The Low-Income Housing Tax Credit (LIHTC) program continues to be a cornerstone in addressing the growing need for affordable housing in the United States. With new parameters and financial adjustments set for 2025, LIHTC and Affordable Housing Developers and Builders are well-positioned to take advantage of these updates to strengthen their projects and create more impactful housing solutions.
Below, we outline the critical updates from the U.S. Department of Housing and Urban Development (HUD) and the Internal Revenue Service (IRS) and highlight how these changes can benefit the affordable housing industry.
HUD Establishes DDAs and QCTs for 2025: A Game Changer for LIHTC Projects
HUD has released the updated list of Difficult Development Areas (DDAs) and Qualified Census Tracts (QCTs) for 2025. These designations, effective January 1, 2025, are critical tools for targeting tax credit resources to areas where they are most needed.
- Difficult Development Areas (DDAs):
DDAs are regions where construction, land, and utility costs significantly exceed the area’s median gross income (AMGI). HUD ensures that no more than 20% of the population in metropolitan and non-metropolitan areas is located in DDAs, balancing the allocation of resources. - Qualified Census Tracts (QCTs):
QCTs are determined based on U.S. Census Bureau data and must meet one of two criteria:- At least 50% of households have incomes below 60% of the AMGI, or
- The poverty rate is at least 25%.
For developments in these designated areas, projects can qualify for a 30% boost in eligible basis, significantly enhancing financial feasibility. This boost allows affordable housing developers to bridge funding gaps and incentivize construction in high-need areas.
Increased LIHTC Per-Capita Allocation for 2025
The IRS has announced record-breaking increases in LIHTC and private activity bond (PAB) per-capita multipliers for 2025, providing a strong foundation for affordable housing projects.
- LIHTC Per-Capita Multiplier:
The multiplier rises to $3 per state resident, marking a $0.10 increase from 2024. This is the highest multiplier in the program’s history, reflecting the growing demand for affordable housing solutions. The minimum allocation for smaller states will also rise to $3,455,000, up from $3,360,000 in 2024. - Private Activity Bond (PAB) Multiplier:
The PAB per-capita multiplier increases to $130 per state resident, a $5 jump from the previous year. The minimum allocation for PABs will be $388,780,000, providing additional financing tools for mixed-use and affordable housing developments. - Rehabilitation Per-Unit Minimum:
For existing LIHTC properties, the rehabilitation per-unit minimum increases to $8,500, supporting high-quality improvements for aging affordable housing stock.
How LIHTC and Affordable Housing Developers and Builders Can Benefit in 2025
These updates present several strategic advantages for those involved in LIHTC and affordable housing development:
- Incentives for High-Cost Areas:
With the 30% eligible basis boost in DDAs and QCTs, builders can offset high costs in land, labor, and materials. This makes it easier to initiate projects in regions where affordability is most needed. - Increased Financial Capacity:
The rise in per-capita allocations and state minimums provides states with greater funding capacity. affordable housing developers can expect more opportunities to secure tax credits and attract investors for affordable housing projects. - Enhanced Support for Existing Housing:
The increased rehabilitation per-unit minimum allows builders to improve the quality of older housing stock, ensuring safe and livable conditions for low-income residents. - Expanded Opportunities for Mixed-Use Projects:
With higher PAB allocations, builders can pursue innovative mixed-use developments that combine affordable housing with community resources like retail spaces, healthcare facilities, and recreational areas.
What affordable housing developers Should Do Now
To maximize these opportunities, LIHTC and Affordable Housing Developers and Builders should:
- Analyze Updated DDA and QCT Maps:
HUD has published the 2025 DDA and QCT designations online, allowing developers to identify areas that qualify for the 30% basis boost. Strategic project placement can significantly enhance financial outcomes. - Plan for Increased Competition:
With higher allocations, the competition for LIHTC awards may intensify. Early preparation and collaboration with state housing agencies will be key to securing funding. - Explore Rehabilitation and Adaptive Reuse Projects:
The higher rehabilitation minimums present a chance to transform underutilized or aging properties into modern, affordable housing units.
A Promising Year Ahead for Affordable Housing
The adjustments to LIHTC parameters for 2025 reflect a commitment to addressing the ongoing affordable housing crisis. By leveraging these updates, LIHTC and Affordable Housing Developers and Builders can tackle financial and logistical challenges, expand their impact, and create lasting solutions for communities in need.
For detailed data on the updated DDA and QCT designations and state allocations, visit HUD’s website and the IRS’s dedicated LIHTC resources.
