Reintroduced AHCIA Bill Seeks to Expand and Improve LIHTC Program
On May 11, bipartisan groups of senators and representatives introduced the Affordable Housing Credit Improvement Act (AHCIA) of 2023 in the Senate and House. The AHCIA was first introduced in Congress in 2016, and has had increasing bipartisan support since then. Although it hasn’t passed, the provisions included in the AHCIA are often included in other major housing bills introduced each session. During this first session of the current 118th Congress, some AHCIA provisions were also included in the Decent, Affordable, Safe Housing for All Act and President Biden’s fiscal year 2024 budget proposal.
The legislation is estimated to finance an additional 1.94 million affordable rental units over 10 years. We’ll go over the key provisions of the AHCIA and highlight some changes from the prior version of the bill introduced in the last legislative session.
The Senate and House versions of the Affordable Housing Credit Improvement Act are nearly identical companion bills. Here are some of the key provisions of the bill:
Increase LIHTC allocations. The bill would expand the 9 percent Housing Credit by restoring the 12.5 percent cap increase that expired at the end of 2021 and further increasing allocations by 50 percent over two years (Section 201). The 50 percent cap increase would be accomplished by increasing authority (inclusive of the 12.5 percent cap restoration) by 25 percent in 2023. In 2024, the bill would apply the regular inflation adjustment and the remaining 25 percent cap increase.
Add election of the average income test for bond-financed housing credit developments. While Congress modified the LIHTC program (IRC Section 42) to allow income averaging, it did not make a similar change to the housing bond program (IRC Section 142), which triggers the 4 percent housing credit. Thus, for purposes of meeting the minimum set-aside for bonds, the average income test is not an option. The bill would align the housing bond program rules with those of the housing credit program, which allows for all three set-asides (Section 201).
Simplify the student rule. The new rule would better align the housing credit student rule with the HUD student rule while ensuring that households composed entirely of adult students under the age of 24 who are enrolled full-time at an institution of higher education are ineligible to live in a LIHTC unit, with certain exceptions. Exceptions include single parents, formerly homeless youth, those aging out of foster care, victims of domestic violence and human trafficking, veterans, and others (Section 203).
Limit tenant-based voucher payments in certain LIHTC sites. Under current law, owners may collect the full value of a Housing Choice Voucher from a tenant who is a voucher holder, even if the value of the voucher exceeds the housing credit rent limit for the tenant’s unit. The bill would limit the rent charged to the maximum LIHTC rent instead of the HUD-calculated fair market rent for apartments leased by tenant-based voucher holders and benefiting from either income averaging or the basis boost for extremely low-income tenants provided in another section of this bill. By limiting the rental income to the LIHTC maximum rents, the excess rental assistance that the tenant-based voucher would have provided can be used by the public housing authority that issued the voucher to serve other families (Section 204).
Increase the amount of LIHTCs for sites serving extremely low-income tenants. The bill would provide up to a 50 percent basis boost for sites serving extremely low-income households at rents affordable to such households in at least 20 percent of the units. This provision would apply only to the portion of the site reserved for extremely low-income households. This provision would also facilitate the development of more affordable housing for populations with special needs, such as formerly homeless veterans, whose incomes are extremely low (Section 307).
Clarify VAWA protections for LIHTC residents. The 2013 reauthorization of the Violence Against Women Act (VAWA) provided protections for victims of domestic violence, dating violence, sexual assault, and stalking living in LIHTC sites. However, VAWA made no conforming changes to the IRC Section 42. The bill would better align the LIHTC program with VAWA by requiring all LIHTC long-term use agreements to include VAWA protections, clarify that an owner should treat a tenant who has her lease bifurcated due to violence covered under VAWA as an existing tenant and should not recertify the tenant’s income as if she were a new tenant at initial occupancy; and clarify that victims under VAWA qualify under the special needs exemption to the LIHTC general public use requirement (Section 205).
Prohibit local approval and contribution requirements. Current law requires state agencies to notify the chief executive officer or equivalent of a local jurisdiction in which a proposed building would be located. Some states go further and require developers to demonstrate local support for LIHTC developments or providing points as part of a competitive scoring process for sites that demonstrate such support. These types of provisions can result in the unintended consequence of giving local government officials “veto power” over developments and can exacerbate NIMBY (Not In My Backyard) opposition to proposed LIHTC sites.
The bill would remove the provision that requires state agencies to notify the chief executive officer of the local jurisdiction of a proposed building and specify that that the selection criteria in the Qualified Allocation Plan (QAP) cannot include consideration of any support for or opposition to a development from local or elected officials or local government contributions to a development (Section 306).
Increase of population cap for Difficult Development Areas (DDA). Currently, sites are eligible for up to a 30 percent basis boost if they are located in a DDA, meaning areas with high construction, land, and utility costs relative to area median gross income. No more than 20 percent of the aggregate population of the entire country may be located in census tracts that are eligible to receive the DDA designation. The bill would increase the DDA population cap from 20 to 30 percent, and, therefore, enable sites in more high-cost areas to receive additional LIHTC equity if necessary to make the property financially feasible (Section 311).
Basis boost for Indian and rural areas. While some sites in Indian and rural areas may qualify as DDAs and are thus eligible for up to a 30 percent basis boost, most Tribal and rural areas don’t qualify under current DDA standards. The bill would modify the definition of DDAs to automatically include properties located in these areas, making these properties eligible for the 30 percent basis boost if needed to make them financially feasible (Sections 402 and 501).
The AHCIA introduced in this118th Congress is largely the same as the version in 117th Congress, but the bill’s sponsors have made a few changes. Here are the new provisions in the latest bill:
Encourage data sharing and transparency. The recent version of the AHCIA bill includes “Sense of Congress” language regarding publicly available data about the LIHTC program. A Sense of Congress resolution is a non-binding resolution that expresses a formal opinion or message. These resolutions don’t create law and aren’t enforceable.
Here, the bill’s sponsors found that researchers studying the impact of the LIHTC program are reliant on the two major sources of publicly available data, both collected by HUD’s office of Policy Development and Research. The sources are the LIHTC property database, which includes data on the location of properties, and the LIHTC tenant data collection project. Congress has never provided funding to support these data sources, and as a result, data is incomplete for some properties. IRS also collects site-level data from investors and owners, but this data can’t be made publicly available under current law.
The non-binding resolution included in the bill says that Congress should work with federal agencies to consider ways to supplement existing publicly available data about the LIHTC and increase program transparency (Section 801).
Encourage inclusive zoning. Another Sense of Congress provision in the Senate version of the bill highlights the fact that certain local zoning and land use policies can create barriers to LIHTC sites in areas that adopt them. These policies often unnecessarily add to project costs or can even make development impossible in some areas. Section 801(b) of the Senate version includes language discouraging discriminatory land use policies and removing barriers to making housing more affordable to further the original intent of the LIHTC program.