Letter to Janet Yellen, US Secretary of the Treasury; and Charles P. Rettig, Commissioner of the Internal Revenue Service - Bennet, Young Lead Bipartisan, Bicameral Letter Urging Treasury, IRS to Swiftly Finalize Rule to Support Expansion of Affordable Housing

Letter

Dear Secretary Yellen and Commissioner Rettig:

We write regarding the average income minimum set-aside test under the Low-Income Housing Tax Credit (LIHTC) program. We urge you to expedite release of a final rule that ensures the average income test is workable and responsive to feedback on the Internal Revenue Service's (IRS) October 30, 2020 proposed rule.

Americans are facing a severe housing supply and affordability crisis. The United States had a shortage of nearly 4 million homes at the end of 2020, 1and in recent years there were fewer than 60 affordable and available units for every 100 renter households with very low income nationwide. 2Lack of supply is pushing prices to record levels for renters and prospective homeowners alike, with home prices rising 20 percent from 2021 to 2022 alone. 3Even before the pandemic and mounting inflation began affecting families' budgets, nearly 11 million households were spending more than half of their income on housing costs. 4

The LIHTC program is the most important federal tool for creating affordable housing, accounting for more than 90% of new affordable rental units built today. 5Since its inception in 6In 2018, 1986, the LIHTC program has financed more than 3.6 million affordable rental homes. Congress broadened the program, enabling LIHTC properties to serve households with incomes up to 80% of area median income (AMI)--the long-standing definition of "low income" in federal housing programs 7--as long as the average income for the property does not exceed 60% of AMI. 8This new average income test, which owners can choose instead of the two previously existing minimum set-aside elections, 9requires that at least 40% of housing units be rent-restricted and occupied by households whose incomes do not exceed the imputed income limitation designated by the owner.

While the average income test is intended to expand affordable housing to more families, stakeholders from across the affordable housing community have raised concerns that implementing IRS's proposed regulations 10 will be highly complex and risky compared to the LIHTC program's existing set-aside tests. In fact, since the publication of the proposed rule, few investors have been willing to invest in average income test properties due to the risk associated with that structure, contradicting congressional intent to broaden the program in this manner.

Moreover, the proposed rule also prohibits the owner from changing the designated imputed income limitation of an individual housing unit once made. Stakeholders have raised concerns that this prohibition not only stymies the practical implementation of the average income test, but also sets up the potential for conflict with federal fair housing and other anti-discrimination laws. It may also create problems for leveraging other federal subsidies alongside the LIHTC program, since these subsidies depend on the ability to redesignate units as needed based on the circumstances of the residents in the property.

During the comment period, stakeholders--including the state Housing Finance Agencies that administer the program, housing advocates, developers, and investors--overwhelmingly urged IRS to make its final rule more workable and consistent with the existing LIHTC program and with other resources used in affordable housing finance. 11 More recently, more than 30 of the most active LIHTC stakeholder groups sent IRS a joint letter offering their consensus position on how IRS could modify the proposed rule to address their concerns. 12

We are pleased by President Biden's May 16, 2022 announcement that IRS will finalize the income averaging rule no later than September 30, 2022. 13 Given the urgency and severity of our nation's affordable housing crisis, we respectfully ask you to meet or exceed this deadline while ensuring the final rule provides a workable solution that incents affordable housing production.

Thank you for your consideration of this request. We look forward to working with you to address the housing challenges facing American households.