'This Is A Big Deal': LIHTC Could See Most Significant Reform In Decades

As America’s affordable housing crisis digs in, rooting deeper and reaching more broadly into the economy, the country’s most productive source of funding for affordable housing faces its most significant overhaul in its 38-year history.

The Low-Income Housing Tax Credit has helped facilitate the creation of millions of affordable homes since its creation in 1986, and changes to the credit built into the $78B Tax Relief for American Families and Workers Act could significantly broaden its scope and accessibility.

Estimates project that these changes could facilitate the creation of about 200,000 new affordable units nationally in the next few years.

"200,000 units means 200,000 families that will be able to live in quality affordable housing,” NRP Group Senior Vice President of Strategic Partnerships and Government Affairs Debra Guerrero said. "Without this legislation, those are 200,000 units that would not be built." 

The measure advanced through the House of Representatives with bipartisan support last month. But it now faces the closely divided Senate, which has yet to schedule hearings and is also considering matters such as the federal budget and potential spending on conflicts abroad.

If approved as written, the bill would reinstate a 12.5% boost for the 9% version of the LIHTC that was implemented in 2018 but expired in 2021. The bill would allow states to allocate more credits for affordable housing projects, effective for taxable years beginning after Dec. 31, 2022. It would also lower the threshold of 4% state and local tax-exempt bond financing a project has to receive for its developer to qualify for the maximum credits to 30% instead of the current 50%. 

Novogradac partner Dirk Wallace said the threshold reduction will be especially important for maximizing affordable housing. When developers need to meet the 50% threshold, “a lot of times they may take on additional debt or incur additional costs to meet that 50%,” Wallace said. “As we're looking at the 30%, not only would it use less taxes and bonds, but it also brings down the cost per unit on some projects.” 

“This is a big deal,” Wallace said.

Guerrero agreed, saying the impact of that adjustment alone would be “tremendous.” For Texas, where she is based, reducing the 50% bond threshold to 30% means bonds could be distributed along a greater number of deals. Guerrero estimated that, based on the amount of tax credits that Texas currently gets annually, the changes could amount to eight more developments that wouldn’t otherwise be built.  

Novogradac has previously said the two adjustments listed in the bill “would have a profound effect on affordable housing development and would likely make up the largest increase in affordable rental housing resources since 2000.” Nationally, there are roughly 2.6 million rental units that are income- and rent-restricted because they received LIHTC financing, according to the National Low-Income Housing Coalition. The addition of 200,000 new units would increase that number by 7.7% at a time when more Americans than ever before are coping with the skyrocketing cost of housing.

Homelessness hit a record high last year, increasing 12% over 2022’s figures. The National Low-Income Housing Coalition has found that no state in the country has an adequate supply of affordable housing that the poorest renters can afford. Studies have repeatedly shown that the main driver of homelessness is a lack of available housing that people can afford. 

Even among those not at the bottom of the income spectrum, housing prices are becoming increasingly untenable. A Joint Center for Housing Studies of Harvard University report released earlier this year found that half of U.S. renters were paying more than 30% of their income toward rent and utilities, meaning that rent for those people was unaffordable. 

Though increasing the supply of housing that renters can afford is a key element of mitigating this national problem, not everyone is convinced that the provisions for affordable housing in the legislation will have a meaningful impact. One skeptic is the National Low-Income Housing Coalition, which focuses on the housing needs of extremely low-income renters, “the only population experiencing an absolute shortage of affordable housing,” their website notes. 

The organization was “disappointed” by the LIHTC provisions in the largest legislation, “which fail to include key reforms to ensure homes built with LIHTC financing are better targeted to households with the lowest incomes and those experiencing homelessness,” NLIHC Manager of Public Policy Kim Johnson told Bisnow in an email.

“There is a national shortage of over 7.3 million homes affordable and available to people with the lowest incomes, and the LIHTC provisions in the tax bill will do little – if anything – to address this shortage,” Johnson wrote.  

Even LIHTC-financed units are usually too expensive for the lowest-income households, Johnson said, noting that more than half of extremely low-income households – those making 15% to 30% of the area median income – living in LIHTC units spend more than half of their income on rent and utilities every month. As such, these families are still an emergency expense or lost job away from homelessness, despite already living in subsidized housing, Johnson said. 

The provisions of the tax package relating to the Child Tax Credit program are more likely to make an impact on housing costs for the most low-income populations, Johnson said, as many recipients have reported using the credit to help cover their housing costs. Those parts of the legislation are much more contested among senators. 

It's unclear when the Senate might consider the Tax Relief for American Families and Workers Act, but supporters look to the fact that the LIHTC provisions are included at all in such a highly visible package as a positive indication of things to come. 

"There've been a lot of solutions proposed to help with housing supply and housing affordability, but it's been pretty rare for them to end up in any kind of must-pass package," Mortgage Bankers Association Senior Vice President for Legislative and Political Affairs Bill Killmer said.