The future of a sweet tax break for NJ affordable housing rests with Trump, next Congress

New Jersey’s ambitious plans to build tens of thousands of new affordable homes over the next decade could be impacted by what incoming President-elect Donald Trump and the Republican-led Congress decide to do about a popular federal tax credit program that’s helped drive low income housing development in the state for decades.

In October, New Jersey officials announced requirements for over 500 suburban New Jersey towns to build a total of 84,000 new affordable housing units by 2035, all part of a statewide mandate that says every town needs to contribute its fair share of affordable housing.

It’s a formidable task, especially considering challenges like a lack of developable land in many places, as well as stubbornly high construction costs for builders due to inflation and other economic factors.

One way real estate developers and state and local officials are tackling their requirements is by utilizing an enticing federal tax credit program known as the Low Income Housing Tax Credit program, or LIHTC for short and often pronounced “LIE-TECH.”

When Trump takes office, he will be afforded an opportunity to address the future of the program, when he proposes a new tax plan to replace the 2017 tax law passed by Congress during his first term.

Trump and GOP leadership have expressed concern about the national deficit and promised to slash government spending, including in the housing sector. And some on the right have called for full repeal of the low-income housing tax credit program to raise revenue.

This is actually the most successful public-private partnership in U.S. history.

Melanie Walter, head of the New Jersey Housing Mortgage and Finance Agency

But the tax credits have created a rare alignment in today’s polarized political climate between some conservatives and social and racial justice activists aiming to create more affordable housing. The program enjoys bipartisan support, and some observers think Trump and the Republican majority in Congress will continue the program as is – or possibly expand it.

However, if the program is targeted by budget-cutters, low income housing advocates have already said they’ll put up a fight to keep it. National Low Income Housing Coalition CEO Diane Yentel said in a statement after the election they and their partners are prepared to lobby Congress against any new Trump housing measures that “undermine housing justice, exacerbate racial and social inequities, and worsen America’s housing and homelessness crisis.”

Origins in the ‘Reagan revolution’

The Low Income Housing Tax Credit program has been around since the “Reagan revolution” of the1980s. The program helped move the United States ever further away from a model going back to the New Deal era where local public housing agencies – typically referred to as housing authorities – were the builders and operators of low income housing.

“As part of that the federal government pivoted toward incentivizing the private sector to develop and operate affordable housing,” said Mark Mcbride, who retired three years ago from TD Bank, where he served as an investment officer specializing in underwriting and investing in low income housing tax credit projects.

Melanie Walter, the head of the New Jersey Housing Mortgage and Finance Agency, said the low income housing tax credit program has helped fund the creation of 70,000 new apartments in the state over the last four decades.

In the past nine years alone, she said, New Jersey has completed 25,000 new apartments under the program.

Recently, Low Income Housing Tax Credit breaks have helped developers break ground on ambitious projects in some of the state’s most underserved areas in cities such as Newark and Irvington.

“This is actually the most successful public-private partnership in U.S. history in terms of the amount of private investment generated,” Walter said.

Developers can apply for two different types of tax credits under the program, one that only covers about 30% of their costs and another that could cover nearly all costs but is much harder to qualify for.

If awarded the credits, developers pass them along to investors in exchange for the capital they need to build. Investors use the credits to reduce their tax bill.

While the federal government is not directly financing and managing the development of low income housing under this model, they are indirectly helping to pay for its construction.

And by allowing investors to lower their tax bill, the government is forgoing tax revenue that could help reduce the country’s increasingly sizable deficit. In 2020, independent tax research nonprofit TaxFoundation.org found that on average the program costs the U.S. government $9 billion annually in lost tax revenue.