The Trump administration's plan to cut corporate taxes might be good for multinational businesses but it already is wreaking havoc on affordable housing developers who raise money for their projects through the sale of tax credits that companies use to reduce how much they owe Uncle Sam.
The upshot is that New York City affordable housing projects are facing multimillion-dollar financing shortfalls.
"I've got to figure out how I'm going to fill that gap," said Donald Capoccia, principal of Brooklyn-based BFC Partners. A $10 million financing shortfall has opened for an unspecified $90 million affordable housing development that the firm is expecting to close this year.
What has happened is that the value of federal tax credits, which investors such as large banks purchase to lower their annual federal tax bill, has dropped since Donald Trump's election on speculation that corporations won't need as many of them because their tax bills will be lower in the coming years. Low-Income Housing Tax Credits in particular are allocated by the city and state, and the profits generated are pumped into affordable housing projects as equity.
Each credit allows a company to knock $1 off of its tax bill. Lately, investors have been paying up to roughly $1.20 for a single credit in New York City. But because the incoming Trump administration has said it wants to lower the tax burden for corporations, that price has already dropped by 10 cents, with further declines expected.
"When you lower the corporate tax rate, the appetite for tax credits suffers," noted Joseph Lynch, a managing partner at law firm Nixon Peabody.
n New York City, cash from the sales of tax credits can make up from a third to half of an affordable housing project's financing—which is why minor fluctuations in the market can have big consequences for developers and the city's capital budget. Capoccia's project was supposed to receive $50 million in equity from tax credits but likely will get $40 million instead.
The market for tax credits has been strong for roughly the last decade. And although lower corporate taxes certainly would blunt demand, Lynch said he doesn't expect the market to disappear. The federal Community Reinvestment Act encourages large banks to invest in affordable housing. How? By buying affordable housing tax credits.