Expanded Nine Percent Credits: One Step Forward, Two Steps Back?

The recently passed One Big Beautiful Bill Act (H.R. 1) created major updates to the federal Low Income Housing Tax Credit (LIHTC) program, leaving advocates hopeful about boosts to the overall supply of new and rehabilitated affordable housing.

On the four percent side, the reduction of the amount of private activity bonds (PAB) required to qualify for credits has been halved, from 50 to 25 percent of aggregate basis, which experts say may streamline the program and cause increased production. The nine percent program also received a modest boost, with H.R. 1 increasing the supply of nine percent LIHTCs by 12 percent starting in fiscal year 2026 (indexed for inflation moving forward).

Industry professionals are optimistic that the combined changes to the four percent and nine percent credits will lead to modest increases in housing supply, though they caution that such an increase may be negated if other federal subsidy disappears.

Direct Impact May Be Muted
Bill Brewer is the executive director of Nevada Rural Housing (NRH), which serves a coverage area of 1.3 million Nevadans among the state’s 15 predominantly rural counties, plus the portions of Washoe and Clark Counties which exclude greater Reno and Las Vegas, respectively. Brewer says that the expansion of the nine percent program will not lead to substantial growth in NRH’s annual production of affordable housing. “The increase to nine percent LIHTC sounds fairly significant at twelve percent, but in a practical sense, its real effect is much more muted,” he says.

“Based on Nevada’s allocation of nine percent credits and the cost of construction, Nevada gets around 400 new doors through the program each year,” Brewer explains. “A 12 percent increase could theoretically bring that number up to something like 450 units — an increase of one modest-sized development. While any addition is truly needed and appreciated, this increase will not have an appreciable impact on the sizable need we have in this state for affordable housing.”

At the state level, Brewer predicts that many of the new credits will go to the state’s densest population centers in Reno and Las Vegas. “I would expect to see the additional credits to simply be added to our Qualified Allocation Plan (QAP) and distributed in accordance with its parameters, with most of the funding going to Clark County, and smaller amounts going to Washoe County and the rural counties,” he explains. “This would have a net impact on the rural counties of being able to add a few more units to a proposed project each year, which might move the needle from a 35-unit project to 40 units,” he adds.

Brewer says that this nine percent expansion will have scant impact on Nevada’s four percent program, which will otherwise be “significantly boosted” by the concurrent PAB threshold reduction. “The four percent program is already the major producer of affordable housing in Nevada by far, and has stretched Nevada’s PAB allocation thin. This will add to the state’s bond capacity substantially,” he says.

However, Brewer stresses that more subsidy is needed in order for developers to truly make an impact on housing supply. “Unfortunately, virtually every one of the projects developed with this program needs gap financing to make it work, and there is little-to-no additional gap financing available,” he explains.

In terms of best utilizing the expansion of nine percent LIHTCs, John Nunnery, senior vice president and manager of tax credit originations at PNC Multifamily Capital, suggests that housing agencies take a hard look at their QAPs. “One of the best ways to ensure transactions clear market is to make sure states are allocating credits to transactions that have the highest probability of success,” he says. “Well-structured transactions with good sponsorship in desirable locations will get the most attention. That could mean re-examining QAPs so that they better align with investor interests.”

Expanded Credit’s Impact on Pricing
When H.R. 1 was first being considered by the legislature, syndicators expressed general uncertainty as to the effect that the increased supply of credits might have on pricing in the investor market.

Now that the expansion in credits has been codified, some are predicting a modest softening of tax credit prices overall. “Low leverage nine percent transactions have historically priced better than higher leveraged four percent transactions because of the lower risk,” says Nunnery. “If you increase nine percent transactions and assume no change in the amount of capital available in the market, you naturally force some less desirable four percent transaction out of the market, because the total additional credits in the market are likely going to exceed the amount of investor capital,” he explains.

Brewer predicts that any changes to pricing in Nevada’s affordable housing market resulting from the expansion of nine percent credits will be overshadowed by other changes to federal and state tax codes. “Expansion of the 9% LIHTC could lead to changes in pricing for affordable housing projects in Nevada, but I would not expect this particular issue to have a dramatic impact on pricing,” he says. “Changes to the tax code will have the greatest impact on pricing. The industry saw about a 20% drop in pricing during Trump’s first administration, when corporate taxes were cut substantially,” he adds.

Looking ahead, Brewer is cautiously optimistic that the changes will lead to short-term gains in Nevada’s affordable housing supply; however, he says, the longer term effects remain to be seen.

“NRH has worked with our legislators for several years to promote these provisions, and were extremely pleased to see them as part of this bill,” he says. “However, without gap funding from HOME and Trust funds, which were stripped out of the One Big Beautiful Bill, this win for tax credits feels a bit like ‘one step forward, two steps back’ in terms of real progress.”