California developers and multi-family investors are preparing for a rare infusion of federal support that could reshape the state’s affordable housing market. A recent federal spending package significantly expands the Low-Income Housing Tax Credit (LIHTC) program—long the backbone of affordable housing financing—potentially doubling the number of low-rent units built in California over the next decade.
A Surprising Source of Support
The increase comes from an unlikely place: President Trump’s recently signed federal budget, known as the “One Big Beautiful Bill.” The bill quietly boosts the LIHTC program, a tool that affordable housing advocates have lobbied for years.
“These provisions are a huge shot in the arm for a field that has been suffering under exhausted state resources,” said Matt Schwartz, president and CEO of the California Housing Partnership.
How Tax Credits Drive Affordable Housing
The federal government no longer funds public housing directly. Instead, states issue tax credits to developers. Developers then sell them to corporations and financial institutions in exchange for equity to finance construction. If you see a new low-income apartment building in your neighborhood, chances are these credits made it possible.
The LIHTC program has two main types of credits:
9% Credits: Cover roughly 9% of a project’s construction cost annually for ten years. Historically, demand far exceeds supply in California. The new federal package increases the total allocation by 12% per year indefinitely.
4% Credits: These credits are uncapped but traditionally require developers to pair them with tax-exempt bonds covering half the project cost. The new law lowers this threshold to 25%, making more projects eligible.
Ray Pearl, executive director of the California Housing Consortium, notes, “The federal government is making additional tax credits and bond capacity available, which is one of the biggest things you need to produce affordable housing nationwide, and especially in California.”
Immediate Implications for Developers
The California Tax Credit Allocation Committee (CTCAC) has already revised its application process to align with the federal changes. Projects can now reduce the percentage of bond financing required, freeing up resources for other developments. Marina Wiant, executive director of CTCAC, anticipates immediate impacts as more projects receive funding this fall.
For multi-family developers, this means greater access to capital for affordable units and faster timelines for project approval.
Potential Impact and Caveats
Estimates suggest the expanded tax credits could support 1.22 million affordable units nationwide over the next decade. This is roughly 20,000 additional units per year in California. However, experts caution that practical constraints, such as rising construction costs, tariffs, labor shortages, and limited local funding, could reduce the realized number closer to 10,000 new units annually.
“This will take a couple of years to ramp up,” Schwartz said.
Additionally, the broader federal bill cuts Medicaid and other social programs, potentially increasing poverty and affecting long-term housing stability for low-income residents—a reminder that even positive policies can exist within larger, problematic legislation.
What This Means for the Market
For investors and developers, the LIHTC expansion represents both an opportunity and a challenge: access to more federal equity, incentivized projects, and an ability to scale affordable housing—but also heightened competition, complex financing structures, and external economic risks.
Projects that can strategically leverage the new credits while navigating local funding gaps may see both community impact and strong long-term investment returns.
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