Article
What the One Big Beautiful Bill Act means for LIHTC
Aug. 27, 2025 · Authored by Donald N. Bernards, Garrick Gibson
In the face of growing housing shortages, rising construction costs and limited public resources, the One Big Beautiful Bill Act (OBBBA) (P.L. 119-21) could be a game-changer. This legislation introduces major reforms aimed at expanding access to affordable housing and reshaping the financial dynamics of the Low-Income Housing Tax Credit (LIHTC) program.
With permanent changes like increased 9% credit allocations, expanded bond capacity and the return of 100% bonus depreciation, OBBBA offers long-sought tools to boost affordable housing development and investment. But it's true impact will depend on how quickly the industry adapts.
From developers and investors to state agencies and lenders, stakeholders will need to recalibrate. With this in mind, let’s break down three of OBBBA’s most significant changes – and why they matter.
A boost to the 9% credit: Increased allocations, modest gains
One of the most headline-grabbing provisions of the OBBBA is the permanent 12% increase in annual 9% LIHTC allocation authority, beginning in 2026. This long-anticipated change increases each state’s per capita credit ceiling, translating into additional affordable housing projects annually.
To put this into perspective: In 2025, the per capita 9% credit allocation was $3.00. If that increases marginally to $3.05 in 2026 (consistent with past trends), the 12% boost could lift the per capita rate to roughly $3.40. In real dollars, for example, California, with approximately $116 million in 2025 allocation, would see an increase of nearly $14 million.
While that amount won’t flood the market, it will create capacity for additional deals, particularly in states with larger populations and strong development pipelines.
The market is expected to absorb this new supply readily, as 9% deals are typically more appealing to investors due to their simpler capital stacks, stronger credit-to-loss benefit and more straightforward debt structures. These factors drive demand and pricing stability, even as allocations increase.
However, the added capacity, while welcome, will not dramatically shift production levels. In fact, we expect most of the increase in LIHTC supply will come not from the 9% boost, but from the reduction of the 50% test to 25% for 4% deals. That’s where the real volume potential lies.
