If President Donald Trump succeeds in lowering corporate taxes from 21 percent to a historic low of 15 percent, as he has promised to do, the California affordable-housing industry would lose out on some $250 million, according to a new estimate of little-known “tax credits” that are key to financing low-income housing.
“Although it seems less likely to be part of this year’s tax- and spending-cut package, President Trump’s promise to lower corporate taxes could reduce the value of Low Income Housing Tax Credits [in California] by roughly 5 percent, or $250 million,” said Matt Schwartz, the president and CEO of the California Housing Partnership, which helps affordable housing developers across the state.
Tax credits are key to building affordable housing. They’re issued to developers by a state panel, and developers turn around and sell them to corporations anxious to reduce their tax liabilities.
But if corporate taxes go down, so does the value of the credits. Corporations are less likely to buy them when the government has already cut their taxes. Credits worth $1 could see their value drop to 90 cents or less on the open market.
The California Housing Partnership started wondering how potential tax cuts could impact that market after the conservative group Project 2025 announced a blueprint to lower the corporate tax rate from 21 percent to 15 percent. It estimated a 5 percent hit from a model that used 300 low-income housing tax credit transactions.
For a single project, that 5 percent reduction can mean a few million dollars. Multiplied across a city or the state, and it’s tens or hundreds of millions. City and state governments will have to make up much of it.
“It would not be fatal. It would by no means end San Francisco’s affordable housing production,” said Schwartz. “But it would likely slow it down, as the city would be forced to spend 5 percent more of its scarce subsidy dollars on each new development.”
During Trump’s first term, tax credits took a similar hit. In 2017, when Congress reduced corporate taxes from 35 percent to 21 percent, Schwartz said, affordable housing developers lost a couple billion dollars overnight.
This time, Trump wants to further cut rates to 15 percent. Though there is no current legislation enabling cuts, Congress is expected to revise tax codes of the 2017 legislation at the end of the year.
Anne Stanley, the communications manager at the Mayor’s Office of Housing and Community Development, said San Francisco remembers well the effects of Trump’s previous tax cuts.
“When the 2017 Tax Cuts and Jobs Act cut the top corporate tax rate from 35 percent to 21 percent, we saw an average price drop of 12 cents per credit,” said Stanley, who said the department is monitoring the tax cuts and their “potential impacts.”
The 12 cent drop meant an additional $220 million in additional costs, said Stanley. She said it was fair to say that, back then, that gap in funding was “largely” paid by the city.
Today, San Francisco has 30 projects of 100 percent affordable rental housing in the pipeline that have yet to secure funding, meaning possibly tens of millions in additional costs if the corporate tax cuts go through.
Stanley said the city has been reliably getting 97 cents per dollar, but did see a two to three cent reduction at the end of last year. If corporate tax cuts become a reality, Stanley said that could drop another five to six cents.
And with San Francisco facing down an $818 budget deficit and sclerotic market-rate housing production, city funds for affordable housing are scarce as-is.
“The city is really not in a position to expand funding for affordable housing because of the significant deficit that it faces, and the fact that market-rate housing is kind of dried up,” said Jeff Buckley, senior housing advisor to both Mayor Ed Lee and Mayor London Breed.
The “meager funds” that market-rate developers pay into the city’s affordable housing fund today, Buckley added, are practically “nonexistent.” That means less money to make up the gap if corporate tax cuts go through and tax credits lose their value.
Even the possibility of cuts is having effects. The California State Treasurer’s Office, which oversees the Tax Credit Allocation Committee, wrote in a statement that the value of tax credits is already going down.
“Uncertainty around what the 2025 tax package will look like is already impacting tax credit pricing today,” read a statement from the treasurer’s office. “Tax cuts can impact tax credit pricing, which can create a financing gap for projects.”
In San Francisco, four affordable housing projects are applying for tax credits at the California Tax Credit Allocation Committee in May, including the 400-unit complex at 1979 Mission St. Developers there are asking for $30 million in tax credits for the first of its three phases.
Once developers get the credits, they have six months to start construction, and two years to finish. That means 1979 Mission St., a hard-fought project at 16th and Mission streets that would become the neighborhood’s largest affordable housing complex, could see construction start at the beginning of 2026 and finish in about 24 months.
But it is almost sure to cost the city more than anticipated.
“What that could do in the future is make the amount of money needed to finish 1979 Mission much larger,” said Buckley.
“For those who were around [in 2017], they understand what happened before and the impact that it had,” Buckley added. “This one could be worse.”
Can’t help but think that this system is surely riddled with corruption and we’d be better off simply having the government build the housing
“simply”
It really sucks that the affordable housing operators have hitched their wagons to funding approaches that can never scale to meet the problem and are not reliable over time.
This is what happens when bureaucrats assume control of popular politics to advance their corporate interests as they mistake their good intentions for positive outcomes.
the state spends $250 mil in a drop of a bucket.