A Silver Lining in Trump’s ‘Big Ugly Bill’

California’s housing shortage has been at crisis level for decades. Three years ago, its  Department of Housing and Community Development said the state must plan for 2.5 million new homes in the eight-year cycle between 2026 and 2034 — more than double the total of the previous eight years. Further, the report said, at least a million of those homes “must meet the needs of lower income households.”

That’s a tall ask in the current climate, in which President Donald Trump’s actions have only exacerbated some of the problems: tariffs on core building components such as iron and steel, threats to immigrant workers that have thinned the construction industry’s labor force, and policy-driven inflation that has made the Federal Reserve wary of lowering interest rates, thus keeping the cost of borrowing money high.

State leaders, therefore, could be forgiven if they were nonplussed by the Trump administration’s suggestion this week that the president may declare a national housing emergency this fall. The teaser, dropped by Treasury Secretary Scott Bessent in interviews with the Washington Examiner and Reuters, was accompanied by no details about what such a declaration might achieve or what it even means. 

In his seven-plus months back in office, Trump has declared nine national emergencies, plus a crime emergency in Washington. This one would concern a housing market in a deep funk, but aside from acknowledging it, Bessent didn’t specify any actions Trump would take.

It’s a mess. And that makes it all the more remarkable that, somewhere in the rubble of the Trump administration’s approach to these issues, a nugget of policy has emerged that might — might — improve a critical component of the housing market in California and elsewhere. It isn’t a perfect solution, and it has its limits, but its potential is real enough.

*   *   *

Tucked within the so-called One Big Beautiful Bill is a provision that significantly expands the Low-Income Housing Tax Credit, a program the U.S. Department of Housing and Urban Development describes as “the most important resource for creating affordable housing in the United States today.”

The tax credit program is not universally beloved, with some groups arguing that it rewards developers and investors more than housing-insecure families. But it performs a transactional function.

Essentially, the program gives substantial federal tax credits to developers if they build or rehabilitate housing that sets aside a certain percentage of units for low-income renters – some 9% of the construction cost, which can be written off their tax bill each year for 10 years. Large apartment buildings qualify for the credit, but so do smaller projects such as duplexes and fourplexes, as well as single family homes. The developers can use the tax credits themselves, but often they sell them to banks and other equity investors in exchange for the money to kick-start the projects.

Until now, the program, which was created by the Tax Reform Act of 1986, has funneled $10.5 billion a year to states and local agencies, which then awarded the tax credits to developers based on bids. Trump’s spending bill substantially increases the total number of those credits available to states each year, and it does so indefinitely. The bill also makes it easier for developers to qualify for a separate 4% tax credit, as it cuts from 50% to 25% the amount of housing costs that must be paid for by tax-exempt bonds.

The upshot is that developers in California will qualify for vastly more tax credits, theoretically fueling greater affordable housing construction.

“The passage of the One Big Ugly Bill in July, with all of its horrendous impacts on the nation’s social safety net, had a little-known silver lining for California,” Matt Schwartz, president and CEO of the nonprofit California Housing Partnership, told Capital & Main.

Schwartz said that if California matches the federal funding increase by passing a new affordable housing bond in 2026, and establishes long-term funding by 2030, the state could nearly double its production of affordable housing to some 30,000 new units per year — a total that would make a sizable dent in its larger goal. But that depends on such a bond being approved by voters.

*   *   *

It’s fair to assume that Trump didn’t enhance the tax credit program in order to ease the burden on low-income Americans. Consider his administration’s assault on Medicaid, an estimated $990 billion funding reduction in low-income health care programs that the Republican-controlled Congress approved in the spending bill.

Rather, the left-leaning Center for Economic and Policy Research suggested the housing tax credit changes “primarily lock in tax breaks for investors,” such as banks and insurance companies, which buy the credits from developers. The center contended that the measures don’t offer real relief to those facing housing insecurity and skyrocketing rents.

It is also true that these “affordable housing” projects in California and elsewhere actually require that only a certain portion of a development be set aside for low-income renters. That’s nothing new. Such requirements often have a shelf life of as little as 15 years, after which developers are free to pursue market rates on those units.

But in a housing-desperate state like California, this may qualify as “any port in a storm” territory. In 2022, a Los Angeles Times analysis of state data found that the cost of building affordable housing had soared to absurd heights — in some cases, $1 million per apartment.

The state has failed for decades to meaningfully boost its housing stock, and particularly to increase the number of affordable units available. Improving federal enticements to developers — and the financiers to whom they sell their tax credits — is no perfect solution. But it might prove to be an important piece of the puzzle.

Copyright 2025 Capital & Main