One Housing Assistance Program Congress Is Actually Expanding

Low-income housing is expensive to build. The lower the income of tenants, the higher the subsidy that’s needed. This summer, as part of the One Big Beautiful Bill Act (OBBBA), Congress approved two provisions to expand support for low-income housing construction, even as it sought to cut many other social programs.

In the One Big Beautiful Bill Act, enacted in July, Congress made changes to two major components of the Low-Income Housing Tax Credit (LIHTC). It expanded the overall amount of credits that states will receive, while also making it easier to finance construction.

Both changes were included in a bill called the Affordable Housing Credit Improvement Act, which advocates have been pushing in Congress for years. The overall bill, which is much broader, has wide bipartisan support, but only the two provisions in the OBBBA have made it into law.

What could those provisions accomplish? The OBBBA provisions could finance an additional 1.22 million rental homes over the next decade, assuming enough financing is available, according to Novogradac, a public accounting and consulting firm. That estimate assumes all states will devote certain types of bonds exclusively to affordable housing construction, says Peter Lawrence, Novogradac’s chief public policy officer. Taking full advantage of the new rules would also require lots of other financing, from private and public sources, to fill in the gaps on low-income housing projects.

The availability of those sources is far from a sure thing. Not only is private debt financing subject to economic fluctuations but other common sources of public funding are under threat. Many Low-Income Housing Tax Credit projects are paired with Department of Housing and Urban Development funding, including project-based Section 8 vouchers and HOME grants to state and local governments.

Additionally, many tenants in LIHTC properties also use Housing Choice Vouchers to help afford the rent. The Trump administration and the Republican-led Congress have considered cuts to all those programs; advocates say they’re not likely to expand in coming years. OBBBA also made cuts to food assistance and Medicaid, which many low-income people use to make ends meet.

“On the one hand, there was this increase made to the LIHTC program that could help some families, but on the other hand those same families are really going to be struggling because of the other provisions in the bill,” says Libby O’Neill, a senior policy analyst with the National Low Income Housing Coalition, an advocacy group.

A Private Approach

For the last 40 years, the federal government has turned away from funding large-scale housing projects and instead has focused on helping to finance private developments with units reserved for people with low incomes. The Low-Income Housing Tax Credit program was created by Congress in 1986.

Tenants in LIHTC units typically earn between 50 and 60 percent of area median income. Since its inception, the program has helped finance more than 54,000 projects, including 3.7 million housing units.

“Since the mid-1980s. it’s been by far the largest contributor to the creation of new subsidized housing units in the U.S.,” says Yonah Freemark, a housing and land-use researcher at the Urban Institute, a think tank. “There’s literally no comparison with any other program out there.”

It works by providing low-income housing developers with tax credits that they sell to private investors in exchange for upfront equity in a construction or rehabilitation project. To understand how Congress expanded the law — including what it might mean for housing production and why it’s different from other programs that they sought to cut — it’s important to understand some of the details of the program.

There are two types of tax credits available for projects. One is a 9 percent tax credit that’s attractive to investors and valuable for developers. The credits are designed to cover about 70 percent of the cost of a project. Each state gets a capped amount of tax credits each year, based on population: $2.90 per resident in 2024, for example. Every year, most states distribute all of their 9 percent credits and see demand for more projects.

The other credits are known as 4 percent credits. These are designed to cover about 30 percent of a project’s cost, are unlimited and can be claimed by any project that qualifies. But qualifying projects must cover a certain amount of their overall cost with private activity bonds issued by state and local governments, which are tax-exempt municipal bonds used to finance projects for private entities or businesses, rather than for governmental units.

The OBBBA lowered the threshold for bond financing to qualify for the 4 percent credits. Previously, bonds had to be used for half of a project’s cost. Now, it’s 25 percent. That means, theoretically, that 4 percent credits and bond financing could be paired together on more projects, but it would also require more gap financing from other sources.

Low-Income Housing Tax Credits are provided to states, which in turn invite developers to compete for them to pay for new construction or rehabilitation of projects that serve low-income people. Developers submit detailed applications explaining the cost of their projects, how many units are subsidized and at what level of subsidy, and what other funding sources they’re using. If they’re awarded credits, they sell them to investors, who get a reduction on their tax bills for each of the next 10 years.

“It has this unique blend of public support and support from private industry,” Freemark says. “The fact that it involves bankers, lawyers, syndicators and investors means that all those people have skin in the game. In that sense it’s kind of brilliant in the American context.”

That dynamic helps explain why government support for low-income housing went into a bill largely focused on cutting social services, even as federal support for housing also appears to be heading to the chopping block.