Steve Callahan Jr.

The shortage of affordable housing in Massachusetts and across the U.S. is a challenge that lawmakers, businesses, and state agencies struggle to address. In general, as leaders at the local and state levels attempt to move projects from the concept stage to shovel-ready, they are often met with hurdles that range from providing sufficient financial incentives for developers to steering funding to the areas that need it the most.

Recent federal legislation known as the One Big Beautiful Bill Act, or BBB, introduces meaningful new tools for municipalities across the commonwealth. A variety of updated funding mechanisms open the door to more developers and nonprofit organizations pursuing affordable housing. The layers in the BBB are many, and the ways in which it helps make affordable housing more feasible range from reducing bond financing requirements to increasing Opportunity Zone incentives in historically underserved areas.

While no bill is perfect and it still only scratches the surface of affordable housing needs nationwide, the BBB is a significant step in the right direction – and hopefully, state leaders will leverage some of the mechanisms described below to bring more projects to life.

Lower Bond Thresholds, Expanded Eligibility

The permanent reduction of the private activity bond financing threshold for the 4 percent Low-Income Housing Tax Credit (LIHTC) is perhaps the most significant change delivered by the BBB.

Previously, a developer had to secure tax-exempt bonds covering at least half its eligible basis to qualify. The threshold has now been lowered to 25 percent for projects placed in service after 2025.

This will trigger a few immediate and significant impacts: Higher bond requirements often limit the potential pool of organizations, especially smaller entities, that can compete to develop critical affordable housing projects.

Developers and community nonprofit organizations can now benefit from the LIHTC just as larger, better-capitalized organizations have historically been able to. This alone will open new opportunities for affordable housing developments to enter the pipeline and accelerate the speed at which those projects can move, thanks to lower debt loads and reduced interest exposure.

The BBB also delivers a permanent approximately 12 percent increase in states’ annual allocations of competitive 9 percent LIHTC starting in 2026. With states often overrun with applications for 9 percent credits, this expanded ceiling will allow more projects to qualify and get underway.

Finally, the BBB builds on the Opportunity Zones program by introducing incentives targeted at rural and underserved areas, including a new Qualified Rural Opportunity Fund category with enhanced tax benefits (such as a higher basis step-up and reduced substantial improvement requirements). This aims to address past criticisms that OZs favored urban cores, directing more capital toward rural communities facing similar affordable housing challenges.

The expanded tax credit program and reduced bond financing threshold, combined with more opportunities for rural cities and towns to secure valuable federal dollars, show great potential for generating new affordable housing projects in places like Massachusetts with its multi-layered tapestry of economies and underserved areas.

 What Does It All Mean for Mass.?

Locally, the BBB is likely to have a meaningful impact.

To Massachusetts’ credit, it does an admirable job of prioritizing affordable housing, and leadership has shown a desire to bring more projects to life by increasing funding and incentives for developers. The BBB can complement those efforts and supercharge existing programs in three big ways.

First, high land costs in places like Boston, Worcester and Cambridge have historically made the areas most in need of affordable housing the most expensive places to build. With the reduced bond financing requirements, we expect to see more developers take advantage of the 4 percent LIHTC, and MassHousing begin to underwrite more projects – especially for organizations like community nonprofits that would have struggled to make the numbers work in the past.

Second, communities in Western and North Central Massachusetts have typically been underserved while having significant affordable housing needs. The new, rural-focused Opportunity Zone incentives could be meaningful levers those communities can pull to trigger more outside development and create opportunities for residents to find housing outside of major metropolitan areas.

Third, it can spur construction activity. Boston has already launched ambitious plans to build the next generation of affordable housing inventory, aiming for 69,000 new units by 2030. The Boston Housing Authority and Boston Planning and Development Agency will publish notices of funding availability to alert local agencies, and those organizations would be wise to align these opportunities with the enhanced LIHTC landscape to take advantage of the updated provisions made possible by the BBB.

Steve Callahan Jr. is vice president of business development at Boston-based Callahan Construction