Today’s edition sponsored by: JPI, Authentic, Foxen, The Kirkland Company, TeleCloud, and Northspyre.

Party Poopers: Critics on Both Sides of the Aisle Aren’t Celebrating LIHTC’s 40th Birthday. Are They Right?

The Low Income Housing Tax Credit turns 40 years old this month. It’s a milestone birthday, and yet too many housing pundits on both sides of the aisle are not celebrating. Instead, they’re throwing shade. LIHTC is taking heat from all directions these days.

Some libertarians call it government waste. Some progressives call it a corporate giveaway. Some cynics on all sides say the program is no longer needed. They say LIHTC affordable housing isn’t actually affordable. They say market-rate rents are comparable, yet without the tax subsidies.

How should we respond? Let’s break it down with data and common sense. First, let’s do a quick lookback on 40 years of LIHTC.

What’s the Impact of LIHTC After 40 Years?

The Low Income Housing Tax Credit program has financed nearly 4 million units since its creation, most of that through new construction. Far more than any other housing program in U.S. history. It was created 40 years ago this month (October 1986) by a bipartisan coalition looking to create a better solution for affordable housing (more on that further down), and it was initially intended to last just three years before Congress extended it and eventually made it permanent.

As Michael Novogradac, who has been working on LIHTC tax policy since Day 1 back in 1986, told me: “It’s surpassed its intended purpose [and] it’s exceeded its wildest expectations.” (For those interested, Mike joined me in the latest episode of The Rent Roll podcast to talk LIHTC and its critics. Find it on YouTube, Spotify, Apple and Amazon.)

So Why the Haters?

Good question. Let’s break down the gripes. I’ll use actual articles and op-ed pieces that capture common complaints about LIHTC, and respond to each one. (And thank you to Novogradac and others who have patiently educated me on these topics over the years.)

Criticism 1: LIHTC is “the housing lobby’s tax boondoggle” with Inflated Building Costs

The conservative-leaning editorial board of The Wall Street Journal called LIHTC “an entitlement for home builders” and claimed “evidence over 40 years shows the credit has failed to stimulate more construction while increasing building costs.”

There are related articles in cities like Los Angeles and Washington, D.C., that have pointed out (in many cases, very accurately) that it can cost upwards of $1 million to build just one affordable housing unit in the LIHTC program – far more than what a so-called luxury market-rate unit would cost.

Yowzers. Sounds bad, right?

Well, the WSJ and others make the mistake of conflating processes with results. We can acknowledge the results (4 million units with long-term rent affordability guarantees) while also pushing to improve the processes to deliver even better results.

Two quick thoughts:

• First: Let’s acknowledge that costs have spiraled out of control in some cities, yes. But that’s largely because of pork-barrel mandates by cities like L.A. and D.C., among others. Those cities say that if you want to build affordable housing, you have to do a lot of extra things that market-rate builders don’t have to do. For example, you have to pay higher wages to construction workers, you must build extra amenities like childcare rooms and community rooms, you must adhere to elongated review processes and additional environmental requirements, etc.

• It’s all well-intended, sure, but it’s also quite expensive. And contrary to the WSJ’s silly jab, it’s hardly a “boondoggle,” it’s just that cities are driving up actual costs. If you want more amenity spaces and more environmental reviews and more expensive labor, those are real costs – not builder giveaways.

• So, I’d argue: Let’s rein in the “other stuff” and build more housing more efficiently. Never in a million years should it cost more to build affordable housing than market rate. We need to maximize the value of these dollars to ensure we build as much affordable housing as possible.

• Secondly, and critically: Don’t throw out the baby with the bathwater. You’re pointing your criticism in the wrong direction if you blame the developers for this pork barrel spending stuff. Anyone who understands affordable housing development will tell you most of these deals won’t get built without the tax credits; and even if they did, the rents would almost always be much higher than what they are under the LIHTC program. Be real.

Criticism 2: LIHTC is a “Corporate Giveaway” for Wall Street

While some libertarians dismiss it as wasteful, some progressives dismiss it as corporate greed. Here’s an article from the New Republic in 2024 that captures a common viewpoint: “How Corporations Are Cashing In on Subsidized Low-Income Housing.” Others like Shelterforce, while generally supportive of LIHTC, seem frustrated that the private sector has any role in it. Shelterforce in 2023 wrote that LIHTC “benefits big financial institutions to the tune of billions of dollars.”

• First, I’m always amazed how many pro-spending progressives suddenly become fiscal conservatives when it comes to tax incentives for affordable housing development.

• Why would we not want to incentivize the outcomes we want as a society?

• If our government leaders want more affordable housing, which seems like a noble goal, doesn’t it make sense to incentivize it?

• Incentivize the outcomes you want AND ensure there are real results from those incentives. That’s what LIHTC does.

• Most investors would lose money in affordable housing absent some type of incentive. So that means very few, if any, would invest in it. It’d be left to charities and non-profits, and those are great, but there aren’t very many dollars to go around.

• Would you rather companies invest in building affordable housing or, say, data centers and industrial buildings? If those tax credits weren’t creating results, that would be a problem. But I’ve good news for you: We do have results to the tune of 4 million units! That’s a lot of housing.

Criticism 3: LIHTC Affordable Housing Isn’t Actually Affordable

Here’s a criticism we’re getting more often now, captured in a lengthy article from ProPublica. It’s titled: “A Low-Income Housing Program Is Pouring Billions Into Housing Many People Can’t Afford.”

This particular article includes a number of mischaracterizations, which I broke down on LinkedIn a while back, but for now I want to focus on this particular argument: LIHTC isn’t actually affordable.

Here’s an actual snippet from the ProPublica article, which focuses on Portland but also takes aim at LIHTC nationally:

“To meet the affordability requirements, all the developers needed to do in most cases was put rents within reach of someone earning 60% of median income, an earnings threshold that equates to about $75,000 annually for a family of four. It turns out that this amount of rent is now close to what the typical Portland landlord charges without any subsidy. The result of the federal tax credit has been a glut of apartments costing renters on the order of about $1,400 a month for a one-bedroom. That’s a manageable outlay for a family making $75,000 but nearly half the monthly income of someone who earns $35,000 at the local minimum wage … HUD data shows more than 90,000 households in Multnomah County earn less than the 60% of median income that a family would typically need to afford a federally subsidized unit.”

That sounds very worrisome until you realize what ProPublica left out: LIHTC rents are very often well below 60% AMI, and most LIHTC renters earn far less. The max allowable rent is rarely the actual rent. It’s incorrect to say families need to earn 60% of AMI “to afford a federally subsidized unit.”

Here’s the key stat ProPublica and others leave out: Most LIHTC renters are at or below 30% AMI, according to HUD’s publicly available data widely reported by affordable housing groups.

And better yet: The share of LIHTC renters at or below 30% AMI is rising. It went from 44% in 2017 to 57% in 2023, according to Novogradac’s analysis of HUD data. That’s the most recent year available but with all the downward pressure on rents since then, I’d be surprised if that share isn’t even higher now.

So why, then, are LIHTC vacancies elevated in many markets today? The cynics would have you believe that the rents are too high, but operators on the ground tell you a different story. While affordability is always a challenge among lower-income renters, the real operational challenge today is actually a societal success story: Renters have more options! And many are choosing market-rate housing over income-restricted housing.

Why? How? Because we’re at the tail end of the biggest apartment construction boom in 40+ years, and that triggered a widely documented effect that academics call “filtering.” In cities that built a lot of apartments, rents fell across the board from Class A to B to C to LIHTC. In many cases, market-rate apartments are now available in the 50-60% AMI range, which gets into LIHTC territory.

The cynics see these rents and say, ‘Wait a minute, LIHTC rents are the same as market rate rents, so therefore these AMIs are way too high!” But this take misunderstands real-life market dynamics. LIHTC isn’t immune to the laws of supply and demand. If market-rate rents become comparable, LIHTC operators are losing renters to market-rate properties (which don’t have all the burdensome income-certification requirements that renters in LIHTC properties have to go through). So when you lose renters to market rate, what happens? Well, vacancies go up, and you cut rents. Rents fall even in LIHTC.

Never make the mistake of assuming max allowable rents are actual rents. If LIHTC rents were always set to max allowable, vacancies would skyrocket and revenues would plunge. Why would a renter pay more for a LIHTC unit than for a comparable market-rate unit? That makes no sense, yet the cynics would have you believe that’s what happens.

Furthermore: Don’t make the mistake of assuming this trend will last forever. Market-rate rents have dropped (even amidst a high-demand environment) only because a generational supply wave exceeded historically strong absorption. As supply tapers off, market-rate rents will eventually rebound and those rent gaps will likely widen back out. The magic of LIHTC is that it remains locked into affordability criteria regardless.

Here’s a healthier take on today’s market dynamics: If we built so much housing that rents are affordable to households at 50-60% AMI, why are we spinning that as a bad thing for renters? That’s a win for cities. Supply works! Build more of it.

Zooming Out: What is LIHTC and When was it Created?

Now let’s take a step back and look at what LIHTC is and why it works so well.

The Low Income Housing Tax Credit came into existence in October 1986 with bipartisan support as one piece of a major tax reform bill signed by President Reagan.

Why was it created? It was a creative (and initially: temporary) solution to a long-term problem. Neither the public sector nor the private sector could consistently provide quality rental housing for lower-income renters.

A bipartisan coalition created LIHTC as a novel public/private partnership to build and operate low-income affordable housing. We’ll explain how it works, but first: Why can’t the public or private sectors solve the problem alone?

What About Public Housing?

Public housing has played an important role in U.S. affordable housing (and still does), but it has a fatal flaw: It depends on the government funding it every year, and it’s been grossly underfunded at every level of government for decades. We’ve all heard those horror stories. In New York City alone, there are $78 billion of maintenance needs. That’s the risk of public housing. When you put all your eggs in the public basket, you’re making the very risky bet that future election cycles won’t change the priorities. And that’s historically been a bad bet to make.

Unlike public housing, LIHTC does not depend on appropriations from Congress every year — nor is it dependent on city/state budgets.

Why Can’t the Private Sector Solve It?

I once sat on a conference panel with a multifamily industry leader who argued that the private sector alone could solve affordability problems if freed up to do so. My response: At a certain point, the renter incomes are just too low to afford any realistic level of rent needed to justify development.

Unfortunately, the math rarely works for the private sector alone to build and operate true low-income affordable housing.

To build and operate apartments, you need a revenue stream high enough to offset those costs. That means rent has to be above a certain level for the project to work. And too often, that base level of costs – even before accounting for profit – means rents well above what lower-income renters can afford. Even if you believe the private sector is the solution, you must acknowledge that if renter incomes can’t even cover the basic operating costs of an apartment, there’s little the private sector can do.

How Does LIHTC Work?

The Low Income Housing Tax Credit is a very creative (and very complex) public/private partnership designed to do what neither sector could do alone.

For some of us non-CPAs, when we hear the term “tax credits,” it may go over our heads. So how do these tax credits fuel this creative public/private partnership model? I’ll try to break this down in simple terms. (Full disclosure: I’m not a CPA or a LIHTC guru myself.)

1. The federal government provides tax benefits to developers who build or renovate rental apartments. State agencies administer the details and decide who gets the benefits and for what projects.

2. If it’s a developer building an affordable apartment community, the developer can claim these tax credits in equal chunks over 10 years.

3. Because construction has to be paid for up front, developers almost always sell that 10-year stream of future tax credits to investors (usually banks and other financial institutions) in exchange for upfront cash to fund construction. That cash is equity, and the more equity you have, the less you need to borrow.

4. The less you need to borrow, the lower your monthly mortgage payments. (Just like a homeowner, developers and apartment owners make monthly debt payments.)

5. With lower debt payments to make every month, the developer / property owner can charge lower rents without going into the red.

6. Profitability is important because it funds ongoing maintenance and incentivizes additional construction.

7. Of course, the tax benefits come with a big requirement: Rents must remain at affordable levels for a long period of time, typically 30 years. Rents are set based on area median incomes, usually no more than 60% AMI, with no more than 30% of income spent on rent. That means rents can rise only as incomes rise. It’s essentially funded rent control.

Here’s a simple example of how rent gets calculated. Let’s say 60% AMI in a market is $40,000 annually, or $3,333 per month. With a maximum of 30% of that monthly income spent on rent (and utilities), that sets the rent cap at $1,000 per month. (The actual formulas are a bit more complex, but hopefully you get the idea.)

(I should also mention that there are different types of tax credits, different levels of tax credits, 4% and 9%, but we won’t get into all that here.)

Isn’t that Rent Control?

Yes, it is! And it’s the only form of rent control that actually works and it’s because it’s FUNDED rent control.

That funding (the tax credits) creates an incentive for investors to fund affordable housing, whereas traditional rent control – unfunded rent control – is a strong disincentive to build housing, and unfunded rent control has been widely linked to reduced supply. LIHTC solves for that. It’s a true public/private partnership, and it’s a win/win.

— My Latest Posts on LinkedIn —

Here are some recent posts if you missed them:

• Apartment demand through Q3 remained well above expectations.

• A new research paper links poverty to a lack of housing construction.

• Get familiar with the term “base effects,” as its why year-over-year rent growth is quickly improving.

• There is no such thing as Class B/C apartments.

• Apartment construction costs may be increasing again, further limiting how much could get built.

• The WSJ dives into apartment debt distress, though the challenges seem concentrated in a particular type of deal.

• Remember all those predictions since 2023 for how SFR rent growth would soar as mortgage rates jumped? Well, it hasn’t happened.

• Here’s your friendly reminder that Census data on multifamily housing starts is junk.

• How will rents be impacted now that mortgage rates reach 7%?

• Here are the higher-supplied markets already seeing a rent rebound.

• San Francisco is declaring a “rent emergency” after rents spiked 41% in the two years since the city banned rent-pricing software. What happened?

• Another publicly traded REIT is fading into the history books, as Centerspace agreed to merge with (or essentially get acquired by) IRT.

• Austin (and other high-supplied markets) are showing real momentum.

• YTD rent growth is at a 4-year high, but still below pre-pandemic norms.

• Renter households earning >$50k spend just 21.5% of income on rent.

• The rental housing market is increasingly K-shaped, with haves and have not renters.

• Concessions may prove stickier than operators want, and harder to burn off in 2027 even as vacancy improves.

• Renter housings earning more than $50k/year spend only 21.5% on income on rent.

• It’s easy to scream “the rent is too high,” but it’s not that simple.

— Now Spinning on The Rent Roll Podcast —

For 2025, The Rent Roll with Jay Parsons podcast ranked in Spotify’s top 2% of podcasts for minutes played and in the top 1% for most shared shows. Additionally, The Rent Roll continues to frequently rank on Apple’s charts for investing-themed podcasts, and was recently ranked as the third-best podcast in all commercial real estate (and #1 in housing) by the readers of CRE Daily!

Thank you to everyone who’s made The Rent Roll part of your weekly routine! New episodes are released every Thursday morning.

Find us on YouTube, Spotify, Apple and Amazon. Recent episodes:

Episode 104: LIHTC is Under Fire. Is it Still Needed? with Novogradac’s Michael Novogradac

Episode 103: The Case for Multifamily & SFR with BH’s Joanna Zabriskie

Episode 102: Fall 2026 SFR + BTR Update: Are Weak Home Sales Driving Up Rents? with Invitation Homes’ Dallas Tanner.

Episode 101: Hot Takes for 2027 Budgeting with Cortland’s Lee Everett

Episode 100: This Isn’t 2008: James Ray on Distress, NOI and the Equity Swing with James Ray of MetLife and CRE Analyst

Episode 99: Rent Affordability: Myth vs. Reality with Witten Advisors’ Ryan Davis

Episode 98: Inside JPMorgan’s Big Bet on Rental Housing + Capital Markets Update with JPMorgan’s John Hofmann and Karen Purcell

Episode 97: Inside Pretium + 5 Takeaways from the SFR REITs’ Earnings Calls with Pretium’s Stephen Scherr

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