Is the Neighborhood Homes Investment Act an actual legislative proposal?
It has been introduced in the U.S. Senate by Senators Ben Cardin and Todd Young and in the U.S. House of Representatives by Mike Kelly (R-PA) and Brian Higgins (D-NY)
Click here to view the text of S. 657 and HR. 3940
Click here to view the changes from previous bills
What specific problem will the Neighborhood Homes Investment Act address?
Across the country, thousands of once-thriving urban and rural communities now struggle with stagnating or distressed neighborhoods and low homeownership rates. In many of these communities, single-family homes comprise most of the housing stock and many of these homes need substantial rehabilitation or replacement. Dilapidated homes have been abandoned, undermining neighborhood stability and the local tax base. At the same time, a shortage of starter homes in good condition is thwarting the American dream of homeownership, as well as the primary means of building wealth and financial security. The dilemma is that these neighborhoods cannot retain or attract working families without quality homes, but property values there are too low to support the cost of building or substantially rehabilitating quality homes.
The Neighborhood Homes Investment Act is a federal proposal to break this stalemate. Neighborhood Homes would offer tax credits to attract private investment for building and rehabilitating owner-occupied homes, creating a pathway to neighborhood stability through sustainable homeownership.
Click here to download an executive summary of the Neighborhood Homes proposal
Do federal financing sources already exist to help with these issues?
In short, no— and that’s why Neighborhood Homes is so critically important. The Neighborhood Homes builds on the success of the Low Income Housing Tax Credit (LIHTC) for affordable rental housing and New Markets Tax Credit (NMTC) for economic development. Like LIHTC and NMTC, the Neighborhood Homes harnesses the creativity and discipline of the private market, but it addresses a specific purpose – developing owner-occupied homes – that LIHTC and NMTC cannot.
The goal of the Neighborhood Homes Investment Act is to create a financing tool for single-family housing, as powerful as Low-Income Housing Tax Credit (LIHTC), to help transform neighborhoods across the country. This new financing tool will not only drive much needed resources to investment-starved communities, but it will also enlarge and elevate the nascent affordable, single-family housing development industry that was catalyzed by events like Hurricane Katrina and the mortgage foreclosure crisis.
Since the creation of the LIHTC in 1986, the community development movement has concentrated the bulk of its resources (political power, talent, and funds) on multi-family, low-income rental housing. LIHTC was an easy fit with the thousands of empty, hulking apartment buildings that dominated the urban landscape at that time. When community development corporations and investors realized that thousands of new and rehabbed units could be entirely financed through this reliable and reoccurring program, much of the community development movement began to shift toward low-income rental housing production.
In under a decade, LIHTC became the most productive affordable housing finance tool in urban America. To date, LIHTC has created 2.5 million affordable rental units, and the program accounts for the vast majority (approximately 90 percent) of all new affordable rental housing built in the US today. A vast ecosystem of lenders, syndicators, designers, lawyers, and builders has developed to facilitate this program which consistently receives bipartisan support at the local, state and national levels.
CLICK here to See how Neighborhood Homes compares with other housing tax credit programs (e.g., LIHTC and NMTC)
How would the Neighborhood Homes Investment Act work?
States would allocate and administer the Neighborhood Homes, as they currently do for rental housing with LIHTC. The process would start with states writing plans for allocating their Neighborhood Homes tax credits based on set criteria, including the prospect that a proposed project will contribute to neighborhood stabilization and revitalization, and the strength of project sponsors. States could also add their own allocation criteria. States would then select Neighborhood Homes project sponsors (e.g., developers, investors, lenders, local governments) through a competitive process.
Sponsors would use the tax credits to raise equity capital from investors and oversee the development and marketing of the homes. Investors – not the federal government – would assume construction and marketing risk. Investors would receive tax credits only after the construction or rehabilitation work is completed and the property is occupied by an eligible homeowner.
Tax credits will provide a powerful incentive for the private sector to build and rehabilitate homes to lift up struggling neighborhoods. Unlike a grant program, the Neighborhood Homes tax credit would pay only for “success” because the credit is only applied after construction is completed and a qualified homeowner occupies the house. In addition, the Neighborhood Homes tax credit will fill only the actual value gap, as determined by the market. If a home sells for more than the cost of the development, no tax credits will be used. The private sector shoulders the key risks, such as the possibility that project does not get completed or a qualified homeowner does not purchase it.