Pro-housing Senate bill has uncertain future

Affordable housing advocates and the municipal bond community appear to have scored a victory via provisions in the Senate’s version of the House’s One Big Beautiful Bill Act. 

“These Housing Credit provisions represent bold action to increase the nation’s housing supply by over one million homes at a time when the affordable housing crisis has reached record levels and has affected every state, district, and community,” said Dudley Benoit, president of the Affordable Housing Tax Credit Coalition board of directors and senior managing director of Walker & Dunlop. 

“The Housing Credit is the most effective tool we have to meet the affordable housing needs in rural, suburban, and urban areas which in turn has proven to generate economic growth, support workforces, and strengthen communities.”

The housing credit provision makes a temporary 12% increase in the allocation of 9% Low Income Housing Tax credits permanent starting in 2026.  

LIHTC’s are issued by state housing finance authorities with the Internal Revenue Service providing oversight. They are typically a key element in the capital stack used to finance affordable housing development. 

The Senate’s version of the bill mirrors the House by dropping the private activity bond financing requirement needed for qualifying for 4% LIHTCs from 50% to 25%.

The federal government maintains a cap on PAB issuance per state and many states are oversubscribed every year.    
  
Advocates believe that dropping the percentage will boost efficiency in PAB usage and spur private investment in affordable housing development. 

Approved projects would carry less debt, and more projects would be eligible to receive funding.

According to Novogradac, an affordable housing consulting firm, “a permanent 25% test alone will finance 1.14 million affordable homes over the next decade than otherwise possible.” 

The LIHTC program was started during the Regan administration as part of the 1986 Tax Reform Act and was expanded during the first Trump administration. 

Both provisions are backed by the AHTCC, the National Association of Home Builders and the National Council of State Housing Agencies, who is already expressing concern about the bill’s future. 

“The bill is likely to meet headwinds moving forward, as not all Republicans are pleased with the outcome thus far,” said Jennifer Schwartz, director of tax and housing, NCSHA.  

“The Senate bill includes deeper cuts to Medicaid spending than the House version, angering some Republicans who have raised concerns about the impact on their constituents, while others think the cuts do not go far enough.”  

NCSHA points to unresolved congressional conflicts over phasing out clean energy tax credits, and the ongoing dispute over the cap on state and local tax deductions. 

The Senate bill keeps the $10,000 cap on SALT deductions while House is insisting on raising the level to $40,000. 

The negotiations are happening under the shadow of a ticking deadline clock counting to what promises to be another major disagreement over raising the debt limit before arriving at the X date, when the country can’t pay the interest on outstanding debt.   

“Republican congressional leaders have very little negotiation time if they are to meet their deadline of having a final bill to President Trump for his signature by July 4,” said Schwartz.  “Given the complexity of the negotiations ahead, it is very possible the timeline will slip.”