By Natalie Harris, Adrienne Bush, Tiffany Marthaler and Anthony P. Curtis
Homeless and Housing Coalition
By the end of this year, Congress can ensure Kentucky can build the housing infrastructure needed to support workers of all incomes by tearing down an onerous, unnecessary federal regulation – and, in the process, ensure that Kentucky remains a competitive economy amid a frenzy of regional economic investment.
It is important to note that our state has a severe shortage of affordable housing – nearly 1 in every 4 Kentuckians is severely rent-burdened, meaning they spend more than half of their income on rent. That is because we are not building nearly enough homes, which drives up costs for everyone and may even push would-be lifelong Kentuckians into neighboring states where they can actually afford to live.
Although Kentucky is primarily considered a homeownership state, 33% of occupied housing units are home to renters. With the supply shortage, this significant portion of the population is left scrambling for rentals at increased cost, often risking access to other necessities like food, transportation, and heating.
And although demand will only continue to increase following bold investments to create jobs.
In April, Envision AESC, a leading vehicle battery maker, committed to creating a $2 billion plant in Bowling Green. It will create 2,000 new jobs when it opens in 2027. And currently under construction, Ford’s $5.8 billion BlueOvalSK Battery Park manufacturing site will open in Hardin County and bring an additional 5,000 jobs long-term.
This period of economic growth and investment is undoubtedly positive – but it must be congruently supported with housing infrastructure investments if it is going to actually help Kentucky thrive in the long term. If Kentucky does not have the housing to support the men and women working across these new sites, we risk forcing them across state borders. In other words, we would be cutting off our nose to spite our face.
And while Kentucky has a lot of control over its housing future, the federal government is currently standing in the way. We will not be able to leverage the private sector and build out of this housing emergency unless Washington wises up and tears down an unnecessary barrier to housing construction – and they can do it now by making small changes to the Low Income Housing Tax Credit (LIHTC).
Private Activity Bonds (PABs) are an essential component of the LIHTC financing that is used to produce affordable housing. As it stands, these bonds can only be distributed towards projects that will use the funding for 50% of all eligible costs. This percentage is arbitrary and set by Congress without any apparent basis – but it limits the number of housing projects approved, funded, and constructed.
Each state also has a “volume cap” that restricts the number of PABs it can issue and the number of projects that receive funding. Short of exempting affordable housing from the volume cap altogether, Congress can lower the percentage of project costs that need to be covered by PABs from 50% to 25% to unlock more resources.
At the same time, Congress can re-extend a 12.5 percent increase to the 9 percent LIHTC that expired in 2021. Because Congress failed to extend this increase when it expired, states like Kentucky – which desperately need more housing – have effectively faced a 12.5 percent cut to their housing production.
These changes will provide the relief needed to create affordable housing developments for all income levels. It will ensure the state can keep workers in the state, support long-term economic growth through construction job creation, and provide a housing safety net for Kentuckians of all incomes.
Moreover, construction itself has a profound impact on the local economy, working to create labor and economic spending around each site. In 2021, the housing industry contributed over $33 billion to our state’s economic impact, equating to 14.3% of the gross state product. It will only help to expand Kentucky’s recent economic success, creating good-paying, middle-class jobs for residents who can and should be able to afford to live in their own communities.
For too long, the 50% test has blocked affordable housing development for no good reason.
Now, there is an opportunity for Congress to finally make this small but important tweak. It should not let it pass.
Natalie Harris is executive director of the Coalition for the Homeless; Adrienne Bush is executive Director of the Homeless and Housing Coalition of Kentucky; Tiffany Marthaler is executive director of the Kentucky Affordable Housing Coalition; and Anthony P. Curtis is executive director of the Metropolitan Housing Coalition