Affordable housing tax credit draws ardent debate

Some lawmakers and housing advocates fear two bills proposing a state low income housing tax credit program are the wrong response to the mounting issue of housing affordability in Arizona.

The program, currently operated in Arizona from the federal level, offers tax credits against insurance premium taxes and corporate income taxes to developers of qualified affordable housing projects.

The bills, introduced by Rep. Regina Cobb, R-Kingman, and Sen. David Gowan, R-Sierra Vista, would allocate $8 million over six years to a state tax credit program. About 20 other states have enacted or proposed similar programs.

“We are already behind in what affordable housing is doing in the west side of the United States, so right now we need, I think, a little catch up time to do,” Cobb said. “I think if we don’t do some type of affordable housing tax credit … I think we need to start someplace and start working towards putting money into that.” 

Cobb said the most financially insecure people are at the greatest disadvantage when it comes to finding affordable housing because the market is controlling rent prices. According to a Yardi Matrix report, year-over-year rent growth in Phoenix was at 4.3% in January — the fourth-highest rate in the nation.

Regina Cobb

“The market is pretty high right now for what a rental unit is, especially in the downtown Phoenix area,” she said. “Some of the really condensed metropolitan areas, I think the housing is pretty high, so I think you’ll see a lot more homeless people.”

Gibson McKay, who spoke on behalf of Affordable Equity Partners at a House Appropriations Committee meeting February 3, said a state low income housing program could generate 2,500 jobs per year and $740 million in wages in the state.

“What we say is that it’s about $480 million in tax revenue will be generated over the course of this so we think it’s a push, but it brings about 12,000 units to the state of Arizona,” McKay said.

Realtor.com’s 2021 Housing Forecast predicts home sales in the Phoenix-Mesa-Scottsdale metro area will increase 11.4% and prices will rise 7% this year. The state, historically known for its low housing costs compared to other states, has seen housing scarcity and population growth push prices upward. 

This scarcity is worse for extremely low-income renters. For every 100 extremely low-income renter households, there are only 26 affordable and available rental homes, according to a 2020 report by the National Low Income Housing Coalition. 

The report also found at Arizona’s then minimum wage of $12 an hour, affordable monthly rent was $624 — fair market rent for a zero-bedroom unit was $782. For extremely low-income renter households, affordable monthly rent was $547.

Brian Swanton, president and CEO of housing developer Gorman and Company, told the House Appropriations Committee his company has 2,000 affordable housing units across the state and an 8,000-family waiting list.

“The lack of affordable housing in our state, as you probably know, is astonishing,” he said. “We see it at our leasing offices every day. We turn away thousands of households every year due to the lack of availability.”

While advocates of the bill praised its potential to incentivize affordable housing project development, some are skeptical, saying it approaches the issue of affordable housing from the wrong angle. 

Andrew Sugrue, assistant director of policy and advocacy at the Arizona Center for Economic Progress, said the proposed tax credits don’t address current housing needs exacerbated by Covid, and center on developers rather than the affected community members. 

In order to qualify for tax credit, at least 20% of a development’s units must be rent-restricted and occupied by people with income lower than 50% of the area median gross income, or at least 40% of the units must be rent-restricted and occupied by people with income lower than 60% of the area median gross income. 

“I think that there’s a real chance that we’re missing the folks that are … most desperate when it comes to housing instability, and so if we’re not serving those with the greatest obstacles in the current shortage, then what is this trying to do?” Sugrue said.

He said the program would do little to address the classism and racism that affect housing accessibility, and he doubts whether the Legislature will follow through with accountability oversight.

A 2018 study by the Government Accountability Office reported minimal oversight of LIHTC programs and unreliable data from the IRS to assess compliance and taxpayer protections. Another investigation by NPR and Frontline shows the tax credit program has produced fewer housing units and at a higher cost as time goes on.

The investigation details cases of fraud under the program, where developers submitted inflated numbers on construction costs in order to receive more money than projects required.

Aimee Yentes, on behalf of the Arizona Free Enterprise Club, told the House Appropriations Committee these fraud concerns are part of what has kept her organization in opposition to the bills for the past four years. However, when asked, Yentes said she didn’t know of any examples of low income housing tax credit fraud in Arizona.

As far as oversight plans go, the two bills include the creation of a committee that would review tax credits on the fifth year after the effective date of the credit and every five years after that, and submit a report to the governor and Legislature. 

Cobb also said the credits would not be given out until buildings are built and 92% occupied.

Gowan’s SB1327 passed through the Senate 17-13 on February 17, and Cobb’s HB2562 got tentative approval February 18 and must still receive a formal floor vote.  

“I can’t see a better time than this year to help with housing and what we’ve gone through in this past year,” Cobb said.