Homeownership Development Tax Credit

Habitat for Humanity International supports new programs that will encourage increased production of affordable housing including the development of a tax credit that could be used to stimulate the production of homes for low- and moderate-income homebuyers.

This tax credit could be modeled on the Low Income Housing Tax Credit currently used for the development of rental properties. In many low-income communities, the costs of construction and/or rehabilitation exceed the minimum market value of new homes for low- and moderate-income homebuyers. A tax credit of this kind could be used to finance the gap between the home construction and rehabilitation costs and the market value of the homes, providing a strong incentive for private and nonprofit homebuilders to build homes for low- and moderate-income homebuyers.

A homeownership development tax credit would provide each state with an annual allocation of credit authority at a designated amount per capita. The state could then award credits to developers under a competitive process. Developers who receive credit allocations will sell them to investors and use the proceeds to bridge the gap between the development cost and sales prices of the homes they develop. A designated percentage of acquisition and development costs for either new construction or substantial rehabilitation could be covered by the tax credit allocations.

Additional recommendations for a homeownership development tax credit include:

• Making the tax credit available for single family homes, condominiums, and cooperatives.

• Designating census tracts within a specific range of area median incomes for eligibility in the tax credit program.

• Allowing rural areas and federally recognized Indian tribes to be eligible for the program.

• Requiring that eligible buyers be those whose income does not exceed 80 percent of area median income or a similar standard.

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