OBBB: Takeaways for LIHTC

Which LIHTC-related provisions in the bill are you most encouraged by, and why?​

BH: I am most encouraged by the permanent nature of the various provisions that were enacted through the OBBB. Making these changes permanent sends a strong message that should buoy our industry and encourage us to continue our efforts on additional measures we believe can further expand the use of the credit (like raising the PWI [Public Welfare Investments] limits).

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What do you see as the most significant positive outcomes for the industry?

FL: Clearly, I think the most positive outcome from the bill will be an increase in the supply of desperately needed affordable housing across the country. 

BH: The positive outcomes are that we have permanent tools for housing agencies to utilize to create more housing. Increasing the amount of credits overall, despite the various impacts that may have on the pricing of the credit in the short term, should ultimately lead to more affordable housing being built to address the housing crisis we see in every community.

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Are there any immediate impacts our partners should be aware of? What steps should developers, syndicators, and investors take now to prepare?

FL: Developers and their accountants should be immediately aware of bonus depreciation and energy credit changes.

• For depreciation, there are certain rules that must be met to be eligible for 100% bonus – namely the date of which the written binding contract for the property is dated and executed. For new construction and rehab properties, this is generally the date of the construction contract.

• On energy credits, the Energy-Efficient Homes Credit (45L) is sunsetting as of June 30, 2026, and will not be available for developments placed in service after that date.

• The Clean Electricity Investment Tax Credit (48E) will also be sunsetting eventually.

  • For developments that begin construction prior to July 4, 2026, they must be placed in service within four years of the date construction begins to qualify for the credit.

  • Developments that begin construction after July 4, 2026, must be placed in service by December 31, 2027, to qualify for the credit.

 

 

Does the bill introduce any new hurdles or challenges for LIHTC transactions?

BH: With the ability to issue more 9% credits and allocate bonds amongst more deals, there is a concern about staffing at the various agencies to process the additional volume resulting from the new provisions. CREA will be watching to see if timelines for awards and processing through the agencies begin to extend, which will create timing issues for developments (cost escalations, interest rate variability, etc.).

FL: As a direct result of the bill, there will be reduced equity dollars from the removal of energy credits. As a side effect of the bill, there is the potential for decreased pricing in the short-term which could squeeze deals that are already tight.

 

 

Are there new incentives - or disincentives - that could shift investor demand?

BH: In the short term, the elimination of the EV Credit will hopefully provide more demand from banks that lease electric vehicles and who have had diminished capacity as a result of these credits. Additionally, the changes to the availability of renewable energy credits in the long term could increase demand from buyers that have been utilizing capacity to invest in these credits.

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How do you expect the provisions to influence investor appetite for LIHTC credits?

FL: The sunsetting of energy credits could potentially shift some demand back into the LIHTC market.   

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Will these changes affect yield expectations or credit pricing in the near term?

BH: In 2025, there has been a slight uptick in yields in the market, partly due to volatility early on and the uncertainty surrounding the outcomes of the OBBB. With it being passed, including the LIHTC provisions, we are starting to see that uncertainty lessen. Over the long term, if interest rate cuts come to fruition, I think we will see yields settle at slightly lower levels than where the market clears through the end of 2025.

FL: Given a presumed quick increase in supply (which, really, is TBD), I assume we will see yield expectations rise, and credit pricing remain steady or dip slightly until some of the uncertainty clears the market. I’ve been involved in LIHTC in some form or fashion since 2008, and one thing that has always been clear about the market is that it figures itself out eventually whenever there is uncertainty or large legislative changes such as this.​​​