Herculean Efforts Necessary to Deal with National Housing Crisis

Housing supply and affordability have now been recognized as significant problems throughout the nation. The issues are vast and complex, and the solutions are expensive and controversial. The financial and political implications are widely recognized by both parties in urban, suburban, and rural communities to an extent not seen in decades. Earlier this year, the National Low Income Housing Coalition estimated that the United States has a shortage of 7.1 million affordable and available rental homes. High interest rates, a shortage of land suitable for development, and the cost of land and materials exacerbate the shortage. Existing projects are also becoming increasingly expensive to maintain due to many factors, among them the surging price of insurance.

The increased attention to these problems from policymakers is welcome, but long overdue. This public awakening, driven by the impact on the lives of everyday Americans, has resulted in policymakers taking some concrete steps. However, the scale and complexity of the problems demand many more solutions than are actively under consideration. Furthermore, some actions proposed by the current administration, if adopted, will make the housing affordability crisis significantly worse.

The passage of the One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, will help meaningfully address the housing shortage. However, in the short term, the effects will likely be tempered by many financial and market factors.

The OBBBA permanently increases each state’s allocation of nine percent Low Income Housing Tax Credits (LIHTC) and reduces the amount of tax-exempt private activity bonds (PABs) required to qualify for four percent credits (known formerly as the 50 percent test) from 50 to 25 percent. The accounting firm Novogradac estimated that these changes could produce as many as 1.2 million LIHTC units over the next decade.

Another possible benefit of reducing the 50 percent test to a 25 percent test is that it will provide Housing Finance Agencies (HFAs) with additional bond volume cap, which they can then allocate to different kinds of transaction structures. For the last several years, HFAs, especially in major metropolitan areas with an extreme shortage of affordable units, have faced significant pressure to finance only 100 percent affordable deals. This has meant a shortage of bond volume cap for rehabilitation, preservation, and mixed-income/workforce housing transactions. HFAs should now be able to use the additional bond volume cap that is available because of the 25 percent test to explore alternative transaction structures.

At the same time, there is considerable concern within the industry that the OBBBA’s intended impact will be reduced as a result of several factors:

1.) A Possible Oversupply of Credits:

LIHTCs, for the most part, are sold directly by project sponsors to large financial institutions or to tax credit syndicators who then sell to institutional purchasers.

The purchase price of LIHTCs is a function of supply and demand. When the LIHTC program was first enacted, each dollar of credits was often sold for significantly less than $1. In recent years, the purchase price of LIHTCs, particularly in large metropolitan areas, has been much closer to $1.

The increased allocation of nine percent LIHTCs and the replacement of the 50 percent test with a 25 percent test should significantly increase the availability of LIHTCs, which will likely cause the purchase price of credits to fall. This decline will create a gap in many projects’ capital stacks that HFAs will need to backfill, either with bond financing or subsidy financing.

To mitigate this, the possibility has been discussed of increasing demand for tax credits by amending the LIHTC rules to make the credits more attractive to individual investors as well.

2.) Scarcity of Land and Materials: The price of housing inputs continues to increase. Many large cities face a shortage of vacant, developable land with ready access to transit. Supply chain issues and tariffs have significantly increased the price of raw building materials, like lumber, as well as finishes like appliances. Like the decreased price of LIHTC,  the increased cost of housing inputs will require additional sources of capital to fill the gap.

3.) The Trump administration’s Proposals Regarding Section 8: Earlier this year, the administration proposed combining the five main federal rental assistance programs into a block grant that would be allocated to states and that would constitute 50 percent of the current dollar allocation. Converting federal rental assistance to block grants would be disastrous, since block grants are an easy political target and subject to state and local discretion.

4.) The Trump Administration’s Cuts to HUD Staff and Programs:

By March 2025, 15 percent of staff at the Department of Housing and Urban Development (HUD) had already left the agency voluntarily or had been terminated. The administration’s proposals have indicated plans for a reduction in force of up to half of HUD’s staff. HUD programs support the development, preservation, rehabilitation, and operation of millions of multifamily housing units across the country.

The Federal Housing Administration (FHA), which is part of HUD, provides mortgage insurance for single-family and multifamily loans nationwide; an Urban Institute report from April of 2025 found that, in 2023, the FHA made loans in every Congressional District in the country except for one. HUD and FHA programs are impactful but complex and require significant staffing to be effective. Such severe staffing cuts will meaningfully reduce HUD’s ability to carry out the agency’s mission.

5.) The Trump Administration’s Proposals to Take Fannie Mae and Freddie Mac Public:

Fannie Mae and Freddie Mac (the GSEs) have been in conservatorship since 2008 and the Global Financial Crisis (GFC). In the intervening decade and a half, the GSEs have repaid loans made to them by the Treasury Department during the GFC, rebuilt their reserves, and returned to profitability.

The Trump administration has proposed taking both GSEs public. Such a move could lead the GSEs to greater profitability and innovation (including taking construction risks, which the GSEs have not done historically). However, such privatization also has downsides. It is not clear whether, post-privatization, the federal government will continue to stand behind the GSEs as it does currently. Such a change in the structure of the GSEs, as well as likely investor demands for higher profits, runs the risk of raising borrowing costs for multifamily and single-family borrowers.

There is also some hope at the national level from proposed legislation: the ROAD to Housing Act of 2025 (S. 2651), sponsored by Senate Banking, Housing and Urban Affairs Committee Chair Tim Scott (R-SC) that is currently working its way through Congress and which the Senate Committee on Banking, Housing, and Urban Affairs unanimously voted to advance at the end of July. If enacted, the ROAD to Housing Act would represent the most significant bipartisan action on housing in decades.

Many important elements in the ROAD to Housing Act are encouraging, including, among other elements:

1.) Permanent reauthorization of the HOME Investment Partnerships Program with several vital reforms to the program;
2.) Permanent authorization of HUD’s Community Development Block Grant Disaster Recovery Program;
3.) The Reducing Homelessness Through Program Reform Act;
4.) The Build More Housing Near Transit Act, which creates incentives for applicants for federal transit funding to implement pro-housing policies; and
5.) Raising the Public Welfare Investment Cap Limit from 15 to 20 percent, which would increase investor demand for LIHTC investments.

State and local governments need to take a long-term view of how to produce and maintain housing. Historically, state and local governments have focused on short-term policy approaches, like rent control and rent stabilization, that deal with an immediate problem while neglecting the longer-term strategy of creating housing supply. Zoning and land use reforms, which can also produce additional units of housing, are primarily the purview of state and local governments.

Addressing the shortage of affordable housing will require an all-of-the-above, all-hands-on-deck approach. The housing provisions of the OBBBA have been received with enthusiasm by the affordable housing community. They are, however, only a start. It remains to be seen whether policymakers can meet the moment and summon the political courage to enact the evidence-backed policy reforms that are necessary to address the crises of housing supply and affordability in America.