Congress Can Protect 60,000 Section 8 Units with Simple Tax Change

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An outmoded prohibition on the use of low income housing tax credits in properties with Section 8 Moderate Rehabilitation (“Mod Rehab”) contracts jeopardizes the preservation of nearly 60,000 affordable apartments that are home to very low income seniors and working families. Housing organizations seeking to preserve these apartments are being pressured to opt-out of the Mod Rehab contract in order to pursue tax credit equity that is badly needed to finance essential physical improvements. Without the deep subsidy provided by the project-based rental assistance contract, it becomes nearly impossible to ensure these apartments remain affordable to very low income families.

Congress could easily solve this problem by repealing the prohibition. Bipartisan legislation introduced last Congress would do just that. H.R. 4873, introduced by Rep. Jim Ramstad (R-MN) and co-sponsored by 39 members of Congress, would eliminate the ban as well as make other improvements to the low income housing tax credit program. This technical fix would come at no additional cost to the federal government.

The Section 8 Mod Rehab program was developed to provide financial assistance to owners of deteriorating low income rental properties so they could make needed restorations. HUD guaranteed rental subsidies through 15-year contracts to property owners if they agreed to rehabilitate their property. More and more of these contracts will be expiring in the coming years and most of these properties have not been renovated since the Mod Rehab contract began. 

If H.R. 4873 becomes law, properties such as R Street Apartments, a Section 8 Mod Rehab property in Washington, D.C., could remain affordable to very low income families while receiving the required rehabilitation.  Built in 1912, R Street Apartments is located in a rapidly changing D.C. neighborhood where condominium conversions have become commonplace. Under the Mod Rehab contract, tenants pay no more than 30 percent of their income on rent.  

The National Housing Trust Enterprise Preservation Corporation is developing plans to preserve the property’s affordability while making much needed improvements, including adding handicap accessibility, replacing the roof, and updating the heating and air conditioning systems. The property last received substantial renovations in the mid-1980s.

To make the financing work, NHT/Enterprise must pursue 4 percent low income housing tax credits; a critical source of financing for the needed renovations. Under current law, NHT/Enterprise would have no choice but to opt-out of the Mod Rehab contract because of the prohibition. What does this mean for the families who are currently receiving rental assistance?  IF NHT/Enterprise can’t convince the housing authority to “project base” vouchers, the current tenants will receive enhanced vouchers. They may remain in their units and still pay 30 percent of their income on rent, but as tenants move out, the units will no longer necessarily be affordable to very low income families. The result is a permanent loss of housing affordable to the poorest renters in the community.