Amid a tsunami of cuts to the nation’s social safety nets, a golden nugget in the congressional budget bill will allow developers to create more affordable housing.
H.R. 1 provides an increase to the Low Income Housing Tax Credit program, the primary source of federal funding for affordable housing. Starting next year, states will be able to permanently increase tax credit allocations by 12%.In addition, one of the programs has lowered the threshold for certain tax-exempt bonds affordable housing projects must acquire before being eligible for these tax credits, from 50% to 25% of the total costs. This reduction means more bond funding will be available for additional developments.
SV@Home Deputy Director of Strategy Josh Ishimatsu said lowering the threshold developers must acquire for certain bonds could effectively double the amount of affordable housing that can be developed.
While the bill will increase affordable housing production for low-income families, other cuts to Medi-Cal and food stamps creates a double edged sword, he said.
“This is like the small silver lining in the gigantic hurricane of the big, beautiful bill,” Ishimatsu told San José Spotlight. “If you’re kicking out more people off Medicaid, that means that they have to spend more on health care. So more people are going to lose their housing.”
Accounting firm Novogradac estimates the bill will add 1.2 million new affordable apartments over the next decade, or about 100,000 new homes a year. California could see 10,000 more apartments every year.
“That’s a pretty big deal,” real estate consultant Rob Wilkins, who recently left affordable housing developer Affirmed Housing, told San José Spotlight. “I don’t think there are any downsides to it.”
The low income housing tax credit program was formed through the Tax Reform Act of 1986 to give investors a federal income tax credit, in exchange for making investments in affordable housing developments. Typically those that invest are banks and insurance companies.
These tax credits are given to developers through a competitive process to help with construction costs, with an agreement that these developments remain affordable for 55 years in California. About 3.7 million affordable apartments have been created through the program since its inception.
Affordable housing developments are financed through a hodgepodge of local, state, federal and private funding. Due to the limited nature of the funding, many affordable housing developments are languishing until funds are available.
Ishimatsu said in the short term, Trump’s budget bill would ease the logjam of developments waiting for their piece of federal funding.
There are 13 projects countywide, which would account for 1,369 apartments, waiting for tax credits to begin construction, Deputy County Executive Consuelo Hernandez said. Trump’s bill could allow these developments to get off the ground.
“The biggest bottleneck in the process is getting tax credit allocations … and that’s because it’s limited,” Ishimatsu said. “But after that backlog is cleared out, we will need more local funding. We will need something like Measure A again.”
Santa Clara County voters passed Measure A in 2016, a $950 million bond to build affordable housing. All the funding has been allocated as of fiscal year 2024-25. The bond helped create 5,700 affordable apartments across 61 developments throughout the county, including Blossom Valley Senior Apartments, Villas on the Park and Agrihood Senior Apartments, with more coming online in future years.
San Jose voters passed Measure E in 2020 to help fund the construction of affordable housing. However, the City Council has shifted 90% of the funding toward temporary housing for the next two fiscal years.
The redirected Measure E monies put 13 affordable housing projects on hold, keeping more than 1,500 new homes waitlisted and off the market.
Efforts to put a Bay Area affordable housing bond on the ballot last year failed. Regional Measure 4 would’ve infused $20 billion across nine Bay Area counties. Santa Clara County would’ve received $2.4 billion and San Jose $2.1 billion for affordable housing.
There are two bills moving through the state Legislature to increase local funding for affordable housing. Assembly Bill 736 and Senate Bill 417, also known as the Affordable Housing Bond Act of 2026, would provide a $10 billion bond if passed by state lawmakers and voters.
“$10 billion sounds like a lot of money, but once that’s spread out over the state, that goes pretty fast,” Ishimatsu said. “We would still need local funding, especially if we want to take full advantage of the newly available tax credits.”
Contact Joyce Chu at [email protected] or @joyce_speaks on X.
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