The Inflation Reduction Act’s and the Multifamily Affordable Housing Market’s Future
Federal Tax Credits, Rebates, Low-Cost or Forgivable Loans and Grants are Hitting the Ground
By Ravi Malhotra
5 min read
After the 2024 elections, many in the multifamily affordable housing sector worry that key Bipartisan Infrastructure Law (BIL) and Inflation Reduction Act (IRA) funds may be clawed back by the incoming administration. These funds provide tax credits, grants and other forms of incentives for green and clean energy deployment and have been crucial to closing the funding gap for multifamily affordable housing in recent years.
According to Canary Media, federal agencies are moving at “lightning speed” to obligate these funds because once under contract or if funds are already transferred to the awardees, they are difficult, if not impossible, to claw back. In the case of state-administered programs, like the Weatherization Assistance Program and the Home Energy Rebates Program, those funds have been obligated to the states and have already been transferred into the state coffers for those who have completed their funding applications successfully. Similarly, funds for most of the Environmental Protection Agency’s (EPA) programs under the Greenhouse Gas Reduction Fund (GGRF), except Solar for All, have been obligated and transferred to the awardees. The Department of Housing and Urban Development’s Green and Resilient Retrofit Program (GRRP) has done better – all its funding has already been obligated to sub-awardees. Ultimately, many of the funds for multifamily under the BIL/IRA have already been obligated by the federal government, making them all but guaranteed to make their way into the market over the coming years.
The incentives that may be up for claw-back are the tax credits, especially the Investment Tax Credits (ITC) for Solar under IRA, since they are not obligated, only allocated yearly. However, the IRA has spurred new domestic factories to produce the materials needed for solar energy production. This growth has largely been concentrated in red states and rural areas, and lawmakers have taken notice. In August of 2024, 18 House Republicans sent a letter to Speaker Mike Johnson, urging him to preserve the IRA’s tax credits, citing these good-paying factory jobs in Republican districts. The elimination of the Solar ITCs would have a cascading effect, potentially killing these factories, halting economic growth, ending local jobs and reducing local taxes. As such, the elimination of these tax credits is not a unified party platform within the Republican party.
For multifamily affordable housing, the approximately $35 billion of EPA GGRF funds can be a boon because they are designed to create low-cost financing products, much of which will go towards bridge loan products in the coming years. These bridge loans are designed to leverage a project’s expected tax credits, rebates, grants and other incentives. However, these incentives are all paid out after a project is completed, so bridge loans will be needed. Because the repayment on these bridge loans is guaranteed by government and utility sources, it makes them very low risk. Because of the low risk and low cost to the lenders of these EPA funds, the interest rates are likely to be low. These bridge loans will help multifamily affordable housing developers build new properties or retrofit their existing ones at lower costs compared to traditional debt financing.
Then there are Energy Financing models that don’t rely on BIL/IRA funding and can be deployed independently of BIL/IRA or leveraged alongside them, notably increasing ROI. Power Purchase Agreements (PPAs) involve a third-party service provider financing and owning renewable energy assets (such as rooftop solar); the multifamily property purchases discounted energy via a PPA. Energy Savings Performance Contracts (ESPCs) use tomorrow’s savings to pay for today’s upgrades in a similar fashion through an energy service provider. Energy-as-a-Service (EaaS) can provide access to energy efficiency improvements and renewable energy on a subscription basis without investment. There is also the Property Assessed Clean Energy program (PACE). PACE allows multifamily affordable housing property owners to finance green improvements through a voluntary property tax assessment approach. This model allows multifamily property owners to bring in third-party investments for deploying green solutions, which are paid back as an addition to one’s property taxes. The benefit of PACE, as compared to debt, is that PACE is tied to the property rather than the property owner; should you sell your property while it is under PACE financing, the voluntary tax assessment of PACE transfers to the new owner, just as property taxes do. All energy financing approaches are particularly useful for large portfolios of multifamily housing, which benefit from an economy of scale with such services.
Thanks to IRA, ITCs can be braided with Low Income Housing Tax Credits (LIHTC), so unless your LIHTC investor is also your PPA provider or investor in one of these other financing approaches, you will be better off braiding the two tax credits yourself.
Such methods are extremely effective in helping to close funding gaps. BIL/IRA funds and energy financing models have allowed the installation of solar and energy storage batteries, bringing beneficial electrification to properties, installing very high-efficiency heat pumps and more, saving both tenants and property owners money with little to no capital expenditure on the part of property owners.
The approaches touched on above are just some of the many alternative paths to project financing. All these methods rely on innovative collaboration and partnerships. Whatever the future holds for BIL and IRA funds, collaboration and innovative partnerships will remain at the heart of clean energy upgrades for the multifamily affordable housing market.
