As President Donald Trump aims to make America affordable again and cut costs for American families, special interests are concurrently working against the MAGA agenda by trying to add provisions into Trump’s “One Big, Beautiful Bill.”
One of these is the expansion of the low-income housing tax credit (LIHTC), a giveaway to corporate developers to build expensive housing while increasing the deficit. LIHTC projects cost 20% more than the nonsubsidized industry average and expanding the credit under the Senate’s version would cost roughly $15.7 billion over a decade.
Though most of the attention has focused on larger items in the bill, special interest giveaways such as raising the SALT deduction cap, deferring phaseouts for certain green energy subsidies, and expanding the low-income housing tax credit undermine Trump’s plan to make America affordable again. They undercut the One Big Beautiful Bill Act’s intention to provide relief for American families while providing none of the supposed benefits promised it’s supporters.
Under the House version, the 9% LIHTC allocation would increase by 12.5% and the private activity bond financing threshold would be lowered from 50% to 25%, both for a temporary, four-year period (2026-2029). The bill also included a 30% basis boost for properties in rural and Native American areas.
The Senate version of the reconciliation bill increases the 9% allocation to 12%, but permanently. It also lowers the private activity bond financing threshold from 50% to 25% permanently as long as at least 5% of aggregate land and building costs are financed with private activity bonds issued after Dec. 31, 2025, while removing the provision expanding credits in rural and Native American areas.
For context, the 9% LIHTC is a tax credit awarded by states through a competitive process and is designed to subsidize about 70% of a project’s eligible costs. The 4% credit, financed with tax-exempt private activity bonds, is available to all qualifying projects and is designed to subsidize about 30% of eligible costs.
Regardless of whether the expansion is temporary, as in the House bill or permanent, as in the Senate bill, expanding the low-income housing tax credit is the wrong approach to solving America’s housing shortage.
Policymakers across the ideological spectrum recognize that America has a housing shortage caused by supply, not demand. Recently, the National Bureau of Economic Research found that there would have there would be 15 million more homes today if the U.S. housing stock had grown from 2000 to 2020 at the same rate as it did between 1980 and 2000.
The real question, then, is whether the low-income housing tax credit is truly a supply-side solution.
The short answer is no.
On the surface, LIHTC looks like an incentive for developers to boost supply. In fact, the House’s LIHTC expansion would produce around 527,700 affordable homes and the Senate’s permanent expansion of the 25% private activity bonds alone would produce around 1,143,000 affordable homes over the next decade.
However, research shows that “nearly all LIHTC development is offset by crowd out resulting in a corresponding reduction in unsubsidized construction of rental housing units.” In other words, nonsubsidized investors and developers would have also provided much of that housing in the absence of the subsidy. And because LIHTC-subsidized housing is mandated to provide below market rate rents, nonsubsidized developers are disincentivized from building units they would have otherwise pursued in a healthy, unsubsidized market.
Focusing on government subsidized housing programs like LIHTC sidesteps the core of the housing shortage: restrictive regulations, irresponsible fiscal and monetary policy, and open borders. According to the National Association of Home Builders, regulations account for 40.6% of apartment costs.
At best, LIHTC is a Band-Aid on the issue, and at worst, it’s a giveaway to corporate interests that exacerbates market distortions in housing.
To make America affordable again, lawmakers should pursue a bold, supply-side agenda that addresses the root causes of the crisis:
- Reduce unnecessary zoning regulations. Federal lawmakers should encourage state legislatures to reform land-use regulations, such as minimum lot size requirements. In Texas, for example, the legislature passed a bipartisan bill to reduce minimum lot size requirements to 3,000 square feet in new subdivisions. Since most families still prefer single-family homes, reducing minimum lot size requirements makes access to starter homes and entry-level housing easier.
- Rein in the deficit. Reducing the federal deficit will help get excessive government borrowing under control, which is crowding out private credit and keeping mortgage rates high. Instead of artificially lowering interest rates, Congress must curb the soaring deficit and allow interest rates to fall naturally. Of course, it doesn’t help either that the Federal Reserve refuses to cut interest rates after raising them due to Biden-era spending, even though inflation is lower than expected.
- Carry out Trump’s mass deportation plans. Despite claims from the Left that deporting illegal immigrants will increase housing costs, Trump’s America First immigration plans would relieve the pressure on strained housing markets by freeing up supply. There is no empirical evidence that illegal immigration has meaningfully increased housing supply through construction labor. Furthermore, unlike Housing and Urban Development-subsidized programs like Section 8, illegal immigrants are eligible to live in LIHTC-subsidized homesas long as the development does not receive other federal assistance that imposes immigration-related eligibility restrictions.
Cutting the low-income housing tax credit provision out of the One Big Beautiful Bill Act would be a win for American families. Addressing root causes—not providing another corporate subsidy to build expensive homes that are available for illegal immigrants to occupy—offers a path to real affordability for Americans.
