The national shortage of affordable housing continues to strain finances for millions of Americans, with the federal Low-Income Housing Tax Credit (LIHTC) being the most effective tool for creating affordable rental homes, adding nearly 4 million since 1986. Over 25 states have implemented their own tax incentive programs based on the LIHTC model, which helps bridge financing gaps in affordable developments, although their effectiveness varies by state.

In 2023, the Affordable Housing Tax Credit Coalition (AHTCC) convened experts to establish best practices for state housing credits, emphasizing the importance of simplicity in program design, building on federal credit knowledge, and ensuring sufficient tax credit authority to meet affordable housing goals. The group identified successful state programs, like those in Georgia, Massachusetts, and Missouri, and provided guidance on how states can avoid common pitfalls.

Key considerations for new state housing credits include the structure of credit allocation (allocated vs. certificated), the duration of compliance periods, and how credit structures affect pricing and investor yield expectations. State agencies play a critical role in designing these programs to complement the federal LIHTC, enhancing the overall financing landscape for affordable housing.

Looking ahead, Congress faces an opportunity to expand the federal LIHTC with bipartisan support, which may include increasing the allocation of 9% credits for affordable housing and lowering bond financing thresholds for accessing 4% LIHTCs. Strengthening both federal and state tax credit programs is crucial to addressing the shortage of more than 7 million affordable homes and alleviating the financial burden on low-income renters.