Affordable homeownership is the cornerstone of intergenerational wealth, economic stability, and community sustainability. However, today’s landscape of for-sale affordable housing stock falls drastically short of meeting the needs of most American families. In June, home prices hit a new record high, just one of countless signs that the housing market remains entirely unaffordable for low- and middle-income families.

As policymakers and housing advocates push for innovative and creative financing solutions, more conversations and attention should be placed on the New Markets Tax Credit (NMTC) program.

While the NMTC program has historically been used for community revitalization and job creation, our track record—with more than $662 million in NMTC allocations for for-sale housing—proves this financing solution’s efficacy and power when deployed for homeownership.

The History of New Markets Tax Credits (NMTCs)

Since 2000, the NMTC program has generated sustained investment in distressed and low-income communities in all 50 states, the District of Columbia, and Puerto Rico. The program has raised more than $31 billion in private capital and leverages approximately $8 for every $1 of NMTC investment in underserved communities.

Under the Tax Increase Prevention Act of December 2014, the NMTC program received a five-year extension from 2015 to 2019. Since then, the program has received an extension yearly—however, it has not yet been declared a permanent part of the U.S. tax code. Biden’s 2025 budget proposal included provisions to make the NMTC program permanent with a $5 billion annual allocation—a positive step forward.

Over the past 24 years, the NMTC program has proven to be a truly transformative capital resource. More than $76 billion in funding has been awarded, and this capital has resulted in tangible results, including:

• Creation and retention of more than 938,000 jobs
• Nearly 77 million feet of manufacturing space
• Over 118 million square feet of office space
• Over 77 million square feet of retail space

These statistics showcase the success—and viability—of this tax credit. However, since 2000, less than 2% of the total $76 billion deployed in NMTCs has been used to support affordable homeownership projects. This is due, in part, to the fact that the current NMTC application is designed to incentivize job creation over affordable homeownership.

The Role of NMTCs in Supporting Affordable Homeownership

Unlike building affordable rental housing, which is supported by the Low-Income Housing Tax Credit (LIHTC), no federal tax credit currently exists to fuel the development of affordable for-sale housing. Leveraging the NMTC program is the most effective tax credit available to support the development of for-sale housing stock.

The Neighborhood Homes Investment Act (NHIA) has been proposed as an additional tool to further address affordable housing needs. However, this credit doesn’t provide the same flexibility and upfront funding that NMTCs achieve. While the NHIA certainly has the potential to play a complementary role, it cannot replace the critical support that NMTCs offer to developers.

How NMTCs Work for Affordable Homeownership

The Role of CDEs in Funding Projects

Through the NMTC program, the CDFI Fund allocates tax credit authority to Community Development Entities (CDEs) through a competitive application process. These CDEs are crucial in determining which projects receive NMTC funding, using their authority to offer tax credits to investors in exchange for equity investments through loans to developers.

CDEs can receive Qualified Equity Investments (QEIs) from investors, up to their allocation authority. These QEIs are then used to provide loans or equity investments to Qualified Active Low-Income Community Businesses (QALICBs), which include nonprofit developers of affordable for-sale housing. This funding can be used for various purposes, such as constructing new homes or acquiring and rehabilitating existing properties.

Flexible Financing

With the NMTC program, nonprofit developers and business owners benefit from flexible financing. CDEs are required to offer nontraditional or flexible terms compared to conventional financing options. For developers, this means access to below-market interest rates and more practical underwriting criteria.

Greater Community Revitalization

Investments made through the NMTC program profoundly impact low-income communities and their residents. Most CDEs select their projects based on potential community impact—ranging from permanent job creation to the increase in affordable for-sale housing stock. For housing-related projects, this not only provides opportunities for low- to moderate-income, primarily BIPOC, families to attain the wealth-building and stability-enhancing benefits of homeownership, but it also fosters community economic development, growth, and stability.

Tax Benefits for Investors

Investors in NMTC projects receive a substantial tax benefit of 39 percent over a seven-year period. These investments include equity from the tax credit investor and funds the developers bring to the table through existing capital, loans or monetizing previously incurred costs. This incentive encourages investments in projects that otherwise struggle to secure funding.

How We Support QALICB/Developers and CDEs

We partner locally and nationally with mission-driven developers, CDEs, and Investors to develop creative financial models to bring affordable homeownership to low-income communities and their residents.

For QALICBs and Developers, our team helps to:

• Source CDEs with allocation and investors
• Structure the transaction
• Manage the closings for maximum efficiencies
• Assist with post-closing reporting to the CDEs and investors
• Support the organization through the entire seven-year compliance period
• Guarantee the recapture risk for nonprofit developers 

For CDEs, our team helps to:

• Develop strategy for and write your NMTC application
• Assist your team in building an NMTC program
• Manage all closings
• Source investors
• Structure transactions
• Guarantee the recapture risk
• Manage all CDE accounting, compliance, and reporting requirements to Investors, the CDFI Fund, and any other entities

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 139 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.