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Federal tax credits have long been touted as the most effective tool for enticing builders to construct affordable homes. Since the Low-Income Housing Tax Credits program began 40 years ago, 90% of homes nationally deemed affordable have been built through this program, generating more than 3.5 million units.
That’s a positive. But on the negative side, housing built under its auspices often falls short of providing truly affordable housing for those who most need it, such as households of four earning less than 30% of the median area income – $40,300 annually. Figures from the National Low Income Housing Coalition show a huge shortage in that area.
In Austin, the housing market has added homes at a rapid clip and made progress for many moderate-income renters, but the city’s deepest affordability gap remains stark, figures show.
“I think they’re beneficial,” Go Austin/Vamos Austin Policy Director Monica Guzmán said of the housing tax credits. Guzmán previously lived at the Villas on Sixth, built under the tax credit program.
“I’m not familiar with every property in Austin, but I don’t think (many) of them go below that 30% threshold,” she added. “It would be great if they did, because the median family income for Travis County is so skewed.”
The housing tax credit program is complex. The Austin Free Press interviewed nonprofit leaders and examined federal regulations to better understand the process. That undertaking is like peeling a 15,000-layered onion, said Roger Arriaga, executive director of the Texas Affiliation of Affordable Housing Providers.
“It comes in all flavors, all sizes, and it does different things for different people in different venues,” he said.
The first layer: What are these subsidies?
The program is geared toward incentivizing individuals and corporations to invest in affordable housing through tax credits that reduce how much they owe in taxes on other income for 10 years, according to the National Low Income Housing Coalition.
In exchange, the investors fund the affordable housing developments, reducing the costs to developers, which – in theory – lowers rent.
Tax credits for lower-income housing are designed to fund either 30% or 70% of the costs of a lower-income housing project, according to the National Center for Housing Management. Here’s how each subsidy works.
The 30% subsidy (the 4% tax credit)
- Developments can qualify for this tax credit automatically when 50% of the project is covered through government-issued, tax-exempt bonds.
- It’s also usually used for larger developments and workforce housing, Arriaga said.
The 70% subsidy (the 9% tax credit)
- This is awarded through a competitive application process.
- It’s usually used for smaller developments, covers more of the cost to build a housing project and is used to reach deeper levels of affordability, according to Michael Wilt, external relations manager for the Texas State Affordable Housing Corporation.
The next layer: How credits are awarded
When a project qualifies for a credit, the money doesn’t just appear. A competitive allocation process is used for the 9% credit.
Each year, the governor approves a rulebook used by the Texas Department of Housing and Community Affairs. This book scores applications based on affordability, depth, location and more.
Demand always outpaces the number of available credits, so each state’s total pool is capped using a per-capita formula set by Congress. Winning an allocation of tax credits isn’t the same as receiving cash, however.
- Investors purchase the credits from developers, and the price they pay per dollar of credit shifts with market demand. Tax credits worth $1 million might generate more or less actual construction funding, depending on the year.
- The gap between what a project costs and what the tax credit equity plus bank financing can cover often has to be filled by municipal bonds or other subsidies. Developers can’t raise rents past what the U.S. The Department of Housing and Urban Development sets as the cap on an income-restricted unit.
“They can’t just raise the rents to close the gap, they have to find other sources,” said Naomi Bludworth, deputy executive director of the Texas Affiliation of Affordable Housing Providers. “That’s something that’s been acutely changing over the last couple of years because inflation costs have gone up for development costs, whether that’s labor, materials or insurance.”
The federal law layer
Last year, the federal One Big Beautiful Bill Act permanently overhauled the program’s financial landscape, raising the ceiling of each state’s credit allocation by 12% to address the affordable housing crisis, according to a Baker Tilly article.
In Texas, that change helped boost the housing tax credits used to construct affordable rental housing from $99 million in 2025 to more than $114 million this year, according to a press release from the governor’s office.
“The state of Texas usually gets about ($80 million to $90 million) in tax credits,” Arriaga said. “Well, traditionally, the state gets upwards of $200 million in applications, so (that’s) just an idea for how that demand is through the roof. Though this is a great program, it still is not coming anywhere near the need or interest for affordable housing.”
The affordability layer
Nationally, there’s a shortage of 7.2 million affordable housing and available rental homes for households in which renters’ income is extremely low, according to a National Low Income Housing Coalition report from March 2026.
That’s just 35 homes available for every 100 households with extremely low-income seeking housing. In Texas, the numbers get worse: Only 26 homes are affordable and available for every 100 households with extremely low-income. And in Austin, that number shrinks to 23, according to data from the National Low Income Housing Coalition.
Austin is the most expensive place to live in Texas, Texas Affiliation of Affordable Housing Providers data show, with the median family income for a family of four at $134,400.
That means that Austin’s poverty line exceeds that of any other part of the state, with 30% of the area’s median income for a family of four at $40,300. A July memo from the Housing Department revealed that the city had just produced 543 units of its goal to produce 12,000 such units within six years of the 2017 Strategic Housing Blueprint, or 4% of its goal.
Those with extremely low incomes need more rental assistance than what housing tax credits can provide. People in this category usually can afford these units with the assistance of housing vouchers, a certificate that helps lower-income families pay for rental housing. Mandatory rent caps typically can’t cover building and operating costs of housing for those earning at that level.
In July, THDCA released the list of awarded projects, including four apartment buildings in Austin. Housing credits were awarded to the Jordan II Apartments, The Lenora, The Maven and Rowan Vale, generating 274 units of affordable housing in Districts 9, 5 and 4. Of those available for rent, 35 will most likely be available for people earning at or below 30% of the median family income, according to a February press release.
Destini Ambus is the growth, housing and affordability reporter for the Austin Free Press. She joins AFP’s staff as a Report for America Corps member. She attended Auburn University, where she earned her B.A. in journalism and was the editor-in-chief of The Auburn Plainsman. She was also a member of the inaugural class of the New York Times Corps. Before moving to Austin, she worked as the general assignment reporter for the Savannah Morning News.
