provide Affordable Housing in Seattle’s Rainier Valley. In 2016, the Mount Baker Housing Association (MBHA) entered into a prospective purchaser consent decree with the State of Washington to investigate and ultimately clean up chlorinated solvent contamination from a former dry cleaner and petroleum contamination from a former gas station and auto repair facility. The innovative use of MTCA’s prospective purchaser provisions allowed the nonprofit affordable housing developer to take on the risks of investing in properties with known contamination while gaining liability protections and expanding housing options for lower-income earners in an expensive real estate market. Importantly, the settlement also has provided a vehicle for MBHA to receive public funds to cover at least some of the remedial action costs. Just the other week, MBHA released a draft remedial investigation / feasibility study and a draft cleanup action plan for public comment.
Puget Sound Initiative – Ensuring Healthy Habitats in Padilla and Fidalgo Bays. In 2007, the Department of Ecology (Ecology) identified seven bays around Puget Sound where it would prioritize cleaning up contaminated sites and habitat restoration. In Padilla and Fidalgo Bays in northern Puget Sound, six industrial waterfront sites have been cleaned up while work on five other sites is in progress. The bays are home to valuable marine habitat, including extensive eelgrass beds, which serve as groundfish nurseries. The sites that have been cleaned up in the last 15 years include a former oil tank farm, a former lumber mill and pulp mill, a boatyard, and former milling, shipbuilding, and marina operations, among others.
Kittitas Valley Fire and Rescue – Building a New Fire Station in Ellensburg. When the Kittitas Valley Fire and Rescue was looking for a new fire station location, it purchased a property that had been used for hay scales, as well as truck repair and fueling, with associated soil and groundwater contamination. During property redevelopment, the contamination was investigated and remediated, with assistance from Ecology. With effective planning and use of the building design as a protective cap, cleanup was completed for under $250,000 and in under three months.
Kendall Yards – Transforming an Old Railyard in Spokane. In 2005, River Front Properties, LLC entered Ecology’s Voluntary Cleanup Program to address contamination at a 78-acre site to the northwest of Spokane’s downtown area. The site had been used extensively for locomotive repair and servicing and had served as a location for plating and storage operations. Over a single year, 200,000 tons of soil contaminated with petroleum, PAHs, and metals were removed from the site. Now, Kendall Yards has turned into a vibrant community with a growing collection of houses, apartment buildings, offices, and restaurants.
Gas Stations, Dry Cleaners, and Underground Storage Tanks Around the State. Contaminated sites are not caused only by heavy industrial operations. Many of the most common sources of contamination are gas stations, dry cleaners, and other businesses with underground storage tanks. Ecology has identified over 7,000 leaking tanks in the state. But significant progress is being made. Contamination from over 4,000 tanks has been remediated, and cleanup has started for over 2,000 more tanks. For gas stations, Ecology has entered into multi-site agreements to facilitate and coordinate cleanups for parties with larger portfolios of sites. Collectively, efforts to address contamination at service stations and dry cleaners have resulted in about a thousand NFA determinations under MTCA.
Substantial Public Funding for Cleanups and Related Projects. The 1988 citizens’ initiative resulted in a tax on the “first possession” of hazardous substances in Washington, in addition to MTCA’s cleanup framework. Although the tax revenue has fluctuated due to volatility in oil prices, it generated around $2.2 billion between 1988 and 2017 to support Ecology programs and to fund cleanups and related environmental projects around the state. This funding is critical to remediating sites where sufficient private dollars are not available. For instance, between 2015 and 2017, Ecology provided $1.2 million to remediate American Legion Park in Everett. The park was impacted by the nearby former Asarco smelter. The area-wide cleanup has exceeded the dollars collected in a 2009 bankruptcy settlement with Asarco. This year, the state legislature converted the tax on petroleum products from a price-based tax to a volumetric tax with the goal of making funding more predictable. The Department of Revenue also has estimated that revenues under the new tax will be higher.

ARTICLE BY Augustus “Gus” E. Winkes of Beveridge & Diamond PC.

For more environmental site developments, see the National Law Review Environmental, Energy & Resources law page.

California’s “Housing Crisis Act of 2019” May Boost Housing Production or Just Boost Housing-Related Litigation

On October 9, 2019, Governor Newsom signed into law Senate Bill (SB) 330, or the “Housing Crisis Act of 2019” in an effort to combat California’s current housing shortage, which has resulted in the highest rents and lowest homeownership rates in the nation. In a nutshell, the Housing Crisis Act of 2019 seeks to boost homebuilding throughout the State for at least the next 5 years, particularly in urbanized zones, by expediting the approval process for housing development. To accomplish this, the Housing Crisis Act of 2019 removes some local discretionary land use controls currently in place and requires municipalities to approve all developments that comply with current zoning codes and general plans. If not extended, SB 330 will only be effective from January 1, 2020 through January 1, 2025.

Governor Newsom signed SB 330 over the objections of local governments to help meet his ambitious goal of 3.5 million new housing units by 2025. One study by UCLA found that localities have already approved zoning for 2.8 million new housing units – 80% of Governor Newsom’s goal. However, if zoning alone was enough to increase housing production, California’s rate of housing production would be increasing. Instead, in the first half of 2019, there was a 20% reduction in the issuance of residential building permits compared to the same time period in 2018. California believes the reduction was due, in part, to excessive hearings and local approval procedures, mid-application spikes in development impact fees, and mid-application changes to development regulations, all of which can render a residential development project infeasible.

Only time will tell if SB 330 will actually increase the rate of housing production or merely fill the courts with more housing-related litigation prior to SB 330’s sunset in 5 years. However, one thing is for sure – local governments must tread carefully before denying the next housing project.

Major Provisions:

The Housing Crisis Act of 2019 applies to all housing developments consistent with objective general plan, zoning and subdivision standards in affect at the time an application is deemed complete, and affects all cities and counties in California – including charter cities. A “housing development” is defined as a project that is (1) all residential; (2) a mixed use project with at least two-thirds of the square-footage residential; or (3) for transitional or supportive housing.

SB 330 also places extra restrictions on certain “affected” cities and counties with housing statistics below national averages. As defined by the legislation, today there are nearly 450 cities and unincorporated parts of counties that qualify as “affected.”

For all cities and counties, the Housing Crisis Act of 2019’s major impacts include:

Retroactive prevention of zoning codes or design standards alterations that reduce residential density or intensity of use from that which was in place on January 1, 2018;
Authorization of proposed housing developments to override the local zoning codes that are inconsistent with the general plan, if the project is consistent with the general plan or land-use element of a specific plan;
Prevention of non-scheduled impact fees increases after a project applicant has submitted all preliminary required information;
Limitation of the number of public hearings on a development to 5; and
Specification that applications must be reviewed for completeness within 30 days of submission, provision of a written notice to the applicant if the agency believes the project is inconsistent with objective local development plans, policies and standards within 30 days if a housing project is under 150 units (and 60 days if the housing project is over 150 units).

Additional controls on “affected”[1] cities include:

Prevention of municipalities from enacting moratoriums on residential and mixed use projects;
Prevention of municipalities from establishing caps on the number of people who can live in the municipality, the number of housing units allowed, or the number of housing units to be constructed; and
Prevention of any density reductions or changes to design standards that downzone or limit housing development.

In addition to the above-mentioned controls on a local government’s ability to restrict development, there are also special limitations on reductions to affordable housing in a community. As to cities and counties, a local agency may not disapprove, or condition approval in a manner that renders infeasible a housing project for very low, low-, or moderate-income households or emergency shelters without specific written findings based on a preponderance of evidence in the record. This only applies to projects with 20% of the total units set-aside for affordable housing at 60% area median income (AMI) or 100% of the total units set-aside for affordable housing at 100% AMI.

As for developers, the Housing Crisis Act of 2019 bans any demolition of affordable or rent-controlled units unless the developer replaces all such units, allows tenants to stay in their homes until 6 months before construction begins, provides relocation assistance to tenants, and offers tenants a first right of return at an affordable rent.

SB 330 also implements penalties for violation of Housing Accountability Act (Govt. Code § 65589.5) (HAA) rules. Specifically, a court may require an agency make appropriate findings of denial or pay a $10,000 per unit fine into affordable housing funds. In the case of a local agency’s bad faith and failure to comply with a court order within 60 days, fines can increase to $50,000 per unit and the court can overturn a project denial and approve the project itself. Bad faith includes decisions that are frivolous or entirely without merit.

[1] SB 330 sets out criteria for identifying “affected” cities based on incorporation, size, and the average rent and vacancy rate compared to the national average.

ARTICLE BY Jeffrey W. Forrest and Kelsey Clayton, Law Clerk at Sheppard, Mullin, Richter & Hampton LLP.

For more on housing development, see the National Law Review Real Estate law page.

What Does the US Supreme Court Ruling Mean for Local Affordable Housing Laws?

On February 29, the US Supreme Court denied certiorari in California Building Industry Association v. City of San Jose, 61 Cal. 4th 435 (2015), and leaves standing a unanimous decision by the California Supreme Court upholding the city of San Jose’s affordable housing ordinance.

San Jose’s ordinance compels all developers of new residential development projects with 20 or more units to reserve a minimum of 15 percent of for-sale units for low-income buyers, and the price of those units cannot exceed 30 percent of the buyers’ median income. The ordinance requires these restrictions to remain in place for 45 years. Alternatively, the developer can pay the city a fee in lieu. The California Building Industry Association argued that the ordinance was an unlawful exaction in violation of Nollan v. California Coastal Comm’n, 483 U.S. 825 (1987), Dolan v. City of Tigard, 512 U.S. 374 (1994), and Koontz v. St. Johns River Water Management District, 133 S. Ct. 2586 (2013). In a June 15, 2015 decision, the California Supreme Court disagreed, concluding that the ordinance is not an exaction because it does not require a developer to give up a property interest, but instead a typical zoning restriction subject to rational basis review.

In concurring with the US Supreme Court’s denial of certiorari in this case, Associate Justice Clarence Thomas acknowledged the important issues raised in California Building Industry Association, perhaps signaling the Court may revisit this issue. In particular, Justice Thomas stated, “For at least two decades . . . lower courts have divided over whether the Nollan/Dolan test applies in cases where the alleged taking arises from a legislatively imposed condition rather than an administrative one. . . . I continue to doubt that ‘the existence of a taking should turn on the type of governmental entity responsible for the taking. . . . Until we decide this issue, property owners and local governments are left uncertain about what legal standard governs legislative ordinances and whether cities can legislatively impose exactions that would not pass muster if done administratively.”

Ultimately, however, Justice Thomas determined that California Building Industry Association did not provide an opportunity to decide the conflict: “The City raises threshold questions about the timeliness of the petition for certiorari that might preclude us from reaching the Takings Clause question. Moreover, petitioner disclaimed any reliance on Nollan and Dolan in the proceedings below. Nor did the California Supreme Court’s decision rest on the distinction (if any) between takings effectuated through administrative versus legislative action.”

The denial of certiorari leaves in place similar “inclusionary” affordable housing programs that have been adopted in more than 170 California municipalities.

Article By Bryan K. Brown, Cynthia L. Burch, David P. Cohen & Kenneth G. Lore

New Chicago Affordable Housing Ordinance Means Greater Costs for Developers

The Chicago City Council recently passed an amendment to the existing Affordable Requirements Ordinance (the 2015 ARO), which will increase the cost to develop most affordable housing projects in Chicago. With the passage of the 2015 ARO, developers must now provide on-site or off-site affordable housing in addition to the in lieu fees which makes it impossible for developers to circumvent the purpose of the affordable housing requirements mandated by the ordinance. In addition, the 2015 ARO significantly increases the in lieu fees that developers must pay in order to satisfy the requirements of the ordinance.

The Affordable Requirements Ordinance was enacted in 2003 and revised in 2007 to expand access to housing for low-income and moderate-income households and to preserve the long-term affordability of such housing in the Chicago. Housing is considered “affordable” if the sales price or rent for the housing unit does not total more than a certain percentage of a family’s household income. To qualify for affordable housing, the household must make at or below a certain percentage of an area’s median income as established by the Department of Housing and Urban Development.

Before the 2015 ARO, developers could pay an “in lieu fee” in the amount of $100,000.00 for every affordable unit they elected not to include in their projects to completely satisfy the affordable housing requirements.

You can click here for a complete summary of the 2015 ARO. It is a quick reference guide for anyone considering the development of residential projects in Chicago.

Application

The 2015 ARO applies to residential projects that contain ten (10) or more residential units and satisfy one of the following requirements:

The project receives a zoning change that permits a higher floor area ratio, changes the use from non-residential to residential or permits residential uses on ground floors where that use was not previously allowed;

The project includes land that was purchased from the City of Chicago;

The project received financial assistance from the City of Chicago; or

The project is part of a planned development in a downtown zoning district.

Minimum Percentages of Affordable Housing

While there are certain exemptions, the 2015 ARO creates minimum percentages for affordable units in projects as follows:

Rezoning – In the case of a rezoned property, the developer is required to designate 10% of the units in the project as affordable housing (or 20% if the developer receives financial assistance from the City of Chicago). Financial assistance from the City of Chicago includes grants, direct or indirect loans or allocation of tax credits to the development.

City Land Sales – Where the City of Chicago sells property to a developer and such property is subsequently developed for residential purposes or is incorporated into a residential housing project site in order to satisfy City of Chicago Municipal Code requirements, the developer must designate no less than 10% of the units in the project as affordable housing (or 20% if the developer receives financial assistance from the City of Chicago).

Existing Buildings | Zoning Change – Where there is an existing building that contains housing units at the time of an approved zoning change or an existing building that contains a mixed-use occupancy with use being residential at the time of an approved zoning change, only the additional housing units permitted under the rezoning are subject to the affordable housing requirements of the ordinance. However, in the event the developer has received financial assistance from the City of Chicago, then the entire building is subject to the affordable housing requirements of the ordinance.

Additional Considerations for Affordable Housing Units by Project Location

Compliance with the ordinance will depend on the area where the project is located:

1. Low-Moderate Income Areas

For low-moderate income areas (designated by the City of Chicago Department of Planning and Development), a developer must provide at least 25% of the required affordable units on-site.

For the remaining 75% of the required affordable housing units, the developer has the option of satisfying the requirements of the ordinance by (a) establishing additional on-site affordable housing units; (b) paying an in lieu fee in the amount of $50,000.00 per unit; or (c) any combination of (a) and (b).

2. Higher Income Areas

In higher income areas (those areas that are not designated as low-moderate income areas), the developer must provide at least 25% of the required affordable units on-site or off-site.

For the remaining 75% of the required affordable housing units, the developer has the option of satisfying the requirements of the ordinance by (a) establishing additional on-site or off-site affordable units; (b) paying an in lieu fee in the amount of $125,000.00 per unit; or (c) any combination of (a) and (b).

All off-site units must be located within a two (2) mile radius of the residential housing project at issue and in the same or a higher income area or in a district zoned “D” (downtown district) under the City of Chicago Zoning Ordinance.

3. Rental Units in Downtown Districts

In downtown districts and planned developments in a downtown district (zoned “D”), a developer of rental units must provide at least 25% of the required affordable rental units on-site or off-site.

For the remaining 75% of the required affordable housing units, the developer has the option of satisfying the requirements of the ordinance by (a) establishing additional on-site or off-site affordable units; (b) paying an in lieu fee; or (c) any combination of (a) and (b).

The in lieu fee is $140,000.00 per unit through and including the first anniversary of the publication date of the ordinance in the Journal of the Proceedings of the City Council of the City of Chicago. The in lieu fee is increased to $175,000.00 thereafter.

All off-site units must be located within a two (2) mile radius of the residential housing project at issue and in the same or a higher income area or in a district zoned “D” (downtown district) under the City of Chicago Zoning Ordinance.

4. Owner-Occupied Units in Downtown Districts

In downtown districts and planned developments in a downtown district (zoned “D”), a developer of owner-occupied units (i.e., condominiums) may establish affordable housing in the following ways: (a) establishing affordable owner-occupied units as part of the residential housing project; (b) establishing off-site affordable owner-occupied units; (c) paying an in lieu fee; or (d) any combination of (a), (b) and/or (c).

The in lieu fees are the same as rental units in downtown districts; however, in the event the developer elects not to provide a minimum of 25% of the required affordable owner-occupied units either on-site or off-site, the in lieu fee shall be increased to $160,000.00 per unit through and including the first anniversary of the publication date and $225,000.00 per unit thereafter.

Off-site affordable owner-occupied units may be located anywhere in the City of Chicago, subject to the Department of Planning and Development’s approval.

In summary, the 2015 ARO has significantly increased a developer’s cost to develop residential units in the City of Chicago. It also mandates that affordable housing units be built even if it is off-site. It remains to be seen if these new laws will in fact inhibit developers from constructing residential projects in the City of Chicago. To learn more about 2015 ARO and its implications for your business, contact a member of the Much Shelist Real Estate practice group.

ARTICLE BY

Harold S. Dembo & Kristin A. Nordman of Much Shelist, P.C.

Tag: Affordable Housing

House Passes $78 Billion Tax Bill that Includes Affordable Housing Help

Like this: