The Low-Income Housing Tax Credit (LIHTC), created in 1986, is the federal government's largest mechanism for producing affordable rental housing. Each year the IRS allocates tax credits to state housing-finance agencies, which competitively award them to developers building or rehabilitating rent-restricted properties. Developers sell the credits to investors (typically banks and corporations) for cash that funds construction; investors claim the credits over ten years.
LIHTC has financed roughly three million affordable units since 1986 and has become the de facto federal affordable-housing program. Investor demand drives bank participation through the Community Reinvestment Act; rent restrictions typically last 30 years.
Supporters argue LIHTC has produced more affordable housing than any direct-subsidy alternative in U.S. history, that its private-investor structure brings underwriting discipline and bipartisan political durability, and that expanding the credit allocation would address pressing affordability needs.
Critics argue LIHTC is inefficient — substantial credit value is captured by syndicators, investors, and developers rather than reaching tenants — and that the program produces fewer units per federal dollar than vouchers or direct subsidies. Some argue it concentrates affordable housing in high-poverty areas; others argue it produces too little supply in expensive metros. Reform proposals include credit-allocation formula changes, basis-boost expansions, and addressing income-targeting.