TOPEKA, Kansas — Kansas lawmakers want to eliminate a tax credit that aims to build affordable homes throughout the state. They say the program costs too much money, despite an ongoing housing shortage.
The 3-year-old Kansas incentive offers state tax credits over a 10-year period that matches what the federal government offers for affordable housing construction. Republican Rep. Sean Tarwater of Stilwell, who proposed a bill to cut the program, said lawmakers created the state’s portion of the credit in 2022 without understanding the full fiscal impact.
He said the program could cost the state billions of dollars over the 10-year lifespan of each awarded credit.
“We could end up bringing this (tax credit) back eventually,” Tarwater told the Kansas News Service, “but we had to stop the bleed at some point.”
The Kansas House recently approved Tarwater’s bill eliminating the tax credit next year. The bill is now in the Senate. It's unclear if Democratic Gov. Laura Kelly supports the plan, but lawmakers may have the votes to override any veto.
That’s despite strong opposition from dozens of local governments, housing advocates and homebuilders. The plan to cut the tax credit also comes as the state faces a housing shortage that’s contributing to rising homelessness.
The shortage is partly caused by a lack of homebuilding over the past 15 years. That has also caused the cost of homes in Kansas to skyrocket because of a shrinking stock of available homes to purchase.
Support for tax credits
Mike Kelly, chair of the Johnson County Board of Commissioners, said removal of the tax credit would significantly hurt his county’s local housing supply. Johnson County is the most populous in the state and features a tight housing market with a lack of affordable housing.
The Johnson County appraiser reported in February that the average home value has increased to $508,000. That’s well above the state average of $300,000.
Kelly said the local economy is growing quickly because of new businesses — like the new Panasonic plant in De Soto — but there is not enough affordable housing for new workers. He said that may lead businesses considering a move to Kansas to look elsewhere, like neighboring states that are investing more in affordable housing.
He also noted that building more housing will help alleviate rising property taxes — an issue state lawmakers say is a top priority this year.
“If we want a long-term, sustainable way to lower property taxes for Johnson Countians,” Kelly said, “we need to broaden that tax base by building more housing.”
Meanwhile, Tony Krsnich, a developer, told lawmakers that the removal of the tax credit would drastically reduce home construction. He said his development group used the tax credit to build more than 2,000 homes in 2023. Without the tax credit, the group would have only built 280 homes, nearly a 90% drop.
Housing advocates also argued removing the tax credit would exacerbate homelessness, which has steadily grown in recent years.
But those concerns were largely dismissed by lawmakers. Republican Rep. William Sutton of Gardner said during a hearing on the bill that the 38 supporters of the program who testified against the bill want to keep the tax credit because it’s so lucrative.
“If you rob Peter to pay Paul, you can always count on Paul's support,” Sutton said. “We had 38 Pauls come in.”
State cost
The Kansas Housing Resources Commission, which oversees the tax credit, reports that it has awarded $75 million of tax credits in the first three years it has been available, which is $25 million each year. Those tax credits are repeated for 10 years, meaning the state is currently on the hook for about $750 million of affordable housing tax credits until 2035.
The federal government is also providing $750 million in credits, resulting in a $1.5 billion investment in affordable housing in Kansas during the program’s first three years. The commission estimates that investment will help build 7,200 new homes.
Despite that, Tarwater said it's too much of a financial burden on the state. He said the state will continue to offer other affordable housing programs, and the federal portion of the affordable housing tax credit will still be available to developers.
Critics of the plan argued lawmakers could enact a cap on the tax credits, rather than eliminating the program completely. Democratic Rep. Stephanie Sawyer Clayton of Overland Park proposed cutting the available tax credits in half.
But that plan was rejected. Instead, some Republican lawmakers suggested creating a new tax credit from scratch that is more targeted to specific needs, like building more homes in rural areas.
Tarwater said the state may also consider less costly subsidy programs, like helping rehabilitate older homes.
“There's plenty of homes out there that are available,” Tarwater said, “but they're not in tip-top shape.”
Tarwater said those plans could be considered next year after the affordable housing tax credit is eliminated.
Dylan Lysen reports on social services and criminal justice for the Kansas News Service. You can email him at dlysen (at) kcur (dot) org.
The Kansas News Service is a collaboration of KCUR, Kansas Public Radio, KMUW and High Plains Public Radio focused on health, the social determinants of health and their connection to public policy.
Kansas News Service stories and photos may be republished by news media at no cost with proper attribution and a link to ksnewsservice.org.
