On December 21, 2020, Congress passed the Consolidated Appropriations Act, 2021, a year-end legislation package that includes a $1.4 trillion omnibus spending bill and a $900 billion COVID-19 relief bill. The bill is expected to be signed by the President later today.
This legislation provides substantial relief in light of the COVID-19 pandemic, including key provisions in support of affordable housing. Highlights include:
- Fixing the 4% low-income housing tax credit applicable percentage at a minimum of 4%;
- Providing $25 billion in direct emergency rental assistance; and
- Extending the current eviction moratorium.
Low-Income Housing Tax Credit – 4% Floor
The proposal to establish a 4% minimum rate for low-income housing tax credits (“LIHTC”) was included in the year-end legislation after years of advocacy by LIHTC stakeholders. A minimum 4% LIHTC applicable percentage will make more affordable housing developments financially feasible. In recent months, the variable “4%” applicable percentage rate has fallen to historic lows, now at 3.09%, as a result of cuts to the federal borrowing rate in response to the pandemic. It is estimated that nearly 126,000 additional affordable rental homes will be created or preserved over the next decade with the enactment of a minimum 4% LIHTC rate. This is an incredible achievement for the affordable housing community, and will enable the creation of much-needed affordable housing in the years to come.
Whether or not a project will benefit from the new fixed 4% rate is based on (1) when a building is placed in service and (2) depending on the type of financing for the project, when the tax-exempt bonds for the project are issued or when the LIHTC allocation year is. As to bond-financed projects, the fixed 4% rate is effective for a project building that is placed in service after December 31, 2020, and at least a portion of which is financed by tax-exempt bonds issued after December 31, 2020. As to projects that are not bond-financed, the fixed 4% rate is effective for an existing building that is placed in service after December 31, 2020, and receives an allocation from 2021 or a subsequent year LIHTC authority.
It is unclear whether drawdown, bond-financed projects that initially have one or more drawdowns on or before December 31, 2020, but then have one or more, additional drawdowns after December 31, 2020, are eligible to receive the fixed 4% rate. Further guidance from the IRS and/or Congress may be needed.
$25 Billion in Emergency Rental Assistance
The legislation also provides for $25 billion in rental assistance for states and localities through the Coronavirus Relief Fund – the first-ever emergency federal rental assistance program to be distributed by state and local governments. Under the legislation, each state would receive a minimum of $200 million to be used for emergency rental relief; $800 million is reserved for Native American housing entities. Households are eligible for assistance if the household income is below 80% of the area median income, and a member of the household has: qualified for unemployment benefits, lost part of their income or has experienced financial hardship because of COVID-19, or can show that they are at risk of losing their home. These families will be able to utilize this new rental assistance for past-due rent or future rent payments, as well as to pay utility and energy bills and prevent shutoffs.
Eviction Moratorium Extension
A one-month extension of the nationwide eviction moratorium is also included in the relief package, putting eviction protections in place through January 31, 2021. This extension provides essential and immediate protection for millions of renters on the verge of losing their homes in January; tenants in the U.S. owe an estimated $70 billion in back rent because of the pandemic. The moratorium does not relieve any obligation to pay rent, but provides temporary relief to families suffering financial uncertainty in the midst of the COVID-19 pandemic.
We will continue to monitor this and other legislation related to affordable housing, and will provide additional updates when guidance is announced.