The shortage of affordable housing in Rhode Island and the South Coast region of Massachusetts is a challenge that lawmakers, businesses and state agencies struggle to address. In general, as leaders attempt to move projects from the concept stage to shovel-ready, they are often met with hurdles that range from providing sufficient financial incentives for developers to steering funding to the areas that need it the most.
Recent federal legislation, known as the “One Big Beautiful Bill Act,” introduces meaningful new tools for municipalities through a variety of updated funding mechanisms that open the door to more developers and nonprofit organizations pursuing affordable housing.
The layers in the bill are many, and the ways in which it helps make affordable housing more feasible range from reducing bond financing requirements to increasing Opportunity Zone incentives in historically underserved areas.
While no bill is perfect – and it still only scratches the surface of affordable-housing needs nationwide – this legislation is a significant step in the right direction – and, hopefully, state leaders will leverage some of the following mechanisms to bring more projects to life.
There will be lower bond thresholds and expanded rural eligibility. The permanent reduction of the private activity bond financing threshold for the 4% Low-Income Housing Tax Credit is perhaps the most significant change delivered by the One Big Beautiful Bill Act.
Previously, a developer had to secure tax-exempt bonds covering at least half its eligible basis to qualify. The threshold has now been lowered to 25% (for projects placed in service after 2025). This will trigger a few immediate and significant impacts: higher bond requirements often limit the potential pool of organizations – especially smaller entities – that can compete to develop crucial affordable-housing projects.
Developers and community nonprofit organizations can now benefit from the LIHTC just as larger, better-capitalized organizations have historically been able to. This alone will open new opportunities for affordable-housing developments to enter the pipeline and accelerate the speed at which those projects can move, thanks to lower debt loads and reduced interest exposure.
The act also delivers a permanent 12% increase in states’ annual allocations of competitive 9% LIHTC starting in 2026. With states often overrun with applications for 9% credits, this expanded ceiling will allow more projects to qualify and get underway.
Finally, the One Big Beautiful Bill builds on the Opportunity Zones program by introducing incentives targeted at rural and underserved areas, including a new Qualified Rural Opportunity Fund category with enhanced tax benefits (such as a higher basis step-up and reduced substantial improvement requirements). This aims to address past criticisms that Opportunity Zones favored urban cores by directing more capital toward rural communities facing similar affordable housing challenges.
The expanded tax credit program and reduced bond financing threshold, combined with more opportunities for rural cities and towns to secure valuable federal dollars, show great potential for generating new affordable-housing projects in places such as Rhode Island and Massachusetts, with their multilayered tapestry of economies and underserved areas. In May, Rhode Island delivered close to $30 million in LIHTC credit awards to seven development projects.
When complete, they will account for creating or preserving more than 500 apartments; however, the request for applications far surpassed the funding cap, with applications to the R.I. Department of Housing exceeding $120 million, underscoring how strong the demand for affordable projects is in the state.
What does it all mean for Rhode Island and Massachusetts?
Locally, the One Big Beautiful Bill Act is likely to have a meaningful impact. Local leaders have done an admirable job of prioritizing affordable housing, and state leadership has shown a desire to bring more projects to life by increasing funding and incentives for developers. Here are some specific examples of how the act can complement those efforts and supercharge existing programs:
• High land costs have historically made the areas most in need of affordable housing the most expensive places to build. With the reduced bond financing requirements, we expect to see more developers take advantage of the 4% LIHTC – especially organizations such as community nonprofits that have struggled to make the numbers work in the past.
• Rural communities in western Rhode Island and between Providence and Cape Cod have typically been underserved while having significant affordable-housing needs. The new rural-focused Opportunity Zone incentives could be meaningful levers for those communities to draw in more outside development and create opportunities for residents to find housing outside of metropolitan areas.
• This will spur construction activity. Local development agencies in Rhode Island and Massachusetts will publish notices of funding availability to alert local agencies, and those organizations would be wise to align these opportunities with the enhanced LIHTC landscape to take advantage of the updated provisions made possible by the One Big Beautiful Bill Act.
Steve Callahan Jr. is vice president of business development for Callahan Inc., a Bridgewater, Mass.-based construction company that has handled projects in Massachusetts, Rhode Island, Connecticut, New York and New Jersey.
