As the nation continues to grapple with cuts to social safety nets, a new provision in the congressional budget bill has provided a significant boost to affordable housing efforts. The recently passed H.R. 1 includes an increase in the Low Income Housing Tax Credit program, which has long served as the primary federal tool for financing affordable housing projects. Starting next year, states will be able to permanently expand their tax credit allocations by 12 percent, giving developers new opportunities to fund and construct projects that can ease the housing shortage.
One of the most notable changes in the legislation is a lowered threshold for tax-exempt bond financing tied to housing developments. Previously, affordable housing projects needed to acquire 50 percent of their total costs through these bonds in order to qualify for tax credits. That threshold has now been reduced to 25 percent, meaning more developments will become eligible for federal credits while freeing up bond funding for other projects. Industry experts suggest this single change could effectively double the number of affordable apartments created each year.
For developers across California and beyond, this reform represents an opportunity to push stalled projects forward. According to county officials, there are currently 13 projects in Santa Clara County alone waiting for tax credits to begin construction. These projects represent nearly 1,400 new apartments that could now move ahead under the revised rules. The budget bill may therefore ease a longstanding logjam caused by the limited availability of federal tax credits.
While the increase in affordable housing is widely welcomed, some community advocates note that the benefit comes alongside cuts to key social programs such as Medicaid and food assistance. They argue that while more affordable housing units will be created, families may still struggle to remain housed if healthcare and food costs rise due to reductions in federal aid. This underscores the double-edged nature of the budget bill, which simultaneously expands one critical support while shrinking others.
Industry analysts estimate the tax credit reforms could add 1.2 million new affordable apartments nationwide over the next decade, averaging about 100,000 new units annually. California alone could see an additional 10,000 affordable apartments built each year. This is a major step forward for a state facing one of the deepest housing shortages in the country. Experts in real estate and housing development agree that expanding the Low Income Housing Tax Credit is among the most effective strategies to boost long-term housing supply.
The Low Income Housing Tax Credit program, created through the Tax Reform Act of 1986, was designed to give investors federal tax benefits in exchange for financing affordable housing developments. Over the years, banks and insurance companies have become some of the largest investors, helping fund projects through a competitive allocation process. Since its inception, the program has helped produce more than 3.7 million affordable apartments nationwide, often with agreements requiring long-term affordability periods of up to 55 years in states like California.
Financing affordable housing developments typically requires a patchwork of funding from local, state, federal, and private sources. This complexity often leaves projects waiting for their turn to receive the necessary credits and bonds. The new provisions in the budget bill are expected to accelerate many of these projects, although experts caution that local funding measures will still be necessary to maintain momentum once the backlog is cleared. In Santa Clara County, for example, the $950 million Measure A bond approved by voters in 2016 has already been fully allocated. The bond has supported the creation of more than 5,700 affordable apartments across 61 developments, with more still under construction.
As the impact of the budget bill unfolds, housing advocates and policymakers will watch closely to see how effectively the tax credit expansion translates into new homes for low-income families. The provision marks a rare bright spot in a budget environment otherwise dominated by cuts, offering a chance to significantly increase affordable housing supply across the United States. For local governments, developers, and residents waiting on new homes, this development provides both hope and urgency to continue pushing for innovative housing solutions.
In the long run, the success of this initiative will depend on continued collaboration between federal and local governments, developers, and private investors. While the tax credit expansion may ease immediate bottlenecks, ongoing funding sources will be critical to sustain production at higher levels. Nevertheless, the changes represent a major policy victory for housing advocates, signaling that affordable housing remains a priority even amid broader budgetary challenges.
