Housing

Enhance and Expand the Affordable Housing Tax Credit

The Low-Income Housing Tax Credit, also known as the Affordable Housing Tax Credit (Housing Credit), was enacted in 1986 and is the single most important federal resource available to support the development and rehabilitation of affordable housing. To date, it has financed close to 4 million homes that have housed over 9.2 million low-income families. Housing Credit properties outperform market-rate housing properties, with occupancy rates topping 96% and a cumulative foreclosure rate of 0.66% over the program’s entire history. The units tend to be occupied by very low-income families, with 78% of the residents making less than 50% of the area median income (AMI).

Congress needs to enact the Affordable Housing Credit Improvement Act (H.R. 2725/S.1515). This legislation would enhance and expand the Housing Credit by: 1) increasing the Housing Credit allocation formula by 50%; 2) easing the ability to use the Housing Credit alongside private activity bonds; 3) increasing the Housing Credit’s ability to serve hard-to-reach communities including rural, Native American, high-poverty, and high-cost communities, as well as extremely low-income tenants; 4) better supporting the preservation of existing affordable housing; and 5) streamlining requirements and providing states with additional flexibility.

Increase Availability of Private Activity Bonds to Support Affordable Housing Preservation

Recent analysis suggests that as many as 223,000 Housing Credit units will be at risk of converting to market-rate housing over the next five years.[1] To mitigate losses from the Housing Credit stock, states are devoting a growing amount of bond authority and 4% credits to resyndications. In 2023, older Housing Credit properties comprising over 20,000 units received a resyndication of credits under the 4% program and multifamily bonds.[2] As the Housing Credit inventory grows and ages, states will be forced to use more of their bond and 4% credit resources to resyndicate older properties and will have less and less available to build new affordable housing or dedicate to other preservation activities.

Congress needs to exempt Private Activity Bond (PAB) proceeds used for the rehabilitation or preservation of Housing Credit properties from the state’s PAB cap. PABs are frequently twinned with housing credits to preserve affordable housing. However, states are currently limited in these activities because they are capped in the amount of PABs they can offer, with housing competing against a number of other eligible uses (e.g., airports, infrastructure, education facilities, etc.). Given the need to rehabilitate older Housing Credit properties and the public benefits associated with ensuring that there is funding available to reset the long-term affordability requirements of properties aging out of affordability restrictions, an exemption from the PAB cap should be enacted for multifamily bonds used to rehab existing Housing Credit properties.

[1] Bedayn, J., & Gupta, A. (2024, Oct. 7). As affordable housing disappears, states scramble to shore up the losses. Associated Press.

[2] National Council of State Housing Agencies. (2024). State HFA factbook: 2023 NCSHA annual survey results.

Streamline HUD Administrative and Regulatory Requirements

LISC participates in the Preservation Working Group, which is focused on furthering resources and streamlining existing federal housing preservation programs. We support the group’s efforts to reduce redundancies and save costs for owners through policy adjustments at the U.S. Department of Housing and Urban Development (HUD). Particular initiatives we support include:

• Aligning administration of HUD rental housing programs and development of federal performance metrics for closings with Housing Credit timelines.
• Coordinating with state housing finance agencies to eliminate redundant transaction reviews and physical and compliance inspections for HUD-assisted Housing Credit properties.
• Eliminating redundant “previous participation” reviews for owners already approved in the same calendar year.
• Clarifying that privately owned affordable housing should not be subject to Build America, Buy America (BABA) requirements, since housing developments are private residences. BABA requirements increase costs and project timelines, hindering preservation deals.
• Streamlining the process and requirements for Section 8(bb) transfers of Section 8 Project-Based Rental Assistance from one property to new or renovated properties. Ensure the transfer process does not result in the loss of assistance for the families who were assisted at the initial property and that owners receiving the subsidy have the experience, capacity, and commitment to provide high-quality affordable housing over the long term.
• Reforming HUD’s environmental review regulations to provide categorical exclusions for properties that have received previous federal assistance.

Strengthen the HOME Program

The HOME Investment Partnerships Program (HOME), administered by HUD, is the largest federal block grant to state and local governments (known as participating jurisdictions, or PJs) designed exclusively to create and preserve affordable housing for low-income households. HOME funds are flexible and may be used for a variety of housing activities that other sources may not cover, including preservation of rental housing, homebuyer assistance, rehabilitation of owner-occupied homes, and rental assistance. HOME Program funds often provide either the early support necessary to initiate new affordable rental housing development or the critical gap financing needed to complete developments.

Despite the critical need for these resources, in fiscal year 2025 HOME was funded at only $1.2 billion after being as high as $2 billion over 10 years ago. LISC calls on Congress to restore HOME funding to sufficient levels, and we support legislation (H.R. 2031/S. 948) to reauthorize and streamline the program.

Increase Funding for HUD’s Homeless Assistance Programs

The U.S. Department of Housing and Urban Development (HUD) Continuum of Care (CoC) and Emergency Solutions Grant (ESG) programs are the two main federal programs structured to provide assistance to persons experiencing homelessness. The CoC program ensures communities have coordinated entry systems and supports Rapid Re-Housing, Permanent Supportive Housing (PSH), and transitional housing. The ESG program is a block grant program through states and local governments and funds emergency shelters and homelessness prevention activities.

LISC supports increased resources for HUD’s homeless assistance programs. Increases to these programs, along with additional rental assistance and affordable housing development subsidies, will help our nation make more progress in reducing homelessness.

Increase Resources for Service Providers at Affordable Housing Tax Credit Supportive Housing

Low-Income Housing Tax Credit properties with high concentrations of very low-income and extremely low-income families, including Permanent Supportive Housing (PSH) properties that focus on persons experiencing homelessness, have tremendous difficulty securing the funding needed to support the service needs of their residents. Funding for such services typically comes through grants from governmental entities or philanthropic sources, but often cannot be counted on beyond the initial three to five years of the property being placed in service. When these funds dwindle or disappear altogether, owner-operators (typically nonprofit entities) are left with three bad options: cut back or eliminate service delivery, tap into the operating reserves of the property, or utilize the net assets of the operating entity. In order for these projects to perform well, PSH project sponsors need a way to be able to secure a pool of long-term funding for supportive service delivery. Under current law, the cost of such services cannot be counted as part of eligible development costs and thus Housing Credits cannot directly fund supportive services.

LISC supports legislative proposals to allow project sponsors at properties serving high-needs populations to include within Housing Credit eligible basis a set-aside in a reserve fund to pay for the cost of qualified services to residents in need of supportive services. These funds would be deposited into a dedicated account and used only for qualifying supportive services such as health care, mental health treatment, case management, and other activities promoting housing stability.

Enact the Neighborhood Homes Investment Act

The Neighborhood Homes Investment Act (NHIA) would provide federal tax credits to support the development and rehabilitation of single-family homes in distressed urban and rural communities, where the cost of developing or rehabilitating a home is often higher than the value of the completed home. The NHIA tax credits would cover this construction gap, mobilizing private investment to build and substantially rehabilitate homes for moderate- and middle-income homeowners, while also supporting construction jobs and the local economic tax base. The NHIA would also help existing homeowners in these neighborhoods to rehabilitate their homes.

Expand Resources for Affordable Homeownership

LISC supports increasing affordable homeownership opportunities through comprehensive policy approaches, which address all aspects of the market. This includes:

• Expanding down-payment assistance programs. One of the biggest barriers to affordable and sustainable homeownership for low-income families is an inability to save enough for a down payment and closing costs. LISC supports funding increases for existing programs such as the Community Development Block Grant and HOME Investment Partnership, since they can be used for purchase assistance. We also support legislative efforts to create a new targeted down-payment assistance program.
• Creating a place-based affordable homeownership program. Economically distressed communities face greater housing challenges than other areas, with higher rates of underwater mortgages, abandoned properties, blight, and housing with deferred maintenance. These communities and the nonprofits that serve them tend to have little resources to combat these issues. LISC supports legislation that would create a new affordable homeownership and community investment program at HUD to provide flexible and market-responsive funding for mission-based partnerships confronting these challenges.
• Enacting federal land bank legislation. Land banks are an important housing strategy for acquiring vacant and abandoned properties and bringing them back to productive use, usually as affordable housing. LISC supports legislation that will bring dedicated resources to scale the land bank sector.
• Expanding housing counseling initiatives. Housing counseling provides prospective buyers the financial education and counseling they need to purchase and maintain a home they can afford. LISC supports full funding of HUD’s Housing Counseling Program. This program provides grants to HUD-approved housing counseling agencies and state housing finance agencies.
• Increasing home repair resources. Home repair programs utilize modest public investments to sustain homeownership for low- and moderate-income families and ensure they live in safe and healthy housing. There are two federal home repair programs administered by the USDA and we support full funding for them. We also support recent legislative proposals (S. 127) to provide additional resources for home repair activities.
• Providing assistance for heirs’ property. Heirs’ property, or “tangled title,” refers to instances where a home has multiple owners with no clear title, often due to an owner passing away without a legal will. Owners of properties with a tangled title are not able to access their home equity since a clear title is needed to sell the home at market rate or to obtain a mortgage, qualify for a home repair loan, secure property insurance, or access programs such as delinquent property tax and mortgage foreclosure assistance. LISC is supportive of legislation (H.R. 1640) that would help scale relief for heirs’ property challenges.

Prevent Exploitative Investment Practices

There has been growing concern about increases in institutional investors purchasing single-family housing properties and renting them out. Investors owned 5% of single-family rentals in 2022 although it’s estimated that they may control 40% of single-family properties by 2030. These purchases make it harder for low- to moderate-income families to purchase a home and realize asset-building gains. LISC supports legislative efforts that would deter this practice and further the supply of homes for sale in lower- and moderate-income communities.

Expand Homeownership Opportunities Through GSE Reform

The GSEs play an important role in supporting affordable single-family housing by securitizing mortgages and selling them with a guarantee to private investors. They facilitate affordable homeownership by creating a market for long-term mortgages with low down payments. There is increasing momentum to release the GSEs from federal conservatorship, and we believe that any reform efforts impacting GSEs’ single-family activities should:

• Further the GSEs’ support of affordable single-family mortgage credit for low-income families. The GSEs currently must adhere to annual single-family-housing purchase and refinance goals, which set unit targets for low-income and very low-income households. Any future reforms must include robust goals; and
• Strengthen the Federal Housing Administration. While not a GSE, the FHA provides critical homeownership opportunities for first-time homebuyers, many of whom have lower credit scores. It also plays a counter-cyclical role during times of economic crisis. Any GSE reform proposal must preserve FHA’s ability to pursue its mission.

Support GSE Investments in Multifamily Rental Housing

While Fannie and Freddie experienced losses on their single-family business during the financial crisis, their multifamily business remained profitable. Fannie and Freddie provide vital liquidity for multifamily housing and support for affordable rental housing. Both GSEs must adhere to annual housing goals that set unit targets for low-income and very low-income households, as well as for small multifamily properties. These goals have ensured their multifamily financing activity has primarily benefited low-income households. They are also subject to Duty to Serve requirements, which require them to reach underserved markets.

There is increasing momentum to release the GSEs from federal conservatorship, and we believe that any reform efforts impacting GSEs’ multifamily activities should:

• Continue supporting underserved areas of the market through the GSEs’ Duty to Serve and housing goal obligations. The GSEs adhere to Duty to Serve regulatory plans established through their regulator, the Federal Housing Finance Agency (FHFA). These plans ensure that the GSEs are serving all markets, including rural communities, manufactured housing, affordable housing preservation deals, and others. The GSEs are also held to mission-based loan volume goals. Any future GSE reform must ensure that government-backed securities continue to include these requirements and serve all segments of the market.
• Expand Low-Income Housing Tax Credit investment activities. The GSEs are investors in the Housing Credit market, and their investment volume is set by FHFA. Importantly, the majority of the GSEs’ investments are for mission-related activities, where there are difficulties finding investors, such as certain rural markets. It is essential that this activity continue and be expanded as Congress considers increasing Housing Credits, so all segments of the market receive support.
• Maintain or increase the annual assessment on the GSEs to fund affordable housing through the Capital Magnet Fund and Housing Trust Fund. The Housing and Economic Recovery Act of 2008 established two affordable housing programs—the National Housing Trust Fund and the Capital Magnet Fund —to further production and preservation of affordable housing for low-income families. We believe that any housing finance reform proposal should sustain or increase the level of funding for these programs in light of the nation’s growing affordable housing needs.
• Expand the Federal Home Loan Banks’ support of affordable housing and community development. The FHFA issued a report in 2024 focused on how the FHLB system can better provide liquidity to its members and increase its support of affordable housing and community development projects. LISC supports FHFA continuing these efforts and enacting recommendations in the report.
• Strengthen the Federal Housing Administration. While not a GSE, the FHA insures mortgages for all housing types, including multifamily housing. It also plays a countercyclical role during times of economic crisis. Despite this, FHA receives limited resources from Congress to modernize its operational functions, threatening its mission. Any GSE reform proposal must preserve FHA’s countercyclical multifamily housing function while shoring up its financial health.