The History of the Low-Income Housing Tax Credit—And How it Could Improve Trump's ‘Big Beautiful Bill'

This April, over 150 Republicans and Democrats in Congress came together to introduce the Affordable Housing Credit Improvement Act. The bill aims to address a crisis plaguing nearly every U.S. city: the shortage of low-income and moderate-income housing. Nearly half of American renters spend over 50% of their income on housing, a level that experts consider 'cost burdened," according to the National Low-Income Housing Coalition.
The bill works by expanding a tool—the Low-Income Housing Tax Credit (LIHTC) —which has a long and bipartisan history. Everyone from businesspeople to housing advocates have enthusiastically supported it. The credit helps underwrite nearly all construction of affordable housing in the U.S.
Whether Congress can pass the Affordable Housing Credit Improvement Act (AHCIA) may come down to whether its Republican boosters can get it into President Donald Trump's ' Big, Beautiful Bill," which the Senate is now working on. It would add cost to the legislation, which could cause rifts between GOP legislators. Yet, history indicates that including it could improve a key source of housing for America's 'working poor.'
At the heart of the LIHTC is the idea of giving investors subsidies for building housing. This concept dates back to the era after World War II. Americans may be familiar with the Servicemen's Readjustment Act, the ' GI Bill,' which set up low-interest mortgages for veterans and other home buyers. It produced broad rings of single-family suburban homes around every city. Much less well-known, however, are a series of incentive programs the government enacted to spur the building of rental housing.
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During the late 1940s and early 1950s, the administration of Democrat Harry Truman used a tool called FHA 608 to quickly house veterans returning from World War II and the Korean War. It offered long-term loans and free project-planning assistance to apartment developers and guaranteed them a profit. In many cities, that produced more low-rent units than did the nascent U.S. Public Housing program.
In the 1960s, another Democratic President, Lyndon B. Johnson, pushed a new set of subsidies. Housing was a top concern for Johnson as part of his War on Poverty —leading to his creation of the Department of Housing and Urban Development (HUD) in 1965. His administration used two programs, FHA 221(d)3 and HUD 236, to provide depreciation tax breaks and ultra-low interest loans to private developers of low- and moderate-income apartments. As nationally syndicated financial columnist Sylvia Porter reported excitedly, 'There are unparalleled opportunities for profit awaiting you, the investor, in low-cost housing … as a result of the meshing of giant new housing and tax laws.' A savvy investor could use the 'big deductions … to offset your other highly taxed income'—a technique called a "tax shelter."
As with the earlier Truman program, these subsidies to private developers 'far outdistanced the traditional public housing program' in producing new units, according to the United States Comptroller General Elmer Staats.
During the 1980s, federal housing efforts ran headlong into a rising conservative movement, led by President Ronald Reagan. The right was determined to pare back government spending and slash programs. Congress moved to wipe out most aid to help build affordable housing and replace it with Section 8 vouchers. Instead of subsidizing construction, the government would pay landlords the difference between what a renter could afford and the market rate for rent.
But business leaders and housing activists revolted. They insisted that Congress should create a strategy to stimulate construction of new units. In 1986, their efforts paid off as part of the sweeping, seminal bipartisan Tax Reform Act. Among its many provisions was the Low-Income Housing Tax Credit. LIHTC gave investors a tax credit—an update of the tax shelter idea—if they developed affordable housing or provided dollars to a non-profit doing that work.
From 1986 through to today, the majority of affordable housing in the U.S. has been constructed with this credit. Local or state dollars often supplement it, but without LIHTC, many projects simply would not get built.
The credit has worked pretty well for nearly 40 years, an impressive longevity. But two shortcomings have become apparent.
The first is that when the Reagan Administration launched the program, the idea of mixed-income housing was not yet a goal. So LIHTC regulations favor projects that serve households that make 60% of an area's median income (AMI). That's an important demographic, including teachers, nurse assistants, food service managers, and other similarly situated individuals. But this target is too narrow on both ends. It often prices out the poorest Americans, who make 30% AMI or less, and it also offers nothing to people making 80% AMI, who increasingly need help with today's skyrocketing rents.
A second shortcoming of LIHTC is that funding has not expanded since 1986, when both the population and its needs were dramatically smaller. The result is that, now, meaningful projects are excluded simply because of lack of available money. As Scott Farmer, the head of the North Carolina Housing Finance Agency told me in an interview, 'The worst part of our job is that we get 120 applications a year and can only fund 30 to 35. Those other deals are great deals, we just don't have enough resources to go around.'
The new AHCIA bill recently introduced in Congress aims to address both of those problems.
It would encourage landlords to mingle tenants at all incomes. Mixed-income projects have been considered best-practice for some 30 years now; the AHCIA will help regulations catch up with that reality.
The AHCIA would also dramatically expand the available credits. It would re-institute a temporary increase of 12.5% that Congress approved in 2018 but later allowed to lapse. And it would boost the total by an another 50%, allowing hundreds of additional projects to become reality.
The AHCIA has serious support on both side of the aisle in Washington. Its Senate co-sponsors include conservative Republicans Todd Young of Indiana and Marsha Blackburn of Tennessee, along with liberal Democrats Ron Wyden of Oregon and Maria Cantwell of Washington. The House version of the bill already has 130 cosponsors.
The difficulty in passing the bill may not be opposition. Rather, it's that relatively small tax-related proposals like AHCIA rarely get enacted as stand-alone legislation. Instead, they often get swept up into fierce and partisan debates over taxes and spending. That's precisely what's happening right now in the Capitol—President Trump's 'Big, Beautiful Bill' includes massive tax cuts along with reductions in social service programs such as Medicaid and SNAP (food stamps), increased funding for deportations and border security, and much more. Despite its broad support, the AHCIA could be overlooked amid the bigger battles.
The question will be whether advocates of AHCIA can push some pieces of their legislation into this larger bill. The history provides at least some modest hope. The use of tax credits has deep roots, both among Republicans and Democrats, and a long track-record of success. When Congress adopted LIHTC back in 1986, it came as part of much bigger legislation—so that path is a genuine possibility.
Will leaders in Congress take action in 2025? If they do, the Affordable Housing Credit Improvement Act has the potential to do a lot of good, to expand the housing supply, spur the economy, and help address the affordability crisis plaguing America.
Tom Hanchett is a North Carolina-based historian. His new book Affordable Housing in Charlotte: What One City's History Tells Us About America's Pressing Problem is published by UNC Press.

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