With our society still reeling from a devastating pandemic, we must be thoughtful about rebuilding an economy that is more sustainable, resilient, and socially just than the one we had before COVID-19. This goal cannot be accomplished without confronting the crushing undersupply of affordable and safe housing in our nation’s economic engines like New York and California, and across our nation.
In the next few weeks, Congress has a unique opportunity to address a major barrier to building more affordable housing—the bottleneck caused by the limit on the housing bonds that states and cities can issue every year. While our nation is facing a growing housing and homelessness crisis, New York and California are part of a growing number of states whose affordable housing pipelines exceed their bond volume cap.
In both California and New York, more than 70% of extremely low-income households are paying over half of their income on rent. Additionally, the two states collectively had more than 250,000 people experiencing homelessness before the pandemic.
Congress has a rare chance to tackle this issue head on by including key provisions of the Affordable Housing Credit Improvement Act (AHCIA) in the infrastructure budget reconciliation package. This action would create 1.5 million additional affordable homes across the nation over the next 10 years.
One of the most important provisions is a change to federal law that would lower the housing bond limit—the so-called 50% test—to 25%. Reducing the amount of private-activity bonds required for each affordable housing project to access valuable 4% low-income housing tax credits (LIHTCs) would directly address one of the biggest constraints to financing more affordable housing. As opposed to competing for funding that could go to other programs, this legislative change allows states to make the most out of existing resources, and high-volume issuers like New York City could roughly double the amount of critically needed affordable housing produced with housing bonds.
To make this change particularly meaningful, there are two additional considerations. First, lowering the bond limit should be enacted permanently, or at least for a significant amount of time. This will allow the industry to adapt to the new financing model. Second, it is important that Congress pair the lower test with expanded ability for issuers to reuse or ‘recycle’ old bond allocations.
These proposed changes to some will seem difficult to understand, but sometimes very specific policy tweaks can make a big difference. On the other hand, some might think this is too big of a change, but these proposals have expansive bipartisan support. Both lowering the 50% test and expanding bond recycling are included in AHCIA, and the 2020 version of AHCIA was co-sponsored by over half the House of Representatives and over 40 senators. Given that political will, and the fact housing bonds and LIHTC are the most powerful federal tools we have to build affordable housing, this action from Congress is the most effective way to spur the production and preservation of housing supply that our nation is sorely lacking.
