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Massachusetts should use more volume cap bonds for housing

Lack of affordable rental housing is one of the biggest issues facing the Commonwealth today.  Mayor Walsh has estimated that in Boston alone accommodating growth and stabilizing the housing market will require the creation of 53,000 new units of housing by 2030, a 20 percent increase in the housing stock.  The low rate of housing production, increasing rents, and the loss of affordable housing through the “expiration” of rental subsidy programs have all combined to create a severe housing shortage.

In March, the Special Senate Committee on Housing created by Senate President Stan Rosenberg and chaired by Senator Linda Dorcena Forry issued a report, “Facing Massachusetts’ Housing Crisis” noting “housing production is an economic imperative for the Commonwealth” and putting forward 19 proposals to address this crisis. 

There’s an additional step to substantially increase housing investment: the Commonwealth can maximize benefits from tax exempt bonds by using these bonds exclusively for multifamily housing which garners significant additional federal resources through the federal Low Income Housing Tax Credit (LIHTC).  These tax exempt private activity bonds are issued each year subject to an overall volume cap allocated to each state under the Internal Revenue Code.  Each state decides how to allocate its volume cap. In 2016, Massachusetts has a total volume cap allocation of $675 million for multifamily affordable rental housing, student loans, industrial development, and single family housing.

While all of the permitted uses benefit from lower, tax exempt interest rates, only projects using multi-family housing bonds receive significant additional federal resources through the LIHTC program.  LIHTCs, purchased by investors in affordable multi-family housing, has leveraged, on average, over $51 million in equity for each $100 million in affordable multi-family housing bonds issued in recent years.  While other uses benefit from the lower tax exempt interest rates, only the use of bonds for multifamily housing reaps additional benefits through LIHTC’s substantial infusion of equity.  This leveraging mechanism can finance new construction, rehabilitation, and preserve affordable rental housing while also generating business activity and local employment.

The numbers supporting the use of volume cap for multifamily affordable housing are compelling: by allocating all of the volume cap to multifamily housing, the Commonwealth would receive $168 million in additional federal financial benefits every year. 

We welcome the opportunity to work with the legislative leadership and the Baker Administration to explore creative approaches to maximize the use of private activity volume cap for multi-family housing that qualifies for LIHTC while protecting the other important uses.  Legislative appropriations directly supporting the other uses of volume cap should be considered.  Alternatively, a fee on multi-family housing bonds could be charged with the fee being used to provide a subsidy of student loans, industrial development bonds and single family loans.  The current case for a smarter use of tax exempt volume cap is clear.  We are excited about the possibility to preserve and increase affordable rental housing in Massachusetts through  maximizing the benefits from tax exempt bonds.

First published in the Boston Business Journal's "ViewPoint" column entitled, "New Housing Resources Generated Through Bonds" on April 29, 2016.  (Subscription required)

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