Think tank’s brief outlines how adjustments to the LIHTC program can increase housing supply and lower costs for working families
NASHVILLE – As Tennessee communities continue to face rising housing costs and limited supply, a new policy brief from nonpartisan think tank ThinkTennessee highlights that the federal Low-Income Housing Tax Credit (LIHTC) is the state’s most effective tool for expanding attainable rental housing – and identifies two key policy changes to strengthen its impact.
Since 2014, home prices have more than doubled statewide, and median rents have increased by 25.8% – faster than both the Southeast and the nation overall. As a result, more than half of renters statewide are cost-burdened, spending over 30% of their income on housing. These trends underscore the need for scalable, effective solutions that can increase housing supply while keeping costs within reach – pointing to the potential of leveraging existing tools like the LIHTC program which has helped to finance nearly 100,000 affordable homes in Tennessee since 1986.
“Tax credits have played a critical role in addressing our state’s housing crisis,” said Erin Hafkenschiel, president of ThinkTennessee. “Yet, the tool can be enhanced with two targeted policy changes so that they work better for more Tennesseans – particularly as demand for housing continues to grow.”
The policy brief recommends two solutions to help strengthen Tennessee’s housing toolkit:
- Fund the Tennessee Rural and Workforce Housing Act: Policymakers authorized this state housing tax credit program to supplement the federal LIHTC in 2024, and a proposed $300 million investment over 12 years was introduced in 2025 but has not yet been approved. Providing state-level credits would align Tennessee with most other states and help to better leverage federal LIHTC dollars – particularly in rural communities where financing gaps are largest.
- Modify the property tax assessment process for LIHTC developments: Tennessee is one of only 10 states that includes the value of the LIHTC when assessing property taxes. This effectively taxes the tax credit – reducing its value and increasing operating costs for rent-restricted developments. Excluding the value of housing tax credits from property assessments would reduce operating costs and improve project feasibility without increasing rents or significantly reducing local taxes.
As policymakers consider ways to address housing affordability and supply, the brief highlights how refining and expanding tax credit programs can play a central role in increasing housing production and reducing cost burdens. By making these tools work more effectively, Tennessee has an opportunity to support continued economic growth while ensuring more residents have access to housing they can afford.
The full policy brief, Housing Tax Credits: Making Them Work for More Tennesseans, can be found on ThinkTennessee’s website at thinktennessee.org/research/housing.
