The Real Deal Los Angeles

LA developers find affordable housing credits worth less under new tax code

Tax experts say the reduced funding will mean fewer homes built
March 09, 2018 01:08PM

Affordable housing complex (Credit: Moore Ruble Yudell)

In Los Angeles, where the city has been trying to push developers to build more affordable housing, the new federal tax code appears to be pushing back. In allowing businesses greater flexibility with their financials, the $1.5 trillion tax cut President Trump signed in December has undercut a source of funding for affordable housing developers, the Los Angeles Times reported.

Developers are now finding the tax credits used to build affordable housing are worth less, creating massive budget holes and effectively delaying projects. Investors who buy these tax credits in exchange for equity in a project are already paying 11 percent less than they did in 2016, California Tax Credit Allocation Committee’s Mark Silver told the Times.

The Low Income Housing Tax Credit pays for anywhere from 20 to 70 percent of development costs of all below-market rental properties, according to Novogradac & Co. The New York-based accounting and consulting firm estimates 235,000 fewer homes will be built nationwide over the next decade as a result.

Statewide, California has been working to increase the amount of affordable housing by funding subsidized units through a series of bills. Gov. Jerry Brown signed a housing package in October, including the controversial Senate Bill 2 — Affordable Housing and Jobs Act Fee — and Senate Bill 35. SB 2 charges a fee on all real estate transactions, while SB 35 allows developers to bypass some of the bureaucratic process for new housing development.

In L.A., voters have approved significant measures to increase the amount of housing. In 2016, Measure HHH and Measure JJJ were both approved in ballot initiatives. Measure JJJ requires multifamily projects to set aside up to 40 percent of the units for low-income residents and provides incentives to developers who provide affordable units. Measure HHH will allow for 10,000 new units of housing for the homeless with $1.2 billion in bonds. [LAT] — Natalie Hoberman