Expansion of the federal Low-Income Housing Tax Credit could allow construction of tens of thousands more affordable housing units in Illinois.
The latest domestic policy plan signed by President Donald Trump on July 4 will increase available funding by 12% for a key tax credit used by developers to offset a portion of construction costs. It also lowers the threshold of private investment needed to take advantage of another tax credit.
It’s a lesser publicized inclusion in the “One Big Beautiful Bill Act” that cleared Congress with only Republican support, a bill more widely publicized for its cuts to Medicaid, food assistance and individual income taxes.
According to the accounting firm Novogradac, increasing the tax credit and lowering bond financing requirements for housing projects could allow 34,700 new affordable housing units to be built in Illinois and generate about $2 billion in tax revenue for the state and local governments.
“It’s a really big win and I think something that housing advocates have been working on for several years and will help us to increase the production of affordable rental housing at a time when we know there’s a huge demand,” Illinois Housing Council Executive Director Allison Clements told Capitol News Illinois.
How the credits work
The measure specifically pertains to two credits, starting in 2026. What’s known as the 9% Low-Income Housing Tax Credit will see its funding pool increase by 12%. Projects eligible for the 4% Low-Income Housing Tax Credit will only need to secure 25% in private funding, down from 50%.
The credits are allocated to states based on a formula, and Illinois award 16 developers $24 million in federal tax credits for 2025. The credits are awarded by the Illinois Housing Development Authority to developers, and an investor makes a capital contribution toward the project in exchange for being given the credits, which puts the burden on private investors if the project falls through, according to the IHDA.
The developer is able to reduce the cost of the project with the credits, which allows the investor to provide rents at an affordable rate.
For a property to be eligible for the credits, the average income of tenants is limited to 60% of the area median income, according to IHDA. In Chicago, for example, that is $50,400 for a single person, $57,600 for a two-person household and $71,940 for a four-person household.
Renting a two-bedroom apartment is becoming more unaffordable for more people in Illinois, according to a new report from the National Low Income Housing Coalition. It found a full-time employee in Illinois needs to earn an hourly wage of $29.81 to afford such an apartment at fair market value while not devoting more than 30% of their income to housing costs. That’s a $62,000 annual salary.
Rents in developments covered by the tax credit are typically 45% lower than the average market rate, according to the Affordable Housing Tax Credit Coalition.
“It focuses on increasing the production of housing, which we think is really key to addressing the affordability crisis,” Clements said. “We need to build more units of housing. Illinois I think especially has been falling behind other states in terms of making progress in terms of making progress on the number of homes being built versus our population.”
Illinois has a shortage of nearly 300,000 affordable rental homes, according to a March report by Housing Action Illinois.
State-level credit
Advocates say Illinois should supplement the federal credit with its own and have been pushing lawmakers for years to adopt one. The most recently proposed Build Illinois Homes Tax Credit would establish a $20 million credit that would be similar to the Low-Income Housing Tax Credit.
The federal credit is often not enough to cover the cost of the project and supporters of the state-level credit say it would provide funding upfront with the revenue hit to the state coming later when the project is completed and tenants move in.
“We could take the state tax credit and pair it with these expanded federal resources to ensure projects cross the finish line,” Clements said.
Establishing a new tax credit, even for a modest cost, could be challenging for the state, however. State discretionary spending is growing by less than 1% in fiscal year 2026, but mandatory costs, including new requirements passed down by the federal government, are expected to grow significantly in the coming years.
More federal cuts loom
While Congress voted to expand the Low-Income Housing Tax Credit, it is in the middle of negotiations over future housing appropriations and Republicans have proposed slashing funding for a number of housing programs.
A review of the proposals by Housing Action Illinois found that in addition to reducing the workforce at the U.S. Department of Housing and Urban Development, the proposal would reduce funding for public housing programs, emergency housing vouchers and programs that provide financial assistance for housing to low-income Americans.
Capitol News Illinois is a nonprofit, nonpartisan news service that distributes state government coverage to hundreds of news outlets statewide. It is funded primarily by the Illinois Press Foundation and the Robert R. McCormick Foundation.
This article first appeared on Capitol News Illinois and is republished here under a Creative Commons Attribution-NoDerivatives 4.0 International License.