Bisnow, Special Report, August 12, 2025
(August 15, 2025) -- In May, Chris Edwards, a fiscal studies expert at the conservative Cato Institute, testified before a House committee urging Congress to phase out the Low-Income Housing Tax Credit (LIHTC) program. He called it a “complex and inefficient solution to housing affordability” that drives up construction costs. A month later, The Wall Street Journal editorial board labeled the program a “boondoggle” that “has failed to stimulate more construction while increasing building costs.”
Despite such criticism, the program has recently received a significant boost. On July 4, former President Donald Trump signed tax legislation that increased LIHTC allocations by 12.5% annually, a move celebrated by elected officials and affordable housing industry leaders who see LIHTC as critical to housing low-income Americans.
Another win for the industry came on August 5, when the Federal Housing Finance Agency doubled the cap on LIHTC investments for Fannie Mae and Freddie Mac to $2 billion each. The Affordable Housing Tax Credit Coalition estimates this expansion will help produce an additional 1.2 million affordable housing units.
Emily Cadik, CEO of the coalition, told Bisnow that LIHTC “is essentially the only way we build any new affordable housing at any meaningful scale anymore.”
The Program’s Origins and Alternatives
The LIHTC program was created partly in response to the well-documented failures of mid-20th-century public housing projects. One of the most infamous examples was the Pruitt-Igoe complex in St. Louis, demolished just two decades after construction. Similar fates befell public housing in Newark, Philadelphia, and Chicago, where large developments became concentrated pockets of poverty and crime.
A key turning point came with the 1998 passage of the Faircloth Amendment, which capped the number of public housing units a housing authority could operate at 1999 levels. This effectively halted the development of new public housing. While progressive policymakers have tried in recent years to repeal the amendment, it remains in place.
Craig, a real estate law professor, believes public housing authorities could build units at a lower cost than developers working within the LIHTC framework.
“Investing in deeply affordable public housing, or mixed-income housing more broadly, run by a government entity that can afford to keep it at a low price, is a more sustainable long-term approach,” Craig said.
However, he also warned that eliminating or scaling back LIHTC without an adequate replacement would be “catastrophic” for both the affordable housing sector and the residents who depend on it. Without LIHTC, few affordable projects would be built at all.
Reform vs. Replacement
Craig sees room for significant reform rather than outright repeal. The current process, he said, is overly complex, requiring developers to hire expensive teams of attorneys and consultants to navigate paperwork and compliance. “Many of those kinds of reforms are necessary to make LIHTC work,” he said. Streamlining requirements could reduce costs without sacrificing oversight.
Cadik, representing LIHTC developers, rejects the idea that returning to government-built public housing would be cheaper. She argues that history shows public housing has often fallen into disrepair under government management. Private-sector development with public oversight, she says, has proven “a more accountable and successful model.”
Still, Cadik acknowledges there’s room for improvement. She points to “burdensome” environmental reviews as an example of regulations that add time and cost to affordable housing projects but don’t apply to market-rate developments.
“During this political moment where there’s a lot of interest in reducing regulations and reducing barriers,” Cadik said, “we do hope there’s an opportunity to address some of the challenges that affordable housing developments need to take into account as they’re putting together the financing that market-rate developments simply don’t have to.”
The Stakes
For supporters, LIHTC is the country’s most important tool for producing affordable housing. Since its inception in 1986, the program has financed millions of rental units for low-income households. It works by giving developers federal tax credits in exchange for building or rehabilitating housing with rent restrictions. Those credits are then sold to investors to raise equity for the project, reducing the debt burden and allowing for lower rents.
Critics, however, say this system adds unnecessary layers of cost and complexity. Deals often involve multiple funding sources, each with its own rules, and the application process is competitive and time-consuming. Legal, accounting, and compliance costs can consume significant portions of a project’s budget—resources that could otherwise go directly into construction.
Edwards and the Wall Street Journal editorial board argue that LIHTC inflates building costs by funneling money through multiple intermediaries and subsidizing projects that would be built anyway in some markets. They advocate for more direct, less bureaucratic solutions to housing affordability, such as zoning reform, deregulation, and expanding housing supply through market mechanisms.
Cadik and other proponents counter that while zoning and regulatory reforms are important, they do not replace the need for dedicated funding to house the poorest households—those who cannot afford even reduced market rents. They also note that LIHTC is one of the few housing programs with bipartisan support, in part because it relies on private-sector participation.
Looking Ahead
The recent legislative and regulatory boosts to LIHTC—the 12.5% annual increase in allocations and the expanded investment caps for Fannie Mae and Freddie Mac—signal continued political support for the program, at least in the near term. For the affordable housing industry, these moves could mean a significant increase in new construction over the next decade.
Yet the fundamental debate remains unresolved: Should the U.S. continue relying primarily on private developers, incentivized through tax credits, to build affordable housing? Or should it invest more directly in public or nonprofit-led housing models that could, in theory, deliver units at lower cost and maintain affordability for the long term?
For now, industry leaders are focused on making LIHTC more efficient. Streamlining regulations, reducing duplicative reviews, and cutting administrative costs are seen as key steps toward ensuring more of each dollar goes into bricks and mortar rather than paperwork and fees.
As Craig put it, “If we’re going to keep LIHTC—and right now, it’s the only game in town—we should make it work better. That means simpler, cheaper, and faster, so more people can get into safe, affordable homes.”
Go to Special Report to read the full report.