Capitol Alert

Corporate tax cuts blocked at least 15,000 affordable homes in California. Here’s how

Affordable housing advocates warned that the corporate tax cuts passed by Republicans in 2017 could have disastrous effects on the development of more affordable housing. More than two years later, independent data show it has meant at least 15,000 delayed or killed affordable housing units in California alone.

The low-income housing tax credit is the primary federal program for funding affordable housing projects. It promises a tax credit to private companies — usually banks — that fund housing accessible to low-income families. It’s a program that has received broad bipartisan support over the years.

But when the Republican tax cuts lowered the corporate tax rate from 35 to 21 percent, it had the unintended effect of lowering the potential benefits of the tax credits. Scott Hoekman, president and CEO of Enterprise Housing Credit Investments, LLC, a company that manages funds for the tax credits nationwide, estimated that meant investors were willing to pay about 10 to 15 percent less for a given investment than they had before the 2016 election, cutting off a major source of funding and derailing thousands of projects.

In California, that meant about 10,000 delayed or killed housing units in 2017 and 5,500 in 2018, according to Matt Schwartz, president and CEO of the California Housing Partnership, and a 23 percent decrease in affordable housing production — from about 24,000 units in 2016 to less than 19,000 in 2018.

That represented an estimated $1.4 billion less in investment in affordable housing in the state between 2016 and 2017, and $400 million less in 2018 compared to 2016.

The impact to investment was immediate in 2017, even before the corporate tax was lowered, because investors knew it was a top priority for Republicans and adjusted their investments accordingly.

“That has really painful effects, even if it doesn’t sound that big,” Schwartz said. “For the folks on the waiting list for this housing, it makes a huge difference. These are people in fragile conditions, living paycheck to paycheck or some of them even homeless.”

Things improved in March 2018, when Congress added a 12.5 percent increase to those tax credits in the budget. But there are two types of housing credits, one a higher tax credit usually used for new construction and a lower one usually used for rehabilitated housing, and that increase only helped tax credits for new construction.

Rehabilitating existing structures for affordable housing therefore continued to languish in 2018, which represented a large loss to California. Advocates say there’s already a bill that would fix all their problems and increase the use of the tax credit, but even bipartisan legislation has stalled in D.C.’s current environment.

The legislation, sponsored by Sen. Maria Cantwell, D-Washington, and Rep. Suzan DelBene, D-Washington, would mean significantly more affordable housing if it were enacted in full. It would increase funding to the program as well as fix certain issues, such as fluctuating equity rates on certain types of tax credits. Enterprise estimated it would mean about 500,000 more affordable homes would be built in the next 10 years, according to Sarah Brundage, senior policy director at Enterprise.

The bill’s chances of being taken up fully are slim — it’s more likely that certain provisions could be attached to another vehicle such as a budget or spending caps bill. Schwartz said he sees even that as more likely after the 2020 presidential election, though there’s hope something may get done this year.

“Never say never,” Brundage said. “I think we have a shot.”

The office of House Minority Leader Kevin McCarthy, R-Bakersfield, did not return a request for comment on the effects of the corporate tax cut nor whether he supports the bills to fix it. The office of Senate Majority Leader Mitch McConnell, R-Kentucky, referred comment to the Finance Committee, but the office of Chairman Chuck Grassley, R-Iowa, did not respond.

In the meantime, the state of California and local governments have tried to fix yet another hole in an affordable housing crisis. Through ballot measures alone, the state has allocated billions of more dollars to building more affordable housing, and local governments — such as in San Francisco, Berkeley and San Mateo — putting millions towards it through bonds and additional taxes.

“You can’t get much cost saving on these projects nowadays,” said Doug Shoemaker, president of Mercy Housing, a provider of affordable housing in California. “So (the corporate tax cuts) meant local governments had to put in more dollars, which then means higher taxes.”

Kate Irby is based in Washington, D.C. and reports on issues important to McClatchy’s California newspapers, including the Sacramento Bee, Fresno Bee and Modesto Bee. She previously reported on breaking news in D.C., politics in Florida for the Bradenton Herald and politics in Ohio for the Cleveland Plain Dealer.