A New York Housing Conference policy brief shows how a simple legislative change to tax-exempt private activity bond “PAB” rules can spur the creation of more than 100,000 new affordable homes in New York over the next ten years.

Private Activity Bonds have a “50 percent test”, which requires that 50 percent of a development‘s qualified development costs be financed by PABs, to be eligible for Low Income Housing Tax Credits, which are necessary for financial feasibility. To meet this requirement for affordable housing projects, more bonds must be allocated during the construction period than are needed to finance the project over the long-term.

The Affordable Housing Credit Improvement Act (AHCIA) includes a provision (Sec. 313 Tax-Exempt Bond Financing Requirement) that would allow states to use less private activity bonds in each affordable housing project to qualify the project for 4 percent Low Income Tax Credits. The bill lowers the project coverage threshold from 50 percent to 25 percent, making it more efficient and allowing states to finance more affordable housing.

A new 25 percent threshold would unlock up to $94 billion and finance up to 1.5 million new affordable homes nationwide – including 100,000 units in New York, over the next decade. If enacted, NY could double the number of affordable units financed by PABs annually.

Read the brief to see the full analysis here.