Do Tax Credits Fit the New Affordable Housing Needs of Seniors?

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May 22, 2016; HousingWire

There are three “givens” in the affordable housing business. One is that seniors hate vouchers. Another is that seniors want to be in segregated settings. The last is that the Low Income Housing Tax Credit (LIHTC) program is the cheapest way to build new housing. Wrap them all together and you have the essence of a new report by the Bipartisan Policy Center, entitled “Healthy Aging Begins at Home.”

In a companion article in HousingWire, “Former HUD secretaries: America’s elderly desperately need more affordable housing,” Secretaries Cisneros and Martinez describe the need for new affordable housing opportunities for today’s aging Boomers. The premise of the report is that rapid growth in the “senior” demographic will create a high demand for affordable rental units:

Unfortunately, millions of Americans will find they lack enough savings to fund their retirements. Some will struggle to afford their housing, while others will find their housing is ill suited for living independently. Many will eventually need help with the “activities of daily living,” like eating, bathing, and dressing, assistance that can be both costly and taxing on other family members. Most older Americans will suffer from at least one chronic condition.

Does it “follow” that expanding the Low Income Housing Tax Credit (LIHTC) program is the answer? The former secretaries are emphatic supporters. “To help close the supply gap, we should expand federal support for one of the most effective tools in our toolkit, the Low-Income Housing Tax Credit. This 30-year-old program has encouraged $100 billion in private investment that has helped finance the construction and preservation of more than 2.8 million affordable rental homes.”

In fact, the LIHTC is a perfect opportunity for housing developers. By permitting wealthy investors a tax break for investing in “affordable” housing, developers agree to cap rents for 15-30 years. With Boomer seniors as a target audience, after 15 years, developers can either maintain age- and income-restricted units for another 15 years, convert to general purpose rental housing if the Boomer bubble abates, or convert to assisted living or long-term care for a smaller, more service-dependent demographic of “older” seniors. All financed by “tax expenditures” and maybe some additional rental subsidies.

Here are a couple of the “public interest” questions that the two secretaries don’t address.

  • Will these Boomer senior developments be designed to serve the Very Low Income (30 percent of a community’s area median income, or AMI) or will they skew to the upper income demographic at 60–80 percent AMI? Secretaries Cisneros and Martinez give a “tell” when they describe the HUD 202 program, which has been the mainstay of “senior housing” production: “While continued funding at adequate levels for rental assistance and service coordination in existing Section 202 properties is critical, we think it is time to create and fund a new federal program for senior supportive housing, one that uses project-based rental assistance and the LIHTC to finance new construction and attract funding from health care programs.”
  • Will these “affordable” senior developments be socially integrated, or will they be located in suburban enclaves where minorities and really-low-income people rarely travel? The former Secretaries say that Section 202 lacks funding for “new construction” but fail to mention that Section 202 programs are being redesigned to avoid the concentrations of seniors in a single location. The Secretaries seem to want 202 funds to preserve the “old” senior buildings and new private investment with public subsidies and less regulation for the “new” seniors.

Do today’s seniors really want to live in age-segregated developments with integrated health and social-services services? Maybe not. Next City offers a different vision for the aging Boomer demographic in a story entitled “10 Ways to Create a New Urban Agenda That Includes Older People.” Here’s a real mission, not just a business opportunity. “This year’s Habitat III conference in Quito, Ecuador, provides a unique opportunity to ensure that our growing cities respond to aging urban populations with perspectives and policies that can build inclusive, sustainable, secure and prosperous communities for all.”

Finally, it’s cute that the Mr. Cisneros and Mr. Martinez in their policy recommendations are playing off their “public service” credentials instead of their current vocational interests as “executive chairman of the CityView companies, which work with urban homebuilders to create homes priced within the range of average families” and “chairman of the Southeast U.S. and Latin America for JP Morgan Chase & Co.,” respectively. It is probably fair to note that both were elected officials before coming to HUD, and neither was “a housing guy” before being elected to public office.

Next City has a different set of suggestions for “what seniors want.”—Spencer Wells