The United States has many tools for building affordable housing. The most powerful one is called the Low-Income Housing Tax Credit. Since 1986, it has financed more than 3.5 million homes for low-income renters. By any measure, it works.
The program has delivered millions of units. It just hasn't delivered enough of them, for reasons that are complicated and interrelated — financing timelines stretch long, tax credits are finite and competitive, and land costs in high-need markets can make even subsidized deals nearly impossible to pencil out. But the more I've looked into one particular piece of that puzzle, the more it has stayed with me: the people best positioned to close some of that gap can't get through the door.
Walk into most LIHTC deals today and you'll find the same cast: large institutional developers with legal teams and syndication relationships, backed by major banks with tax appetite to spare. The program wasn't designed to exclude anyone else. But in practice, that's how it has worked out. The small nonprofits and emerging builders who know their neighborhoods, who show up to the community meetings, who take on the projects no one else wants — they're largely on the outside. Not because they lack the vision or the commitment. Because the paperwork alone can swallow them whole.
I'm a graduate student, not a housing policy veteran. But sometimes that distance lets you see things plainly. And what strikes me about this gap is how unnecessary it is.
Why small developers can't get in
LIHTC works through a system that's genuinely complex. Tax credits are allocated by state agencies through documents called Qualified Allocation Plans, dense technical instruments that can run dozens of pages. To actually use those credits, developers have to sell them to investors through a process called syndication, which requires navigating relationships with large banks and institutional players, paying significant legal and transaction fees, and building a level of financial sophistication that takes years and capital to develop.
For a large developer with an in-house team, this is just Tuesday. For a small nonprofit trying to build 30 units in a neighborhood nobody else is touching, it can be the difference between a project that happens and one that doesn't.
That loss isn't just a problem for the small developer. It's a problem for the community that needed those 30 units.
What we lose when small developers can't compete
Small and community-based developers don't just build housing. They build the kind of housing that works for the people who actually need it, designed around local priorities, shaped by real relationships, less likely to face opposition because the developer has already been sitting at the table for years.
I came across a number that stopped me while researching this. NeighborWorks America, a network of more than 250 small nonprofit developers operating across the country, produces more affordable rental housing collectively than any single developer on Affordable Housing Finance's annual list of the largest players in the field. In 2024 alone, the network completed over 8,000 units. That's not a footnote. That's the story. Small developers, taken together, are doing enormous work. The question is why we make it so hard for them to do more of it.
What could actually change things
I don't want to overstate my expertise here. But the research points to a few interventions that seem genuinely promising, and they don't require blowing up a program that's already working.
The most direct fix is a dedicated set-aside, reserving a portion of tax credit allocations specifically for small and emerging developers, paired with a streamlined application process that doesn't require an army of consultants to navigate. Indiana has already shown this is workable. Its Housing and Community Development Authority recently carved out 10 percent of its annual 9% LIHTC allocation exclusively for first-time, minority-, and woman-owned developers, pairing the credits with up to $2.5 million in loan guarantees to help emerging builders meet syndicator requirements. That combination of reserved credits and financial backing is what makes a set-aside meaningful rather than symbolic. Massachusetts has moved in a complementary direction through its Equitable Developers Fund, a $50 million initiative providing working capital lines of credit and credit-enhancement tools to help small developers build the financial standing to compete. It targets a different bottleneck: a developer who can't make payroll or post a letter of credit never gets to the starting line.
The harder, more structural challenge is syndication. The economics of selling tax credits to investors typically require allocations large enough to justify transaction costs, which means small developers, who receive smaller allocations, often can't make the math work. One solution that's already being tested is pooling: bundling multiple small developers' allocations into a single, larger investment vehicle. NeighborWorks Capital has begun doing exactly this, aggregating LIHTC deals from across its nonprofit network to negotiate standardized terms and reduce per-project legal costs, giving small developers pricing power closer to what large firms take for granted. Done at scale, with government support to bring more syndicators to the table, this kind of aggregation could fundamentally change the economics for small builders. The infrastructure is already partly there. It just needs to grow.
None of these fixes are radical. They're adjustments to a program that already knows how to work.
The affordable housing crisis will not be solved by large developers alone. The math doesn't work. The geography doesn't work. The community trust doesn't work. What we need is more builders, more relationships, more projects in more places. I don't have a policy lever to pull. But I do think the people who do should be asking why we've spent decades building a program that works and made it nearly impossible for half the builders who could use it to walk through the door.