GOP Tax Cuts: Good for Corporations, Bad for Affordable Housing

What’s good for corporations, it turns out, is bad for affordable housing. And in New York City, which currently has the highest number of homeless people, the highest rents, and the highest housing prices in its history, that is very bad news.

The Republican tax plan approved last month cut the top corporate tax rate from 35 to 21 percent, which has sharply diminished the value of long-standing tax credits that encouraged the private sector to invest in affordable housing, the New York Times reports. Those tax credits, established in the last federal tax overhaul in 1986, had grown into a $9 billion-a-year social program that funded the construction of some 3 million apartments for low-income residents nationwide. Since corporations are already enjoying such a sharp reduction in their taxes, they have less interest in the tax credits for affordable housing. So the Republican tax plan is expected to lead to a vast cutback in the construction of affordable housing units. 

“It’s the greatest shock to the affordable-housing system since the Great Recession,” says Michael Novogradac, managing partner of Novogradac & Company, a national accounting firm based in San Francisco. 

How great a shock? According to an analysis by Novogradac’s firm, the new tax law will reduce the growth of subsidized affordable housing by 235,000 units over the next decade, compounding the existing shortage, which is especially acute in San Francisco and New York. 

Unlike public-housing programs, which tended to expand under Democratic administrations and shrink under Republican ones – glaringly so under the Trump administration and its housing secretary, Ben Carson – tax credits proved enduring and politically popular. Conservatives saw the approach as the best of all possible worlds: a tax break that promoted the use of private markets to solve public problems. Liberals saw it as a way to direct federal money to local communities. Since 1987, it has funded construction and rehabilitation of about 30 percent of the nation’s 10 million affordable units. 

“It’s the most successful social program that nobody has heard of,” says David Erickson, director of community development at the Federal Reserve Bank of San Francisco. And now, in the interest of corporate profits, it’s on life support.