One month after Congress approved the largest expansion of the Low-Income Housing Tax Credit program in decades as part of the One Big Beautiful Bill, affordable housing advocates are hailing more good LIHTC news from the federal government. The Federal Housing Finance Agency has doubled the amount Fannie Mae and Freddie Mac can invest in LIHTC properties annually from $1 billion to $2 billion each, for a total of $4 billion per year.
The announcement earlier this week from Federal Housing Director Bill Pulte noted half of the GSE purchases will be reserved for difficult-to serve LIHTC markets and at least 20 percent of that half will be for Duty to Serve Rural Communities.
Emily Cadik, CEO of the Affordable Housing Tax Credit Coalition, a trade organization that advocates for affordable rental housing financed with housing tax credits, said the new $2 billion cap “allows each GSE to increase its participation in the housing credit market at a time when the market is poised to grow significantly.”
Although their participation is limited by regulation, Cadik noted that Fannie Mae and Freddie Mac have been major investors in the housing credit market over the years.
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“The extent to which they can invest in the housing credit (market) has been steadily increased since they re-entered the market in 2017,” she told Multi-Housing News. “Their caps were initially set at $500 million of housing credit apiece in 2017, which was increased to $850 million in 2021 and $1 billion in 2024.”
Julie Sharp, an executive vice president who leads the tax credit equity platform at Merchants Capital, said the “increased buying power of LIHTC investments from the GSEs is well-timed.”
“The One Big Beautiful Bill represented the largest expansion of the LIHTC program in a generation, yet it also introduced temporary uncertainty in the pricing markets,” she told MHN. “In order for the intended housing production to materialize, the industry needs to generate a meaningful increase in demand for LIHTC investments from institutional investors to match supply. We are thrilled to see the FHFA recognize the pivotal role that the GSEs play in stabilizing the housing credit equity markets.”
More homes to be financed by LIHTC changes
Cadik said two enhancements to LIHTC included in the new legislation will substantially increase affordable housing production and, with it, the size of the housing credit market.
“Together, these two changes—increasing the annual housing credit allocation and lowering the private activity bond threshold for housing credit developments from 50 to 25 percent—are estimated to finance 1.2 million more affordable homes over the next decade than otherwise possible,” she said.
Cadik noted that LIHTC has financed about 4 million affordable homes since its inception nearly 40 years ago. “This means that the recently enacted housing credit changes will finance nearly one-third of that total just in the next decade, in addition to what the housing credit was already expected to produce,” she said. “This will require a corresponding substantial increase in private investment.”
Advocates and developers had been pushing for the enhancements for nearly 10 years. The FHFA’s decision to raise the GSE LIHTC participation cap is an added bonus that should also spur new and rehabilitated affordable housing in the U.S.
Sharon Wilson Géno, president of the National Multifamily Housing Council, called the FHFA decision a significant move that will improve housing affordability and expand housing opportunities to those most in need. NMHC said the announcement builds on additional good news for LIHTC in the recently enacted federal legislation.
Buddy Hughes, chairman of the National Association for Home Builders and a home builder and developer from Lexington, N.C., stated in prepared remarks that the FHFA’s action is a concrete step toward solving the nation’s housing affordability crisis. Hughes said the additional LIHTC investments by Fannie Mae and Freddie Mac will ensure developers have access to the financial resources to deliver affordable rental homes to millions of Americans who are rent burdened.
David Dworkin, president & CEO of the National Housing Conference, said allowing the GSEs to increase their purchases will help increase demand for the credits and create even more units of affordable housing than would otherwise be the case. He also noted in a prepared statement that the additional investment in the difficult to serve LIHTC markets and Duty to Serve rural communities will make a significant contribution to serving the so-called CRA deserts, where the Community Reinvestment Act is less effective and affordable housing investments are badly needed.
The post Icing on the Cake: FHFA Doubles LIHTC Cap appeared first on Multi-Housing News.
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