December 16, 2025
In many U.S. communities, the affordable housing gap continues to grow. Millions of households—including working families, veterans, and essential workers—struggle to find safe, affordable homes. Financing new developments remains challenging as capped rents limit revenue while construction costs continue to climb.
Two federal tools work in tandem to bridge this gap: the Community Reinvestment Act (CRA) and the Low-Income Housing Tax Credit (LIHTC) program. Together, these programs sustain a reliable flow of private capital for affordable housing and offer opportunities for banks, corporations, and impact-focused investors.
What Are CRA & LIHTC?
The Community Reinvestment Act
Enacted in 1977, the CRA was designed to combat redlining and ensure banks meet the credit needs of the communities where they do business. The law encourages financial institutions to provide loans, investments, and services in low- and moderate-income (LMI) neighborhoods consistent with safe and sound operations.
The Low-Income Housing Tax Credit
Created in 1986, the LIHTC program remains the federal government’s primary tool for attracting private investment in affordable rental housing. According to the Office of the Comptroller of the Currency, LIHTCs are “the federal government’s primary program for encouraging the investment of private equity in the development of affordable rental housing for low-income households.”
Under the program:
- Developers who build or rehabilitate qualified affordable rental housing receive tax credits. These credits typically generate equity equal to roughly 70% of eligible costs for 9% credits and 30% for 4% credits.
- To qualify, projects must reserve at least 40% of units for households earning no more than 60% of area median income (the “40/60 test”) or 20% of units for households earning 50% or less.
- Investors claim the credits over a 10-year period, providing upfront capital that reduces debt and allows for lower rents.
Since its inception, the LIHTC program has financed more than 3.7 million affordable homes, supporting the construction or rehabilitation of more than 110,000 homes annually.
How CRA & LIHTC Work Together to Finance Affordable Housing
The CRA and LIHTC are closely linked. Affordable housing investors often include banks seeking to meet CRA obligations. According to the Affordable Housing Investors Council (AHIC), LIHTC projects provide CRA benefits for financial institutions, which frequently act as limited partners—providing up to 99% of equity in exchange for tax credits and CRA consideration.
This relationship drives several key dynamics:
- CRA-Driven Demand Influences LIHTC Pricing. According to Novogradac, CRA-motivated institutions contribute more than 80% of annual LIHTC and New Markets Tax Credit equity. In markets where banks compete for CRA credit, demand pushes tax credit pricing higher. Conversely, in “CRA deserts” such as rural areas and small cities, fewer banks pursue CRA credit, leading to lower equity pricing and financing gaps.
- Investor Motivations Differ. The AHIC notes two primary LIHTC investor types:
- CRA investors — financial institutions investing to meet CRA goals, often accepting lower yields in high-need markets.
- Economic investors — corporations and insurers investing primarily for tax benefits, without geographic limitations.
- Tax Credit Equity Closes Financing Gaps. LIHTC equity is often the largest component of a development’s capital stack, reducing debt requirements and enabling deeper affordability. Additional layers—such as grants, soft loans, and local housing funds—complete the financing.
Why Investors Turn to LIHTC Equity
LIHTC equity offers more than just tax advantages. It delivers stable returns, low default rates, and measurable community outcomes.
Key benefits include:
- Generate predictable tax benefits through a dollar-for-dollar reduction in federal tax liability over ten years, along with potential depreciation benefits.
- Meet CRA obligations while supporting qualified affordable housing investments that strengthen local communities.
- Deliver measurable community impact by financing long-term affordable homes for low-income families, seniors, and veterans—building stability and economic opportunity.
Advantage Capital’s Approach to LIHTC and CRA-Driven Investment
Advantage Capital is an impact investment firm with decades of experience across federal and state LIHTC programs. The firm partners with developers and housing agencies to structure creative capital stacks that combine LIHTC equity, loans, grants, and local funds.
Our approach includes:
- Federal and State LIHTC Expertise. Advantage Capital leverages both federal and state-specific programs to close financing gaps. State credits often mirror federal LIHTCs, providing additional equity to deepen affordability. Our experience enables developers to navigate compliance and achieve competitive pricing.
- Investor Syndication Services. We design investments that allow banks, corporations, and insurers to convert tax liabilities into assets while addressing housing shortages. Our underwriting and asset management teams provide long-term oversight through the 15-year compliance period to ensure property performance and tax credit integrity.
- Policy Insight. Advantage Capital tracks legislative developments—such as H.B.1, which lowers the private activity bond threshold for 4% credits and expands the 9% credit volume—expected to support 1.22 million new affordable units over the next decade. This proactive insight helps investors anticipate shifts in market opportunities.
By aligning financial performance with social impact, Advantage Capital enables investors to deploy capital strategically—delivering measurable community outcomes alongside strong returns.
Aligning Capital with Community Impact
Affordable housing developers, banks, and impact investors operate in an evolving policy environment. The CRA ensures that financial institutions meet the credit needs of LMI communities, while the LIHTC program continues to anchor private investment in affordable rental housing.
The 2023 CRA final rule modernizes assessment methods, expands geographic eligibility, and explicitly recognizes LIHTC and NMTC investments. These updates are expected to attract a broader range of CRA-motivated investors and help balance equity pricing across markets.
Now is an ideal time for investors to consider LIHTC equity. This proven investment vehicle delivers predictable tax benefits, fulfills CRA obligations, and advances solutions to America’s affordable housing shortage.
Advantage Capital continues to help investors and developers structure effective capital stacks, leverage both federal and state credits, and achieve meaningful financial and community outcomes.
Contact us to learn how CRA and LIHTC equity can strengthen your portfolio and the communities you serve.
Advantage Capital Investment Adviser, LLC (“ACIA”), a wholly owned subsidiary of Advantage Capital Management Corporation (“Advantage Capital”), is an investment adviser registered under the Investment Advisers Act of 1940. Registration with the SEC does not imply a certain level of skill or training. The information contained herein is for informational purposes and nothing herein should be construed as investment advice, an offer of investment advisory services or as an offer to sell or a solicitation of an offer to purchase any securities or investment product. Any offer to sell or solicitation of an offer to purchase any security or investment product will be made in compliance with applicable state and federal securities laws pursuant to a definitive confidential offering memorandum and/or similar documentation. Prospective investors should carefully review such definitive documentation, including any disclosures and risk factors contained therein, as only such definitive documentation and information may be relied upon in connection with making an investment decision. Advantage Capital is an equal opportunity provider.
