Senate Banking, Housing and Urban Affairs Committee

Subcommittee on Housing and Transportation

Hearing on the Low-Income Housing Tax Credit

Prepared Testimony of the Honorable Connie Mack (R-FL)
United States Senator

2:30p.m., Wendesday, May 12, 1999

Vice-Chairman Santorum, I want to thank you for holding this hearing on the important role that the Low Income Housing Tax Credit plays in increasing -the housing opportunities for lower income families. Today, I introduced the Affordable Housing Opportunity Act of 1999, with my colleague from Florida, Senator Graham. Our cosponsors include a majority of the Finance Committee and 8 members of this subcommittee, and I would like to thank each of you for joining us in this effort.

The rest of the witnesses will be explaining how the Low Income Housing Tax Credit has worked and has made a difference in their lives, to their businesses, and in their communities. I would like to express my views about why it works so well.

The Low Income Housing Tax Credit program works because it is decentralized, it is market-oriented, and it relies on the private sector. The credit is administered by states and localities, which distribute tax credits to private investors, who compete for the Fight to receive these credits. And this competition is intense--nationally, the demand for Housing Credits currently outstrips supply by more than three to one. In our home state of Florida, there are nearly four times as many applications by people who seek to provide low income housing than there are credits to go around.

The Low Income Housing Tax Credit works because it is based on sound economics. This is in stark contrast to the alternative government approach to the problem of a scarcity of privately-owned, affordable housing units, the approach of rent control. Under rent control, owners are restricted in the price they can charge for their apartments. Since this dramatically reduces the return on their investment in housing, potential owners of rental units take their money elsewhere. The result, confirmed in a study of rent control in California in the early 1990s, is that rent control actually reduces the number of rental units available for low income families.

There is a better way. And the Low Income Housing Tax Credit is that way. Under this program, tax credits are allocated by states and their localities to investors in low income housing. In return for agreeing to charge low rents for the units produced, the investors receive a tax credit that makes up for the financial risk of the investment. Instead of mandating low rents, as under rent control laws, the program provides an incentive for property owners to charge low rents.

And, as Adam Smith would have predicted, this incentive does the job. Since 1987, state agencies have allocated over $3 billion in Housing Credits to help finance nearly one million apartments for low income families, including 70,000 apartments in 1997. In my own state of Florida, the Credit is responsible for helping finance over 52,000 apartments for low income families, including 3,300 apartments in 1997.

Despite the success of the Housing Credit in meeting affordable rental housing needs, the apartments it helps finance can barely keep pace with the nearly I 00,000 low cost apartments which are demolished, abandoned, or converted to market rents each year. This is because the credit has been set at an annual amount of $1.25 per resident of each state, since its creation in 1986. To make up for the loss in value of the credit due to inflation, we propose to increase this amount to $1.75 per resident and to index the amount for future inflation. It has been estimated that this will increase the stock of critically-needed low income apartments by 27,000 each year.

There has long existed in this body a dedication to affordable housing, an interest that knows no party lines. One of the major, early proponents of federally-supported affordable housing was Senator Robert A. Taft of Ohio, known in his day as Mr. Republican, whose monument chimes regularly just a few hundred yards from here. This strong, bipartisan spirit carries on to this day, as we have the support of the Administration, the nation's governors and mayors, and the affordable housing community, in this effort to ensure the continued vitality of a program that works. Every family in America deserves the chance to live in a clean, bright, new place they can call home, and the Low Income Housing Tax Credit helps them realize this dream.

Thank you.

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