The Affordable Housing Investor Webinar, co-hosted by Nixon Peabody and CohnReznick, brought together industry leaders to discuss the legislative and regulatory landscape impacting affordable housing upper-tier investors.
The panel featured insights from:
- Andrew Tripp, Partner at Nixon Peabody LLP
- Cindy Fang, CPA, Partner at CohnReznick LLP
- David Gasson, Partner at MG Housing Strategies
- Bob Moss, Partner at MG Housing Strategies
This article summarizes the key points from our discussion, highlighting the potential market impacts, emerging scenarios, and evolving risk tolerances.
Legislative Landscape and Congressional Dynamics
David Gasson and Bob Moss provided a comprehensive overview of the current legislative environment. While there is significant uncertainty regarding the direction of housing policy, the Trump administration's agenda is unclear in this area in particular, a few key legislative priorities are beginning to emerge. These priorities include the reconciliation process, the debt ceiling, and the federal budget:
Reconciliation process: The reconciliation process is critical for passing significant budget legislation with a simple majority. The focus will be on immigration and tax reforms, with potential implications for affordable housing likely to come later in the year.
Debt ceiling: Expect the debt ceiling debate to resurface by mid-year, requiring bipartisan support to avoid a default. This will be a crucial issue, as it impacts overall economic stability and investor confidence.
Federal budget: The FY 2025 budget remains unresolved, with a continuing resolution in place until March 14. The administration's budget proposals will be closely watched for potential cuts to housing programs.
Affordable Housing Credit Improvement Act (AHCIA)
The Affordable Housing Credit Improvement Act (AHCIA) remains a top priority for the industry. The AHCIA aims to expand and strengthen the low-income housing tax credit (LIHTC) program. Key provisions of the AHCIA tax reform package may include:
- Restoring and expanding housing credit allocation: A proposed 12% increase in housing credit authority, with further expansion by 50%.
- Lowering the private activity bond test: Reducing the threshold from 50% to 25% to enhance financing efficiency.
- Basis boosts: Implementing basis boosts for rural and tribal areas and units reserved for extremely low-income households.
These provisions are designed to attract more equity into the market and address the ongoing housing crisis.
Tax Cuts and Jobs Act (TCJA) and Future Tax Policy
The expiration of the Tax Cuts and Jobs Act (TCJA) provisions at the end of 2025 presents challenges and opportunities. The potential for a significant tax bill, possibly reaching eight to nine trillion dollars, raises questions about the feasibility of passing such legislation with a slim majority in Congress.
Key Considerations:
- Revenue impact: The reconciliation process requires that all provisions have a revenue impact, complicating the inclusion of certain regulatory changes.
- Political dynamics: The slim Republican majority in the House and the need for bipartisan support in the Senate will shape the legislative strategy.
Market Trends and Investor Sentiment
Cindy Fang provided insights into current market trends and investor sentiment. The LIHTC market remains robust, with over $26 billion in equity closed in 2023. However, challenges persist, including rising operating expenses and rent collection issues.
Investor sentiment: Investors remain cautiously optimistic, focusing on yield expectations and the potential impact of legislative changes. The demand for LIHTC investments continues to be strong, driven by the need for affordable housing as well as Community Reinvestment Act requirements.
Performance metrics: Despite challenges and investor watchlists that have grown over the last two years, the foreclosure rate for LIHTC properties remains remarkably low at 0.5%, underscoring the stability of this asset class.
Conclusion
Possible legislative and regulatory changes in 2025 will continue to shape the market, presenting challenges and opportunities for affordable housing investors. By staying informed and adaptable, investors can navigate these changes and contribute to addressing the critical need for affordable housing.