The Chattanooga area is more likely to receive affordable housing tax credits next year if a federal bill to expand the program's funding — being backed by Tennessee's congressional delegates — is passed, Tennessee Housing Development Agency Director Ralph Perrey said this week.
"More than half of the members of Congress have signed on, an equal number of Democrats and Republicans, which doesn't happen much," Perrey said in an interview over the phone. "Very little (affordable housing) can be built without housing tax credits. We get three or four times the applications than we can fund."
The Affordable Housing Credit Improvement Act, introduced in the spring and co-sponsored by U.S. Sen. Marsha Blackburn, R-Tennessee, seeks to increase the number of credits available to states by 50% and make the temporary 12.5% increase that expired in 2021 permanent. The bill would also allow more tax-exempt bonds intended to encourage affordable multifamily housing projects.
Tennessee's growth has come with challenges, Blackburn said in an email.
"That is why I joined my colleagues on the Affordable Housing Credit Improvement Act, which will modernize the low-income housing tax credit to better leverage existing resources to increase access to affordable housing and ensure housing supply grows to meet demand," she said.
In the past decade, the Chattanooga metro area has received far fewer tax credits than the state's other major metros.
Between 2010 and 2022, the Nashville area received more than $632 million in tax credits to build 7,654 units, while Memphis received more than $306 million to build 4,545 units and the Knoxville area received more than $177 million to build 2,335 units. The Chattanooga area was awarded a little less than $75 million to build 635 units.
Statewide, the proposed funding increase would mean just under $12 million in additional affordable housing tax credits for Tennessee, Perrey said.
Increasing affordable housing is a critical issue Chattanooga and communities across the state are grappling with, U.S. Rep. Chuck Fleischmann, R-Tenn., said in an email.
"We must increase the supply of affordable housing so families can continue to thrive and communities can continue to grow," he said. "This commonsense, bipartisan bill will help more families and Tennesseans achieve their American Dream."
The bill will also "remove red tape so that more rural affordable housing developments can move forward," said a statement from U.S. Rep. Scott DesJarlais, R-Tenn., who also backs the proposed legislation.
Two local churches hoping to develop affordable housing for seniors on their property, with the backing of city officials and area nonprofits, were not selected to receive the affordable housing tax credits awarded by the THDA this year — a serious blow to affordable housing advocates who'd hoped the Chattanooga area's need for new development would already have been recognized by the agency.
Greater Tucker Missionary Baptist Church in Brainerd had applied for tax credits to build 63 affordable units for seniors on its property, and St. Alban's Episcopal Church in Hixson had applied for tax credits to build 73 affordable units on its property.
For a good part of the past decade, Hamilton County was not very favorable to affordable development, Perrey said.
Perrey said unless the local government made arrangements like a payment in lieu of taxes, known as a PILOT, developments were taxed on the value of the tax credits they receive.
In a PILOT, a developer receives a tax break in exchange for building a certain number of affordable units.
"We awarded tax credits to a place called Alton Place in Chattanooga and, because of this, they were being taxed at a rate of $2,000 per unit, which at the time was almost double what was being charged to market rate properties close to the river," Perrey said. "This was a real discouragement with developers. We went a number of years without having an applicant wanting to build in Hamilton County."
The county and city's increased use of tax incentives have changed that trajectory, however.
"We would have had one in Chattanooga (this year) if we hadn't had fewer tax credits to begin with," he said. "In the new development pool in which Hamilton County competes, we can always do two awards, but this year we could only do one. Knox (County) scored a little better."
Still, if the Knoxville area proposes five new affordable housing developments next year, only one can receive tax credits, even if there are more to go around.
"The next will be Hamilton County," he said.