Affordable Housing Construction Act
- Sponsor
- Sen. Whitehouse, Sheldon [D-RI]
- Committees
- Finance Committee (primary)
- Last action
- Sep 30, 2026
Bottom line
The bill substantially reforms and expands the Low-Income Housing Tax Credit program to incentivize the development of more affordable, sustainable, and accessible housing, while also strengthening long-term affordability requirements.
What it actually does
This bill significantly expands and modifies the Low-Income Housing Tax Credit (LIHTC) program by increasing the state housing credit ceiling, introducing new credit enhancements for projects meeting specific criteria (e.g., prevailing wage, renewable energy, public transportation access, disability accessibility, extremely low-income tenants), and mandating that a portion of state allocations go to these targeted projects. It also lowers the tax-exempt bond financing threshold, extends the required affordable use period for projects, and eliminates the 'qualified contract' option for future projects, which allowed owners to exit affordability requirements after 15 years.
Proponents argue
Proponents argue that the bill is a critical step to address the national affordable housing crisis by providing more resources and directing investment towards high-priority housing needs. They contend that the new credit enhancements will encourage the development of higher quality, more sustainable, and more equitable housing, while the extended affordability period and repeal of the qualified contract option will ensure long-term benefits for low-income communities.
Opponents contend
Opponents might argue that the bill significantly increases federal tax expenditures without sufficient fiscal offsets, potentially contributing to the national debt. They may also contend that the new mandates and reduced developer flexibility (such as prevailing wage requirements, extended affordability periods, and the repeal of the qualified contract option) could increase project costs and deter some developers from participating in the LIHTC program, thereby inadvertently slowing down housing production.
The bill is moderately complex due to its technical amendments to the Internal Revenue Code, requiring careful reading to understand the full scope of changes and their implications.
Section 2
Increase in State Housing Credit Ceiling
This section significantly increases the amount of Low-Income Housing Tax Credits (LIHTC) that each state can allocate annually. It raises the per capita allocation from $1.75 to $9.79 and the minimum state allocation from $2,000,000 to $11,340,000, with inflation adjustments applying after 2027 based on 2026 figures. This effectively provides states with substantially more federal tax credit authority to finance affordable housing projects.
Supporters argue
Proponents argue that this substantial increase in the state housing credit ceiling is essential to meet the growing demand for affordable housing across the nation, allowing states to finance a greater number of projects and address critical housing shortages more effectively.
Critics contend
Opponents may contend that significantly increasing the credit ceiling represents a large expansion of federal tax expenditures, which could contribute to the national debt without clear mechanisms for offsetting costs.
Tradeoffs
The primary tradeoff is between the urgent need for more affordable housing and the increased federal fiscal cost associated with expanding the tax credit program.
Section 3(a)
Increased Credit Amounts for Targeted Buildings
This section introduces five new categories for which affordable housing projects can receive an increase in their eligible basis, thereby generating more tax credits. These categories include buildings that pay prevailing wages to construction laborers (50% increase), utilize renewable energy (variable percentage up to 50%), are located near public transportation (25% increase), serve people with disabilities (variable percentage up to 50%), or serve extremely low-income families (50% increase for 20% of units). A cap limits total basis increases from all enhancements to 250% of the original basis.
Section 3(b)
State Ceiling Set-Aside for Targeted Projects
This provision mandates that at least one-third of a state's annual LIHTC allocation must be directed towards projects that qualify for the new credit enhancements introduced in Section 3(a) (i.e., prevailing wage, renewable energy, public transportation proximity, serving people with disabilities, or extremely low-income families). States are explicitly prohibited from overriding this set-aside requirement.
Section 4
Modification of Tax-Exempt Bond Financing Requirement
This section modifies the '50% test' for the 4% LIHTC. Currently, projects financed with at least 50% tax-exempt bonds automatically qualify for the 4% LIHTC without competing for 9% credits. This bill lowers that threshold to 15% for 'qualified obligations' issued before January 1, 2028. This change makes it easier for projects with a smaller proportion of tax-exempt bond financing to access the 4% LIHTC.
Section 5
Modification of Extended Use Period
This section amends the Internal Revenue Code to increase the minimum 'extended use period' for low-income housing projects from 15 years to 35 years. The extended use period is the time during which a LIHTC-funded property must remain affordable and available to low-income tenants after the initial 15-year compliance period. This change applies to agreements entered into in taxable years beginning after the date of enactment.
Section 6
Repeal of Qualified Contract Option for New Projects
This section eliminates the 'qualified contract' option for new LIHTC projects receiving allocations after January 1, 2027. The qualified contract option previously allowed owners to request that the housing credit agency find a buyer for the low-income portion of the building at a fair market value after the initial 15-year compliance period. If no buyer was found, the owner could then exit the affordability requirements. For existing projects, the bill clarifies how fair market value is determined, explicitly requiring rent restrictions to be taken into account.
This subparagraph imposes a cap on the total eligible basis increase for any building, stating that the eligible basis (or rehabilitation expenditures) shall not exceed 250 percent of such basis (or expenditures) determined without regard to the special credit enhancements.
Section 42(d)(5)(H) of the Internal Revenue Code of 1986, as amended by Section 3(a)(1) of the bill.
Why it matters:It is standard legislative practice to include limitations and caps at the end of a section detailing benefits. While not necessarily evasive, it is a critical detail for financial modeling that could be missed by a reader not scrutinizing the entire section.
Case for: Proponents would argue that this limitation serves as a fiscal guardrail, preventing excessive federal subsidy for a single project, even if it qualifies for multiple beneficial features. It ensures a balance between providing incentives and maintaining fiscal responsibility.
Case against: Critics might argue that this cap could limit the ability of projects to stack multiple highly desirable features (e.g., a project that is fully renewable, fully disability-accessible, and serves extremely low-income families). This could make such ambitious projects financially unfeasible, despite their significant social benefits.
Estimated impact: This provision restricts the maximum federal tax credit subsidy for any single project, ensuring that even with multiple enhancements, the subsidy does not exceed 2.5 times the base eligible costs. This could impact the financial viability of highly ambitious projects.