(January 2019) For most folks, ringing in a new year usually involves reflecting on the previous twelve months and making new goals, and NCST is no different. Our team has spent a lot of time thinking about one of the key pieces of feedback we received last year around what we call the “value gap,” a situation that occurs when acquisition and rehab costs exceed the expected resale price.
NCST sees the value gap reflected in our REOMatch data, where buyers consistently reported that they turn down properties in their service areas because the cost of rehab and the low expected resale price would lead to a significant financial loss. Our Community Development Managers and Senior Asset Managers also hear this complaint from our buyers when they meet. With dim prospects for a new federal subsidy program like HUD’s Neighborhood Stabilization Program to plug the gap, we’ve been thinking about new ways that the federal government can provide assistance to the communities in which our buyers work.
The idea that we believe holds the most promise is the Neighborhood Homes Investment Act (NHIA), which NCST has drafted in coalition with a number of other organizations working to achieve similar goals. NHIA would create a single family tax credit designed to attract private capital for for-sale housing development by filling the value gap. This approach is similar to the very successful Low-Income Housing Tax Credit (LIHTC), which has financed over 3 million multifamily housing units since 1987, as well as the New Markets Tax Credit. The credit would target struggling housing markets and homeowners up to 140 percent of the area median income.
Under NHIA, states will allocate the credits based on competitive proposals from developers, as is the case for LIHTC, enabling the state to have control over where the credit is deployed. Once rehab is complete and the house is sold to a qualifying homeowner, investors receive their tax credit. Credits can also be allocated for repairing homes that are already owner-occupied.
Enacting the NHIA could add millions of dollars to a state’s ability to offer single-family home rehabilitation funding. Estimates show that each $1 billion in NHIA investment would lead to:
- 25,000 homes built or rehabilitated;
- over 33,000 jobs in construction and related industries; and
- $4.25 billion of total development activity.
A new Congress provides a fresh opportunity for us to secure bipartisan support and introduce this legislation. However, to give this idea its best shot, we will need to make an evidence-based case for its enactment, which is where NCST’s community buyers come in.
In the coming months, we will be updating the reporting fields in REOMatch to enable our buyers to enter in more specific information about the value gaps that they encounter, which will provide us with the kind of data we need to tailor our Hill briefing materials for different geographic areas. We will also use the existing REOMatch data to identify buyers who have repeatedly reported value gap challenges, and will reach out to them to learn more about their experiences.
Detailed information about the NHIA bill can be found at www.neighborhoodhomesinvestmentact.org, where you can also see a list of coalition members (and join the coalition if you’d like).
As always, we welcome feedback and comments from all of our buyers. If you have information you would like to share about the issues you have faced with the value gap, please contact me at firstname.lastname@example.org. Cheers, and best wishes to all for a productive 2019!
Theo Chang serves as a Senior Policy Associate for NCST.