Congress can & must help renters

Democrats in Washington maintain control for only a few more weeks, and they should use their remaining negotiating power to help the often-ignored population of American renters. If they don’t, a golden opportunity will pass us by; after all, in 2023, a divided Congress will offer fewer chances for Washington to address the nation’s worsening housing affordability crisis and supply shortage.

Before handing over the reins in the House, Democrats still have time to make changes that can have a big impact. Congress can unlock critical financing to build and preserve desperately needed affordable housing — and they can do it before the year ends.

The time is right. There is a national housing supply deficit that totals an estimated 3.8 million homes — a primary driver of escalating housing costs. In fact, we produced 5.5 million fewer homes in the past 20 years than it did in the 20 previous years. Worse, housing is a major contributor to inflation, accounting for more than 40% of the total increase in core inflation over the past year.

To his credit, President Biden, in his housing plan, identified the need to expand the Low Income Housing Tax Credit to address a nationwide affordable housing shortage. And here in New York, both Gov. Hochul and Mayor Adams have ambitious goals to produce hundreds of thousands of new units.

This is good news. Now, to help make that happen, Congress should make simple tweaks and unlock the full potential of Private Activity Bonds (PABs), a key financial tool used to produce affordable housing which generates these tax credits for multifamily rental housing development and preservation.

Right now, PABs can only be distributed toward projects using bonds to cover 50% of all eligible costs — known to those who build and advocate for affordable housing as the “50% test.” Crucially, the percentage is arbitrarily set by Congress and can be changed at any time; that the current threshold is so high is limiting the number of projects that can be approved, constructed, and rented.

Compounding matters, each state currently has a “volume cap” that limits the number of PABs it can issue, in turn limiting the number of projects eligible for funding regardless of the demand that states face. In high-population states both red and blue, the problem is clear.

Worse, the cap has not expanded to meet new housing demand and account for increased construction costs, increasing just 16% over the past decade while construction costs are on track to increase by more than 25% in just the last two years.

That is why New York, as well as other states like Texas, Florida and California — where housing conditions are particularly dire — almost always reach the federal volume cap limit. But as communities all across the country face their own affordable housing crises, more states are reaching their maximum allowable PAB issuance.

States including Maine, North and South Carolina, Utah and Montana issued record levels of PABs for housing in 2019 and 2020. Many others have reached their volume cap in recent years including Minnesota, Utah, Georgia, Nebraska, Oregon, Washington, Kansas, Nevada, Rhode Island, Washington, D.C., Maryland, New Mexico, Tennessee, Massachusetts and North Dakota.

One way around this — aside from simply exempting affordable housing from the cap – is to reduce the test to 25% and effectively double their power.

This is a national issue, which is why advocates in states red, blue, and purple agree that this should be a priority. This month, housing groups from California, Florida, Illinois, Indiana, Kentucky, Massachusetts, Oregon, New York, Pennsylvania, Texas, and Washington sent a letter to Congress urging them to lower the 50% test. Govs. Hochul and Gavin Newsom, in a joint letter, did the same.

This reflects the reality that communities across the country — and not just coastal blue states, as is often assumed — are facing their own affordable housing crises, and more states are reaching their maximum allowable PAB issuance in turn.

Financing more affordable housing is a sound economic investment that everyone, regardless of their political background or affiliation, should support. It will leverage private resources ready to be injected into communities that need it in red, blue, and purple communities urban and rural.

According to a study by the New York State Association for Affordable Housing, every 100 units of affordable units built creates $10 million in annual economic spending after construction and $46 million in economic spending during construction in New York. It is a win for the whole community.

Congress can help states address this crisis — or it can simply preserve the unacceptable status quo. And that’s not much of a choice at all.

Fee is the executive director of the New York Housing Conference.