The affordable housing investment landscape is experiencing something it hasn't seen in years: genuine momentum. The Low-Income Housing Tax Credit (LIHTC) program just secured its most significant expansion in history—a permanent 12% increase in each state’s 9% credit allocation, alongside a reduction in the bond-financing test from 50% to 25%. This expansion is projected to finance roughly 1.2 million additional rental homes over the next decade.
But more credits mean more deals, which means the industry needs more investor capital. Nixon Peabody and CohnReznick recently convened industry leaders to explore how the investment ecosystem can scale to meet this moment, what regulatory changes are on the horizon, and what investors want when they're deploying capital.
Panelists
- Andrew Tripp, Partner, Nixon Peabody (Moderator)
- Cindy Fang, Tax Credit Investment Services Leader, CohnReznick (Co-host)
- David Gasson, Partner, MG Housing Strategies
- Bob Moss, Partner, MG Housing Strategies
- Neal Deaton, Managing Director, Wells Fargo & Company
- Catherine (Katie) Such, Head of Regions Affordable Housing, Regions Bank
- John Marti, Partner, Nixon Peabody
Key themes from our “Affordable housing investment” webinar
- Historic legislative expansion creates delivery expectations. The permanent increase in each state’s 9% LIHTC credit allocation and the reduction of the bond test from 50% to 25% represent a fundamental shift in affordable housing finance. Congress is watching to ensure new production and preservation occur, as the industry works to deliver on the projected 1.2 million additional rental homes over the next decade.
- Public welfare investment (PWI) cap-increase gaining momentum. Legislation to raise the PWI cap from 15% to 20% for national banks recently passed the House 390-9 and heads to the Senate. With housing tax credits accounting for roughly 80% of national bank public welfare investments, many banks are currently maxed out, and the increase would unlock significant new investment capacity.
- Community Reinvestment Act (CRA) operating under 1997 rules, while new regulations develop. The CRA regulations have cycled through several iterations across administrations. The industry currently operates under 1997 rules, with new regulations unlikely until 2027 and implementation rolling out through 2028–2030. Despite this uncertainty, the market approach remains business as usual.
- Housing emergency executive order anticipated. Discussion of a potential executive order by the administration continues, with possible reforms, including changes to Davis-Bacon wage requirements, National Environmental Policy Act (NEPA) streamlining, earlier wage rate setting, and Community Development Block Grant (CDBG) program reforms to address zoning barriers. Industry leaders characterize their stance as eager rather than anxious, based on positive conversations with administration officials.
- Regulatory reform targets construction cost reduction. Beyond supply and demand, the industry focuses on reducing per-unit costs through regulatory reform. Both the Road to Housing Act and Housing for the 21st Century Act address NEPA requirements, CDBG reform, and zoning barriers. The goal is to reduce administrative and regulatory burdens, so lower rents can be charged, and lower-income levels can be served.
- Depth of relationship matters. Banks increasingly seek more than equity investments—they want construction loans, permanent financing, deposits, and treasury management relationships. This creates efficiency for both investors and developers, streamlining closings and compliance throughout the 15-year period.
- Guarantor strength and track record face heightened scrutiny. Investors examine whether guarantors are both willing and able to honor guarantees, reviewing track records and analyzing liquidity against contingent liabilities. With guarantor structures becoming more complex and industry performance at pre-pandemic highs, investors want confidence in 15-year partnerships. The encouraging news: post-pandemic portfolio health is improving.
- Multi-investor funds emphasize predictability and targeted geography. Fund sizes remain stable, around $150 million for most syndicators, with some raising larger funds for efficiency. The focus has shifted to creating targeted vehicles for specific CRA footprints and investor needs. Predictability in partners and execution remains important in this space.
- Market yields stabilizing after volatility. After months of volatility, driven by securities markets, interest rate concerns, and trade disputes, yields appear to be stabilizing, as investors begin annual tax planning. While potential market shocks remain possible, the industry has yet to fully absorb the impact of additional credits and the doubling of the government-sponsored enterprises (GSE) cap.
- Measured optimism for the path forward. Despite regulatory uncertainty and market volatility, industry sentiment is cautiously optimistic. The supply expansion is real, demand solutions are advancing, and regulatory reform appears focused on reducing barriers. The industry has the tools to deliver on projections while remaining prepared to adapt to regulatory changes.
