NCSHA, Other Stakeholders Support House Efforts to Preserve Affordability of Housing Credit Properties
This week, NCSHA and 28 other affordable housing stakeholder organizations wrote to House Ways and Means Committee Chairman Richard Neal (D-MA) thanking him for his leadership in protecting the long-term affordability of Housing Credit properties in reconciliation tax legislation the committee is finalizing today. In addition to its historic expansion of Housing Credit authority, the bill would close the Housing Credit “qualified contract” loophole and strengthen the ability of mission-driven Housing Credit project sponsors to maintain control of properties when challenged by real estate firms whose interests may undermine the properties’ rent-restricted affordability in the future.
These provisions are aimed at stemming premature losses of Housing Credit properties from rent-restricted affordability years before the statute intended. Each provision more than pays for itself from a federal revenue perspective, helping to offset the overall cost of the legislation, according to the Joint Committee on Taxation.
Under current law, an owner of a Housing Credit property, as early as 14 years after the property is placed in service, may request that the state Housing Credit agency find a buyer willing to pay “the qualified contract price” for the property. The price, set by a statutory formula, typically exceeds the market value of the property as affordable housing. It is rare for the state agency to find a willing buyer at that price, and as a result, the owner is allowed to sell the property without any affordability restrictions or to raise rents on current tenants after three years.
The Ways and Means reconciliation bill would repeal the qualified contract option as an early opt-out for newly financed properties and correct the statutory price for purchase of existing properties so that it is based on the fair market value of the property as affordable housing.
Nonprofit Right of First Refusal
Under current law, mission-driven nonprofit sponsors of Housing Credit properties have the “right of first refusal” (ROFR) to acquire Housing Credit properties. In recent years, some real estate firms, often not the original Housing Credit investors, have challenged sponsor ROFRs in court in efforts to gain control of properties and the associated partnership interests.
The Ways and Means reconciliation bill as currently drafted would change the ROFR to a simple purchase option for newly financed properties. It would also clarify that, for existing properties, the ROFR applies to all partnership interests, including assets relating to the building such as reserve funds, and that the nonprofit may exercise its ROFR with or without the approval of the limited partner and in response to any offer, including an offer by a related party.
