The new year will be a pivotal time for the affordable housing industry as a long-sought expansion of the low-income housing tax credit (LIHTC) program takes effect.
Lawmakers approved a permanent 12% housing credit allocation increase beginning in 2026 and reduced the private-activity bond financing threshold for affordable housing properties from 50% to 25%. These changes could finance about 1.22 million additional affordable homes over the next decade, according to an estimate by accounting firm Novogradac.
To understand what these shifts could mean for developers, Affordable Housing Finance recently caught up with Jeff Adler, vice president and general manager of Yardi Matrix, who shares his expectations for the new year.
How will 2026 be different for the affordable housing industry?
In the midst of the affordable housing customer base under financial pressure and a long-run housing shortage, the affordable housing industry faces some near-term challenges while at the same time having some long-run significant positive tailwinds.
On the positive side, the 2026 tax bill provided a significant increase in LIHTCs and a reduction in the 50% test (to 25%) for qualifying for 4% credits/bond financing, and a reduction in competing tax credit alternatives. This should expand capital available over time. More could be done, but it’s a big step in the right direction. There is also a growing understanding that local regulations are driving up cost, delaying projects, and increasing uncertainty, and many states are beginning to take steps in the right direction. We are seeing a proliferation of local programs to support both new supply and preservation of affordable housing, although each program comes with its own compliance costs. We are seeing an increasing percentage of properties that do deliver affordable housing. In the long run, this is all good. Fundamentally, more must still be done to reduce the cost of producing housing not just provide increased funding for higher costs.
In the near term, many markets face significant competition from market-rate properties as new market-rate supply continues to deliver, especially in the Sun Belt, and won’t stabilize until 2027-2028. There is and will be a need for greater refinement in market and location selection and a need for public policy agencies to tailor QAPs [qualified allocation plans] to the needs of their communities, both in terms of tax credit allocations for new supply and the allocation of resources to the area of greatest preservation need. There will also need to be calibration in terms of what can be accomplished with regard to permanent supportive housing requirements in relation to the financial viability of properties.
This puts an increasing emphasis on operational performance and execution. We see continued consolidation of operators to gain economies of scale to help address rising operating costs and enter new markets for LIHTC development taking advantage of the increase in credits. To support larger geographically scattered portfolios, operators are making more investments in technology to gain greater transparency of operations and deliver better service to residents/applicants. This includes investment in online leasing, electronic verification processing, and asset management analytics.
We do not see meaningful reductions in long-term interest rates or all-in mortgage rates (given the Fed’s actions to not roll over residential mortgage-backed securities bonds), although we do expect there to be localized corrections in single-family home values
What is your outlook for affordable housing construction starts and completions in 2026?
We think 2026 fully affordable starts will be around 55,000, consistent with our forecast in 2028 for approximately 58,000 completions, although we won’t formally release a 2028 forecast until early in 2026.
What are your expectations for operating expenses in the new year?
Expenses are now trending overall at an approximate 4% rate, and I expect that operators will work hard via increased technology investment to bend that to 3%.
What’s a trend that developers need to pay more attention to?
Much greater precision in site selection to understand the competitive environment and overall new supply picture around a site.
Share a prediction or piece of advice for developers.
The rising complexity costs and financial wherewithal required to operate in this environment will increasingly favor those organizations that invest in capabilities that improve their use of data and information assets, reduce operational cost, and have stronger capitalizations, whether they be private-sector, non-governmental organizations, or public housing authorities. Purposeful strategic alignment will matter a lot between 2025 and 2030.