The Workforce Housing Tax Credit Inherits LIHTC's Soft-Money Problem

Reps. Jimmy Panetta (D-CA) and Mike Carey (R-OH) reintroduced the Workforce Housing Tax Credit Act on May 6. The bipartisan bill would create the first federal middle-income housing tax credit and finance roughly 344,000 affordable rental homes over the next decade, per the sponsors' release. A 2023 attempt at the same legislation died in committee.

The mechanics borrow heavily from the Low-Income Housing Tax Credit. State housing finance agencies would receive an annual middle-income allocation and award credits to developers through a competitive process. Developers would then sell those credits to investors to raise equity. To qualify, at least 60% of a building's units must be occupied by renters at 100% AMI or less, with rents capped at 30% of the designated income. States can transfer their middle-income allocation to LIHTC at any time during the year, and developers can combine both credits in the same building, provided at least 20% of total units are designated middle-income.

The targeted segment is genuinely underserved. LIHTC primarily delivers units at the 50-60% AMI band, and market-rate product – particularly post-2021 Sunbelt deliveries – prices well above what a household at 80-100% AMI can comfortably absorb. Teachers, first responders, and healthcare workers fall squarely into that gap.

However, modeling WHTC on LIHTC means inheriting LIHTC's structural dependencies. Tax-credit housing is only as scalable as the equity price and the gap-financing layer underneath. Per Novogradac, LIHTC equity has drifted to roughly 84 cents nationwide (i.e. with smaller markets at the low end), and the soft layer (i.e. state soft funds, HOME, CDBG, deferred developer fees, sponsor loans) is now carrying more weight per project than it was three years ago. A WHTC introduced into the same investor base would price under the same conditions.

The workforce housing soft layer is thinner than the LIHTC equivalent in most markets. State and local subsidy programs for 50-60% AMI deals were built up over decades, with dedicated trust funds, gap loans, and operating subsidies. The comparable apparatus for 60-100% AMI product is sparse outside a handful of state and city programs. A federal credit is necessary but not by itself a sufficient condition for moving the workforce housing pipeline.

Source: Multifamily Dive

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