A Proposal to Protect and Expand Affordable Housing Construction Using the Low-Income Housing Tax Credit

Introduction

Affordable housing has long been a cornerstone of economic stability, community well-being, and social equity in the United States. However, the growing gap between housing costs and household incomes has left millions of Americans struggling to secure safe, stable, and affordable homes. In response, policymakers, advocates, and developers have turned to the Low-Income Housing Tax Credit (LIHTC) as one of the most effective tools for addressing this crisis. This proposal outlines a comprehensive strategy to strengthen and expand the LIHTC program to meet the nation’s increasing demand for affordable housing while ensuring its sustainability for future generations.

The Importance of Affordable Housing

Access to affordable housing is not just a matter of shelter—it is a fundamental building block for individual and societal prosperity. Stable housing enables families to save money, invest in education, pursue employment opportunities, and maintain good health. Conversely, housing insecurity can lead to a cascade of negative outcomes, including increased financial stress, poor educational performance, and higher rates of homelessness. Despite these clear benefits, the supply of affordable housing has not kept pace with demand. Rising construction costs, limited public funding, and restrictive zoning laws have all contributed to a shortage of units available to low- and moderate-income households.

The LIHTC program, established in 1986, has played a critical role in bridging this gap. By offering federal tax credits to private investors, the program incentivizes the development and preservation of affordable rental housing. Since its inception, the LIHTC has financed the creation or rehabilitation of over 3 million homes nationwide, serving millions of low-income families, seniors, veterans, and individuals with disabilities. Yet, despite its success, the program faces significant challenges that threaten its ability to address the current housing crisis effectively.

Challenges Facing the LIHTC Program

Several factors have hindered the effectiveness of the LIHTC in recent years. First, the program’s funding levels have remained largely stagnant, failing to account for inflation, population growth, and rising construction costs. As a result, fewer projects are being approved, and those that do move forward often face delays due to insufficient resources. Additionally, changes in the broader economic landscape, such as fluctuations in interest rates and shifts in investor priorities, have impacted the availability of capital for LIHTC projects.

Another challenge lies in the complexity of the program itself. Navigating the application process, securing financing, and complying with regulatory requirements can be daunting for developers, particularly smaller organizations without extensive experience in affordable housing. These barriers disproportionately affect rural areas and underserved communities, where the need for affordable housing is often greatest but the capacity to deliver it is weakest.

Finally, there is growing recognition that the LIHTC alone cannot solve the affordable housing crisis. While the program excels at creating new units, it does little to address issues like tenant protections, eviction prevention, and the preservation of existing affordable stock. Without complementary policies and programs, the gains achieved through LIHTC investments risk being undermined by systemic inequities and market pressures.

Strengthening and Expanding the LIHTC Program

To address these challenges and maximize the impact of the LIHTC, this proposal recommends a multi-pronged approach focused on increasing funding, simplifying processes, promoting equitable outcomes, and integrating supportive services. Each of these strategies is designed to enhance the program’s reach and effectiveness while addressing the root causes of the affordable housing crisis.

1. Increase Funding for the LIHTC The most immediate step toward expanding affordable housing production is to boost funding for the LIHTC program. This can be achieved through legislative action to raise the annual allocation of tax credits, adjust allocations to reflect regional cost differences, and provide additional subsidies for high-need areas. For example, allocating extra credits to states with severe shortages of affordable housing or targeting funds toward projects that serve extremely low-income households could help prioritize resources where they are needed most.

Moreover, Congress should consider making permanent the temporary increase in LIHTC allocations enacted during the pandemic under the Consolidated Appropriations Act of 2021. This measure, which provided a 12.5% boost to credit amounts, was instrumental in jumpstarting stalled projects and preserving jobs in the construction sector. Making this increase permanent would ensure sustained investment in affordable housing and signal a long-term commitment to addressing the crisis.

2. Streamline Processes and Reduce Barriers Simplifying the LIHTC application and compliance processes is essential for attracting more developers and speeding up project timelines. Policymakers should work to standardize forms, reduce paperwork burdens, and provide technical assistance to smaller organizations navigating the system. Creating a centralized database of best practices and case studies could also help disseminate knowledge and foster innovation within the industry.

Additionally, reforms should focus on aligning the LIHTC with other federal housing programs, such as Section 8 vouchers and HOME Investment Partnerships, to create a more cohesive ecosystem of support for affordable housing. Coordinated efforts across agencies would eliminate redundancies, streamline approvals, and leverage multiple funding sources to maximize impact.

3. Promote Equitable Outcomes Equity must be at the heart of any effort to expand affordable housing. Historically, marginalized communities—particularly Black, Indigenous, and People of Color (BIPOC)—have borne the brunt of discriminatory housing policies and disinvestment. To rectify these injustices, the LIHTC program should adopt targeted measures to promote fair access to affordable housing and combat segregation.

One way to achieve this is by incorporating racial equity metrics into the evaluation criteria for LIHTC applications. Projects that prioritize inclusive design, engage local residents in planning processes, and locate housing near transit hubs, schools, and job centers should receive preference. Furthermore, partnerships with community-based organizations and minority-owned businesses should be encouraged to ensure that the benefits of LIHTC investments are shared equitably.

4. Integrate Supportive Services While the LIHTC focuses primarily on physical infrastructure, true affordability encompasses more than just bricks and mortar. Many low-income tenants face additional challenges, such as unemployment, chronic illness, or lack of childcare, that make it difficult to maintain stable housing. To address these needs, LIHTC projects should integrate supportive services like job training, healthcare, and counseling into their operations.

This can be accomplished by fostering collaboration between housing developers, service providers, and government agencies. For instance, states could allocate a portion of their LIHTC funds to projects that include on-site service coordinators or partner with nonprofits to deliver wraparound care. Such an approach not only improves quality of life for residents but also enhances the overall viability of LIHTC properties by reducing turnover and vacancy rates.

Complementary Policies to Amplify Impact

While strengthening the LIHTC is crucial, it is equally important to implement complementary policies that address broader structural issues contributing to the affordable housing crisis. Key recommendations include:

• Tenant Protections: Enact stronger rent control laws, just-cause eviction standards, and legal aid programs to safeguard renters from displacement.
• Zoning Reform: Encourage municipalities to adopt zoning codes that allow for higher density, mixed-use developments, and accessory dwelling units (ADUs).
• Preservation Initiatives: Provide grants and incentives to rehabilitate aging affordable housing stock and prevent conversions to market-rate units.
• Public-Private Partnerships: Leverage philanthropic and corporate investments to supplement LIHTC funding and accelerate project timelines.

Conclusion

The Low-Income Housing Tax Credit remains one of the most powerful tools available to tackle the affordable housing crisis in America. By increasing funding, streamlining processes, promoting equity, and integrating supportive services, we can unlock the full potential of the LIHTC program and create lasting change for millions of families in need. However, achieving this vision will require bold leadership, sustained investment, and a collective commitment to building a more inclusive and resilient housing system. Together, we have the opportunity to transform the dream of affordable housing into a reality for all.

Also Read: Low-Cost Housing