Inflation Reduction Act alters affordable housing scene
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The Inflation Reduction Act is promoting broader participation in affordable housing and a renewed focus on sustainability, according to panelists at Baker Tilly’s 2024 DevelUP conference. It was described as a significant opportunity for wealth creation due to the tax credit changes it introduced. The Act’s Section 45 tax credit expanded federal income tax benefits for renewable energy, making the credit easier to sell, while Section 48 increased the energy investment tax credit for solar and wind facilities benefiting low-income communities.
The Inflation Reduction Act Propels Sustainable Development and Affordable Housing
The Inflation Reduction Act is boosting affordable housing accessibility and sustainable development, according to experts at the 2024 DevelUP conference. The 2022 law has created “the largest opportunity to build foundational generational wealth,” with tax credit adjustments promoting housing affordability and inclusivity in development.
Illinois Gov. JB Pritzker’s administration views “federal funding as a force multiplier,” says Kristin Richards, director of the Illinois Department of Commerce and Economic Opportunity.
Complex capital stacks are on the rise, says Althea Broughton, partner at Arnall Golden Gregory LLP, with increased involvement from the philanthropic community and developers of color. The Inflation Reduction Act’s Section 45 tax credit has expanded the federal income tax benefits for renewable energy, making the credit more appealing.
Don Bernards, a partner in Baker Tilly’s real estate group, pointed out Section 48 of the IRA which increased the energy investment tax credit for solar and wind facilities benefitting low-income communities. He sees potential in 501(c)(3) bonds as an alternative to tax-exempt bonds which may be challenging to secure due to volume caps.
Freddie Mac is investing in Low Income Housing Tax Credit equity to support affordable property development or significant renovation, says Catherine Evans, VP of underwriting and credit for Freddie Mac multifamily housing. The company is cautiously investing in modular complete units, a construction method where rooms are prebuilt in a factory leveraging robotics.
In the affordable housing space, Tania Kadakia, founder of consulting and development firm Wrought Iron Partners, says that state agencies drive housing deal structures, enabling development access to previously excluded groups.
Chris Meister, executive director of the Illinois Finance Authority, outlined several financial resources available through his agency, including conduit bonds, state economic development loans, and the Commercial Property Assessed Clean Energy program’s open market initiative. This nonprofit initiative caters for up to 100% financing of all project and closing costs.
Joel Laubenstien, principal at Baker Tilly, highlighted the IRA’s over 70 separate tax credits and the ability to transfer credits, selling tax credits to someone else if the owners don’t have any tax liability or income. This has reinstated old credits and expanded into new opportunities like pump storage, electric vehicle charging, and hydrogen.
AJ Patton, CEO of 548 Enterprise, noted the federal government’s game-changing incentives and cited Illinois, Michigan and St. Louis as leaders in energy efficiency incentives.
Carla Walker Miller, founder and CEO of Walker Miller Energy Services, describes the IRA as a massive opportunity to build generational wealth and address disparities in “dirty infrastructure” allocation. “You’re either in the clean energy economy, or the clean energy economy is going to run over you,” she said.
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