After decades of steady performance, one of the nation’s most important sources of affordable housing is showing fresh signs of strain. The federal Low-Income Housing Tax Credit program, long considered the government’s primary tool for encouraging affordable rental development, faced new financial and operational pressures in 2024 as elevated costs and stubborn inflation cut into margins, according to CohnReznick’s latest annual report on the program.
Created to offset construction costs through tax credits claimed over 10 years, the LIHTC has produced homes for millions of low-income families, seniors, veterans, Native Americans, farmworkers, and people with disabilities. Since 2018 alone, the program has added about 130,000 affordable rental units. Historically, those properties have remained nearly fully occupied and delivered expected returns to investors, though with a limited financial cushion.
That stability was tested in 2024. CohnReznick reported that lingering pandemic-era effects—such as supply chain disruptions, inflation, labor shortages, and record homelessness—have exposed new risks within the LIHTC portfolio. At year’s end, 31.1% of properties were still in pre-stabilization, 29.6% were in lease-up, and 15.2% remained under construction or stabilization—an unusually high share linked to earlier construction delays and performance setbacks.
Projects that closed between 2019 and 2022 were hit hardest, reflecting extended construction timelines and cost overruns that pushed back credit delivery to investors. Though investment protections such as downward timing adjustors are built into operating agreements to preserve yields, the cumulative slowdown has proved challenging to absorb.
Even among stabilized properties, numbers told a more cautious story. Median occupancy rates stood at 97.0% physical and 95.7% economic, with a debt coverage ratio of 1.46 and more than $900 per unit per year in net cash flow. Yet 25.6% of stabilized assets reported operating deficits, driven mainly by higher expenses and rent collection losses.
Rising insurance premiums, taxes, utilities, payroll costs, and maintenance have driven operating expenses up faster than many deals underwrote, CohnReznick found. Across the LIHTC watch list, expenses grew 10.3% in 2024, compared with 6.9% among stabilized properties. In some multifamily markets, operating costs have increased as much as 7% annually—well above the typical 3% to 5% range.
Although the share of watch-list assets hit a record 16.9%, most were C-rated, meaning they required added oversight but were not at immediate risk of foreclosure; only 2.5 percentage points fell into the D or F categories, consistent with past years. Overall, however, financial performance slipped. About one in four assets failed to break even, and CohnReznick cited a “significant rise in severe debt-servicing difficulties.”
“Elevated inflation, high-interest rates, supply chain and labor market disruptions, and other economic factors have continued to pressure stabilized operations,” the firm wrote, adding that LIHTC properties still benefit from multiple structural protections that help absorb fluctuations.
Even so, 2024 marked a clear turning point for a program that has long been viewed as one of real estate’s most reliable public-private partnerships.
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