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Nebraska Affordable Housing Act

LB 1322, which included the Nebraska Affordable Housing Act, was passed by the Legislature and approved by the Governor in 1996 (§§ 58-701 to 58-711). Included in the act were provisions that created the Affordable Housing Trust Fund (§ 58-703).

The Nebraska Affordable Housing Trust Fund (NAHTF) is administered by the Nebraska Department of Economic Development (DED). Eligible funding categories under the NAHTF include homebuyer, rental housing, homeowner rehabilitation, technical assistance, and capacity building projects.

• Homebuyer projects finance new construction, acquisition, rehabilitation of existing units, and homebuyer assistance. Approved projects are required to serve homebuyers who earn no more than 120 percent of their area median income.

• Rental housing project requirements are similar, but multi-family rental unit projects must ensure a portion of (or all) the units are affordable to tenants earning 120 percent of the area median income, or less.

• Homeowner Rehabilitation projects provide financing to help owner-occupants repair, rehabilitate, or reconstruct their homes.

• Technical Assistance and Capacity Building projects support nonprofits, communities, or neighborhood-based organizations with funding to increase their ability to create affordable housing.

A portion of the 2024 mid-biennium budget adjustment, LB 1413, ultimately included a fund transfer, which removed $25 million from the NAHTF and sent $12.5 million each to the Rural Workforce Housing Investment Fund and the Middle Income Workforce Housing Investment Fund. According to the Legislative Fiscal Office, the fund balance of the NAHTF at the beginning of FY2024-25 is approximately $36 million.

Middle Income Workforce Housing Investment Act

The Middle Income Workforce Housing Investment Act was created by LB 866 in 2020 (§§ 81-1235 – 81-1243). Carrying out the provisions of the act, DED created the Middle Income Workforce Housing Investment Fund (MWHF), and awards from the fund are intended to support the development of workforce housing in counties with at least 100,000 residents.

The MWHF provides matching grants to nonprofit organizations that administer local workforce housing investment funds. Originally, awards were only directed toward older, urban, and minority neighborhoods in the cities of Lincoln and Omaha.

Eligible projects using MWHF include the construction of new owner-occupied housing that has an after-construction appraised value of at least $125,000 but not more than $330,000. Additionally, funding is available to rehabilitate owner-occupied housing units, but only if the rehab cost would exceed 50 percent of the unit’s before-construction assessed value. After the rehabilitation, the appraised value must be between $125,000 and $330,000. Additional eligible projects include upper-story housing (to be occupied by a homeowner).

For all such projects, the housing built cannot also benefit from federal or state low-income housing tax credits, American Rescue Plan Act funds, or Nebraska Affordable Housing Trust Fund, among other barred funding programs.

In 2023, several MWHF statutes were amended by LB 531. The definition of workforce housing was changed such that owner-occupied units could not cost more than $330,000 to construct, whereas previously an after-construction appraised value was required to be between $125,000 and $275,000.

In 2024, within the Poverty Elimination Action Plan Act (LB 840) provisions from two pieces of affordable housing legislation were passed (LB 843 and LB 881). The requirement that applicants must match a percentage of their MWHF award was reduced from 50 to 25 percent, and the maximum MWHF award was increased from $5,000,000 to $10,000,000. These changes are intended to make MWHF a more attractive housing funding program for developers. Before the bill’s passage, eligible locations only included qualified census tracts in Omaha and Lincoln. Upon the operative date, entire urban communities located in Lancaster County and Sarpy County, such as Waverly and Gretna, may receive awards from the MWHF.

Municipal Density and Missing Middle Housing Act

Also included in the provisions of LB 866 (2020) was the Municipal Density and Missing Middle Housing Act (Act) (§§ 19‑5501 – 19‑5506), which requires affordable housing action plans and reports from certain municipalities.

The Act defines middle housing as duplexes, triplexes, quadplexes, cottage clusters, or townhouses. Affordable housing is defined in the act as attainable units for those earning 80 percent of the area median income.

Cities with a population greater than 50,000 were required to adopt an affordable housing action plan by the start of 2023 and communities with 20,000 to 50,000 residents were required to adopt an action plan by January 2024.

Action plans must include the city’s intentions concerning the construction of new affordable housing units and their ideal percentage of areas zoned for multifamily and middle housing. Furthermore, cities must detail their plans for the use of government incentives and any updates to their zoning codes, ordinances, and regulations that incentivize affordable housing.

The Act also requires that cities (with populations greater than 20,000) submit an affordable housing report every two years to the Legislature’s Urban Affairs Committee. The report must describe the city’s efforts to address the availability of, and incentives for, affordable housing. Eleven Nebraska cities submitted reports in both 2021 and 2023.

City affordable housing reports are required to contain current residential zoning requirements and the percentage of different types of residential zoning areas within the city. In addition, the report must include breakdowns of new residential construction and an estimate of the per-unit cost of housing within the city limits. Cities must also report on whether zoning codes, ordinances, and regulations incentivize residential density or allow for the construction of accessory dwelling units (ADUs). Moreover, the report contains incentives the city provides to encourage the development of affordable housing, generally, and an estimate of demand by price range and housing type.

Nebraska Investment Finance Authority Programs

In addition to state housing funds and required reports, Nebraska’s quasi-governmental investment finance authority for housing offers several programs for homebuyers and home developers.

NIFA Assistance for Homebuyers

First Home - Homebuyer Programs offer below-market mortgage loan rates to first-time homebuyers or those who haven’t lived in or owned a home in at least three years. One option from NIFA, the Homebuyer Assistance Program offers an eligible homebuyer a first and second mortgage loan and requires a minimum investment from the buyer of $1,000. The interest rate for the first loan is higher because of the down payment and closing cost assistance, but the maximum amount for the second mortgage loan is 5 percent of the purchase price of the home. The terms of the second mortgage loan last for 10 years and feature an interest rate of only 1 percent.

Welcome Home - Homebuyer Programs are designed for both first-time and repeat homebuyers, however income level and purchase price limit eligibility. Qualified households must earn less than $160,000 annually, and NIFA restricts the allowable purchase price of a single unit to $470,000 and $601,000 for two units. To qualify for assistance, the buyer must occupy the home as their primary residence within 60 days of the loan closing. The Welcome Home Assistance program offers down payment and closing cost funds to eligible buyers.

NIFA Assistance for Developers

NIFA offers technical expertise and development financing to builders and communities for the creation of affordable housing in Nebraska. Among the many programs available, NIFA is the designated entity that allocates federal and state housing tax credits.

When Congress passed the Tax Reform Act of 1986, it included the Low-Income Housing Tax Credit (LIHTC). According to HUD, the LIHTC program is the most impactful resource for creating affordable housing in the U.S. today.

The LIHTC program issues tax credits for the acquisition, rehabilitation, or new construction of rental housing targeted to low-income households. In Nebraska, LIHTC is credited with creating thousands of residences with affordable rent prices for those with 80 percent area median income or less. In discussion with stakeholders, housing experts noted that DED has made the administrative decision to not allow state funding programs to be paired with LIHTC program funds.

Modeled after the federal LIHTC program, the Unicameral approved the Nebraska Affordable Housing Tax Credit Act (AHTC) in 2017 with the passage of LB 884 (§§ 77-2501 – 77-2508). The AHTC allows owners of qualified affordable housing developments that also receive the federal LIHTC dollars to claim non-refundable state tax credits. NIFA and the Nebraska Department of Revenue are responsible for the administration of the AHTC.

Beyond offering assistance to homebuyers and developers, NIFA also spearheaded the creation of the Nebraska Strategic Housing Council. The Council was formed in 2022 and is comprised of a volunteer coalition of stakeholders from across the state. Coordinated groups of Council members have provided specific suggestions to improve the affordable housing market in Nebraska.

Because the national affordable housing crisis is multifaceted, Council experts divided their efforts into four major groups, or “Strategic Pillars.” The four strategic focus groups are titled Financial Support and Incentives for Development; Education and Policy; Safety Net and Special Populations; and Workforce and Community Capacity.

The Council also identified two specific shared priorities to be achieved by 2028:

• Shared Priority 1: Reduce the number of families facing a cost-related housing burden by 44,000 households. This would decrease the percent of low- to middle-income households that are housing cost burdened in the state from 44 to 33 percent.

• Shared Priority 2: Construct and rehabilitate 35,000 affordable and attainable low- to middle-income rental and owner-occupied housing units. Achieving this goal would reduce the number of needed units by approximately 33 percent. Included in this priority are the strategies of rehabilitating or infilling 3,000 unsafe or dilapidated properties, and a focus on housing and support systems for those earning less than $20,000 annually.

Pillar 1: Financial Support and Incentives for Development

Members of Pillar 1, including employees of NIFA, have suggested the need for targeted funding and incentives to develop homes with a smaller footprint, such as 1,500 square feet or less.

In addition, Pillar 1 members have recommended an increase in housing density by providing funding for lot creation and infrastructure. The plan proposes to increase the affordability of housing units in Nebraska by way of savings passed on to buyers by reducing the cost of the lot. As part of this proposal, NIFA suggested that communities should be required to contribute a funding match and that the property should be required to remain affordable for a minimum of 10 years.

NIFA and the Council currently prioritize securing revolving or recurring statewide housing funding rather than one-time funding. In addition, NIFA suggested that additional down payment assistance funds for homebuyers would help offset rising interest rates and appraisal gaps.

Finally, NIFA suggested that legislative support for existing, and effective, state programs would continue to help produce much-needed affordable housing for Nebraskans.

Pillar 2: Education and Policy

In addition to the general task of educating the public and decision-makers about the need for diverse housing, the prioritized action of Pillar 2 was to create a model statewide housing toolkit. The Toolkit to Increase Housing Supply (Toolkit), released July 2024, is intended to assist all communities in Nebraska to initiate or enhance their development of attainable and diverse housing.

The Toolkit is designed to provide housing stakeholders with guidance and resources that are accessible to all communities in the state. Included in the Toolkit is information about how to organize a local housing working group and how communities can conduct a housing assessment. In addition, the toolkit provides cities with strategies for encouraging increased density and housing-type diversity.

As well as including a list of housing resources, templates, and case studies, the Toolkit addresses mechanisms to remove common barriers to the creation of more affordable housing. Incentives and techniques related to zoning are also discussed in the Toolkit, which may help to increase housing stock diversity, in addition to an invaluable list of development processes and expenses.

Pillar 3: Safety Net and Special Populations

Prioritized actions of the Pillar 3 group include supporting the development of 10,000 affordable housing units for households earning less than $20,000 annually and advocating for increased federal funding for low-income housing and rent support.

The Council is especially focused on housing for populations like the elderly, developmentally or physically disabled individuals, those with behavioral health needs, and justice-involved or recently incarcerated persons.

Low-income housing needs include the development of rental units with supportive or “wrap-around” services and the rehabilitation of older neighborhoods. According to experts, and especially due to current market forces, low-income housing must be subsidized – or it will likely not be built at all.

Part of the work of Pillar 3 is to advocate for increased funding from state sources and federal housing programs, such as the LIHTC program, Permanent Supportive Housing, Housing Choice Vouchers, USDA Rural Development, and other programs.

The Council was also focused on understanding and mitigating benefit cliffs, otherwise known as the “cliff effect.” Referring to the sudden unexpected loss of public assistance that happens with small increases in earnings, the Council planned to advocate for, and support, a study to determine the impact of the cliff effect on housing security or stability.

The Pillar 3 group is also actively advocating for the implementation of Nebraska’s statewide plan for ending homelessness as described in Opening Doors: 10-Year Plan to Prevent and End Homelessness in the State of Nebraska.

Recently, the Council initiated a series of seminars for 10 nonprofits from cities across Nebraska. The meetings will instruct housing developers, who are experienced in serving special populations, about funding sources and best practices to build stable shelter for the unhoused, mentally ill, and others.

Pillar 4: Workforce and Community Capacity

A significant factor related to the affordable housing issue in Nebraska is the lack of desperately needed construction firms and workers, especially in rural areas of the state. NIFA and the Council have been focused on promoting construction trades training and scholarships for trades, including funding the purchase of homebuilding tools for graduates.

The Council also prioritized the development of a home building academy that would support and expand existing efforts to increase the education-workforce pipeline for construction and other housing-trades workers, such as the BuildStrong Academy of Colorado.

Beyond the work of stakeholders on the ground, the national lack of affordable housing has prompted state legislatures across the country to enact laws to help supply more attainable and diverse housing.

Mortgage Portability

In December 2023, research published in The Journal of Fixed Income investigated the possibility of portable mortgages. A significant challenge in the housing market today is inflated mortgage interest rates. Because mortgages are tied to a property, homeowners are less likely to move to more appropriate housing and swap their three percent interest rate for a loan with a seven percent interest rate.

As described by Forbes, the process of porting a mortgage includes the repayment of the existing mortgage on the homeowner’s current residence with the sale proceeds, then the same terms of the mortgage are transferred to the new home. Effectively, the mortgage deal (i.e., rate, terms, etc.) is transferred, not the mortgage loan. However, not all mortgages are portable.

The new research stated that lenders would not require a great sum in order to achieve profitability when porting a loan from one property to another. Although legally complex, allowing borrowers to pay a “portability exercising fee,” such as 3 percent on a $500,000 loan ($15,000), the authors found that amount might be enough to induce the security holder to allow the homeowner to apply their mortgage to a new home, given current market conditions.

Portable loans exist in Canada and Britain, however, loans in those areas commonly feature fixed interest rates for five years or less. Thus, investors in those countries are less likely than in the U.S. to retain loans with low fixed rates for long periods.

Mansion Taxes

Consistent and reliable funding streams for housing initiatives are in constant demand. Proposals have ranged from raising sales taxes, like in Denver, Minnesota, and Washington, to dedicating food and beverage taxes to housing, as in Miami-Dade County, Florida.

However, research produced by the Institute on Taxation and Economic Policy (ITEP) in partnership with the Center on Budget and Policy Priorities detailed a legislative trend of enacting local real estate transfer taxes, or “mansion taxes.” These types of taxes are common in most states, but seven states currently have relatively higher transfer tax rates or higher rates for relatively expensive houses: Connecticut, Hawaii, New Jersey, New York, Rhode Island, Vermont, and Washington.

Additionally, many cities are allowed to levy transfer taxes of their own. Higher rates can be found in cities like Berkeley, California; Evanston, Illinois; New York City; San Francisco, and Washington, D.C. For example, Los Angeles voters approved an additional 4 percent tax on the total transaction for property sales over $5 million and a 5.5% rate for sales above $10 million. According to the L.A. Housing Department, roughly $215 million has been raised in the first year of the program.

However, the mansion tax is derided by business groups, especially by professional realtors associations. In Santa Fe, a judge sided with the challenge of a local realtor’s association and several property owners and struck down a 3 percent tax on the portion of a home sale that exceeds $1 million.

In Nebraska, the documentary stamp tax (a real estate transfer tax) is imposed at a rate of $2.25 for each $1,000 of value of real estate. During the 2024 108th Legislature 1st Special Session, a mansion tax was introduced (LB 36), which would have imposed an additional tax on the sale of relatively expensive homes. In the proposal, homes sold above $2.5 million would have a transfer tax imposed at a higher rate (2.25%) than homes sold above $800,000 (1.25%).

Contact Dillon Cornett for more information