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FREOPP SFC Letter_Housing Hearing 7.20.22.pdf

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August 4, 2022
Dear Chairman Wyden, Ranking Member Crapo, Senator Cardin and
Senator Thune:
Thank you for holding a hearin...

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FREOPP • 201 West Fifth Street • Suite 1100 • Austin, Texas 78701-0060
First, the government should experiment with granti...

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FREOPP • 201 West Fifth Street • Suite 1100 • Austin, Texas 78701-0060
We would appreciate the opportunity to speak with y...
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FREOPP SFC Letter_Housing Hearing 7.20.22.pdf

  1. 1. August 4, 2022 Dear Chairman Wyden, Ranking Member Crapo, Senator Cardin and Senator Thune: Thank you for holding a hearing on using tax incentives as a tool to support the creation of more housing on Wednesday, July 20, 2022. The mission of the Foundation for Equal Opportunity (FREOPP) is to expand economic opportunity for families who earn less than 50 percent of the median income or wealth level and who find themselves struggling to make ends meet. The greatest hazard for these families as they manage housing costs is inflation. Barriers to housing production is among the chief drivers of inflation in the face of rising demand. Tax incentives can support the creation of more housing opportunities for families. Tax incentives are an excellent way of allowing for public investment in the private development of subsidized housing. However, when incentive programs become too complicated and inefficient, they no longer function as an incentive. The Low-Income Housing Tax Credit Program (LIHTC) is ripe for reform. As Lee E. Ohanian from the Hoover Institute pointed out, some of these projects cost as much as $1.3 million per unit. This is shocking. He also pointed out that for every additional lender in a LIHTC project, per unit costs can increase by as much as $6,400 per unit. In addition to removing costly regulatory barriers, FREOPP has two ideas to simplify the program. BOARD OF DIRECTORS Ames Brown Capital Counsel Mgmt. Jonathan Bush Chairman, FREOPP Firefly Health Lanhee Chen Hoover Institution Michael Miltenberger Advent International Vivek Ramaswamy Strive Capital Avik Roy President, FREOPP BOARD OF ADVISORS Kristen Soltis Anderson Echelon Insights Evan Baehr Learn Capital Carlos Carvalho University of Texas Emily Ekins Cato Institute Juleanna Glover Ridgely Walsh Erica Grieder Houston Chronicle Garrett Johnson Lincoln Network Margaret Hoover PBS’ Firing Line Zachary Karabell River Twice Capital Bob Kocher Venrock & Stanford University Joe Lonsdale 8VC Marty Makary Johns Hopkins University Byron Sanders Big Thought Scott Winship American Enterprise Institute
  2. 2. FREOPP • 201 West Fifth Street • Suite 1100 • Austin, Texas 78701-0060 First, the government should experiment with granting tax incentives directly to market- rate developers who agree to restrict rents on a percentage of the multifamily housing units they create. If a developer is building 100 units of housing, and she sets aside 20 of those units to be rented for a price that is affordable for people earning 60 percent of Area Median Income (AMI), she would qualify for a reduction in federal income taxes. Currently, programs like Seattle’s Multifamily Tax Exemption (MFTE) Program work just like this, offering property tax reduction for private, for-profit projects that lower rents in 20 percent of the units. Over the last decade, this program has created over 7,000 rent- restricted units. This approach to supporting lower rents would take advantage of ongoing development and would encourage local governments to reduce or eliminate barriers to the construction of market-rate housing. Programs with direct incentives would create rent restricted housing without the costs of the purchase of land, financing, construction, and operations. The public would pay a minimum for maximum benefit: reduced rents in regular market- rate housing projects. Most importantly, this approach would deliver the most value quickly to people who need housing and enable them to live alongside people with median and higher incomes in desirable and walkable neighborhoods. Finally, using tax credits this way would allow non-profits to aim more of their resources toward people with extremely low incomes who also face other challenges like mental illness and addiction. Second, we support more direct cash support for housing, including tax credits for families. Senator Wyden’s Middle Income Housing Tax Credit is a great idea and should be expanded to families who rent housing. The proposal should include an option for allowing families to apply a tax credit in the amount of their rent toward their income taxes. In many cases, this would end up resulting in negative taxation, a direct cash benefit for these families to pay other expenses like education, child care, and health care. While this is inflationary, the advantage of its immediacy for families offsets the downsides. More direct assistance means fewer costs to build new LIHTC housing which means less money being spent there. Taken together, these two ideas could motivate local governments to remove costly regulation. When private market-rate housing is built, it would come with a significant number of rent-restricted units. Offsets like tax credit for rent would allow existing renters to benefit from tax incentives as well and allow them to realize those savings immediately. Tax incentives that are fast and efficient avoid the high costs of land, construction, financing, and operations currently associated with LIHTC projects. Additionally, tax incentives would enable local housing organizations to focus on people and households who earn extremely low or no incomes. Lastly, we support what Senator Sherrod Brown mentioned, conditioning housing and other federal funding on tangible and measurable reductions in local regulations that limit housing production. While the federal government cannot abrogate state and local land use regulations, the executive and legislative branches at the federal level can drive innovation at the local level with federal funding.
  3. 3. FREOPP • 201 West Fifth Street • Suite 1100 • Austin, Texas 78701-0060 We would appreciate the opportunity to speak with you further about these ideas as you consider how to implement tax incentives for housing. Sincerely, Roger Valdez Research Fellow FREOPP

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