Overview
Title
To amend the Internal Revenue Code of 1986 to provide tax credits for the conversion of commercial buildings to residential units, to provide support and technical assistance to State and local housing agencies to identify and advance housing conversion opportunities for underutilized commercial buildings, and for other purposes.
ELI5 AI
The INCREASE Housing Affordability Act wants to make it easier and cheaper to turn empty office buildings into homes by giving special money savings or "tax credits." This means that if someone spends money to change an old shop or office into a place people can live in, the government will help pay for some of those costs, especially if the homes are affordable and the workers are treated fairly.
Summary AI
H.R. 537, also known as the “INCREASE Housing Affordability Act” or the “Incentivizing New Conversions to Residential Entities to Accelerate Supply and Expand Housing Affordability Act,” aims to amend the Internal Revenue Code to offer tax credits for converting commercial buildings into residential units. The bill proposes a 15% credit on qualified conversion expenses and offers additional bonuses for affordable housing and prevailing wages. It defines criteria for qualified converted buildings and conversion expenditures, and establishes an advisory board under the Secretary of Housing and Urban Development to support state and local housing agencies with these conversions. Additionally, $5 million is authorized for each fiscal year from 2025 to 2029 to support this initiative.
Published
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AnalysisAI
General Summary
The proposed legislation, known as the "Incentivizing New Conversions to Residential Entities to Accelerate Supply and Expand Housing Affordability Act" or the "INCREASE Housing Affordability Act" (H.R. 537), seeks to address housing shortages by amending the Internal Revenue Code. It introduces a tax credit for converting commercial buildings to residential units, establishes bonus credits for creating affordable housing and ensuring prevailing wage standards, and aims to assist state and local housing agencies. Additionally, the bill mandates the creation of a "Commercial to Residential Conversion Advisory Board" to further support these conversions, with a financial commitment of $5 million annually from 2025 through 2029.
Summary of Significant Issues
One significant issue arises from the complexity of the bill's language, particularly in the section regarding the commercial-to-residential tax credit. This complexity could deter small developers from participating due to the difficulty in understanding the requirements and potential benefits. Additionally, the criteria for determining whether a building qualifies as "converted” could introduce ambiguity, entangling developers in bureaucratic red tape.
The bill's emphasis on bonus credits for affordable housing and projects meeting prevailing wage requirements might unintentionally favor certain projects over others that do not meet these specific conditions, creating an uneven playing field. Furthermore, the arbitrary limits on credits for conversions—such as $200,000 per new residential unit—may require further clarification to justify their fairness and ensure they do not disadvantage particular projects unfairly.
Concerns also arise regarding potential favoritism towards educational institutions, which receive exemptions not extended to other non-profits. Finally, the lack of specific accountability measures for the advisory board could lead to inefficient resource allocation, while the provision extending conversion timelines might create loopholes for unnecessary delays.
Public Impact
Broadly, the bill aims to tackle the housing affordability crisis by incentivizing the conversion of underutilized commercial spaces into residential units. If effectively implemented, this approach could increase housing supply and affordability, addressing a critical need for many communities. However, the complexity of the bill might hinder widespread adoption, particularly among smaller developers who are pivotal in local development but might lack the resources to comply with elaborate requirements.
Stakeholder Impact
Developers: For developers, the bill presents a mixed bag of opportunities and challenges. On one hand, the tax credits and potential for bonus credits represent significant financial incentives. On the other hand, the complexity of eligibility criteria and potential pitfalls in claiming these credits might deter investment from less resource-rich developers, limiting the bill’s reach.
State and Local Housing Agencies: These stakeholders stand to benefit from the establishment of the advisory board, which aims to assist in identifying viable conversion projects and navigating regulatory processes. However, the board's effectiveness will depend on the clarity of its operations and the qualifications of its members.
Low-Income Communities: These communities could potentially benefit from increased affordable housing options. The bill’s affordable housing credits aim to promote developments that cater to lower-income individuals, although the success of this measure will be contingent on adequate uptake and implementation by developers.
Overall, while the "INCREASE Housing Affordability Act" presents a novel strategy to address housing shortages, its success will rely heavily on the clarity of its implementation provisions and the active engagement of stakeholders across the commercial and housing sectors.
Financial Assessment
The bill H.R. 537, titled the "INCREASE Housing Affordability Act," introduces several financial elements aimed at incentivizing the conversion of commercial buildings into residential units through tax credits. Here, the focus is on examining these financial references and their potential implications.
Tax Credits for Conversion
The primary financial incentive offered by the bill is a 15% tax credit on qualified conversion expenditures. This tax credit aims to make it financially attractive for developers to convert commercial spaces into residential units. However, the bill imposes certain limitation clauses on this credit. Specifically, the credit cannot exceed $200,000 per new residential housing unit or $10,000,000 per qualified converted building. These limits are significant as they cap the government support available for conversion projects, potentially restricting the scale of projects that developers might undertake if these caps are perceived as insufficient. Questions arise as to how these thresholds were determined and whether they are justifiable, given the potential variety of conversion scales and costs.
The bill also provides bonus credits under certain conditions. For example, projects that meet affordable housing criteria or adhere to prevailing wage requirements can receive additional benefits. While this encourages desirable outcomes like affordable housing, it could also lead to favoritism towards projects that fit these bonus criteria, potentially excluding projects that do not but are otherwise beneficial. This introduces a debate about fairness and accessibility of these financial incentives.
Advisory Board Appropriations
The bill proposes the formation of a Commercial to Residential Conversion Advisory Board under the Department of Housing and Urban Development. This board is allocated $5,000,000 annually from 2025 to 2029. The purpose of this funding is to provide logistical support, technical assistance, and best practices to state and local housing agencies. However, the financial oversight and accountability for the use of these funds are not clearly outlined in the bill, raising concerns about potential inefficiencies or misallocations. Without detailed criteria for member qualifications and accountability measures, there is a risk that the resources may not be utilized effectively, leading to potential waste of the appropriated funds.
Conclusion
The financial allocations in the bill are crafted to stimulate conversion projects and improve housing affordability by leveraging tax benefits and providing governmental support through an advisory framework. However, the effectiveness of these financial strategies could be compromised by ambiguities in the bill regarding credit limits, bonus eligibility, and advisory board governance. Addressing these issues would be essential to ensuring that the financial incentives proposed by the bill lead to equitable and effective outcomes in residential conversions.
Issues
The complexity of the language in the 'Commercial-to-residential credit' section (Section 48F) might make it challenging for taxpayers and small businesses to understand the requirements and benefits of this credit, potentially deterring participation from smaller developers who lack resources to navigate these complexities (Section 2, 48F).
The criteria for determining a 'qualified converted building' and the definition of 'substantially converted' could introduce ambiguity, potentially making the qualification process overly complex and burdening developers with excessive red tape (Section 2, 48F).
The bonus credits for affordable housing and prevailing wage requirements could lead to favoritism towards projects that meet these specific conditions, possibly excluding other worthy projects and creating an uneven playing field (Section 2, 48F(d)).
The limitation clauses for credits, such as the $200,000 per new residential housing unit and $10,000,000 per qualified converted building, seem arbitrary and might require clarification on how these limits were determined to ensure they are justifiable and do not unfairly disadvantage certain projects (Section 2, 48F(b)).
The provision allowing educational institutions an exemption under Section 50(b)(3) may suggest potential bias towards educational organizations over other non-profits, which could raise concerns about fairness and favoritism (Section 2, 48F(e)(2)(B)(iv)).
The advisory board's lack of specific accountability measures could lead to inefficient use of resources, as there is no maximum membership criterion or clarity on member qualifications which might result in ineffective oversight and potential misallocation of the $5,000,000 yearly appropriation (Section 3).
The special rule for phased conversion extending the period from 24 months to 60 months could potentially create loopholes for unnecessarily delaying conversion timelines, leading to financial inefficiencies or exploitation of the system (Section 2, 48F(e)(1)(B)(ii)).
The overlap and interaction with existing tax incentives, like the bonus credits for affordable housing embracing rules similar to those in section 42(g), could introduce additional complexity if these rules are not standardized, leading to confusion and inconsistent application across projects (Section 2, 48F(d)(1)(B)).
Sections
Sections are presented as they are annotated in the original legislative text. Any missing headers, numbers, or non-consecutive order is due to the original text.
1. Short title Read Opens in new tab
Summary AI
The section provides the short title of the legislation, which can be referred to as either the "Incentivizing New Conversions to Residential Entities to Accelerate Supply and Expand Housing Affordability Act" or the "INCREASE Housing Affordability Act."
2. Commercial-to-residential credit Read Opens in new tab
Summary AI
The section introduces a commercial-to-residential credit in the tax code, allowing taxpayers who convert commercial buildings into residential ones to claim a 15% credit on conversion costs, with specific monetary limits. It also provides bonus credits for affordable housing conversions and conversions with prevailing wages, defines key terms, and outlines special rules for how and when the conversion costs can be counted.
Money References
- “(b) Limitation on credit amount.—The credit determined under subsection (a) may not exceed— “(1) $200,000 per new residential housing unit, and “(2) $10,000,000 per qualified converted building.
- “(B) SUBSTANTIALLY CONVERTED DEFINED.— “(i) IN GENERAL.—For purposes of paragraph (1)(A)(ii), a building shall be treated as having been substantially converted only if the qualified conversion expenditures during the 24-month period selected by the taxpayer (at the time and in the manner prescribed by regulation) and ending with or within the taxable year exceed the greater of— “(I) the adjusted basis of such building (and its structural components), or “(II) $15,000.
48F. Commercial-to-residential credit Read Opens in new tab
Summary AI
The section outlines a tax credit for converting commercial buildings into residential spaces, allowing up to 15% credit on eligible conversion costs. It sets limits on the credit amount and includes bonuses for affordable housing and meeting prevailing wage standards, along with specific definitions and rules for qualifying expenditures and buildings.
Money References
- (b) Limitation on credit amount.—The credit determined under subsection (a) may not exceed— (1) $200,000 per new residential housing unit, and (2) $10,000,000 per qualified converted building.
- (B) SUBSTANTIALLY CONVERTED DEFINED.— (i) IN GENERAL.—For purposes of paragraph (1)(A)(ii), a building shall be treated as having been substantially converted only if the qualified conversion expenditures during the 24-month period selected by the taxpayer (at the time and in the manner prescribed by regulation) and ending with or within the taxable year exceed the greater of— (I) the adjusted basis of such building (and its structural components), or (II) $15,000.
3. Commercial to residential conversion advisory board Read Opens in new tab
Summary AI
The bill requires the Secretary of Housing and Urban Development to establish a Commercial to Residential Conversion Advisory Board within one year to assist state and local housing agencies in converting commercial properties into residential ones. This board, made up of at least 20 members, will offer support in identifying viable projects, easing regulatory processes, and finding funding from federal and state sources, with $5 million authorized annually from 2025 to 2029 to support this initiative.
Money References
- (d) Authorization of appropriations.—There is authorized to be appropriated to carry out this section $5,000,000 for each of fiscal years 2025 through 2029.