H.R.1’s Change to Low-Income Housing Tax Credits Might be the Best News About the New Law
States have an opportunity to create a million more affordable housing units, including for Medicaid enrollees.
Authors: Richard Cho and Dori Glanz Reyneri
Editors: Patti Boozang and Amanda Eisenberg
tl;dr
H.R.1 imposes devastating cuts to Medicaid and our nation’s health care ecosystem. There is a glimmer of hope, though. H.R.1 made significant increases and changes to low-income housing tax credits (LIHTC) that can increase affordable housing development by 1.22 million more units over the next decade.
In the simplest terms, there will be more funding than ever before to develop low-income housing units starting in 2026. That’s due to H.R.1 permanently increasing the amount of tax credits that states can award to housing developments serving low-income households. The law also makes it easier for states to leverage federal tax credits when using private activity bonds to finance housing.
Connecting Medicaid enrollees who need affordable housing to these units won’t happen without intention. Taking advantage of this surge in housing development will require coordination and planning between state health and housing agencies.
The 80 Million Impact
LIHTC, created in the 1980s, are the single-largest source of financing for affordable housing development in the United States. A provision in H.R.1 increases and modernizes the program and could lead to 1.22 million more new affordable housing units over the next decade. Key changes to the program include:
A permanent increase in the amount of tax credits states can award
More flexibility to pair LIHTC with private activity bonds, expanding states’ financing options
A significant boost in available funding beginning in 2026
In addition to expanding affordable housing overall, states can use this LIHTC-fueled boost in housing production to help reduce overall health care costs for their Medicaid populations at a time when federal funding for the program is being slashed and legislators will need to make difficult decisions on how to close budget holes. When Medicaid enrollees have stable housing, they’re more likely to require fewer emergency department visits and inpatient admissions, as well as report improved chronic disease management and behavioral health outcomes.
As states prepare to expand their affordable housing stock, it’s crucial to recognize that certain groups enrolled in Medicaid — such as individuals receiving home and community-based services (HCBS) or tenancy support — face distinct and often complex housing challenges. Thoughtful planning can ensure these populations’ unique needs are addressed, helping states not only provide stable homes but also tackle the urgent crisis of homelessness that disproportionately affects vulnerable Medicaid beneficiaries, improving health and containing health care-related costs in the process.
To do this, state Medicaid agencies and state housing finance agencies can join forces to shape a LIHTC Qualified Allocation Plan (QAP) that includes requirements or incentives for units set aside for Medicaid enrollees. States can dictate that these projects 1) prioritize referrals from Medicaid-supported programs, 2) serve people receiving HCBS or tenancy support or 3) include on-site services or partnership commitments. Housing properties that welcome supportive housing can integrate case managers as well to stabilize tenants across their health, housing and enrollment of services like SNAP, Medicaid and/or Supplemental Security Income/Social Security Disability Insurance. At the same time, states can adjust bond policies and capital grant programs to favor projects that serve people with complex health needs or that promote community living, along with working with housing developers and providers.
Even with tax credits, many Medicaid members will still need rental subsidies. Coordinating LIHTC units with project-based vouchers (HUD Housing Choice Vouchers) or state-funded rental assistance can make these homes truly affordable. With intense and thoughtful collaboration, states can leverage their agencies to come together and improve health care and housing for their most vulnerable residents.
The Bottom Line
As more states are engaged in efforts to address housing insecurity as a driver of poor health and high costs among Medicaid beneficiaries — including by covering services like housing navigation and tenancy supports under Medicaid — they have come to realize how much the severe shortage of housing supply hampers their success. H.R.1’s changes to LIHTC provide a potential way to expand the inventory of affordable housing available to members, including those receiving Medicaid-funded housing services. Since these changes take effect in January 2026, there’s no time to wait. States should act now to begin joint planning with their housing agencies and private partners to plan for scaling affordable housing for low-income residents. Through strategic planning, states can ensure that the next wave of affordable housing also advances their health care goals.