Why Institutional Capital Is Flowing into Affordable Housing

The affordable housing sector is undergoing a quiet transformation. For years, affordable housing was viewed as a moral obligation. Now, with federal policy drawing attention to the matter and private equity funds expanding, investors are embracing it as a scalable, strategic business opportunity. Public-private alignment is opening capital opportunities that were previously out of reach — and investor sentiment is shifting from interest to action.

The ROAD to Housing Act of 2025 is a catalyst. By expanding Low-Income Housing Tax Credit (LIHTC) allocations and lowering financing barriers, the legislation provides greater opportunity for investors and developers.

Public-Private Partnerships at Scale

Public-private partnerships (PPPs) are often associated with large infrastructure projects, but they increasingly represent opportunities for multifamily housing. The $1.2 billion University of California, Merced, infrastructure project and the $337 million Gateway Arch Park renovation in St. Louis garnered headlines as PPP success stories. While affordable multifamily home developments in states like Georgia largely flew under the news radar, they attracted significant attention from national private equity firms, syndicators and institutional investors.

According to CohnReznick, the LIHTC program closed $28.9 billion in investor equity in 2024, a 7.6% increase over prior years, primarily driven by CRA-motivated bank participation and robust demand from non-bank institutional investors.

Institutional Leaders Signal Confidence

Several major private equity firms and fund managers underscore growing confidence. Goldman Sachs launched its Urban Investment Group with a $75 million fund in 2001, later merging it into the Global Special Situations Group and committing $8 billion in 2019. The group blends private equity with LIHTC investors to finance projects nationwide, with an emphasis on partnerships with Black-led developers.

Early investments included 80 affordable units in Rome, Georgia; more recently it participated in the construction of 1709 Surf Avenue, an 11-story residential building in Brooklyn.

Hunt Capital partnered with a bank, local and state agencies, and a subsidiary of the Housing Authority of the City of Austin to develop Cady Lofts, which opened in April. The firm provided $13.8 million in federal 9% LIHTC equity and $1 million through a new Texas LIHTC fund. In all, nine entities provided some form of financing.

Four months later, Hunt Capital's $12.5 million investment via federal LIHTC credits was celebrated at the opening of a mixed-income apartment project in Kansas City, Missouri. The firm partnered with a Missouri LIHTC syndicate, UMB Bank, the provider of federal LIHTC equity and a construction loan, and Guadalupe Centers, a social service center founded in 1919.

Our firm is partnering with Avanti Residential, which has 10,000 units across 40 properties in seven states, to develop a $30 million multifamily community in New Port Richey, Florida. The Denver-based multifamily investor and operator is using its affiliated investment platform, Avanti Residential Housing, to provide LIHTC financing.

How Policy Creates Market Certainty

The LIHTC program remains the backbone of affordable housing finance. The ROAD to Housing Act strengthens that backbone in two key ways.

The legislation marks a permanent 12% increase from the state housing credit ceiling for the 9% LIHTC allocations beginning in 2026, according to analysis by Cherry Bekaert. Because states can allocate more credits to qualifying projects, the advisory firm expects this to lead to more affordable housing projects nationwide.

The law also reduces, from 50% to 25%, the amount of tax-exempt bond financing for developments placed in service after Dec. 31 that must secure to qualify for the 4% LIHTC. It subsidizes 30% of the costs of low-income units in a development project. Cherry Bekaert forecasts that the lower financing barrier could make PPPs more popular.

Why the Opportunity Resonates with Investors

For institutional investors, LIHTC-backed PPPs offer several attractive features:

• Tax Credits: Institutional investors purchasing LIHTC allocations receive a dollar-for-dollar reduction in federal tax liabilities, claimed annually over ten years.

• Portfolio Diversification: Affordable housing adds geographic and demographic diversity with historically low foreclosure and credit recapture rates.

• Regulatory Alignment: Investments satisfy Community Reinvestment Act (CRA) goals and streamlined compliance by investing in equity funds.

• Lower Risk Profile: LIHTC investments generally have lower risk profiles. They more resemble fixed-income instruments than direct real estate investments, with minimal operating cash flow and nominal exit proceeds that significantly reduce capital gain risk.

The Path Ahead

With the new law and open market driving more deal flow and syndication opportunities, institutional investors can participate in more projects and with larger funds. Current participants should rethink their 2026 plans and entrants should learn more from the funds, developers and consider their geographic and demographic market choices.

Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.