🔒Experts expect affordable housing boost from One Big Beautiful Bill Act

Avon-based affordable housing developer Honeycomb Real Estate Partners in May completed its conversion of a former West Hartford hotel into 44 apartments. By June, leases had been signed for every apartment. In July, “The Camelot” was entirely occupied. With heavy demand across the state, Honeycomb aims to pick up its development pace. Instead of completing one or two projects every 18 to 24 months, Honeycomb managing member Lewis Brown said he hopes to produce three or four. That aspiration could get a significant boost from the One Big Beautiful Bill Act signed by President Trump on July 4. Among the controversial bill’s many provisions is an expansion of affordable housing tax credits, as well as other incentives that could spur real estate development. Brown said he sees some useful incentives in the new law, even as he has concerns about other changes to federal policy, including cuts to social programs used by some of his tenants. “Yes, this bill will create additional housing in Connecticut and, really, across the country, but some of the other things that have happened are creating challenges,” Brown said.

More equity

For developers, some of the most meaningful changes were made to the federal Low-Income Housing Tax Credit (LIHTC) program, which is administered on the state level by the Connecticut Housing Finance Authority (CHFA). There are two types of Low-Income Housing Tax Credit programs — the 9% and 4% credits. Under the 9% program, each state receives a fixed allocation of LIHTC credits annually, based primarily on population size. CHFA then awards the credits through a competitive application process to developers who promise to build or rehab affordable housing. Developers sell those credits to investors (usually banks or corporations) to raise money to fund a project. In return, investors can reduce their federal taxes over 10 years.

In 2025, the allocation to Connecticut will be about $11 million in 9% credits, which will fund about five or six projects, according to Pasquale Guliano, CHEFA’s managing director of multifamily. However, that will change next year because of the BBB, which permanently increases each state’s annual pool of competitive 9% LIHTC credits by 12%. The change will bump Connecticut’s credit tally to about $12.3 million in 2026, Guliano said, which could translate into funding up to three additional developments next year. Investors buy those tax credits at below face value, he said, with proceeds going into affordable housing projects as equity. The program essentially allows a developer to take on less debt for a project and keep rents lower. For example, if an investor pays 90 cents on the dollar, the sale of $1 million in 9% tax credits yields $9 million for a project. The investor can then deduct $1 million from their federal tax bill each year for a decade. Brown said Honeycomb expects to generate $11.6 million in equity through the 9% LIHTC program to help fund a $23.9 million, 57-unit affordable housing project that will soon break ground in Montville. The 4% Low-Income Housing Tax Credit program is not competitive, but is limited by the amount of federal tax-exempt bonding authority allocated to CHFA. This year, federal law allows CHFA to issue $280 million in tax-exempt bonds, which it uses to fund mortgages for low-income housing developers. Previously, at least 50% of a project’s cost had to be financed with tax-exempt bonds to qualify for the 4% credit. The One Big Beautiful Bill Act lowers that threshold to 25%, allowing the state to support more affordable housing developments with the same pool of bonding authority, Guliano said. “I can’t say whether that means 10 more or 15 more (projects),” Guliano said. “I do see it being substantive.”

Other provisions

The One Big Beautiful Bill also revives key tax incentives first introduced under the 2017 Tax Cuts and Jobs Act (TCJA) during President Trump’s first term. It restores and makes permanent 100% bonus depreciation, allowing businesses to fully deduct the cost of qualifying assets — such as real estate improvements, machinery, furnishings and equipment — in the first year, rather than depreciating them over their useful life. For example, a commercial building is typically depreciated over 39 years. Under the TCJA, 100% bonus depreciation began phasing out in 2023, and was scheduled to be fully eliminated by 2027.

“We have a lot of clients who are looking forward to it,” said Brenden Healy, a partner at Hartford-based accounting and consulting firm Whittlesey. “Real estate investors, manufacturers, retail … a lot of the businesses in Connecticut are going to benefit from this increase in depreciation allowance.” Healy said most of his clients plan to reinvest the cash freed up by the new tax break into real estate, assets or new hires. “The secret sauce in a lot of this is the time value of money,” Healy said. “As a business owner, cash is king, so now I can reinvest that cash into something else.” Another provision of the One Big Beautiful Bill that could spur development is the revival of Opportunity Zones, Healy said. Also originally created under the TCJA, the program lets investors defer and reduce capital gains taxes by investing in designated distressed areas. It was set to expire in 2026, but is now made permanent — with changes. Under the new law, target zones must be re-designated every 10 years, with increased emphasis on rural areas.

Tyler Hokanson, a real estate attorney with Pullman & Comley, is skeptical of Opportunity Zones and bonus depreciation as catalysts for new development in Connecticut. These programs will save developers and other investors money, Hokanson said, but he doubts it would be enough to push a questionable project over the line. “I would characterize (bonus depreciation) and several other parts of this bill as ‘nice-to-haves’ for people who are already doing these deals,” Hokanson said. “I don’t see that or some of these other things as moving the needle in terms of fostering development in the state. … This benefits people who already have deals.” Hokanson predicts a greater impact from increased funding and flexibility in the federal low-income housing tax credit programs. Mike Goman, a principal with East Hartford-based real estate advisory firm Goman+York, said changes to the low-income housing tax credit programs could be impactful, but it will depend on how they are implemented. He said for-profit developers have typically seen themselves at a disadvantage in receiving the 9% credits, something he’d like to see change. “I think where the rubber hits the road is how it gets allocated out to the states, and how they handle that,” Goman said.