The Trump administration made it clear that reducing homelessness is not one of its top priorities. The White House has twice proposed eliminating the U.S. Interagency Council on Homelessness, which coordinates efforts among more than a dozen federal agencies. The administration has also proposed adding work requirements to federal housing aid and expanding requirements for food stamps.
That’s all bad enough, but efforts to reduce homelessness now face an even bigger policy threat — and it was put in place entirely by accident.
When President Trump signed the tax-reform bill into law in December, he also weakened the low-income tax credit, which is the primary tool we have to promote affordable housing. Here’s how it works: Developers come up with a housing project that would offer a cheaper place to live for low-income people. They submit the project to their state and local governments to determine whether it is worthy of tax subsidies. If so, the developer can seek investors to finance the project — usually local businesses — which can then write off their investment on their federal taxes.
It’s a win-win policy: Developers finance their projects more easily. And companies save money on what they know will be a pretty safe investment (after all, there’s never a shortage of people in need of affordable housing). Over the past two decades, this setup helped finance more than 2 million affordable housing units across the country.
Problem is, the tax-reform bill substantially reduces corporate taxes, so the affordable housing tax write-off is just not as attractive any longer. In fact, experts estimate that the tax reforms could reduce new affordable housing by 235,000 homes over the next decade. That would be the equivalent of putting the development of all affordable housing in the United States on pause for two years.
That’s a huge problem. An estimated 11 million people in the United States are what the government calls “severely rent burdened,” meaning they spend more than half their income on housing. Today we’re facing a shortage of some 7.4 million affordable homes, and things are getting worse thanks to rising housing prices, stagnant wages and persistent gentrification. Data from the Department of Housing and Urban Development shows that homelessness has ticked up slightly for the first time since the financial crash, thanks in large part to a shelter shortage on the West Coast.
The tax credit alone couldn’t solve all that. But it’s one of the best tools we have to ease the problem. Any policy change that weakens it is a step in the wrong the direction.
There is no indication that Republicans intended to dilute these tax credits. But they also clearly didn’t care enough to minimize the damage that the tax reform will have on the program.
A bipartisan group of senators is tweaking legislation to mitigate the effects of tax reform on affordable housing. But it is an open question as to whether it will fit into the Republican agenda. Some conservatives advocate doing away with the tax credit altogether. And Trump recently proposed axing the Community Development Block Grant program and the HOME Investment Partnership Program — two other federal programs that help build affordable housing.
There’s quite a bit of irony here. Using tax credits to encourage affordable housing was a Republican idea — Ronald Reagan signed it into law as part of his 1986 tax-reform bill. The credit was designed to give local governments and states more power to decide where federal resources go. It is also a market-oriented approach that puts the financial burden on private investors if properties are not successful. Research has also shown that the credit reduces racial segregation and crime in low-income neighborhoods.
But none of that matters, apparently. Republicans were determined to stimulate an already strong economy with a tax giveaway going mostly to the rich. And if the most vulnerable in our economy got hurt in the process, well, that’s just how it goes.