How the Build Back Better Act Can Transform Affordable Housing

By the end of this calendar year, practitioners in affordable housing finance and development may be dusting off their project pipelines and new construction dreams as the federal government may pass what is likely a once-in-a-career funding package that will transform lives and communities across the country.

The $153.95 billion funding package included in the administration’s social and climate infrastructure bill, known as the Build Back Better Act, will transform affordable housing finance and development if just fifty percent of the changes found in the mark-up bill are passed into law. I will group the provisions into two categories: direct (program funding) and indirect (financing) investments.

Direct investments:

The mark-up bill contains $117.25 billion in direct investments, with the two biggest pieces earmarked for public housing revitalization ($65 billion) and the Housing Choice Voucher ($24 billion) program. Let’s pause there for a minute to unpack the enormity of these investments.

For the past two decades, housing advocates, researchers and policy makers have been touting the dire needs of the nearly one million (roughly, excluding those converted to the Rental Assistance Demonstration (RAD) program) public housing units throughout the country as well as the over 100,000 of undeveloped units permitted under the Faircloth Amendment (a federal statutory cap on total public housing units) passed in 1974. The deferred maintenance and capital needs of the nation’s public housing units exceed $45 billion by the last and best available assessment complied by the National Low Income Housing Coalition.

The $65 billion investment will rehabilitate and extend the useful life of affordable housing for more than 3,000,000 Americans – assuming a national average household size of three – with low incomes living in units managed by one of the 2,500 public housing authorities in the country. In addition, the funding will spur new construction for over 100,000 units, which could house another 300,000 Americans in need of safe, stable housing. This is a transformative investment.

Those housed under the Build Back Better Bill will be increased by the $24 billion invested in the Housing Choice Voucher (HCV) funding. The HCV program began in 1974 and the Faircloth Amendment was passed by Congress under the hopes that HCV would replace public housing, but it never did. Today, the $24 billion in HCV funding will support millions of families seeking affordable housing in the private housing market. In total, it’s projected that over 5,000,000 families needing decent, safe, affordable housing will be served by these historic investments.

The remaining $25 billion will be invested in marquee community and neighborhood revitalization programs like the Community Development Block Grant ($3 billion), first-time homeowner mortgage assistance ($5 billion), rural housing development ($4 billion), and many other programs (click here for a complete list).

Financing investments:

The mark-up bill also includes critical expansions to a primary tool for financing the development of affordable housing – the Low-Income Housing Tax Credit (LIHTC) program. The LIHTC program has produced over 3,000,000[1] housing units for families with low incomes at or below 60% of Area Median Income (AMI) in a municipality – think housing for our core workforce population making between $35,000 to $65,000 in average annual income.

The LIHTC program provides a baseline investment covering on average about 60% of total costs from which affordable housing finance developers use to raise the remaining 40% of costs from mortgages and other sources. The LIHTC program works by providing federal tax credits to cover a federal tax liability for an investor(s) under a 4% credit (a non-competitive program, producing less credits and limited by a States Bond Cap) or a 9% credit (a competitive program producing more credits, limited by the total tax credits issued by the IRS to states) allocation.

The totality of tax credits produced by a project is defined by the provisions in Section 42 of the federal tax code, which determines the eligible costs (known as Eligible Basis) of a housing project for tax credits. Each state, from California to Michigan, Oklahoma to Maine, are issued a total number of federal tax credits under the LIHTC program annually based on state population size. Therefore, every state benefits from the LIHTC program, and the mark-up bill will increase total available federal tax credits to be issued to each state through 2025, enabling each state to fund more LIHTC housing projects.

In addition, the mark-up bill will expand the eligible costs for housing development by making several adjustments to the federal tax code. The workhorse of the LIHTC program is 4% credits, which are tethered to the use of tax-exempt short-term bonds issued by states. Since the 4% credit is non-competitive, the total number of housing projects are limited by total bond capacity of that state or by the ability of a 4% credit housing project to raise funds to cover the ever-rising cost of materials and labor.

The proposed legislation would decrease the total percentage of eligible costs, to 25% from 50%, covered by tax-exempt bonds for 4% credit housing projects. This seemingly small adjustment could double the amount available for affordable housing projects financed under the 4% program. The doubling of projects will also be supported by boosts in eligibility costs for housing development for persons with the lowest incomes – think of those transitioning from homelessness – on land owned by Indigenous populations, with affordable developers able to access gap funding from the $14.95 billion invested in the National Housing Trust Fund.

We are standing at the precipice of an historic event for us housers. If just half of what is included in the bill makes it into law, project pipelines and new construction dreams of affordable housing developers in every city and every state will experience a once-in-a-career chance to meet our communities’ immediate affordable housing needs.


[1] See, https://ternercenter.berkeley.edu/wp-content/uploads/2021/04/LIHTC-Complexity-Final.pdf#:~:text=Since%20it%20was%20established%20by%20the%20Tax%20Reform,funding%20for%20affordable%20housing%20in%20the%20United%20States.1

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