Novogradac: NHIA Reintroduced Amid Reconciliation Debates: What’s Different in 2025?
Published by Peter Lawrence and Dirk Wallace, CPA on Thursday, April 10, 2025 - 9:59AM
Advocates for affordable owner-occupied housing hope to seize on tax reconciliation negotiations currently taking place to advance the Neighborhood Homes Investment Act (NHIA) (H.R. 2854), which was reintroduced April 10 by Reps. Mike Kelly, R-Pennsylvania, John Larson, D-Connecticut, and 10 other cosponsors. The Senate companion bill is expected to be introduced by Sens. Todd Young, R-Indiana, and Mark Warner, D-Virginia, after the Easter recess.
The latest iteration of the NHIA has some changes from the version introduced during the 118th Congress (H.R. 3940, S. 657), but still aims to establish a Neighborhood Homes Tax Credit (NHTC) to help finance the gap between the construction or acquisition and rehabilitation costs of owner-occupied homes in distressed neighborhoods and the price such properties can be sold. This is the fourth congressional session in which the NHIA has been introduced.
Through reconciliation, Congressional Republicans plan to address their major partisan objectives, which includes the extension of many of the tax provisions from the 2017 Tax Cuts and Jobs Act (TCJA) that are slated to expire at the end of 2025.
The enactment of a NHTC could see about $3.15 billion in allocations for 2025, which would increase to $3.96 billion for 2034, a total of $35.5 billion over 10 years, according to Novogradac estimates.
The NHIA Coalition finds that this translates to the potential financing of the construction or rehabilitation of about 503,500 homes over 10 years. It is estimated that the NHTC could spur $151 billion in total development activity, generating $102.7 billion in wages and salaries, $32.2 billion in federal tax revenue and $13.4 billion in state and local government revenue, and 1,096,600 jobs in construction or construction related fields. The NHTC would be targeted to distressed communities where the gap between the cost of acquisition and rehabilitation of single-family homes and the value of those homes is often an insurmountable barrier. This would make the NHTC not only be a valuable neighborhood revitalization tool but also an important resource to support improvements to the housing stock.
Why the NHTC is Needed
There is a severe housing shortage. Freddie Mac estimated a deficit of 3.7 million rental and owner homes as of the third quarter of 2024, and home price appreciation coupled with high mortgage rates and limited supply affect owner-occupied housing affordability. According to Harvard’s Joint Center for Housing Studies (JCHS), the shortage of owner-occupied housing has put upward pressure on single-family housing prices, which has contributed to the highest rates of cost-burdened living (when 30% or more of a family’s income goes towards housing) in households with incomes below $30,000 in the last 20 years. JCHS reports that 74.2% of all homeowners in this cohort are cost burdened, compared to 23.7% of all homeowners who are cost burdened. Affordability issues disproportionately affect older homeowners, with nearly 28% of cost-burdened homeowners being senior citizens. Additionally, National Association of Home Builders analysis shows approximately 75% of all U.S. households cannot afford the median price of $459,826 for a new, single-family home based on a 6.5% mortgage rate and spending 28% of household income for housing costs (mortgage, property taxes and property insurance). At that interest rate, nearly 60% of households cannot afford a $300,000 home. In its support of the NHTC, the National Community Stabilization Trust (NCST) notes that a lack of funding for development in low-income communities creates a favorable environment for absentee owners/investors who convert aging homeownership housing to poorly maintained rental housing in once stable owner-occupant neighborhoods. This undermines quality of life and spurs declining property values, which further feeds the problem.
Understanding How the NHTC Works
The nation’s housing crisis spans tenure (be it rental or owner-occupied housing), income levels and locations, and a range of solutions are needed to address the problem. The NHTC would be one tool to help with the starter home shortage, especially in distressed communities.
With ever increasing construction cost, it has become more and more expensive to build owner-occupied homes. While the value of homes has also increased, there still exists a “value gap” in many communities, that is, the difference between the cost to build or acquire and rehabilitate a home and the price at which the home could be sold. The NHTC would help fill this gap by encouraging housing investments in distressed and underserved communities. This incentive operates similarly to the low-income housing tax credit (LIHTC) in that state housing finance agencies (HFAs) would competitively allocate NHTCs, which would be authorized at $9 per capita or $12 million for small states, whichever is greater. The proposed NHTC would also share similarities with the new markets tax credit (NMTC). Community development entities (CDEs) compete for NMTC allocation authority, just like NHTC allocatees would compete for credits. Like NMTC allocation authority, the NHTC would not be tied to any particular property but rather, allocatees are expected to use their awards in a general target location of their choice to address a development pipeline in line with their property construction and rehabilitation strategy.
Each year, states could supplement their available allocations with the unallocated amounts carried over from up to three years ago and the previously assigned but unused credits. Additionally, 10% of each state's allocation would be reserved for nonprofit sponsors, like the LIHTC. It must be proven that the community needs new or renovated homes before a development could be chosen. Moreover, states would likely evaluate applicants for NHTCs based on the impact on the community and its residents, sponsor capabilities, long-term homeownership sustainability and other factors.
To use the NHTC, development sponsors would also be required to meet certain requirements. Namely, they must complete the development of the home within five years. Then, the homes must be sold to and subsequently occupied by eligible homeowners. Constructed or rehabilitated for sale homes sold in distressed areas generally are for those with incomes at or below 140% of the area or state median income. Homeowners currently occupying a home that undergoes rehabilitation financed by NHTCs must have incomes at or below the area or state median income. The 2025 NHIA would provide some flexibility in geographic targeting, allowing a maximum of 20% of their allocation to go to “locally designated communities”–census tracts identified by states in their qualified allocation plans as needing additional housing investments–if the eligible homeowners are at 120% AMI or less.
Changes in the NHTC
The 2025 iteration of the NHIA includes key changes compared to the 2023 version. The current bill:
Increases the per capita amount from $7 to $9
Increases the small state minimum from $9 million to $12 million
Increases the maximum eligible credit amount from 35% to 40% of total development costs.
Nationwide, the maximum tax credit that could be claimed on a home would be the lesser of 40% of total development costs or $139,936 (32% of $437,300, the national median sales price of a new home), up from $122,444 (28% of $437,300) in the 2023 legislation.
The changes to the per capita amount, small state minimum and maximum eligible credit amount are a result of higher construction costs associated with inflation and higher interest rates. To ensure that the credits get fully deployed in the early years of the program, this bill also includes changes to diversify the communities to which the HFAs direct the incentive.
What’s In Store for the NHTC?
Housing advocates are hoping the reconciliation process will provide a vehicle for tax incentives like the NHTC to be enacted. At the time of this writing, Congress is trying to advance a single reconciliation bill. The House and Senate have each passed budget resolutions, with the Senate recently passing a revised resolution April 5 that the House is expected to consider and pass this week. The revised Senate budget resolution is different from what the chamber was originally pursuing, a two-bill strategy for reconciliation, where one bill included the Republican priorities of immigration, defense, and non-tax energy proposals and a second bill that would address expiring TCJA tax provisions as well as other tax proposals. The House and Senate must pass an identical budget resolution for the reconciliation process to advance. A primer on the reconciliation process is available for more details.
In addition to the NHIA, many housing advocates are also hoping as much as possible of the industry consensus LIHTC legislation, the Affordable Housing Credit Improvement Act (AHCIA), which was recently reintroduced, is also included in the final reconciliation bill. Novogradac estimates enactment of the main LIHTC and private activity bond provisions of the AHCIA could finance the construction and preservation of nearly 1.6 million additional affordable rental homes. Together, the NHIA and AHCIA would go a long way in addressing the nation’s affordable housing crisis and a reconciliation bill would provide the legislative vehicle to help not only homeowners and renters but also distressed communities.
Housing stakeholders wanting to keep abreast of what is happening in Congress and to network with others interested parties should attend the Novogradac 2025 Affordable Housing Conference in San Francisco, May 8-9. To learn more about the NHTC, join the ongoing conversation and become engaged in policy discussions, join the NHTC Working Group.