The Homeownership Within Reach coalition advances state-level policies that expand homeownership opportunity through the creation and allocation of affordable homeownership tax credits. Tax credits awarded to qualified community development entities are leveraged to offset the cost of developing and rehabilitating housing, creating a replenished supply of affordable for-sale homes.
With state-specific analysis and the input of our partners, we advance policies that promote the specific project objectives and specific compliance guidelines outlined below.
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Neighborhoods decimated by blight and an overabundance of vacant dilapidated housing stock
Lack of affordable housing for our workforce, millennials and low to moderate income individuals and families
The negative economic impact that lack of access to homeownership has created and passed down from generation to generation for entire groups and sub-groups of our population
Incentives for providing (or requiring) pre- and post-purchase financial counseling and homeowner education
Incentives for providing (or requiring) high touch loan servicing
Incentives, if serving as a mortgage lender, for offering more flexible rates and terms
No transfer restrictions/syndication possible
Same recapture risks and penalties as federal New Markets Tax Credits (NMTCs)
40% credit, taken over 7 years, but with 0% years 1-3 and 10% years 4-7
Can be twinned with federal NMTCs but can function as a standalone credit as well
Applicants must be certified CDEs
HOW DOES THE PROGRAM WORK?
Fiscal impact has been a core consideration in the development of the affordable homeownership tax credit concept.
Because entities eligible to apply for state affordable homeownership tax credits would be pre-qualified by their eligibility for federal tax credits as certified CDEs, the administrative costs for a state to vet applicants is minimal.
The administrative costs associated with vetting applications could be kept low by limiting the program staffing to a single FTE who would manage the review and evaluation of applications based on a scoring rubric. The applications could be evaluated according to a points-based ranking, using a standardized review process assigning numeric attributes to each specific priority that a state outlines in funding the program (or according to the general priorities outlined above). Standardizing the points for each priority likewise standardizes the criteria by which applications are ranked and ultimately approved for allocation. The remainder of the program administration could be managed with existing human resources, especially if a state or agency already maintains compliance management systems for the administration of other programs.
WHAT ARE THE SPECIFIC STEPS TO IMPLEMENTATION?
A budget allocation would be required to fund an affordable homeownership tax credit. Allocations are proposed at levels specific to states, balancing an individual state’s fiscal capacity and community needs. The allocation stipulates foregone projected revenue collections rather than direct expenditure.
Revenue initially foregone through the award of tax credits is recovered through the increase in property values and the improved tax base resulting from the program’s stimulation of private investment in qualified communities. Along with higher property values and increased recordation, revitalized communities generate sustained employment, higher business and personal income, and increased sales tax revenue. Setting aside dollar-for-dollar considerations, the foregone revenue of the tax credits stimulates investment that improves the quality of life in communities at both individual and collective levels, addressing blight and ‘zombie’ stock and, significantly, creating housing stability for residents, many of whom are currently at the mercy of a volatile rental market.
Marketing to Applicants
Once approved, a state’s affordable homeownership tax credit program will welcome applicants. Because those eligible to apply are already certified CDEs, they will already understand the opportunity and there will be an immediately competitive pool of applicants and investors ready to stimulate development in a state’s targeted communities. In addition to existing industry members, housing organizations and advocates, as well as members of the Homeownership Within Reach coalition, will publicize the opportunity.
Compliance with program guidelines is required in order for recipients to realize the tax credit benefit.
Over a 7-year compliance period with a tax credit equivalent to 40% of the total allocation, years 1 through 3 would offer 0% credit and years 4 through 7 would offer 10% each. This program design encourages long-term commitment and execution of the priorities specified for an approved project. The deferred realization of the tax credit does not discourage participation from CDEs or investors. Should an awardee become non-compliant, the state would impose recapture penalties and exclude that entity from future program eligibility.
Recipients will also be required to provide certain supports or program components that the states deem necessary for sustainable homeownership such as:
- Pre- and post-purchase financial counseling and support
- Homebuyer education
- High touch loan servicing
Each state may also determine that other supports or programming are desirable and provide incentives for those items.
Extension and Renewal
The affordable homeownership tax credit allocation and program are proposed for an initial term of 15 years, with a budget allocation initially set according to a state’s specific capacity and needs and renewed either annually or biennially at the initial allocation level or that initial level indexed to state budget fluctuation.
Impact Measurement and Financial Impacts for States
To remain compliant, CDEs will be required to track and report project impacts, including the number of homes created, the price at which they are offered to qualified buyers, and specific homebuyer metrics including income and household characteristics.
The collection of data over time will generate a clearer lens on the population served by restored access to homeownership and the transformative impact of the program to wealth-building and family and community stability. If the impact measurement is standardized between multiple states, depending on how states specify their programmatic priorities, the collection of impact measures will have amplified value. One prospective method for impact measurement is to coordinate or conform the reporting of state program impacts with the database tool used to track compliance for federal tax credits.