Access to affordable housing is extremely scarce in the United States. Homeownership is nearly impossible for most low- and middle-income families, with home prices far outpacing family incomes.

Without access to affordable homeownership, Americans—particularly Black and brown families—miss out on critical opportunities to build intergenerational wealth, grow neighborhood roots, and experience stronger health outcomes.

To actively combat the legacy of housing discrimination, we need more housing advocates, experts, and developers who think beyond the realm of what’s been done—and explore innovative and creative financing solutions to remedy today’s housing crisis. One proven solution is the New Markets Tax Credit (NMTC) program, a federal tax credit that can be used for affordable for-sale housing development.

Understanding the Tax Credits Landscape

The Low-Income Housing Tax Credit for Rental Housing

Developers today are incentivized to make affordable rental housing a possibility through the Low-Income Housing Tax Credits (LIHTC). While this program spurs the development of rental housing options, it doesn’t address the need for affordable for-sale housing—the most important pathway to addressing the housing crisis, providing more families with financial security, and reducing the racial wealth gap.

• The LIHTC is tailored to support low-income rental housing projects and is not used for affordable for-sale homeownership needs.
• The LIHTC is realized over a 10-year period at an annual rate of either 4% or 9% of the project’s eligible costs. Compliance with affordability and other requirements must be maintained for at least 15 years—but in some cases, it may be longer based on local policies.
• The federal government administers the LIHTC to state housing agencies and cities based on population.
• To claim the LIHTC, investors typically take a limited partnership-based interest in the final project. This means they receive a share of the project’s income, losses, and depreciation, in addition to the tax credit benefits.

Historic Tax Credit (HTC)

Established in 1976, the Historic Tax Credit (HTC) incentivizes the preservation and rehabilitation of historic buildings to maintain the cultural heritage of different communities. While the HTC has a proven track record of revitalizing downtown areas and preserving historic landmarks—leveraging billions in private investment—it does not apply to affordable for-sale housing.

• HTC projects must be registered on the National Register of Historic Places, or located in a registered historic district.
• The HTC program is administered by the U.S. Department of the Interior and the U.S. Department of the Treasury, with the National Park Service and other state-specific historic preservation offices serving as representatives.
• The HTC program provides a federal tax credit of 20% of the qualified rehabilitation expenditures for certified historic buildings. Once the project is completed, investors can claim the 20% tax credit against their federal tax liability. Investors also typically receive a share of the property’s income and appreciation.

New Markets Tax Credit (NMTC)

Since 2000, the New Markets Tax Credit (NMTC) program has encouraged sustained investment in low-income, underserved communities across all 50 states, the District of Columbia, and Puerto Rico. Administered by the U.S. Department of the Treasury’s Community Development Financial Institutions Fund (CDFI Fund), the program generates $8 of private investment for every $1 of federal funding.

• NMTC projects can support a wide range of businesses, such as manufacturing, food retail, housing, health, technology, energy, education and child care.
• NMTCs are realized over a 7-year period at a rate of 5–6% of the eligible investor capital per year for a total 39% credit taken over the 7-year compliance period.
• NMTC investors provide capital through investments in the CDE, which then makes flexible, below-market loan to the end project/developer.
• Why the NMTC Program is Ideal for Affordable Homeownership

There is currently no federal tax credit to support the development of affordable for-sale housing. However, the NMTC program has proven to be a transformative capital resource—and one that has the potential to powerfully impact the housing shortage.

Over the past 24 years, NMTCs have been a resilient and reliable financing solution for low-income communities, borrowers, and investors. The NMTC program currently generates $8 of private investment for every $1 of federal funding. Despite this impact, of the $76 billion deployed in NMTCs so far, less than 2 percent has supported affordable for-sale housing.

Flexible uses

One of the greatest strengths of the NMTC program is its flexibility—both in supportable uses (including affordable homeownership) and supportable financial structures. It has a proven track record of funding a wide array of projects promoting economic development.

Direct impact on low-income communities

Because the NMTC program is designed to incentivize investment in distressed communities, it directs investment where it is most needed. By funding projects that increase access to affordable homeownership, NMTCs are a transformative tool for stabilizing neighborhoods, reducing blight, and building intergenerational wealth among residents.

Leveraging public and private capital

NMTCs effectively attract private capital to underserved, overburdened neighborhoods by providing a significant tax return for investors. Thanks to this influx of private investment, the cost of homeownership becomes attainable for many low- and moderate-income families.

NMTCs and Affordable Homeownership in Action

Leveraging NMTCs for affordable homeownership is a critical—and greatly underutilized—tool to address the housing crisis and lack of affordable housing stock. NMTCs can effectively fill affordability and market funding gaps that create barriers to affordable homeownership, especially for BIPOC families.

In 2023, our team facilitated six closings to deploy $83 million in NMTC allocations to 13 nonprofit housing developers. This funding was distributed to transformative projects in low-income communities across ten states, resulting in the construction or rehabilitation of 371 homes. Since 2008, we have closed over $620 million in NMTC funding to over 140 affordable homeownership projects across 32 states and the District of Columbia resulting in over 5,500 homes.

With the dream of homeownership becoming increasingly out of reach for many Americans, the injection of NMTC funding is life-altering for many low- and moderate-income families. Our projects are located in low-income communities, and over 80% of each project’s homes were sold to homebuyers who earned at or below the 80% average median income (AMI).

View our case studies to learn more about our work and impact.

About Smith NMTC Associates

Smith NMTC Associates works with mission-driven organizations nationwide to develop creative financial models and structures for projects that bring affordable homeownership and community facilities and services to low-income communities and their residents.

In 2008, Smith NMTC pioneered the first NMTC model to support affordable homeownership and deployed $25 million in NMTC funding to five nonprofit developers in the GO Zone. Since then, the company has deployed more than $620M to 142 homeownership projects in collaboration with 23 CDEs, resulting in 5,500 homes in low-income communities across 32 states and the District of Columbia.

Learn more about our services and projects.