What’s Next for Affordable Housing?
Experts weigh in on what will shape the sector in the upcoming year.
The affordable housing sector has long faced a massive shortage, which only worsened over the past few years. Research by the Harvard Joint Center for Housing Studies shows that the need for affordable housing has never been greater across the country. In the Midwest and South, lower rents are offset by lower incomes, leading to almost half of the renters being cost-burdened. Meanwhile, in the Northeast and West, higher incomes are matched by higher rents, resulting in 52 percent of renters facing similar challenges.
By year-end, deliveries of fully affordable housing in the U.S. are expected to reach 69,600 units and then hit a multi-year peak of 70,500 units in 2025, before dropping significantly in future years, according to a first-of-its-kind study of Yardi Matrix’s affordable housing database. But with housing starts very anemic this year—mainly due to high costs of capital, land and construction materials—new deliveries are expected to plummet starting with 2026, further deepening the crisis.
“This year has been a pivotal year for affordable housing,” said Debra Guerrero, senior vice president of strategic partnerships and government affairs at The NRP Group. “We’ve seen rising costs and interest rate sensitivity impact the viability of developments, with projects that once cost $70 million now pushing $110 million.”
Interest rates and high costs overall were also among the defining trends of the year for Matt Sullivan, The Michaels Org.’s chief operating officer.
“While material commodity costs saw some reduction and stabilization since COVID-19, labor costs have remained high, contributing to elevated construction expenses,” Sullivan said. “This resulted in many affordable housing deals facing difficulties.”
Therefore, to effectively address the housing shortage—which is now more acute than it was before the pandemic—long-term federal commitment is necessary, the National Low-Income Housing Coalition’s Gap report found. This means substantial investment in new affordable housing, the preservation of current affordable rental units, and practical measures to bridge the gap between incomes and rents.
Funding the future
Most industry experts agree that adequate financing will remain a fundamental challenge for the sector, crucial for sustaining long-term solutions.
To make their projects pencil out, affordable housing developers have been creative in finding capital sources. By leveraging their strong relationships with housing agencies and financial institutions, they almost always need to put together a mix of funds to ensure the necessary project financing. For example, for the 76-unit Park Village at Garden State Park project in Cherry Hill, N.J., The Michaels Org. is using a blend of public and private resources, including equity from the sale of 4 percent low-income housing tax credits, tax-exempt financing from NJ Housing and Mortgage Financing Agency, affordable housing production funds from NJ HMFA, Camden County HOME Funds, and Cherry Hill Township Affordable Housing Trust funds.
The NRP Group is also leveraging public-private partnerships to address the affordable housing shortage in Texas. The company joined forces with the Austin Independent School District at the Anita Ferrales Coy Facility to develop more than 650 housing units on underutilized land owned by the school district, with half of these units designated as affordable.
In Chicago’s South Side, Merchants Capital provided more than $40 million in debt and equity financing to convert a former public school into the Charles Earle Family Residences, a project that utilizes federal historic LIHTCs, tax increment financing from the City of Chicago, a loan from the Illinois Housing Development Authority and energy incentives from ComEd.
All these examples have one thing in common: Funding affordable housing projects is and will be a collaborative effort, combining private investment and public sources. And state agencies have also played a crucial role, especially in handling complex projects with tight deadlines, according to Guerrero, who believes that more tax credits per capita are needed to meet the ever-increasing demand for affordable housing and to provide developers with the necessary financial tools to increase housing supply.
Does 2025 look brighter?
One of the most significant policy discussions that will affect affordable housing financing next year is the expiration of the 2017 Tax Cuts and Jobs Act, particularly the corporate tax rate, said Guerrero.
“This could significantly impact affordable housing deals and influence financial partners’ investments, making it a key issue to monitor in the financial landscape,” she warned.
With $4 billion in tax provisions from the Tax Cuts and Jobs Act set to expire at the end of 2025, the upcoming year is being called the “Super Bowl of Tax,” according to Julie Sharp, who leads the tax credit equity platform at Merchants Capital. Legislative action is anticipated, which will likely lead to changes in the corporate tax rate, affecting demand for tax credit investments. There are also rumors around an expansion of the LIHTC program to increase affordable housing supply. All these changes would have a significant impact on pricing equilibriums and deals going forward.
Additionally, Guerrero noted that many cities have been using funds from The American Rescue Plan Act enacted in 2021 to boost affordable housing development, but it’s crucial to establish ongoing revenue sources, especially as unstable interest rates and decreasing ARPA funds pose challenges for developers.
Furthermore, rising insurance costs will be another major pain point for the affordable housing sector in 2025 and beyond.
“While rising insurance premiums are affecting all real estate sectors, affordable housing is particularly vulnerable given caps on rental increases,” said Sharp. “Challenges in the insurance market are expected to continue as investors, lenders and industry stakeholders advocate for policy changes in the insurance and reinsurance market”, she added.
Electing affordability
One important aspect that’s worth mentioning in a presidential election year is that affordable housing was treated as a pivotal issue across the board, with candidates unveiling transformative plans to redefine the housing landscape in the U.S.
“For the first time in recent history, affordable housing was a prominent topic for both presidential candidates,” said Guerrero.
President-elect Donald Trump pledged to cut housing regulations, open federal land for development and offer tax incentives for homeownership. But one thing that will likely linger is the NIMBYism phenomenon as Trump also pledged to protect single-family zoning.
