Syndicators Enter 2026 With Cautious Optimism

Sentiment among low-income housing tax credit (LIHTC) syndicators leans positive heading into the year, though views are mixed.

A recent Affordable Housing Finance survey shows that 60% of the LIHTC leaders expect the overall market to improve, while 40% anticipate a downturn. Two syndicators were neutral.

The differing opinions come as the housing credit program sees a notable expansion this year. The One Big Beautiful Bill (OBBB) provided a permanent 12% housing credit allocation increase and lowered the bond financing threshold test to 25% to help boost projects utilizing tax-exempt bonds. Taking effect this year, these provisions will finance an estimated 1.22 million additional homes over the next decade, according to the Novogradac accounting and advisory firm.

These long-sought changes are important to creating more housing and growing the industry, but there will be an initial adjustment period. Until investor demand catches up with the new supply of housing credits, the market is expected to see some softening.

“The 2026 LIHTC market strength will depend on the point of view,” says Matthew Reilein, president and CEO of the National Equity Fund. “While we expect overall activity to remain strong, developers will experience the impacts of excessive supply. The number of projects in the market could outweigh the equity dollars, and that imbalance will worsen with the change in the 25% test. In essence, investors will have many projects to choose from, whereas developers will feel the saturation of the market.”

Some help is expected to come from government-sponsored enterprises Fannie Mae and Freddie Mac, which will be able to invest up to $2 billion each in LIHTCs this year—double the prior LIHTC cap on the government-sponsored enterprises (GSEs). Half of the amount must be reserved for difficult-to-serve LIHTC markets, and at least 20% of that half will be in Duty to Serve rural communities.

As a result, rural area might see a boost given the increased purchasing power of the GSEs and their focus, notes Julie Sharp, executive vice president at Merchants Capital.

The allocation of deals that don’t fall within a strong Community Reinvestment Act (CRA) market or rural Duty to Serve market may be more susceptible to economic pricing fluctuations and may require additional sources to remain feasible, she says.

“Getting through the OBBB and the government shutdown has removed uncertainty from the market,” adds Steve Kropf, president and CEO of Raymond James Affordable Housing Investments. “We expect the increase in credits to partially be offset from the increase in investment from the GSEs. Further, the rise in yields for non-CRA product could spur some new investors in the market.”

Stephanie Kinsman, managing director of investor relations at Red Stone Equity Partners, anticipates steady to improving investor appetite, “particularly as relative value considerations bring certain investors back toward housing credits.”

“That said, investors are likely to remain disciplined, with underwriting standards and return requirements continuing to reflect elevated construction costs, operating expense pressures, and interest rate uncertainty,” she says. “Taken together, these factors point to a market that is incrementally healthier but still defined by selectivity and careful risk assessment.”

The impact of the additional LIHTC allocations may be more modest in the first half as state housing finance agencies assess their staffing needs, notes David Leopold, executive vice president and head of affordable housing at Berkadia.

“We may see more of an impact during the second half of the year,” he says. “The impact also may vary from state to state depending upon how each state is able to in turn allocate its state’s additional allocation amount.”

Kari Downes, president of Enterprise Housing Credit Investments, also cites capacity and staffing constraints.

“The limited CRA demand has put more pressure on more economically motivated investors, and the deal flow currently outstrips the capacity to process the opportunities, both matching to commit as well as underwrite,” she says. “Over time, the staffing at state agencies, syndicators, and investors may expand to more readily match deals to equity and close the deals.”

Syndicators are also watching for other possible effects of the OBBB provisions.

Evernorth serves communities in Maine, New Hampshire, and Vermont. “In our small state market, we anticipate the additional supply in 9% credits to lead to larger credit awards, which will help fill gaps in deals and allow them to move forward to close,” says Cynthia Lacasse, executive vice president and chief program officer at the firm.

Pricing Outlook

Most syndicators, 59%, expect LIHTC pricing to hold steady in the first half of the year, according to AHF’s recent survey. However, 41% say pricing to developers will decline. No respondents foresee an increase in the next several months. 

This is again attributed to the expected supply-demand imbalance as the market adjusts to an expanded LIHTC program.

“Generally, market participants were extremely focused on closing transactions in the fourth quarter,” says Tom Pereira, executive vice president and head of production at CREA. “During this time, the market was being recalibrated in response to the additional supply created by OBBB and new yield and interest rate expectations for 2026. In CRA markets, we expect pricing to hold steady. However, we are seeing downward pressure on pricing in some secondary and tertiary markets that lack CRA demand. We anticipate syndicators will remain cautious, particularly as it relates to acquiring unspecified product that may have less certainty of investor execution.”

The average price paid per dollar of 9% tax credit was 84 cents in the fourth quarter of 2025, according to the survey. That’s down from 87.2 cents in the same period the year before.

Catherine Cawthon, president and CEO of OCCH, also expects prices to hold firm in the first half.

“CRA markets still command a premium, and while those markets change with exam cycles and other outside factors, these shifts aren’t large enough to impact pricing in early 2026,” she says.

The trend is also continuing with economic pricing, with large buyers expecting a certain return, according to Cawthon, “so without major shifts in demand or cost of capital, pricing will look similar during the first half of the 2026.”

New Dynamics

Syndicators will also be monitoring other changes in the market, including the impact of the lower bond test, which should help some deals that were infeasible to move forward and boost the overall volume of transactions.

“It usually takes time to truly assess the impact on market dynamics because of a material change like the reduction of the 4% bond test from 50% to 25%,” says Jason Gershwin, managing director at R4 Capital. “With that said, the 4% LIHTC market in 2026 and beyond will undoubtedly look at least a little bit different.”

With long-term interest rates where they are, the inclusion of taxable debt in the senior capital stack will likely reduce a development’s borrowing capacity, which presents a challenge and can affect a project’s feasibility, explains Gershwin.

“Additionally, the increased supply of 4% credits in the LIHTC marketplace will provide syndicators and investors with more investment opportunities,” he says. “The strength of developer, of geographic location, and of the underlying real estate will therefore be incredibly important. With current market conditions, we do expect to see more acquisition-rehab deals get funded compared to years past, especially in the West, with more bonds available.”

California saw a recent surge in deals. Following the implementation of the OBBB provisions, the latest round of 4% tax-exempt bond awards was nearly double the volume of the previous round, notes Carla Vásquez-Noriega, senior investor relations manager at Merritt Community Capital Corp., which serves the state.

While the lowering of the bond test has meaningfully increased deal volume, it has also introduced greater complexity at the project level. “Changes in LIHTC pricing, combined with higher construction interest rates on taxable loans, are intensifying financial pressure, placing added strain on developers to reduce costs and secure additional soft financing to close funding gaps,” she says.

The reduction in the 4% bond test will have an immediate impact in some markets, but not uniformly across all states, according to Josh Ghena, president of Cinnaire Equity Partners, which has its home office in Michigan.

“Within Cinnaire’s footprint, several states are not bond cap constrained, and in those markets we do not expect a material change to the volume of 4% LIHTC transactions,” he says. “However, in bond cap–constrained states, the revised test will expand capacity and enable a greater number of 4% deals to move forward.”