Affordable housing developers are being squeezed from all sides as operating costs surge, supply shrinks and policy responses race to keep pace, according to a June 2026 report from the Local Initiatives Support Corporation (LISC).
The report, “The State of Affordable Housing: Saving Affordable Housing Assets,” identifies five major headwinds reshaping the economics of affordable housing — supply constraints, rising insurance premiums, escalating utility costs, inflation and broad-based operating cost increases.
Valerie White, Head of National Housing Strategic Initiatives at LISC, told HousingWire’s The Builder’s Daily that these pressures and cost increases make it increasingly difficult to develop and preserve affordable housing at the scale needed to meet demand.
“When you have this multitude of factors that are happening all together, what started out quiet now becomes a noisy storm,” White said. “There’s not a lot of cushion to absorb these market changes.”
The report also outlines how LISC plans to deploy more than $5 billion by 2027 for the development of 57,000 affordable housing units, as well as policy reforms that the organization believes would help stimulate more affordable housing creation and preservation.
The following analysis digs into some of the main findings of the report and how organizations like LISC can help affordable housing developers deliver and preserve more units.
The five main headwinds for affordable housing developers
1. Supply constraints and expiring affordability
The report noted that homebuilders and developers, both market-rate and affordable, are operating in a market defined by chronic underbuilding and shrinking affordability restrictions. Most economists argue that there is a housing shortage of several million homes in the United States.
For affordable housing, a growing concern is that many subsidized units may lose that status in the coming years. Affordability restrictions on 374,497 federally assisted homes are expected to expire over the next five years, based on data from the National Housing Preservation Database.
The National Low Income Housing Coalition (NLIHC) estimates a national shortage of 7.2 million affordable homes for extremely low-income renters. Yardi Matrix further forecasts affordable unit starts falling to 68,000 in 2026 and 51,000 in 2027, widening the gap just as restrictions roll off.
For affordable housing developers, this combination of fewer starts and expiring subsidies means more competition for capital, tougher preservation decisions and a rising risk of displacement for low-income renters.
2. Inflation and the cost of housing
Inflation has widened the gap between incomes and housing costs. JCHS estimates, as cited by LISC, show:
- The annual income needed to afford the median-priced U.S. home rose from roughly $68,000 in 2020 to more than $130,000 in 2025.
- A first-time buyer’s monthly mortgage payment on a median-priced home jumped from about $1,200 in 2020 to more than $2,500 in mid-2025, assuming a 3.5% down payment and a 30-year fixed-rate mortgage.
For affordable housing developers, this sustained affordability gap means continued and growing demand for rental housing, including below-market units.
3. Surging insurance premiums
Insurance has become one of the fastest-rising line items in affordable portfolios, according to LISC. Some notable data points include the following:
- Property insurance costs for Low-Income Housing Tax Credit (LIHTC) properties have posted six consecutive years of double-digit increases, Novogradac data show.
- The median per-unit insurance cost on LIHTC-financed homes reached $697 in 2023, more than 20% above 2022 and well above the 2016 level of $286 per unit. The report notes some owners have seen premiums jump as much as 300% despite not filing claims.
Because LIHTC and other regulated properties face rent caps, owners cannot easily pass along higher premiums to tenants. The U.S. Department of Housing and Urban Development (HUD) also capped maximum rent increases at 10% in 2024, and local jurisdictions can restrict rent growth even further.
For nonprofit developers operating on thin margins, rising insurance costs can erode debt coverage ratios and can trigger compliance problems or forced sales.
4. Escalating utility costs and pressure from data center demand
Utility costs are another major driver of operating pressure for affordable housing operators. LISC highlights that residential electricity prices have outpaced inflation from 2018 to 2026, with more increases projected through at least 2027:
Between 2018 and 2026, residential electricity prices rose faster than the Consumer Price Index, while residential natural gas and gasoline prices swung sharply.
The report also flags a newer structural factor in rising utility prices: rapid growth in data centers and artificial intelligence. Data centers draw heavily from the same power grids used by households, contributing to higher systemwide energy costs.
While some affordable housing operators are pursuing energy-efficient designs, revenue-sharing and local benefits like broadband builds, the near-term impact on electricity prices is an additional burden on properties and tenants.
5. Rising labor, materials and operating costs
Expenses are rising faster than revenues in affordable portfolios across the board. LISC’s analysis of operating cost trends since 2017 shows severe pressure in several categories:
- Insurance costs are up 110%.
- Administrative costs, including staffing, health insurance and payroll taxes, are up 51%.
- Repairs and maintenance are up 35%.
- Overall operating expenses per affordable housing unit have increased 35.3% since 2018, when they averaged $6,089 per unit.
On the development side, JCHS data show a 42% increase in multifamily material costs from 2020 to 2025, compared with just 7% from 2014 to 2019. This cost spike pushes rents higher across the board.
The number of units renting for less than $1,400 fell by 9.3 million from 2014 to 2024, including a 2.5 million decline in units under $600. This upward shift in rent distribution leaves fewer “naturally affordable” options and increases reliance on subsidized developments, which are themselves under financial strain.
LISC’s $5.2 billion affordable housing response
Given these headwinds, LISC plans to invest $5.2 billion by 2027 to aid with the development or preservation of more than 50,000 affordable housing units across the country. with a housing-focused strategy for 2025–2027. The strategy involves:
- Scaling affordable housing production through lending, fund structures and tax credit investments.
- Preserving and improving existing single-family and multifamily housing
- Advancing “industry-leading innovation” with replicable investment models</li>
LISC’s housing work centers on three core approaches.
1. Creative capital deployment and financing innovation
LISC describes a financing environment where all types of sponsors — for-profit, nonprofit and public agencies — are seeking new ways to raise capital for development and preservation. The report highlights several emerging practices and tools:
- Credit-rated housing authorities issuing bonds backed by their balance sheets to support new production and preservation.
- Nonprofit 501(c)(3) organizations exploring “as-of-right” bond issuances to fund mission-driven projects.
- Workforce housing and Naturally Occurring Affordable Housing (NOAH) strategies that preserve existing moderate-rent stock and address housing stress for working families, including first responders and health care workers.
LISC positions its own lending and fund-management activity as a way to structure this capital efficiently and steer it toward developments most at risk from today’s cost and revenue pressures.
“Affordable housing in general is a very, very complex financial endeavor. Underwriting the parts of the capital stack that you need to even get it done — it’s a lot. It’s a combination of subsidies, some soft debt and regular debt, some is market rate interest and some is lower interest; it’s a really complex puzzle that you have to put together,” White said in an interview.
2. Capacity building for emerging and nonprofit developers
The report underscores the importance — and vulnerability — of smaller, mission-driven developers. Emerging and nonprofit sponsors often spearhead projects in under-resourced communities but operate with thin staff, limited balance sheets and constrained back-office capacity.
LISC’s strategy to help these developers includes:
- Developer training through the LISC Developers Training Program.
- Operational and technical support for community development corporations (CDCs).
- Capacity-building grants and advisory services aimed at improving pipeline management, financial structuring and long-term asset management.
LISC argues that scaling this capacity-building support is essential to increasing both production and preservation opportunities, particularly for organizations that are closest to communities but least able to absorb today’s financial shocks.
3. Policy advocacy at federal, state and local levels
LISC’s report outlines policy moves that could materially change affordable housing economics if adopted or scaled. On the federal level, these reforms include the following:
- LIHTC expansions: Recent changes could add 1.2 million units over 10 years, with Congress considering more allocation authority and deeper-targeting tools for extremely low-income households
- Neighborhood Homes Investment Act: A proposed tax credit would fill the gap between development costs and sale prices for starter homes, aiming to support 500,000+ homes over a decade.
- Broader housing measures: Housing provisions embedded in larger federal bills could shift capital flows, incentives and the scale of subsidized production.
The report flagged some state and local policy reforms, including:
- By-right zoning and faith-based development, including by-right policies that cut discretionary approvals, and let faith-based institutions develop housing on their land.
- New York City insurance pooling: A new program in NYC will pool property and liability coverage for affordable and rent-stabilized housing, targeting 20,000 homes in year one and 100,000 by 2030.
- PILOT tax tools: Some cities support a Payment In Lieu Of Tax (PILOT) program to reduce tax burdens and encourage new and preserved affordable units.
- Local zoning reforms: Cities like Cambridge, Massachusetts, now allow four-story multifamily buildings in all residential zones to boost supply and support small-scale infill.
LISC argues that these local tools and reforms must be paired with federal credits and flexible Community Development Financial Institution (CDFI) capital for projects to remain viable amid rising costs and flat revenues.
This article was written by Tyler Williams with the assistance of HousingWire Automation. It was reviewed by a HousingWire editor before publication.
