How Expanding LIHTC Can Solve the Affordable Housing Crisis

The United States has a critical affordable housing shortage. Continuous rise in the rents and flat wages make it more difficult for low-income households to secure stable housing. The Low-Income Housing Tax Credit (LIHTC) program is the primary policy tool of the federal government to stimulate private investment in affordable rental housing.

 

Though LIHTC has led to more affordable housing production, it does not come close to addressing today’s mounting demand. The program must be expanded and reformed to bridge this gap. But the question is How? and Why? And, the answer is here in this article. Let’s have a look –

The Role of LIHTC in Affordable Housing 

Developed in 1986, LIHTC offers tax credits to private developers to construct or renovate rental housing for low-income residents. The public-private collaboration has financed more than 3.7 million units of affordable housing nationwide, and it is a central component of housing policy. Developers who receive allocations of LIHTC must set aside a number of units for tenants whose incomes are less than a specific percentage of the Area Median Income (AMI) so that housing will remain affordable over the long term. 

 

Even with its influence, LIHTC cannot address the rising housing crisis in the U.S. by itself. According to a report by the Urban Institute, although LIHTC increases affordable housing, the available funding cannot keep up with the increasing demand. The National Low Income Housing Coalition (NLIHC) argues this, highlighting an expanding gap between the existing affordable units and the number of tenants in need.  

Why Expansion and Reform Are Critical 

The housing crisis continues to worsen. Affordable rental demand exceeds supply by wide margins. Though LIHTC has improved, it must be overhauled to meet the full extent of the issue. Increasing and retooling LIHTC is central to establishing sustainable housing options for low-income renters.

 

1. Increasing LIHTC Allocations

 

The Affordable Housing Credit Improvement Act (AHCIA) also seeks a 50% increase in LIHTC allocations, potentially funding the construction of nearly 1.9 million more affordable housing units during the next ten years. Widening availability of LIHTCs would make participation by more developers likely, especially in high-cost communities where land and building costs create barriers.  

 

2. Geographical Parity

 

LIHTC projects tend to cluster in low-income neighborhoods, constraining economic mobility for residents. Suggested legislative changes would provide incentives for builders to construct in areas of high opportunity—areas with improved schools, employment, and transit—more opportunities for low-income families to thrive. 

 

3. Enhancing Affordability Mechanisms 

 

LIHTC now excludes many very low-income families. Increasing income averaging—enabling a blend of incomes in LIHTC developments—may assist those most in need while allowing developers to remain financially viable. 

 

4. Blending LIHTC with Other Housing Solutions

 

The Center on Budget and Policy Priorities (CBPP) states that LIHTC expansion must be complemented with rental assistance programs such as Housing Choice Vouchers. While LIHTC boosts affordable housing availability, tenants continue to find their units unaffordable. A dual strategy would make the homes more financially affordable while maintaining investment viability.  

 

5. Increasing Support for Extremely Low-Income Households

 

LIHTC expansion must act more for very low-income (VLMI) and extremely low-income (ELI) families—those making up to 30% of the Area Median Income (AMI). A proposed reform calls for a 50% basis increase for projects with a minimum of 20% units reserved for ELI tenants. This would create greater affordability without making projects prohibitively expensive for developers. 

 

6. Increasing Compliance and Affordability Terms

 

Recommended changes include expanding the affordability and compliance periods of LIHTC-financed buildings to 50 years, as opposed to the existing 15 to 30 years. This would ensure affordable units are not converted into market-rate housing too early, promoting long-term stability for low-income tenants. 

 

7. Enhancing Tenant Protections

 

As the availability of affordable housing increases, tenant protections also need to be strengthened. Activists advocate for policies such as good cause eviction requirements, the Violence Against Women Act (VAWA) rights, and greater rent and utility calculation transparency. Bolstering these protections would ensure that affordable housing is both stable and accessible for renters.

Innovative Lending Solutions to Support LIHTC Growth 

In addition to tax credits, financial innovations can help fill funding gaps in affordable housing projects. Several industry leaders advocate for leveraging private-sector lending vehicles—such as debt and mortgage-backed securities specifically designed for LIHTC projects to attract additional investment. Broadening these financial tools may make more projects feasible, especially in under-resourced urban and rural areas. 

Conclusion – A Call for Legislative Action 

The affordable housing crisis will not be addressed without a holistic approach. Fortifying LIHTC is an integral part of the solution. Increasing tax credit allocations, incentivizing developments in high-opportunity communities, and integrating LIHTC with rental assistance programs will bear fruit.

 

Policymakers must take action. Organizations such as NLIHC and NAHB advocate reforms that are needed to realize LIHTC’s full potential. Without change, the supply gap for affordable housing will expand further.  

 

The expansion and restructuring of LIHTC are not optional but necessary. Implementing these reforms would allow the U.S. to make significant progress toward providing millions of residents with stable, affordable housing.