A Closer Look at Proposed Housing Provisions in the Build Back Better Act

While HUD would receive about $150 billion through the BBBA, housing-related spending and tax credits across all agencies would cost over $220 billion.

Below is an overview of top housing-related spending and tax provisions included in the BBBA, and what these investments could mean for housing in the United States. With the bill’s more challenging path out of the Senate, and reconciliation rules that limit provisions included in the bill mostly to those with a direct fiscal impact (as opposed to policy changes), House Democrats would likely pass the version of the bill that clears the Senate. As such, this blog focuses on the tax and spending provisions from the titles of the bill released by key Senate committees (namely Banking, Finance, Indian Affairs, and Homeland Security), which closely mirror the legislation passed by the House.

For HUD, about 53% of BBBA funds constitute discretionary funding, and about 44% constitute formula funding, with the remaining funds for administrative costs, technical assistance, and capacity building. Across all agencies, 39% of the cost of housing-related spending and tax provisions in the BBBA are discretionary grant programs, 31% are formula grant programs, and 27% are tax expenditures.

Public Housing—$65 Billion: Public housing is made up of affordable rental units available for low-income households. Currently, about 1.7 million people live in 932,000 public housing units, a figure that has declined in recent years due to demolition, deterioration, and conversion to properties with long-term contracts through the Rental Assistance Demonstration. Nearly half of the public housing stock nationwide was built before 1970, resulting in a significant maintenance and rehabilitation backlog ($26 billion when last assessed in 2010). Of all proposed BBBA funding on public housing, $2.5 billion would be directed to the Choice Neighborhoods program, which combines public and private funding to revitalize neighborhoods with public housing. This substantial investment to repair, replace, and develop properties is more than eight times the funding for the public housing program in fiscal year 2021.

Housing Choice Vouchers and Project-Based Rental Assistance—$25 Billion: The vast majority ($24 billion) would be directed to Housing Choice Vouchers, which help low-income families cover the cost of rent for private, market-rate units in neighborhoods of their choice. Vouchers have proven to be effective at reducing homelessness and housing instability and improving economic opportunity for families, but the program is not an entitlement. Due to limited funding, only one in five eligible households receive assistance. This increase in spending would nearly double funding for the HCV program from fiscal year 2021 and serve an estimated 300,000 additional families. The remaining $1 billion would go to project-based rental assistance, which similarly helps to cover the cost of rent, but is tied to specific housing units and does not travel with individual tenants.

Housing Trust Fund—$15 Billion: The HTF provides grants to states to develop and preserve affordable housing for households with the very lowest incomes. The HTF has previously not been funded through the federal appropriations process, but rather through fees collected from Fannie Mae and Freddie Mac. As of late 2021, the HTF had led to the completion of 1,570 units at a cost of $155.8 million. This $15 billion represents a dramatic expansion of the program, which has received less than $2 billion in total since 2016.

HOME Investment Partnership—$10 Billion: HOME is a flexible, block grant program that supports a range of housing activities, including rental assistance as well as the construction, purchasing, or rehabilitation of affordable housing. In fiscal year 2021, HOME received $1.4 billion in federal funding.

First Generation Downpayment Fund—$10 billion: This program would competitively grant money to states to assist eligible homebuyers with downpayment costs, closing costs, interest rate reductions, and other types of assistance. Under the program, recipients could receive up to $20,000 in assistance or 10% of the purchase price. Eligibility would be limited to households with 120% of area median income or less (140% in high-cost areas) as well as those who are first-time and first-generation homebuyers. This program largely mirrors H.R. 4495/S. 2929, the Downpayment Toward Equity Act of 2021, but with less funding than the $100 billion congressional Democrats proposed in that legislation.

Home Loan Program—$5 billion: This joint HUD, USDA, and Treasury program would offer new homeowners a 20-year mortgage for roughly the same monthly payment as a traditional 30-year loan, helping borrowers build home equity more quickly. HUD and USDA would both sponsor these 20-year fixed rate mortgages for first-time, first-generation homebuyers with incomes equal to or less than 120% of their area median income—with the Treasury Department subsidizing the interest rate and origination fee. This program matches the provisions of S. 2729, the Low-Income First Time Homebuyers (LIFT) Act.

Community Restoration and Revitalization Fund—$3 billion: This competitive grant program would fund community-led projects that support accessible housing, prevent residential displacement, acquire and remediate blighted properties, and promote job creation in economically distressed communities. $500 million would be set aside to maintain community land trusts and shared equity homeownership. This program is similar to the one proposed in the bipartisan H.R. 816/S. 2300, the Restoring Communities Left Behind Act.

Unlock Possibilities Program—$1.75 billion: This program would provide competitive grants for community planning and implementation to improve housing development strategies, reform zoning and local regulations, enhance sustainability, and advance fair housing. This program mirrors the provisions of the bipartisan H.R. 2126/S. 902, the Housing Supply and Affordability Act.

Housing Investment Fund—$750 million: The HIF would provide flexible grants that aim to increase housing affordability and accessibility for low-income families. The program would be administered by Treasury’s Community Development Financial Institutions Fund and would be structured similarly to the Capital Magnet Fund. CDFIs and non-profit housing developers would be able to leverage these dollars to capitalize acquisition and housing financing, and to provide loan loss reserves.

In addition to a number of energy efficiency related tax incentives targeted to residential properties, the tax provisions in Senate Democrats’ BBBA would finance the development of nearly one million homes over ten years, chiefly through an expanded Low Income Housing Tax Credit and new Neighborhood Homes Tax Credit, according to estimates by Novogradac.

Low Income Housing Tax Credit: Through LIHTC allocations, states and local authorities issue tax credits to developers to offset construction costs in exchange for a commitment to rehab or build rent-restricted units for low-income households. Each state and local authority allocates the tax credits through a competitive process. The LIHTC is the largest and most effective federal program to encourage the development and rehabilitation of affordable rental homes and addresses a key problem in the housing market—it is often not economically feasible to develop housing with rents that stay affordable for low-income households. LIHTC allocates the equivalent of approximately $8 billion in budget authority annually.

The BBBA would raise LIHTC allocations through the year 2025 to allow for greater financing for affordable housing. Specifically, the bill would increase competitive allocations of 9% annual tax credits designed to subsidize 70% of the cost to develop low-income housing units. In 2021, states received the greater of either $2.93 per capita or $3.2 million (for small states) through LIHTC allocations. The following graph shows the increased allocations by year under the Senate bill compared to projections for LIHTC allocations without the legislation.

Source: Novogradac 

The BBBA’s LIHTC provisions would provide housing for an additional 1.9 million in people in 820,000 homes, according to Novogradac estimates. LIHTC expansion would also generate more than 1.2 million jobs, nearly $138 billion in wages and business income, and nearly $48 billion in tax revenue. The provisions in the BBBA are similar to those proposed in the bipartisan H.R. 2573/S. 1136, the Affordable Housing Credit Improvement Act.

Neighborhood Homes Tax Credit: The BBBA also includes the NHTC, a new tax credit that aims to increase the production of affordable housing like the LIHTC does—but whereas the LIHTC is limited to rental housing, the NHTC would finance the building and renovating of owner-occupied homes in distressed neighborhoods.

Under the Senate bill, state allocations would be set at $3 per capita (with a $4 million small state minimum) from 2022 through 2024, rising only for inflation. In 2025, the allocation would rise to $6 per capita, adjusted for inflation from 2022-2024 (with an $8 million small state minimum). After 2025, the program would expire. Over those five years, the NHTC would finance an estimated 125,000 affordable owner-occupied homes. The NHTC was first proposed through the bipartisan H.R. 2143/S. 98, the Neighborhood Homes Investment Act.

Source: Novogradac 

* Figures would be adjusted for annual inflation. 

** Figures would be adjusted for inflation from 2022-2024. 

The BBBA would be a massive increase to HUD’s overall budget. The housing provisions alone would amount to well more than twice HUD’s average annual budget authority of $59 billion the last decade. The BBBA, combined with an increased agency budget authority for fiscal year 2022, would provide HUD with about $280 billion, nearly five times HUD’s 10-year average budget.

Data source: White House Office of Management and Budget 

*OMB estimates 

While much of the discussion over the BBBA has focused on its climate provisions, the Child Tax Credit, and paid leave, the bill would also dramatically expand federal support for affordable housing, providing opportunities as well as potential challenges, at all levels of government, in effectively and impactfully distributing and managing the increased spending. If the BBBA ultimately fails to pass, or the subsequent version eliminates housing investments, there are a handful of provisions, noted above, that have historically garnered bipartisan support and may offer a legislative path forward.

BPC on Reconciliation

Importantly, BPC has never supported the reconciliation process, regardless of which party is in power. Reconciliation should not be used as a means for policy reform. However, BPC will always share its expertise and promote ideas with a history of bipartisan support. In addition, we expect new spending proposals to be fully paid for.