Ben Carson is the presumptive new secretary of of Housing and Urban Development, the department that oversees and implements federal housing and urban policy. I asked GGWash contributors and local housing leaders to take stock of what that means for affordable housing options in the region, and it turns out Carson’s reach is unlikely to go that far. The Trump administration’s tax plan, however, is already doing damage.
Carson's lack of experience makes things uncertain, but we can bet on less funding for housing
Dr. Carson was a neurosurgeon, not a planner, bureaucrat, or housing expert. His non-existent resume on housing is a source of concern, and it prompts many, many questions.
Michelle Krocker, the Executive Director of the Northern Virginia Affordable Housing Alliance, names a few: “Does he have a sense of housing challenges in urban areas; rural areas? Will he be a champion for HUD's mission and the people it serves? Will he go to bat for HUD's budget on the Hill?”
While there is plenty to speculate about, there are a few predictions we can safely make, the biggest being that cuts cuts to federally supported housing programs are likely on the way. As a conservative, Carson is ideologically against large government spending, and has shown his disdain for housing programs that he sees as “social experiments,” Budget cuts look very likely.
A decrease in the flow of that federal money will have far reaching implications for any group that relies on it. Federal block grants go to local government housing agencies, and from there they’re distributed to support a variety of programs, including new construction, the preservation of existing affordable housing, housing support and education initiatives, and others.
This of course means that advocates are hurrying to pressure our region's jurisdictions to step up their local dollars that support housing programs. Michelle Winters, Executive Director of Alliance for Housing Solutions, explains what she hopes for in Arlington:
This means that local sources of funding – such as Arlington’s Affordable Housing Investment Fund – will be essential for filling gaps in affordable housing development and preservation budgets moving forward… The state can also help fill these gaps through allocations to the Virginia Housing Trust Fund and efforts to find dedicated sources of funding.
While it's true that decreased federal funding does not help many affordable housing agencies, many point out that HUD funding has been on a steady dive for years anyway. Carson-related cuts aren't exactly a reversal of the status quo.
Obama’s progress on desegregation policies will likely be rolled back
The Affirmative Furthering Fair Housing regulation (AFFH), is an old piece of legislation that has largely been ignored for decades. AFFH is part of the 1968 Fair Housing Act, and aimed to end housing segregation by requiring cities to root out and work against racial bias in their housing patterns. As part of its focus toward housing in recent years, the Obama administration has encouraged HUD to enforce AFFH. But secretary Carson is not likely to continue the push.
In fact, it’s one of the rare housing issues he has publicly made statements about, arguing that AFFH is a “government-engineered [attempt] to legislate racial equality” that can “create consequences that often make matters worse.”
While this is concerning for many, others, like David Meni, a member of GGWash’s editorial board and and a research assistant at George Washington University Institute of Public Policy, points out that the change won't be too dramatic:
[T]he enforcement of [AFFH] has and always will be weak, as long as HUD continues to be hamstrung as an agency… HUD's only means of enforcing AFFH is to say that if cities don't meet HUD's requirements, they'll pull federal funding.
So far, a number of cities and counties have said that AFFH isn't worth it and to keep your federal funds, thank you very much: Enforcement of AFFH will never have much teeth behind it as long as it's only about pulling funding, especially because HUD funding has been cut so much in the last few decades and will most likely continue to go down.
[C]ities that are doing this kind of fair housing work and see it as important will continue to do it, while cities that either don't want to bother or don't want to desegregate will continue to do that.
Carson will probably tow the Republican Party line on two issues: time limits for public housing tenants and deregulation
Another change that is probably imminent is placing time limits on residents for public housing. Right now residents of public housing are allowed to stay there indefinitely. Republicans and others have fought for changes to this system for years, so it would come as no surprise if Carson's HUD begins to make such changes.
Finally, a Republican administration is probably going to try to deregulate the housing market. HUD does not have a lot of authority over these issues, though, as Michelle Winters explains:
Republican administrations tend to focus on reducing regulatory barriers to affordable housing as a way to reduce housing costs and increase supply. Many regulations that impact housing costs come from the state and local levels, so HUD’s ability to directly influence these barriers from the federal level has been limited… It will be very interesting to see how Carson’s HUD approaches this issue.
The biggest change Carson might bring has do with tax credits, and this change is already happening
HUD does provide money to support affordable housing, but that’s not the only way groups get funding for their projects. Another key source of capital comes from the Low Income Housing Tax Credit (LIHTC) program. Groups that develop affordable housing receive these tax credits, which of course can save them money. But these development groups can also sell their credits to other entities.
A more concrete example of how LIHTCs work: If you are large corporation that owes a lot in taxes, you can buy these tax credits from an affordable housing development group, saving your corporation some money on taxes and giving the development team the resources it needs to build or support affordable housing.
This program is very widely used, and for that reason, David Meni suggests that a “bigger threat to affordable housing under the new administration actually doesn't come from HUD at all,” but instead comes from the tax changes the Trump administration is planning.
To start, David explains that since Trump plans to lower taxes on corporations, those corporations won’t have as much of an incentive to buy tax credits, taking away huge amounts of capital from affordable housing efforts:
This might seem counter-intuitive, but one of the largest federal affordable housing programs in the United States right now is the Low Income Housing Tax Credit (LIHTC). One of the biggest problems with LIHTC is that it only works when corporations have an income tax liability; [for example,] during recessions LIHTC activity takes a huge hit.
And now, with Trump promising huge cuts to corporate tax rates, LIHTC is under serious threat. Private investors don't want or need tax credits as much if their tax bill will be going down. Already, tax credits (which nonprofits that use LIHTC acquire and then sell to investors to gain equity) are selling for far less than they were a few months ago — and that's purely based on market speculation that corporate taxes will be cut.
So if we're being frank, because of the peculiarity of LIHTC, Trump's election has ALREADY reduced funding for affordable housing, without him or Carson even taking office, passing a rule, or adjusting a budget line item.
Michelle Krocker echoes concerns about the reduced value and use of tax credits, and calls for local jurisdictions to take up the slack:
[T]he tax credit program is governed by the IRS, and HUD has no oversight. However, the value of the credits could be (we are seeing it already) negatively impacted by potential tax reform. As the tax credits are the greatest source of equity for affordable rental housing development, state and local governments could be called upon to fill that gap in financing.
Big companies receiving tax breaks will affect affordable housing development. But companies aren't the only entities that buy up these tax credits. Payton Chung, an editorial board member and the Director of Case Studies and Publications at the Urban Land Institute, explains that banks buy them too:
The other big investors in LIHTC are big banks, who often buy them at a loss so that they can say that they're reinvesting in underserved communities (a requirement under the Community Reinvestment Act). But the incoming administration has indicated that they want to lift regulations on banks.
Again, this change in the regulatory and investment landscape makes LIHTC credits much less appealing and, as Payton explains, “severely cut[s] into capital for building affordable housing.”
Payton also confirms that the damage is already underway, saying that he talked with one subsidized housing developer “whose LIHTC credits are already worth 10% less than they were a few weeks ago.”
Just the promise of Trump tax breaks has already as caused the value of the LIHTC credits to plummet. With all of the uncertainty around Carson’s appointment, this is one change we can confirm today.