Role of Tax Policy in Preserving the Stock of Low-Income Rental Housing

GAO discussed H.R. 3663, focusing on the: (1) potential loss of a large number of privately owned and federally subsidized low-income rental housing units; and (2) use of tax policy as a means of encouraging low-income rental housing preservation. GAO found that: (1) over half of the approximately 2.0-million-unit low-income housing inventory was vulnerable to loss by the end of 1995 through owners' voluntary withdrawal from federal housing programs; and (2) the incentives provided in recent legislation were aimed at increasing owners' rates of return with greater cash distribution allowances, reduced loan interest rates, increased rents under existing contracts, and insurance for second mortgage equity loans and capital improvements. GAO believes that the legislation could better achieve its objective by: (1) ensuring that housing projects provide the maximum possible assistance to low- and moderate-income households; (2) requiring a higher low-income occupancy ceiling; (3) enchancing cost-control provisions to maximize the number of units assisted while minimizing costs; (4) limiting tax incentives to only those situations where the federal government determines it necessary to retain the project in the low-income rental stock; and (5) providing an evaluation mechanism to strengthen accountability and oversight.