October 29, 2018

Capitol Express Newsletter: IRS Publishes Proposed Opportunity Zone Regulations, New Reports Highlight Best Practices for Framing Affordable Housing

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IRS Publishes Proposed Opportunity Zone Regulations, More Guidance Expected in the ‘Near Future’

The IRS has published proposed regulations for the Opportunity Zones tax incentive that was enacted in the Tax Cuts and Jobs Act of 2017. The proposed regulations offer investors and fund managers technical guidance on structuring Opportunity Funds, including clarification that: investors may only receive the tax benefit on capital gains; land value is not included in calculating minimum project costs, providing a more flexible threshold for projects such as affordable housing preservation; and 70 percent of a business' tangible property must be within the designated Opportunity Zone to qualify for the tax benefit. The proposed rule notes that the Treasury Department and IRS are working on additional published guidance, to be released in the “near future,” that will include information-reporting requirements.

Earlier this year, Enterprise CEO Terri Ludwig testified before Congress on “The Promise of Opportunity Zones” and made two vital recommendations: regulations should be designed to promote the transparency of Opportunity Fund activities, and to ensure accountability and prevent abuse. This should include collecting transaction-level data from Opportunity Funds so that the public and Congress can evaluate the efficacy of the Opportunity Zones tax incentive. Congress and the Treasury Department should also enact federal guidelines to explicitly prevent Opportunity Fund investments that would disproportionately harm low-income residents and local businesses. Representative Fred Upton (R-MI-6) and Maurice Jones, President and CEO of the Local Initiatives Support Corporation (LISC), recently made a similar point that the Treasury Department should provide sufficient oversight to protect against program abuses and facilitate the collection of the necessary data to determine whether the incentive is working as intended. A recent Wall Street Journal article helps show why tracking impacts in Opportunity Zones will be particularly important, as it notes that Opportunity Zones across the country have been witnessing spikes in property sales activity from investors anticipating that prices will rise when the new funds put money to work. An analysis by Real Capital Analytics found that sales of development sites in Opportunity Zones nationwide have increased 80 percent in the first three quarters of 2018, and owners in some Opportunity Zones have doubled their asking prices, expecting higher demand.

Legislative Agenda in the Lame Duck Session Remains Unclear

Congress will return to Washington on November 13 following the midterm elections and begin a lame duck session with uncertain prospects for funding affordable housing and community development programs. Currently, HUD and USDA rural housing programs are operating under a continuing resolution (CR) through December 7. It remains to be seen whether Congress will agree on a full-year appropriations package during the lame duck period or choose to pass another CR to extend temporary funding for these agencies until there’s a new Congress. The outcome of the elections will heavily influence the tone of these funding negotiations, as well as potential tax legislation that may be considered before the end of the year. Building support for affordable housing and community development programs heading into the lame duck session is critical to ensure these programs rise to the top of the list in any potential negotiations. Enterprise encourages all stakeholders to urge their members of Congress to support the Affordable Housing Credit Improvement Act (H.R. 1661/S. 548), bipartisan legislation to strengthen the Low-Income Housing Tax Credit (Housing Credit), and the New Markets Tax Credit (NMTC) Extension Act (H.R. 1098/S. 384), bipartisan legislation to make NMTC permanent, in any upcoming tax negotiations. Visit the  ACTION Campaign website for more information to advocate for the Housing Credit (including updated state fact sheets), and the NMTC Coalition website for resources to support NMTC.

Bipartisan Pair of Representatives Circulate Letter in Support of NMTC Permanency

Representatives Steve Stivers (R-OH-15) and Jose Serrano (D-NY-15) are circulating a asking their House colleagues to join them in requesting that the New Markets Tax Credit (NMTC) be permanently extended. The letter is addressed to Ways and Means Chair Kevin Brady (R-TX) and is intended for members who are not on the Ways and Means Committee. NMTC is set to expire at the end of 2019 unless Congress extends the program. The New Markets Tax Credit Extension Act (H.R. 1098), bipartisan legislation that would make the NMTC a permanent part of the tax code and index the Credit to inflation, currently has 100 co-sponsors, a significant milestone. Reps. Stivers and Serrano urge their colleagues to support making NMTC permanent in any tax legislation that comes before the House during the lame duck session. The deadline to sign onto the letter is Friday, November 9. Enterprise urges all members of Congress who have not yet signed on in support of the New Markets Tax Credit Extension Act to now do so.

Costly Disasters Prompt Focus on Mitigation Activities

many homes strengthened by low-cost reinforcements were left intact. Making a structure resilient to natural hazards is far less expensive than repairing or rebuilding after a disaster — and a report from the National Institute of Building Sciences found that each dollar spent on hazard mitigation can save the nation six dollars in disaster recovery costs. As part of its response to 2017’s disasters, Congress provided a set aside in HUD’s Community Development Block Grant Disaster Recovery (CDBG-DR) Program for mitigation activities in states and cities where there have been major disaster declarations in recent years. Enterprise has submitted a set of ten recommendations to HUD on how to maximize its investments in mitigation.

Congress also showed that it is taking notice of the incredible need for more hazard mitigation when passing the Disaster Recovery Reform Act. That bill took a significant step in the right direction by authorizing the President to set aside 6 percent of FEMA’s disaster relief funds for a pre-disaster mitigation fund that would award grants to states, tribes, and territories on a competitive basis. All fifty states, in addition to Puerto Rico and the District of Columbia, had major disaster declarations between 2012 and 2018. If utilized, the set-aside could significantly increase federal pre-disaster mitigation funding. An Enterprise blog post summarizes mitigation provisions in the Disaster Recovery Reform Act. Enterprise’s Senior Vice President for Public Policy and Senior Advisor for Resilience Marion McFadden told Bloomberg that “Members of Congress are taking this very seriously. They don’t want to throw good money after bad.” FEMA Administrator Brock Long also emphasized the importance of meaningful building codes at the state and local levels, in addition to the federal government needing to reinstate flood risk standards and reform the National Flood Insurance Program.


New Reports Highlight Best Practices for Framing Affordable Housing 

In partnership with the FrameWorks Institute, Enterprise has released a pair of reports that outline a framing strategy to build public support for affordable housing. Together, these reports offer insights for talking about affordable housing as a community issue that demands attention without alienating potential allies. “Finding a Frame for Affordable Housing" is an evidence-based approach to countering NIMBYism and public misperception in debates about affordable housing. The companion paper, “Piecing it Together,” takes these findings and translates them into a playbook for advocates that provides specific recommendations about the “do’s and don’ts” of campaigning for affordable housing. These resources are designed to help advocates communicate how affordable housing is an issue of fairness and regional interdependence, showing how investments in affordable housing have positive impacts and long-term benefits for all community members.

JCHS Finds Housing Affordability Challenges at Various Rent and Income Levels

A new analysis by the Harvard Joint Center for Housing Studies (JCHS) highlights the far-reaching impacts of the nation’s housing affordability challenges, with renter households at both ends of the market struggling to find homes they can afford. A growing number of low-income renters are competing for a shrinking number of affordable units, while the rapid expansion in high-income renters is outnumbering the increase in high-rent units. JCHS points out that between 2006 and 2016, the number of renter households earning under $26,000 per year (in 2016 dollars) grew by 1.8 million, but the number of rental units that would be affordable to these households at 30 percent of their income dropped by 500,000. JCHS also explains that although the number of units renting for $2,000 or more grew by 1.65 million between 2006 and 2016, that fell far short of the 2.9 million increase in high-income renter households.

Research Shows That Rapid Re-Housing Improves Lives and Reduces Costs

The Urban Institute recently released a literature review highlighting rapid re-housing (RRH) as an effective and cost-efficient way to reduce children’s homelessness. The literature review, which incorporates Enterprise board member Megan Sandel’s research on the negative health effects of homelessness on children, shows that intervening on familial homelessness lowers short-term costs for municipalities while improving long-term outcomes for the families themselves. Families with access to RRH exited shelters on average two weeks sooner than those who were expected to stabilize their living situations with limited support. At the same time, the net cost of services for the families receiving RRH was actually $4,000 lower than for those who did not. This research reinforces the idea that smart investments in homelessness remediation programs are good policy, with tangible benefits for at-risk individuals as well as the communities in which they live.

Rent control is gaining support nationwide, and states including California, Oregon and Illinois are considering overturning laws that restrict rent control from being enacted locally. The Brookings Institute investigated the economic effects of rent control and found that rent control may be effective in lowering rent costs in the short-term, but can often restrict the long-term supply of rental housing by disincentivizing landlords from putting units on the market. The author characterized this effect as a transfer between future renters — who pay higher rents due to reduced supply — and those living in the cities when the ordinances first take effect. Rent control is popular among many advocates, but its unintended consequences may indicate that other methods of improving housing affordability have better prospects for success.


Policymakers and Constituents Disagree on Causes of, Solutions to High Housing Costs

According to a new poll from U.S.C Dornsife and the L.A. Times, California policy-makers and their constituents don’t agree on how to address rapidly rising prices. While both gubernatorial candidates running in this November’s general election have expressed a commitment to increasing the supply of housing by setting ambitious housing production goals, only 13 percent of the poll’s respondents identified “too little homebuilding” as the primary driver of unaffordability. Additionally, some of the solutions considered by the state legislature — including a failed bid to relax local zoning restrictions — do not match the public’s perception that municipalities should retain local control. Instead, respondents identified a lack of rent control (28 percent) and lack of funding for low-income housing (24 percent) as the top two causes of high housing costs. Any attempt to tackle housing affordability will need considerable public buy-in, which will require either a shift in public opinion or a change in strategy by policymakers.


News Updates from Community Developments

In recent Community Developments, we highlighted the decline in U.S. housing starts in September, the launch of the “Humans of HUD” photoblog, which documents the journeys of people who benefit from the agency’s programs and services, and much more. Sign up to receive the Community Developments newsletter.


Upcoming hearings and Marks-Ups

Congress is in recess until after the November midterm elections. There are no affordable housing or community development-related hearings scheduled at this time.

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