States Vary Dramatically in How Many Newly Financed LIHTC Units They Produce

Between 1987 and 2022, Pennsylvania, Arizona, and Connecticut financed the fewest units per resident through LIHTC, building or redeveloping 49, 53, and 56 units per 10,000 people. In contrast, Mississippi and Washington each built or redeveloped 132 units per 10,000 people. Washington, DC, was able to build or redevelop 402 units per 10,000 people during this time in part because it receives the allocation for lower-population states.

Over just the past few years (2018–2022), DC continued to finance more LIHTC units per resident than any state, with 71 per 10,000 people. Washington also remained near the top, with 28 units per 10,000 people, followed by Colorado with 25 units per 10,000 people. Alabama financed the fewest LIHTC units, at about 2 per 10,000 people, alongside Wisconsin (3 units per 10,000 people) and Idaho, New Mexico, and Connecticut (4 units per 10,000 people).

Several policy and financing factors drive these state differences:

• Minimum allocations. Because every state receives a floor allocation for 9 percent credits, smaller states often end up with more LIHTC resources per capita than larger states.
• Competition for private activity bonds. Private activity bonds can be used for a variety of purposes (PDF), from housing to student loans, meaning usage decisions can determine whether states have enough bond authority to cover potential development through 4 percent credits.
• Development costs. Tax credits are based on development costs, not number of units, so states with lower average development costs overall or states that prioritize development in lower-cost areas produce more units per credit dollar.
• State-specific incentives. States such as Georgia, Kansas, and Indiana pair federal LIHTC with strong state-level tax credits, making affordable housing development more financially feasible.
• Other funding sources. LIHTC developments are usually financed with multiple subsidies, and those additional sources, such as housing trust funds, HOME funds, and other gap-financing tools, vary by geography and can affect how much LIHTC housing ultimately gets built.

Additionally, the US Department of the Treasury requires states to offer basis boosts, which are meant to make building LIHTC units in high-poverty and high-development cost areas easier. These boosts increase the amount of credit a project can claim, which can help difficult projects pencil out. But the fixed number of competitive 9 percent credits at the state level also means the boosts can lead to fewer projects funded overall. A basis boost may also support more units using 4 percent credits, but it can similarly crowd out other developments in states where bond capacity is constrained.

Ultimately, the states with the most LIHTC units tend to fall into two groups: those with strong policy and financing ecosystems that support large-scale development (like New York and Washington), and those where lower construction costs allow each tax credit dollar to produce more units (like Mississippi).

These patterns also emerge at the metropolitan level. Over the most recent five years of data (2018–2022), Missoula, Montana, added the greatest number of LIHTC units per capita, with 74 units per 10,000 people, while Janesville-Beloit, Wisconsin, saw the fewest (0.55 LIHTC units per 10,000 people).

What this means for the future of affordable housing

LIHTC plays a major role in financing multifamily rental housing, with more than one-fifth of all new multifamily rental units constructed between 1987 and 2022 financed by LIHTC. During the Great Recession, LIHTC represented an even larger share of multifamily production, as market-rate construction dropped sharply while LIHTC activity remained relatively stable. This suggests LIHTC can help stabilize the broader housing market during downturns.

Recent federal changes to expand the number of units that can be developed with the same amount of bond capacity, as well as permanent increases to the 9 percent LIHTC credit, could boost production in the coming years. At the same time, many LIHTC units are approaching the end of their initial compliance periods (typically 30 years), creating pressure to recapitalize and preserve affordability. As a result, a growing portion of LIHTC activity may be needed to maintain the existing affordable stock, rather than expand it.

Given these evolving market dynamics, our findings about the distribution patterns of LIHTC developments point toward several implications.

1. Maintaining LIHTC’s role in the housing system will require expansion and effective implementation. Translating additional LIHTC capacity into housing will depend on bond deployment, local development conditions, and the availability of complementary subsidies. Future housing needs will likely require increasing production and ensuring sufficient resources for preservation. With thoughtful implementation, LIHTC could continue its stabilizing role amid downturns.
2. The structure of the program creates tension between depth, location, and scale. Policies such as basis boosts, Qualified Allocation Plan criteria, and local land-use regulations all shape where and how LIHTC housing is built. Although incentives to build in high-cost or high-opportunity areas may improve access to jobs and amenities, they could also reduce the total number of units produced. Conversely, focusing on lower-cost markets may maximize unit production but not align with the areas of greatest need. This tension raises an important question for policymakers: Should LIHTC prioritize maximizing units produced or targeting areas with the greatest affordability pressures? If the latter, should the state allocations reflect affordability pressures rather than a per capita rate?
3. Federal allocation formulas and state-level implementation both matter. Although federal allocations are largely population-based, actual development outcomes depend heavily on state and local policy choices. Policymakers may want to consider whether current allocation methods and incentives are aligned with housing needs, particularly in high-cost markets with large numbers of rent-burdened households.

Ensuring that LIHTC delivers housing where it is most needed will require careful alignment between federal allocations, state-level incentives, and local development conditions. Policymakers will need to balance competing demands: expanding the supply of new housing, preserving existing affordable units as restrictions expire, and targeting resources to areas of greatest need.

Future research and tools can help clarify how these trade-offs affect not just how much housing is produced but also where it is built and who it ultimately serves.