Why It Matters: The annual federal spending bill funds several federal departments, agencies and programs that directly impact the multifamily industry, including HUD’s multifamily program, Section 8, flood insurance and more. This year’s bill also includes a historic provision to help overcome NIMBY-opposition to new housing development. Importantly, it does not include several provisions objected to by NMHC and NAA.
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The bill includes $85 million for a new HUD “Yes In My Backyard” incentive program advocated by NMHC/NAA to help localities eliminate exclusionary policies, zoning and density restrictions, onerous parking requirements and other regulations. The grant program will help fund efforts by local communities to update their zoning codes and community engagement to remove obstacles to affordable housing production and preservation.
The program is historic in that it’s the first federal YIMBY policy that will be enacted into law and has the potential to increase desperately needed housing supply while improving housing affordability for millions of American families.
- Low-Income Housing Tax Credit (LIHTC)
NMHC/NAA and a broader coalition strongly advocated for expanding the Low-Income Housing Tax Credit (LIHTC) until the last minute before the bill dropped. Our proposal would have increased the LIHTC by 50% or at least reinstated the 12.5% increase in credit authority available in 2018-2021 as adjusted for inflation.
It would also have maximized 4-percent LIHTCs by reducing the bond financing threshold for using existing private activity bond authority from 50 percent to 25 percent. The fact that both proposals have wide bipartisan support reflects the difficulty in securing tax provisions in this funding bill.
- Bonus Depreciation
The bill does not include an NMHC/NAA-sought proposal to extend the federal “bonus depreciation” law that allows apartment firms to immediately expense 100% of the costs of certain assets placed in buildings instead of depreciating them. As a result, the law’s original provisions dropping the amount that can be expensed to 80% in 2023 and an additional 20 percentage points each year thereafter remains in place.
- Interest Expensing: EBIT v. EBITDA
Beginning in 2022, a taxpayer’s deduction for interest expense is generally limited to 30 percent of EBIT (earnings before interest and taxes) versus 30 percent of EBITDA (earnings before interest, taxes, depreciation, and amortization). While multifamily taxpayers can elect out of the limitation on the deductibility of interest expense (and fully deduct business interest), maintaining interest expense at below 30 percent of the EBIT or EBITDA threshold enables buildings to be depreciated over 27.5 years as opposed to 30 years. An NMHC/NAA proposal to extend the EBITDA threshold instead of EBIT failed to make it into the package.
Despite last-minute lobbying by various organizations, including NMHC and NAA, no tax-related provisions, except retirement provisions, were included in the final bill. While that means some NMHC/NAA-sought provisions were not included, it also means the bill does not contain harmful revenue raisers long opposed by the industry, such as increasing ordinary income and capital gains tax rates, taxing carried interest as ordinary income and curtailing like-kind exchanges.
The bill includes a one-year reauthorization of the National Flood Insurance Program, a key industry priority. The reauthorization gives Congress time to work towards a longer-term reform package that NMHC and NAA have advocated for to help apartment owners and operators better mitigate the financial and operational risk posed by flooding events.
NMHC and NAA were among the many industries urging Congress to increase the overall number H-2B worker visas for construction employers and others to help address the labor shortage that is contributing to the industry’s inability to deliver the housing the nation needs. When negotiations for an overall increase failed, several organizations tried to negotiate a side deal to expand visas for certain workers, but not construction workers. We successfully blocked that effort citing the labor shortage contributing to the industry’s inability to deliver the housing the nation needs.
- A 32% increase in funding for the Community Development Block Grant and related economic and community development programs to $1.55 billion;
- $14.9 billion for Project-Based Rental Assistance, including an additional $1 billion for emergency funding;
- $1.5 billion for HOME, the same as in FY 2022; and
- $3.6 billion for Homeless Assistance Grants, $420 million above FY 2022.
The bill reauthorizes $58.2 billion for HUD programs including multifamily lending programs, rental assistance programs and grant programs. Notably, it increases funding for Section 8 Housing Choice vouchers by $130 million, enough to support 12,000 new vouchers.
Other funding includes:
The bill also includes troublesome fire alarm requirements in federally assisted housing that NMHC/NAA strongly opposed over questions about their cost-effectiveness and technical feasibility. However, they were added to the omnibus without going through the regular legislative process.
While we support the legislation’s goal, we are concerned that product limitations make it impossible to comply with the requirements. The bill also fails to provide a compliance pathway for existing buildings. Existing buildings need to use a 10-year battery in their alarms to address significant construction and cost concerns. They must also use alarms that meet new requirements for persons with hearing loss. No such product exists that meets both requirements. We are already working with lawmakers to seek changes required to make this bill effective.
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