NH Legal Perspective: NH’s Economy Depends on Affordable Housing for Workers

This article was originally published in the Union Leader and can be found here.

By: Greg Chakmakas

January 19, 2019

Many commentators agree that the need for affordable housing remains overwhelming. According to the National Low Income Housing Coalition, the national affordable housing supply falls short of demand by extremely low-income tenants by approximately 3.7 million units.

New Hampshire is not immune from this problem. Statistics from the National Low Income Housing Coalition show that the fair-market rent for a two-bedroom apartment in New Hampshire is $1,161. In order to afford this level of rent and utilities — without paying more than 30 percent of income on housing — a household must earn $3,869 monthly or $46,426 annually. Many community members, such as teachers, nurses, law enforcement, retail workers and bus drivers, are priced out of this market.

Many experts agree that the shortage of affordable housing could threaten future economic growth and stability. While many policies exist to combat the problem, this article takes a closer look at two key issues: (i) the legal obligations New Hampshire municipalities owe to affordable housing developers when addressing local regulatory barriers and (ii) the funding of affordable housing developments through the federal Low Income Housing Tax Credit program.

Support from local municipalities

Beginning with support from local municipalities, the lack of flexibility of the local regulations and what often turns into an adversarial planning board process create significant barriers to the creation and preservation of affordable housing. Both the Supreme Court of New Hampshire and the New Hampshire Legislature recognized this problem and took action.

In the case of Britton v. Town of Chester, the Supreme Court of New Hampshire ruled that the state’s zoning enabling statute contains an obligation for every municipality to provide reasonable and realistic opportunities for the development of housing that is affordable to low- and moderate-income families. Years later, following the Britton decision, the New Hampshire Legislature passed legislation, RSA 674:58 — :61, that essentially codified the court’s rulings in Britton. The workforce housing law requires municipalities that do not provide for development of workforce housing to demonstrate that they already have their regional “fair share.” While no standard methodology exists to calculate “fair share,” the New Hampshire Housing Finance Authority suggests that data from regional planning commissions may be useful.

As for what constitutes “reasonable and realistic opportunities,” it will depend, in part, on the collective impact of local regulations on the economic viability of a project to develop workforce housing. While municipalities cannot control many of the costs associated with housing construction, they can control certain barriers, such as growth control measures, large minimum lot sizes, significant setback and frontage requirements, excessive road-building specifications, impact fees, growth-control measures. Understandably, growth-control measures serve to control the timing of growth necessary for the municipality to manage the financial burdens of expanding municipal services, but they “must not be imposed simply to exclude outsiders, especially outsiders of any disadvantaged social or economic group.”

An innovative planning process that incorporates innovative land-use tools, like dense village centers, conservation subdivision design and inclusionary zoning, will allow municipalities to meet the requirements of the statute without sacrificing the appearance or composition of the community. To do this, the municipality will likely need to amend its ordinances.

The Federal Low Income Housing Tax Credit

In addition to local support from municipalities, affordable housing developments need reliable funding sources. Traditional market forces prevent the private market from producing new rental housing to the lowest-income households without public subsidy. One such subsidy is the 9 percent federal low-income housing tax credit offered pursuant to the Low Income Housing Tax Credit (LIHTC) program.

The LIHTC program represents the single largest source of federal capital subsidy to create and preserve affordable rental housing and remains extremely beneficial to local economies. Since its launch in 1986, the LIHTC program has provided more than 2.8 million affordable housing units for more than 13.3 million people, and has leveraged roughly $100 billion in private investment. Notably, the LIHTC program generates $9.1 billion in wages and business income, thereby raising more than $3.5 billion annually in additional tax revenues for local, state and federal jurisdictions.

While the LIHTC program is extremely technical, the mechanics are straightforward. In short, the LIHTC program is based, in part, on creating an economic incentive for private individuals and corporate entities to invest time and money into the creation and preservation of affordable housing. In general, it involves three key players: (i) the state allocating agency; (ii) the developer; and (iii) the institutional investor.

The state allocating agency awards tax credits to for-profit and nonprofit developers in exchange for a binding commitment from the developer to rent units to low-income individuals at reduced rents for a set period of time. In turn, developers market the tax credits to institutional investors in exchange for equity investment in the affordable housing project. As a result of the equity investment, developers may construct or rehabilitate affordable housing projects without taking on significant debt.

This greatly reduces the debt service cost commonly associated with market-rate developments, thus, allowing the project to handle the reduced rental income stream. The equity investors remain incentivized because they receive the tax credit that results in a dollar for dollar offset of their federal tax liability. Some investors also receive Community Reinvestment Act credit by making equity available to fund affordable housing development.

Once the affordable-housing development is complete, it remains eligible to receive the yearly allotment of tax credits every year for 10 years. To continue generating the tax credits and to avoid a recapture of the tax credit by the IRS, a LIHTC building must continue to satisfy specific low-income housing compliance rules for a 15-year period. In an effort to further preserve a community’s affordable housing stock, the New Hampshire allocating agency extends low-income use requirements beyond the 15-year compliance period for a 99-year term.

While some are skeptical of the role federal subsidies play, it’s clear that without it, the balance between economics of the cost of the reduced rents, the cost to develop and the administrative burden of complying with the LIHTC program would result in much less affordable housing development. Given the urgent need for workforce housing in many areas of the state, local support and reliable funding sources serve as vital tools to increase the regional supply of affordable rental units for our community members. New Hampshire’s economy cannot grow unless workers can find safe, decent and affordable housing.