Bill Would Grant 20% Tax Credit for Residential Conversions

Housing has become a critical issue. Government data says rent remains at record levels even as rent growth has slowed. Most would-be first-time buyers cannot afford a house and current owners who might move, creating more supply and easing demand pressures, don’t want to face

Federal, state, and local governments have focused on expanding housing. Houses are too expensive for most first-time buyers to afford. Those with homes that might want to sell and move elsewhere don’t want mortgage rates averaging almost 7%.

Two members of the House — Mike Carey (R-OH) and Jimmy Gomez (D-CA) — introduced the Revitalizing Downtowns and Main Streets Act. Michigan’s two senators, Debbie Stabenow and Gary Peters, introduced a version of the bill in the Senate. If the bipartisan supported bill passed into law, it would encourage the conversion of underused or vacant commercial properties into affordable housing through tax credits.

Pew Research found in October 2021 that 49% of U.S. adults said the availability of affordable housing was a major problem. That was up from 39% in 2018. Another 36% said that affordable housing availability in their communities was a minor problem. Only 14% said it wasn’t a problem. “A majority of adults living in lower-income households (57%) say the availability of affordable housing is a major issue in their community, larger than the shares of those in middle- (47%) or upper-income households (42%) who say it is a major problem,” Pew wrote.

About 69% of adults in the West thought affordable housing availability was a major local problem. That compares to 49% of those in the Northeast, 44% in the South, and 33% in the Midwest.

The measure would offer a 20% tax credit on qualified conversion credits for turning an “eligible commercial building into a qualified affordable housing building.”

The commercial building must have been put into service at least 20 years before the date the conversion starts. Right before the conversion, it had to be nonresidential real property.

The conversion costs have to exceed either the higher of $100,000 or 50% of the adjusted basis of the building.

To be qualified as affordable housing, during the 30-year period starting when the building is put into service, at least 20% of the residential units would have to be rent-restricted and reserved for people whose income is no more than 80% of the area’s median income.

The Real Estate Roundtable noted that the total available credit would be $15 billion, allocated by state agencies and that larger credits would be available in rural areas, low-income census tracts, and economically distressed areas. Developers could stack the credit with other federal tax benefits like LIHTC, rehabilitation credit, and opportunity zone benefits.