LIHTC Market Sees Wave of New Deals

The low-income housing tax credit (LIHTC) market is adjusting to a larger pipeline of transactions following significant changes to the program.

Creating more affordable housing developments was the intent of key provisions in 2025’s One Big Beautiful Bill that provided a permanent 12% housing credit increase beginning this year. The bill also lowered the bond financing threshold from 50% to 25%, also beginning this year.

These changes could finance 1.22 million additional affordable homes over the next decade, according to estimates by the Novogradac accounting firm.

This is good news for communities across the country that need more affordable housing. But until the LIHTC market adjusts, the surge in deals is creating an imbalance, with more projects competing for a limited pool of equity. The dynamic was anticipated, but that doesn’t make navigating the challenge any easier.

“The increase in credit allocations and the lowering of the bond test have both helped create significantly more transaction volume at a time when investor capital has not grown at the same pace,” says Jennifer Erixon, senior managing director, affordable housing equity, at Walker & Dunlop. “That imbalance is contributing to a surplus of deals seeking equity.”

Erixon shares some transactions are struggling to find an investor or achieve the pricing they need to close, particularly smaller deals. “Larger deals are generally finding more traction because investors can deploy significant amounts of capital efficiently, while smaller deals can be more challenging in the current environment,” she says.

Other housing credit syndicators agree that some deals are having a harder time securing capital this year.

“We’re seeing many deals looking for equity (and debt) in markets where they traditionally would have been able to secure those capital sources,” says Mark Gipner, director of fund development at CAHEC. “Deals are coming back around or staying out in the market for a considerable amount of time. The increase should work its way through the market, but it is taking time to clear.”

Looking at the overall market, it might not be just the recent program changes that’s leading to a big pool of deals. Tammy Thiessen, managing director, head of originations and syndications, at RBC Community Investments points to a backlog of deals from 2025 that is still being absorbed. “That continues to be as much a factor in the supply-demand imbalance impact to pricing as the increase in allocations and lowering of the bond test,” she says.

Although the amount of equity in the market has not grown to keep up with the number of deals this year, several syndicators note that investor demand for housing credits remains steady, and the conditions have meant that investors can be selective.

“Appetite has shifted to a flight to quality, driven both from the oversupply of deals in the market and market concerns for various locations around the country,” says Andrew Anania, managing director and head of investor relations at Berkadia.

Investors are placing increased emphasis on sponsor quality, execution certainty, and market fundamentals, adds John Lee, managing director, investor relations and funds management, at Hunt Capital Partners. “Well-structured transactions with strong sponsors continue to attract significant interest,” he says.

His firm is among 22 LIHTC syndicators that took part in Affordable Housing Finance’s midyear survey. Collectively, the syndicators closed on 425 projects in the first six months of this year. That’s up from last year, when 19 surveyed syndicators reported closing on 304 projects in the first half of 2025.

12% Allocation Increase

In the new midyear survey, a few respondents share the impact of the 12% allocation increase is just beginning to be felt.

“Because of the timing of annual qualified allocation plan cycles and state credit award processes, many states are just now making awards that incorporate the larger allocation authority,” says Josh Ghena, president of Cinnaire Equity Partners. “As a result, the full effect of the increase has not yet worked its way through the development pipeline. Over the next 12 to 24 months, we expect the expanded allocation authority to support a meaningful increase in affordable housing production. At the same time, as these newly awarded transactions begin seeking equity, the market will continue adjusting to a larger volume of credits.”

CAHEC’s Gipner adds states will likely have different approaches to allocating the additional credits. “Some are looking at certain geographies, others are looking to fill gaps, while others are trying to spread over their entire allocation to facilitate more units.”

Lower Bond Test

Syndicators have more thoughts on the impact of the new bond threshold at this early stage.

“We’ve seen a rise in the number of 4% deals. However, with reducing the bond test to 25%, this requires each project to carry a larger taxable loan during construction, which has added additional interest rate costs to projects,” says Berkadia’s Anania.

Others also note this issue in recent deals.

“Many transactions, especially rehabilitations, are carrying a significant amount of taxable debt during their construction and permanent phases, increasing the cost of capital and causing additional deferral of developer fees,” says Jason Gershwin, managing director at R4 Capital.

Many states moved quickly to create guidance and allocate the additional credits that the 25% test created, adds Catherine Cawthon, president and CEO of OCCH. “So, we are seeing more bond deals in the market and in more markets. One issue we are seeing with the additional bond deals is that pricing is lower than when some of these deals were structured, so we are focused on diligent underwriting so deals are set up to succeed.”

Steve Kropf, president and CEO of Raymond James Affordable Housing Investments, says he is seeing more large bond deals in the market, “which can be a challenge to place in multi-investor funds and therefore have a limited pool of potential investors.”

After Recent Decline, Prices Expected to Hold Firm

With supply outpacing demand, the market has seen a drop in LIHTC pricing to developers.

The average price paid per dollar of credit in the second quarter was 82.7 cents, according to AHF’s midyear survey. That’s down from about 85.3 cents a year ago.
Yields to investors increased to an average of 6.9%, up from 6.2% in the second quarter of 2025.

Two-thirds of the surveyed syndicators, 67%, expect prices to stay flat in the second half of the year, while 33% expect prices to dip. No one predicts an increase.

“We anticipate pricing to hold steady during the second half of 2026,” says Stephanie Kinsman, managing director, investor relations, at Red Stone Equity Partners. “While additional LIHTC supply is expected to continue to come online over time as a result of recent policy changes, much of that supply is unlikely to translate into near-term closings. At the same time, investor demand should remain relatively balanced, supported by stable bank participation and incremental demand from non-bank investors, including the government-sponsored enterprises and insurance companies.”

Heading into the home stretch of this year and into 2027, several LIHTC leaders say they are concerned about overall economic conditions, including potentially higher interest rates that could put additional pressure on deals. Deal feasibility is another concern.

“While the industry has benefited from significant policy wins, developers are still facing elevated construction costs, higher insurance premiums, and declining rents in many markets, making it difficult to close transactions without additional sources from state and local municipalities,” says John Nunnery, executive vice president, manager of tax credit originations, at PNC Multifamily Capital.

Proposed changes to the Community Reinvestment Act that may reduce the appetite of smaller banks for housing tax credits is another issue being watched.
On the positive side, the recently enacted 21st Century ROAD to Housing Act increases the public welfare investment (PWI) cap from 15% to 20%. This increase has the potential to unlock billions of dollars of investment in LIHTCs, which is important to help drive more capital into the market to help absorb the additional credit volume.

The PWI boost, the LIHTC program’s 40-year history of success, and national attention on the affordable housing crisis give syndicators reason to be bullish for the long term.

“The recent legislative changes provide meaningful new tools to address the nation’s housing shortage, and investor interest in the asset class remains strong,” says Tom Pereira, executive vice president, production, at CREA. “Combined with continued demand for affordable housing, these changes position the industry for sustained growth in the years ahead.”