Mass. Developers See More Possibilities Under Federal LIHTC Expansion
When a new federal law expanded the number of subsidies available for affordable housing, it also scrambled the equations of putting together capital stacks for such projects in Massachusetts.
The One Big Beautiful Bill Act, signed into law July 4, expanded affordable housing subsidies with the goal of increasing the development pipeline for these projects.
The increase in subsidies has opened up opportunities for more dealmaking and funding for affordable housing to the supply-constrained state, said Massachusetts developers and lenders who spoke at Bisnow's Boston Affordable Housing Summit.
However, with this expansion comes more competition and complexity, they warned.
Under the OBBBA, 9% low-income housing tax credit allocations saw a permanent 12% increase in the number of each state's per capita credit ceiling.
It is estimated that Massachusetts will receive an additional $3M in 2026 because of this, according to the state’s Executive Office of Housing and Livable Communities.
WinnCos. President Adam Stein said the increase to the 9% LIHTC credit, which finances some 70% of eligible project costs, has become "the most effective tool we have for the creation of affordable housing."
In addition, the new law allows more developers to qualify for 4% credits by cutting the tax-exempt private activity bond financing requirements in half. Having these tax credits tied to the bonds creates a cap, as states are limited by how many of those bonds they can allocate annually.
Developers now only need to have 25% of their project costs funded by such bonds to qualify, when in the past, the threshold was 50%.
This creates more possibilities, MassHousing Senior Director of Capital Deployment Kathleen Evans said.
"It allows us to touch more deals," Evans said, speaking at the Marriott Long Wharf Hotel in Boston during the summit. "Our pipeline has probably doubled."
Before the last decade, 4% LIHTC deals were used mainly for preservation and rehabilitation. More recently, they have been increasingly used in new construction, Evans said. With the expansion, however, the agency has more flexibility to fund both preservation projects and new developments.
"We're actually seeing that we have a lot more space in our pipeline to bring back those preservation deals," Evans said.
These increases in subsidies have allowed larger government-backed lenders to double their cap and invest more in affordable housing. The expansion is luring more developers and investors into affordable housing projects, Stein said. The increased competition adds pressure to an already time-strapped process.
As a result, Stein said his company has to take on more risks, whether that's buying property without fully lining up financing or signing on contractors early to hold onto favorable pricing.
"We're spending money to keep these deals moving forward, hoping that the deal will close at a certain point and we can catch up. But if we don't do that, all bets are off," Stein said.
The deals are getting bigger as well. Keefe said $50M or $100M deals, which once seemed unusual, are now becoming commonplace.
Massachusetts Housing Investment Corp. CEO Moddie Turay said a lot of big deals are happening outside of Boston in parts of Western and Southern Massachusetts that didn't see that type of equity in the past. Although this is exciting, he said he has had to learn to balance the geographic possibilities with the fact that Boston remains an investment focal point.
"How are we balancing that out when a lot of investors are now hyperfocused on trying to be in the Boston MSA?" Turay said.
Heightened subsidy availability has also put downward pressure on pricing for LIHTC equity projects, Red Stone Equity Partners Senior Vice President Nick Keefe said.
"With such a large supply of credits and a reduced demand, investors are being more particular about the types of projects they choose to pursue and the sponsors they work with," he said.
