When Congress passed the reconciliation package known as the One Big Beautiful Bill last week, it contained long-awaited provisions to expand and strengthen the Low-Income Housing Tax Credit. The changes to the nearly 40-year-old LIHTC program are expected to finance an additional 1.2 million affordable homes over the next decade.
“This is the largest expansion of LIHTC certainly since I’ve been in the industry so it’s going to have a huge impact on the amount of affordable homes that we can collectively create and finance,” said Julie Sharp, executive vice president and leader of the tax credit equity platform at Merchants Capital. “It’s something we’ve been pushing for in the industry for many years, so it’s really exciting to finally see it passed into law.”
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Matthew Berger, senior vice president & head of policy at National Multifamily Housing Council, called the changes “the greatest extension of LIHTC in a generation.”
“LIHTC is the nation’s premier tax incentive that drives the ability to develop and rehabilitate affordable housing in our country. It’s really exciting to see Congress recognize the affordability crisis that we face,” he said.
For the 9 percent LIHTC credits, generally reserved for new construction, the bill provides a permanent 12 percent allocation increase beginning in 2026. The bill also permanently lowers the threshold of private-activity bond financing from 50 percent to 25 percent for land and building costs of properties placed in service after Dec. 31, 2025. The change is expected to provide an immediate increase in 4 percent bond deals across the country.
The combination could push LIHTC-related investment beyond $15 billion over the next 10 years, according to the Nelson Mullins law firm.
The provisions signed into law on July 4 represent the largest investment in LIHTC in decades and are based on the Affordable Housing Credit Improvement Act which was introduced in 2016, according to Emily Cadik, CEO of the Affordable Housing Tax Credit Coalition, a trade organization that advocates for affordable rental housing financed with housing tax credits.
“I think one of the reasons there was so much support for including the housing provisions in the bill is because this isn’t a new bill that’s going to take years to establish and set up, she told Multi-Housing News. “These are shovel-ready developments that the state agencies are looking at currently and just can’t green light because there aren’t enough resources.”
For the 9 percent side, Cadik said, the 12 percent allocation increase will mean states can finance an additional project right away.
For the 4 percent side, changes were needed to the bond threshold because “most developments don’t want or need 50 percent of their financing to come from bonds, so they often are getting the bonds just so they can get the credit,”
Now investors only need to have 25 percent of their financing come from bonds, which is a more “right-sized approach” and means that the state agencies are not wasting bond cap on these projects so they can get their full percent credit, Cadik added.
“It’s so good to see that 9 percent allocation increase at 12 percent made permanent,” she said. “Obviously the 50 percent tests being lowered to 25 percent and making that permanent is going to be the largest driver of creating new units as part of the tax provisions.”
Projects in every state
Noah Hale, managing director, development for Fairstead, a national real estate firm that builds affordable communities, said his firm also supports the 12 percent increase in 9 percent LIHTC allocations.
“This critical and limited resource plays an important role in the creation and preservation of affordable housing, especially in rural areas and across many states,” he said.
Lowering the 50 percent bond financing threshold test to 25 percent will allow the firm to develop more affordable housing in states currently facing bond scarcity.“This change removes a barrier to affordable housing production overall,” Hale said.
Merchants Capital finances “more 4 percent than 9 percent, but on the equity side, it’s about half and half,” Sharp said.
“Our debt platform focuses a lot on the tax-exempt bonds financed with 4 percent credits because most of our debt takeouts on the affordable side are through affordable GSE loans as well as HUD.”
The change should increase the amount the state agencies can allocate to spread them across a wider range of projects and get more units built, she said, noting there have been a lot of bond-cap constrained states with projects in the pipeline that in some cases have been waiting for years but couldn’t get an allocation of PABs.
“Now we’ll be able to get moving,” she said.
Welton Jordan, chief real estate development officer at EAH Housing, a nonprofit affordable housing developer, said the changes should be good for states with bond cap issues like California and Hawaii. The company manages about 240 properties in the two states. It has about 3,500 units in its pipeline with six that are under construction and 2,000 units that are entitled and awaiting financing.
“We’re actively looking for other deals,” Jordan said. “We have thousands of units and billions of dollars of real estate activity. About half of it needs to be unlocked, and this is a tool that can do it and help us move this along.” He also hopes the changes will mean the company can do more rehabilitation projects in its portfolio.
EAH has started construction on a project in Los Altos, Calif., that is being funded with 4 percent tax credits. The 90-unit 330 Distel Circle will be the city’s first affordable housing project. The apartments will be available to households earning 30 to 80 percent of the area’s median income.
Jordan said he expects to potentially see more deals going through on the 4 percent side. At EAH Housing, the company uses 4 percent LIHTC on about 75 percent of its projects and 9 percent credits for about 5 percent. In California, the cap is about $25 million for equity, and they typically need more than that to fill the gaps to build their developments.
For Owen Caine, assistant vice president of federal legislative affairs at the National Apartment Association, making LIHTC provisions permanent showed Congress “is taking a long-term view of housing, certainly affordable housing, and we are hoping they continue to have that support and long-term financial stability view when appropriations come in (during the fall)…There’s an incredible value for everyone involved in its permanency.”
In other parts of the bill…
Multifamily executives are happy about other parts of the bill, as well. The restoration of bonus depreciation, Hale said, is “materially valuable” to Fairstead and its investors, making their investments more competitive compared to other asset classes.
Meanwhile, the sale of federal lands for housing, a campaign promise of the current President, did not make it into final bill. Caine believes broader consensus is needed before that solution can be employed.
“This is an issue that is not going away for Congress, especially for members of Congress in districts that have a lot of this protected land and a shortage of housing,” Caine noted.
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