Historic LIHTC Expansion Widens Financing Gaps For Developers

A yearslong slide in equity pricing for low-income housing tax credits is colliding with the program’s expansion under the One Big Beautiful Bill Act, reshaping how deals using the country’s most popular affordable housing tool get financed.

A slight decrease in pricing might suggest weakening investor appetite, but the picture is more complicated in the first months after the expansion went into effect. The OBBBA’s July overhaul increased the supply of credits beginning in 2026, effectively diluting their per‑credit value. 

This dynamic means developers can access larger allocations but thinner equity proceeds, leaving projects in greater need of a wider range of funding sources, such as deferring developer fees or seeking state- and local-level assistance.

“To the extent that pricing goes down a cent or two, that may make a few properties financially infeasible, because a developer may not be able to find all the gap financing needed for that project to go forward,” Novogradac Chief Public Policy Officer Peter Lawrence said. 

There have been fluctuations in the price of the tax credit since its creation, but equity prices for LIHTC, or the price per dollar that investors are willing to pay for the credits, have slowly but steadily declined since the pandemic and hover around 84 cents nationwide, according to Novogradac.

In the first quarter, prices varied by region from 80 to 89 cents, with less populated areas on the lower end of the spectrum. 

The OBBBA brought a highly anticipated expansion to the LIHTC program, which has helped finance millions of affordable housing units in its 40-year history. 

The LIHTC program works by governments distributing tax credits that are ultimately obtained by developers through a competitive process. There are two types of credits, 4% and 9%, which indicate different levels of financing, and they are sold to investors to fund construction of affordable housing. 

The expansion increased allocations for the 9% credit by 12% starting this year, a move that Novogradac estimated would create $1B in the credits' equity every year. 

Lawmakers also reduced the ratio of funds from private activity bonds that LIHTC projects must carry from 50% to 25%.

These changes mean states have more credits to allocate than before, an infusion that created uncertainty around short-term profitability and drove down overall value. 

After the OBBBA passed, Novogradac estimated the changes could mean 1.2 million additional affordable rental homes getting LIHTC financing in the next decade. 

For developers, that means the program’s reach has grown, but its efficiency hasn’t. 

Some projects will get more expensive as credits become less lucrative and more funding sources are required. The work of finding and securing additional sources adds significant costs to affordable housing projects. 

While the pricing over the last year or so has stayed relatively flat in terms of the national median average, per-deal data shows that there is a wide range in prices, including new lows in some cases. 

“The dynamic we're seeing in the full dataset is a much larger standard deviation, meaning pricing is spreading out instead of hugged towards the middle like you would expect. I think the reasons for that are because the market is softening somewhat,” Lawrence said. 

The multifamily market at large is experiencing a supply-demand imbalance that has flattened rent growth, which declined by 1.7% annually in March, according to Apartment List, and put the brakes on new development in most parts of the country. In some areas, more affordable rents for older market-rate housing are attracting renters who might otherwise take a rent-restricted unit. 

But it isn’t just the expansion and slower demand impacting credit prices. 

Everything from interest rates to geopolitical conflict to competing credits can shape the prices investors are willing to pay for these housing credits. Increasing prices for construction materials and labor are another contributor.

“There are a number of factors that influence pricing that make it difficult to isolate what the impact of any given policy change is,” Affordable Housing Tax Credit Coalition CEO Emily Cadik said.

Even other policies meant to complement the LIHTC expansion can contribute to price changes because of uncertainties about their rollouts.

Just after the OBBBA passed, LIHTC investment caps at Freddie Mac and Fannie Mae were doubled to $2B in an effort praised by affordable housing advocates. The new investment caps were effective Jan. 1, but “that doesn't mean the next day that a billion dollars has been deployed,” Cadik said. 

The government agencies, amid a possible take-private transition and a staff shake-up, haven’t started spending that money in a meaningful way, leaving its potential impact hanging as another unknown. 

The affordable housing industry has mobilized to get regulatory and policy changes made that might help expand the pool of investors in all these credits. 

One of the most promising efforts is contained in the 21st Century Road to Housing Act, a bill moving through Congress now. It includes language that would allow banks to increase their investments in projects, including affordable housing built with LIHTC.

Adding investors could help balance out the rush of new supply and aid in meeting the aims of the changes to the program — arguably the largest in its history. An adjustment period for a change of that magnitude is to be expected, according to Cadik.

“With an expansion of the market to the tune of several billion dollars, it just takes awhile to get the investor capital to flow into this newly expanded market,” she said.