If the state shared in equity for the property, then the deed restrictions would limit the potential return on that equity sharing. It just means the tax credit program would probably result in less overall production since it would be more expensive to run without those returns.
Why would the tax credit result in less overall production if the units were deed restricted? We'd be paying developers with tax credits to produce Moderate Income housing. They get the same money, and thus have the same incentive, whether the unit is deed restricted or not. +
The problem, if you don't deed restrict, is the second sale. If you equity share, how do you determine what the state's equity is? Some of the increased price of the property is appreciation, but some is the difference between the market price and the sale price at the first sale. +
So suppose we have a new house for sale, at the Moderate Price of $500K. But we subsidized this house with tax credits; the market price was $700K. The buyer buys it, and immediately flips it. The buyer shouldn't get a penny of that $200K increased price; that's not appreciation, it's arbitraging. +
Suppose the buyer instead waits to sell, and sells the house for $1M. Do you want to say the state owned 2/7ths of the house, and should get paid the initial $200K from the initial equity, plus 2/7ths of the $300K appreciation? Mathematically correct, but too complicated and a recipe for fraud.
That’s probably right. Yes, it’s complicated, but the alternative is running the TC program as a pure cost w/ either a) homes being built but no benefits of market appreciation for either the homeowner or the state, (permanent deed restrictions) or b) where the homeowners eventually get a windfall
The solution then is to require a holding period, and/or allow the state to be the beneficiary of the majority of the appreciation. The first buyer benefits from having affordable housing, but the state should get most of any windfall if it’s sold at a market price, not that first buyer.
One problem here is figuring out what the market price of the home *is* when it is first offered for sale. That looks to me like an area rife for corruption or incompetence. It's perfectly plausible that the market price and the Moderate price would be the same, in some cases.
Independent appraisers could pull comps from recent sales. I think that part isn’t that difficult to sort out. The county assessor has to figure it out for tax purposes anyways. Wiener’s proposed SB 336 moderate income welfare tax exemption doesn’t apply to for-sale homes.
The size of the tax credit program could be limited by its funding. If there’s enough demand for it that tax credits become “awarded” in a competitive bidding process like other tax credits are in CA, then allowing the program to be funded via equity sharing could help it to build more housing.
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