In 2025, closing a low-income housing tax credit (LIHTC) deal is more challenging than ever. Interest rates are high. Insurance premiums are surging. Material costs are unstable, influenced by ongoing tariff volatility. And, the equity markets? Cautious at best, jittery at worst.
However, despite all the challenges they face, affordable housing developers continue to make progress. Deals are closing. Communities are being built. As CEO of a mission-driven lender rooted in the Mountain West and expanding nationally, I’ve had a front-row seat to dozens of closings over the past year. From that vantage point, I’m seeing a shift; not in the market itself, but in the mindset of the people navigating it.
Construction costs continue to pose a challenge to feasibility across the region. In a review of 117 LIHTC projects across Utah, Colorado, Arizona, New Mexico, and neighboring states, Rocky Mountain Community Reinvestment Corp. (RMCRC) found total development costs per unit have increased by as much as 40% since 2019. This increase is fueled by continued inflation in materials and labor, compounded by tariff-driven price volatility in critical inputs like steel, electrical panels, and HVAC systems. Meanwhile, the cost of capital has become a defining constraint. Ten-year Treasury yields have more than doubled since 2021, a trend that directly limits how much traditional debt a project can support, especially debt that requires fixed monthly payments, making it harder for deals to pencil out without layering in soft financing and cash-flow-based repayment structures.
Total Construction Cost Per Unit | Rocky Mountain Region
(Source: Rocky Mountain Community Reinvestment Corp.)
But despite the pressure, developers are finding ways forward. The ones closing deals in this environment aren’t just surviving; they’re rewriting the playbook
First, capital stacks are deeper and more layered than ever. Gone are the days of relying only on LIHTC equity and permanent financing. Today, we’re routinely seeing state and federal soft funds, such as HOME, Housing Trust Fund, American Rescue Plan Act, and Community Development Block Grants, in heavy rotation. Deferred developer fees have gone from a buffer to a backbone. Sponsor loans, bridge equity, and creative gap fillers are the norm, not the exception. Yes, it’s more complicated. But complexity isn’t the enemy—stagnation is. Our latest analysis shows that a growing share of projects require subordinate debt financing as part of increasingly layered capital stacks.
Real-world examples are demonstrating how layered capital stacks can effectively achieve their objectives. In Moab, Utah, the Skyline Arch project, developed by the Housing Authority of Southeastern Utah, leverages a community land trust structure to eliminate the cost of land acquisition. The 32-unit LIHTC project is part of the broader 41-acre Arroyo Crossing master plan, which includes 300 affordable and workforce housing units, community gardens, trails, and a child care center. The Moab Area Community Land Trust retains ownership of the land, reducing site costs through a long-term ground lease.
Similarly, in Albuquerque, New Mexico, Calle Cuarta, a 61-unit LIHTC project by YES Housing, demonstrates how creative land transfer and layered subsidies can unlock viability. The city donated the land, which was then transferred to Bernalillo County to qualify the project for a property tax exemption. Section 8 vouchers and five subordinate funding sources helped close the financing gap, allowing the project to support more debt and serve extremely low-income households.
Second, cost containment has turned into a core competency. Developers are rethinking everything from layout to materials. We’re seeing smaller, more efficient floor plans that don’t compromise on quality. Some developers are solving the land acquisition puzzle through ground leases or public-private partnerships that drastically reduce site costs. This isn’t about cutting corners; it’s about recalibrating the blueprint to fit today’s reality.
Finally, developers are prioritizing certainty wherever they can find it. In a market where variables shift rapidly, locking in interest rates early has become a critical strategy. Developers are working closely with lenders to secure terms earlier in the process, thereby eliminating as much volatility as possible before closing. While flexibility remains essential, the emphasis now is on mitigating exposure to rising rates, shifting equity pricing, and delayed approvals. In this climate, predictability isn’t a luxury—it’s a lifeline.
Lenders have had to adjust just as much. That means underwriting with eyes wide open, leaning in on timing alignment, and staying closely aligned with our partners throughout the process. We’re not just underwriting projects, we’re underwriting persistence, creativity, and collaboration.
The truth is, this market isn’t easy. But we’re still building. And the people solving that aren't waiting for perfect conditions. They’re figuring it out, brick by brick, source by source, until the work gets done.
Christopher Jensen is president and CEO of Rocky Mountain Community Reinvestment Corp., a nonprofit organization providing permanent financing for affordable housing benefiting low- to moderate-income households across the Rocky Mountain region.