The Low-Income Housing Tax Credit (LIHTC) program, created in 1986, has played a significant role in financing affordable rental housing across the United States. The program requires that a portion of units in each development remain affordable for at least 15 years under federal guidelines, after which states are responsible for ongoing monitoring and enforcement.
Recent analysis shows that Colorado has surpassed the national average in the growth of affordable housing units developed through LIHTC financing. “Preservation efforts of affordable housing advocates, requirements of state housing authorities, and other land use restriction agreements will constrain incentives to transition LIHTC-financed units to market rental rates even when the federal compliance periods close,” according to the report’s authors. Despite this accelerated pace over the past 15 years, new rental unit development in Colorado is expected to slow soon.
The LIHTC program functions by awarding tax credits to developers through state agencies. Developers sell these credits to investors—often financial institutions or investment funds—to raise equity capital and reduce debt obligations. In return, investors receive tax benefits over ten years if they ensure a portion of units are rented at below-market rates to qualifying households for at least 15 years. Financial institutions can also use these investments toward Community Reinvestment Act requirements.
From 1990 to 2020, about 2.9 million LIHTC-funded affordable housing units were placed into service nationwide; Colorado accounted for approximately 52,000 of those units. Since only some units in each development have affordability restrictions, total numbers are higher: about 3.2 million nationally and around 58,000 in Colorado.
While both Colorado and the U.S. saw steady growth during the first phase of LIHTC’s existence (1990–2005), trends diverged over time. Nationally, growth slowed while Colorado saw renewed momentum from 2010 onward—coinciding with high population growth due to migration into the state.
In recent years, more LIHTC properties nationally have exited their initial compliance period than entered it—a reversal not mirrored in Colorado due to its recent surge in construction. However, there are signs that this trend may be ending; multifamily housing deliveries fell sharply last year in Colorado—the lowest level seen locally in almost a decade—which brings its pace closer to national averages.
Looking ahead, whether Colorado will continue outpacing national trends or align more closely with them remains uncertain as market saturation impacts investor appetite for new projects.
“The views expressed are those of the authors and do not necessarily reflect the positions of the Federal Reserve Bank of Kansas City or the Federal Reserve System.”
For further details on individual LIHTC properties nationwide see information provided by HUD: https://www.huduser.gov/portal/datasets/lihtc.html
