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Joe Weis is building one- and two-bedroom apartments in Rochester that will rent at below-market rates to people who meet strict income requirements. Weiss can make them affordable — and make a profit — thanks to a longstanding tax credit.

It's a system that's helped build thousands of affordable housing units across the country and in Minnesota. It may also be in jeopardy, starting Friday.

Weis and other Minnesota low-income housing builders say they're already feeling the impact of Donald Trump's presidential victory. Uncertainty about his corporate tax policies has nearly scuttled a key financing mechanism for new developments. It's especially concerning in Minnesota, where affordable housing is in high demand and short supply across the state.

In the Rochester project, for instance, Weis said he'll be able to charge lower rents in the new place because of a common subsidy. The state awarded him a 

 just for building the apartments. He then sold the tax credit to investors, who use it to reduce their tax bill. With that extra cash, Weis was able borrow less for construction and keep down rents. Pretty standard stuff. 

Weis, though, says investors are acting differently now.

"When they realized that Trump was president, and was talking about reducing the corporate tax rate, that really put a big curtain on the value of those credits," he said. 


Weis had tax credits to sell for the next project he's building, but they commanded a much lower price. With less cash in hand, he needs a bigger mortgage to finance the building. 


The tumult in the market for affordable housing tax credits is nationwide. 


"The biggest issue is that it was so abrupt. I think most folks didn't expect Donald Trump to win, so most folks thought the chance of corporate tax rates actually coming down weren't that great. And if they did, they wouldn't come down that dramatically," said Michael Novogradac, managing partner of San Francisco-based public accounting and valuation firm Novogradac & Co.


With a Trump administration expected to provide massive corporate tax relief for free, buying low-income housing tax credits is less attractive to investors.

Depending on the shape of the final tax plan, Novogradac said the amount of cash coming from investors to affordable housing projects could drop by as much as 17 percent, or more than $1 billion based on past years.


Trump is proposing to lower the top corporate tax rate to 15 percent from 35 percent, while a recent tax blueprint from Republicans in the U.S. House of Representatives pegs it at 20 percent. 


Until there's clarity on the tax side, Novogradac said the implications for affordable housing are clear. "We have this interim new normal, which ultimately means less affordable housing gets built."

In northern Minnesota, rental property manager Skip Duchesneau is feeling it. He's working to finance an affordable senior housing project in Mora, Minn., but the plummeting value of the tax credits represents a huge change for the industry, he said.

"In any year, besides this year, you'd get awarded tax credits and the next day you'd have half a dozen tax syndicators calling you, 'Can we bid on your project, can we buy your credits?'" he said.

Duchesneau is plowing ahead, assuming he'll be able to sell the tax credits for his Mora senior housing once Congress and Trump hash out a tax deal. But it will be a terrible setback, he added, if the cash value of his tax credits is still up in the air this summer.

At this point, he doesn't know if he's got a buyer for the credits. "Right now," he said. "I have a maybe."

Catharine Richert

Author

Minnesota low-income housing builders say they're already feeling the impact of Donald Trump's presidential victory. Uncertainty about his corporate tax policies has nearly scuttled a key financing mechanism for new developments.

Builders worry affordable housing support will shrink under Trump

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