Urban-Aid Bill May Restore Housing Credit

Senator Danforth says tax break creates 120,000 rental units a year. POVERTY POLICY

THE low-income housing tax credit, a federal tax measure that has created 420,000 homes for low-income families, expired Tuesday without being renewed by Congress.

"Without the tax credit, we believe that there would be virtually no rental units being produced right now for under $450 per month," says Eric Belsky, an economist with the National Association of Home Builders (NAHB) in Washington. "It has become nearly impossible for the private market to produce rental units available to families with low incomes without some kind of compensating tax incentive."

Tax credits have been responsible for 95 percent of all new multifamily low-income housing since 1987, according to Sen. John Danforth (R) of Missouri, a principal sponsor of legislation that would make the credit a permanent tax-code fixture.

After the riots in Los Angeles, Congress has spent two months wrangling over various measures, including the low-income tax credit, that could help prop up inner-city neighborhoods.

The credit has been extended several times since its establishment in the Tax Reform Act of 1986. The House Ways and Means Committee voted last week to include the tax credit in its urban-aid bill, but on Tuesday House leaders postponed a scheduled vote. The Senate may act on its own bill later this month.

The tax credit encourages individuals and corporations to build new units or renovate derelict properties. These must be rented to low-income tenants at restricted rents for 15 years.

The credit, projected to cost the government $2.4 billion between 1992 and 1997, is currently responsible for the production of 120,000 units of housing a year, Senator Danforth says. In this fiscal year, all other federal programs designed to assist low-income families will produce less than 40,000 new units of housing nationwide, the NAHB says.

EACH year about 220,000 units of low-income housing (renting for less than $450 a month) are lost due to factors such as rent upgrades, abandonment, and demolition, according to the American Housing Survey for 1989, conducted by the Census Bureau for the Department of Housing and Urban Development (HUD). The survey also notes that by 1989 there were 2.2 million fewer units renting for under $350 a month than in 1985.

"Often units have not been upgraded in any way in terms of their structural adequacy, or their quality, but their rents have been increased so that they are no longer affordable," says Belsky.

One HUD study showed that about 5.4 million low-income households spend more than half of their incomes on housing.

If Congress acts to extend the tax credit or make it permanent, the NAHB estimates that 620,000 units will remain accessible to low-income renters and 640,000 new units will be built in the next decade.

Changes in the 1986 tax law and the recent recession have damaged the multifamily housing industry. Between 1985 and 1991, housing starts for multifamily dwellings in all price ranges fell by 74 percent - from 669,000 to 174,000.

"The low-income housing tax credit is effective as far as it goes," says Michael Shea, national housing director for the Association of Community Organizations for Reform Now, an advocacy group. "The problem is that an incredible amount of money out of those deals goes to tax lawyers. But it is the only iron in the pot right now."

Addressing the Senate, Danforth asked: "What does it mean to the country if we let these provisions lapse? For low-income Americans it will mean the elimination of their best chance for a decent place to live.... Moreover, the unprecedented private-sector investment in low-income housing that the credit has fostered will dry up."

Developers are finding that investor confidence has been shaken. "When I present a project to an investor, I have to tell them that there is no guarantee that tax credit will be there in the future," says Carol Corey, of Foursquare Productions, a low-income housing developer in St. Louis.

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