The Federal Housing Finance Agency’s decision to double the investment cap on Low-Income Housing Tax Credits for Fannie Mae and Freddie Mac is drawing praise from across the affordable housing sector, with industry leaders anticipating the move will inject up to $2 billion from each government-sponsored enterprise into sorely needed projects. However, while the expanded cap is widely viewed as a crucial boost to affordable housing development, experts caution that regulatory hurdles, staffing constraints and fundamental market conditions could limit its impact.
Attorneys and advocates were quick to point out that the move builds on other recently enacted policy changes. Chad Cummings, CEO of Cummings & Cummings Law, told GlobeSt.com that the federal cap increase complements “the recent permanent expansion of the LIHTC program under Public Law 119-21, which increases credit allocations by 12% and lowers the bond-financing threshold from 50% to 25%.” According to Cummings, these changes are designed to create additional equity and give states the resources to finance more affordable housing developments.
Danielle Ash, partner and Impact Practice Co-Chair at Adler & Stachenfeld, noted that lower bond financing requirements, combined with increased tax credits, “should produce more opportunity for LIHTC development, overall,” broadening the pool of affordable housing projects that could now secure funding.
Yet, as the regulatory adjustments promise new opportunities, they also introduce fresh dynamics for developers and investors, such as capital availability. “With Congress recently increasing the amount of housing credits available and lowering the bond financing threshold, we now have a lot more affordable housing projects that could move forward—if the investor capital is there,” Allen Feliz, vice president of solutions and innovation at MRI Software, told GlobeSt.
Despite optimism about the increased funding, some experts caution that practical challenges persist. Clark Finney, first vice president and director of capital markets at Matthews Real Estate Investment Services, emphasized the strain developers are facing amid tight development financing.
“With development financing being tight on leverage, developers are facing bigger equity gaps, so the LIHTC rate bump from 9% to 12% means there’s more attractive credit available to raise capital and fill the gap,” he explained to GlobeSt.com.
Finney underscored that the expanded GSE capacity is essential, noting, “Those credits only matter if there’s someone to buy them, and that’s where the expanded GSE capacity really comes into play.”
However, not all voices in the field are convinced that the expanded cap will be a comprehensive solution. Ash warned that bringing LIHTC projects to fruition remains a complex and time-intensive process. She added that diminished staffing and capacity at various government levels could mean the additional capital remains out of reach for many projects.
Further complicating the outlook is uncertainty over how the increased funding might influence the nature of new projects, particularly in rural or underserved markets. Amanda Paracuellos, principal at Paracuellos Law Group, told GlobeSt.com that despite the expanded availability of credits, fundamental considerations—such as local market demand, land availability, zoning and other community needs—would continue to constrain what developers can pursue.
“A large, 200-unit complex isn't appropriate or needed in a small town,” she pointed out, emphasizing that the scale of new developments will still differ dramatically from market to market.
As the industry grapples with both fresh capital and ongoing practical constraints, experts agree that the FHFA’s move marks a significant step forward. Yet, they stress that lasting progress in affordable housing will also hinge on continued private investment, efficient project execution and robust support from all levels of government, according to sources who spoke with GlobeSt.com.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.