Affordable Housing Tax Break in Trouble?

Dec 15, 2017

Credit geralt / Pixabay

Since 1986, a federal tax break has helped to finance affordable housing in Hawaii and throughout the country. Now it’s on the chopping block. Pacific Business News editor in chief A. Kam Napier has more.

As Congress overhauls the federal tax code, one of the tax credits that may be eliminated is the Low Income Housing Tax Credit, signed into law during the Reagan Administration. The intent of the law was to encourage the development of low-income housing. The method was to offer private investors a dollar-for-dollar reduction to their federal tax liability in exchange for providing equity to the developers of affordable housing.

This equity in turn reduces the amount of debt a developer takes on to build or renovate housing, and allows then to charge lower rents. Under this program, states are limited to an annual amount determined by population. Hawaii’s limit is $300 million per year and the process of connecting developers to the money available from the tax credit is administered locally by the Hawaii Housing Finance Development Corporation. The redevelopment of Mayor Wright Homes is the biggest example of how this works. That project aims to add up to 2,136 rental units to the market and the HHFDC is working with its developer, Hunt Cos., to tap into this fund.

This tax credit can finance up to 70 percent of the development cost of a project and could make the difference between the housing happening, or not.