Workforce Housing Tax Credit Act

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The Workforce Housing Tax Credit Act, introduced in December 2023, aims to alleviate the affordable housing crisis facing America’s middle-income workers by establishing a new federal tax incentive for rental housing development. Inspired by the success of the Low-Income Housing Tax Credit (LIHTC), this bipartisan legislation proposes tax credits for the construction and rehabilitation of properties affordable to households earning between 60-100% of area median income (AMI).

Filling the “Missing Middle” Housing Gap While the LIHTC has facilitated the creation of over 3 million affordable rental units for low-income families since 1986, a persistent “missing middle” remains. Many communities lack sufficient unsubsidized rental housing options for middle-class workers like teachers, police officers, and nurses whose incomes are too high for subsidized units yet too low to afford luxury apartments or home ownership.

This shortage forces many to resort to cost-burdened situations, paying over 30% of their income on rent. According to Harvard’s State of the Nation’s Housing 2022 report, over 10 million renter households earning 45,000−45,000−75,000 were cost-burdened in 2020. The dearth of “workforce housing” can make it difficult to attract and retain essential personnel and sustain economic vitality in many areas.

How the Workforce Housing Tax Credit Would Work Introduced in the Senate by Ron Wyden (D-Ore.) and Dan Sullivan (R-Alaska), along with Representatives Jimmy Panetta (D-Calif.) and Mike Carey (R-Ohio), the Workforce Housing Tax Credit Act aims to spur private investment in rental properties serving this middle-income segment.

The proposed legislation outlines that state housing finance agencies would competitively allocate the federal tax credits to developers of qualified rental projects. For 2024, the total credit allocation is proposed at  $1 per capita with a $1.5 million small state minimum. An additional 5% of the allocation is made available and reserved for middle-income housing developed in rural areas.

Allocated credits could be claimed annually over a 15-year period, during which properties must comply with income and rent restrictions. An additional 15-year extended use period is also required, for a total 30-year affordable rental commitment.

To qualify for the workforce housing credits:

  • At least 60% of a property’s units must be occupied by households earning up to 100% of AMI
  • Rents on those units must be capped at 30% of the designated AMI level

For new construction projects, the credit amount equals 50% of eligible development costs. For acquisition and rehab projects or those using tax-exempt bond financing, it equals 20% of costs. State agencies can also boost credits for difficult development areas.

This structure closely mirrors the existing LIHTC program. However, the Workforce Housing Tax Credit provides key flexibility for state agencies to tailor their resources. They can elect to transfer any portion of their workforce housing credit allocation into their LIHTC program instead. This allows for the creation of mixed-income projects containing both low-income and workforce housing units by combining the two credit types.

Benefits of Incentivizing Workforce Rental Housing Proponents argue the Workforce Housing Tax Credit could provide several important benefits:

  1. Easing severe rent burdens on middle-income families
    By expanding affordable housing supply, the credits aim to give cost-burdened middle-class renters more quality yet reasonably-priced options.
  2. Helping communities attract and retain vital workforces From teachers and first responders to hospitality staff and healthcare workers, the lack of “workforce housing” makes it difficult for many to live in the areas they serve. Increased local housing supply could enhance economic competitiveness.
  3. Fostering mixed-income communities By integrating with the existing LIHTC program, the credits incentivize mixed-income properties to prevent geographic concentrations of poverty.
  4. Leveraging private investment through a proven model
    Like LIHTC, the workforce housing credit provides tax incentives to attract private equity investment into new rental housing through public-private partnerships.
  5. Aligning with local housing priorities The state-administered model empowers agencies to direct credits toward developments addressing localized housing needs.

Potential Challenges and Next Steps As with any major federal program, the Workforce Housing Tax Credit proposal faces some potential hurdles and considerations:

  • Concerns around foregone tax revenue costs to the government
  • Calibrating income limits to target the true “missing middle” without overlapping with LIHTC
  • Incentivizing sufficient development in higher cost markets facing acute workforce housing gaps
  • Ensuring fair housing compliance as mixed-income projects expand

Despite these potential issues, the legislation has garnered rare bipartisan support as a means to comprehensively tackle the nationwide affordable housing shortage.

Looking Ahead for the Workforce Housing Tax Credit Act The Workforce Housing Tax Credit Act was introduced in the Senate on December 7, 2023 by Senators Wyden and Sullivan. It was subsequently referred to the Senate Finance Committee for review.

From committee, the bill must undergo the full legislative process which could include revisions, hearings, and ultimately votes in the Senate and House before potentially being signed into law. No vote has been scheduled as of now.

However, given the housing affordability crisis impacting communities nationwide, the Act has generated significant attention and debate. Those concerned about the housing needs of middle-income workers like first responders, service employees, and other community pillars are encouraged to voice support for this legislation to their representatives in Congress.

By expanding on the proven model of the Low-Income Housing Tax Credit, the Workforce Housing Tax Credit Act represents a promising bipartisan effort to fill the “missing middle” rental housing gap through incentives fostering public-private partnerships and increased private investment. As the legislative process continues, it offers hope for boosting the affordable housing supply available to the workforce keeping local economies thriving

The Workforce Housing Tax Credit Act has garnered support from several key organizations within the housing and building industries. Notably, the National Association of Home Builders (NAHB), the National Multifamily Housing Council (NMHC), and the National Apartment Association (NAA) have all expressed strong backing for the initiative. These organizations recognize the critical need for affordable housing options for middle-income Americans, including essential workers like nurses, firefighters, and teachers. They emphasize that the proposed tax credit would fill a significant gap in housing availability by facilitating the construction and rehabilitation of rental homes for this demographic, thereby enhancing housing affordability and accessibility across the country.

“Tax policy should support and encourage private sector investment that boosts the supply of affordable and workforce housing. The Workforce Housing Tax Credit Act would build on time-tested tax incentives like the low-income housing tax credit and further facilitate the conversion of underutilized, existing buildings to housing. Workforce Housing Fund welcomes this positive step forward for our nation’s housing supply.”