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New bill could spur affordable housing

As the state faces what housing authorities estimate to be a loss of 5,000 affordable homes statewide in the next five years, those making efforts to secure affordable housing for low-income families are proposing creative means of paying for affordable homes.

A bill introduced in the Senate Financial Institutions, Economic Development & Trade Committee on Thursday, Senate Bill 6445, would impose a tax on interest collected from mortgages, home loans and similar loan products financial institutions provide so the state can collect more money to spend on affordable housing.

The bill would increase the money available to build affordable housing by taxing interest on home loans or other property investments from financial institutions. The tax rate would apply to the interest from loans, service fees, and other investments on non-transient residential properties, according to the text of the bill. The money would go into the state’s housing trust fund.

The tax on interest on these types of residential property investments is a way to ensure the necessary funds are available to construct more affordable housing and save the affordable homes that exist, advocates of the bill said Thursday.

“The housing trust fund has a billion-dollar portfolio of state investment money and it is the way the state provides affordable housing,” said Jasmine Vasavada, legislative director for the Washington Department of Commerce. “We link up to government funds and private funds in order to get housing built.” 

With an estimated shortage of 150,000 affordable rental units statewide, Vasavada said many Washingtonians are severely rent-burdened. Allotting money to the state’s housing trust fund to spur the construction of more affordable housing is key, she added. 

The money from the fund is awarded to groups that apply for certain amounts to build affordable housing, and this biennium, $175 million have been appropriated for the housing trust fund. Even with the millions available to pay for housing projects, those who oversee the housing trust fund said demand is high.

“When we put out the application process and invite people to apply, we get nearly twice as much demand than we are able to fund,” Vasavada said.

The demand could grow in the next 5  to 10 years. Federally-funded affordable housing across the state is expiring, according to Michele Thomas, director of policy and advocacy at the Washington Low-Income Housing Alliance. An estimated 5,000 currently affordable homes could be lost to the for-profit housing market, Thomas said, with that number rising to 10,000-12,000 over the next decade. 

“Project-based, Section 8-funded homes are having their use restrictions expiring, but also the USDA housing is having their use restrictions expiring.” Thomas said. “That’s housing for the elderly and for folks with disabilities in rural Washington. If we lose those homes, we won’t ever be able to get them back.”

Opponents of the bill say complicated tax laws, among other issues, actually have a detrimental effect on the affordable housing market.

“We believe the legislature’s historical intent for this deduction is currently being met,” said Debra Johnson, CFO of Evergreen Home Loans. “Specifically, this deduction allows local lenders to stay in the low-margin residential lending market. It helps small lenders compete against much bigger institutions and credit unions.”

Johnson said about 10 percent of Evergreen Homes Loans’ loan volume consists of customers who are low-to-moderate income homeowners. Evergreen, Johnson added, uses Washington State Housing Finance Commission (WSHFC) programs geared toward these types of homeowners, and the company loses money on servicing those loans since it costs more to provide those loans than revenues allowed by the WSHFC programs. A bill like SB 6445 would compel companies like Evergreen to look again at the mix of loans it provides to customers. 

“Consequently, Evergreen would need to reconsider its participation in these programs,” Johnson said. “Local lenders would not be able to compete with national entities that can scale their costs on a national scale.”

Under this act, a current tax on loan interest and a business and occupation tax deduction that applies to home loans, mortgages, or deeds of trust interest would both be repealed. The tax would apply to any interest on mortgages, home loans, and other residential property investments made by financial institutions on or after Aug. 1, 2020.

“We believe non-profit developers and other partners who build these projects have projects ready to go if they have more funding available to them,” Vasavada said. 

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