By William Fiederlein
The need for affordable housing has never been greater. The United States is currently experiencing a shortage of millions of affordable housing units for low-income renters. This shortage disrupts family stability and creates a negative economic ripple effect within already vulnerable communities.
According to the National Low Income Housing Coalition’s 2025 report, The Gap: A Shortage of Affordable Homes, there is a national shortage of 7.1 million affordable and available rental homes for extremely low-income renters. It nets out to just 35 affordable and available homes for every 100 families who need them. Amid these challenges, state tax credit programs are proving to be effective tools for increasing the supply of affordable housing.
Typically, state tax credit programs are designed to complement the federal Low-Income Housing Tax Credit (LIHTC) program, providing additional equity layers to help projects close financing gaps. While the recent expansion of the federal LIHTC program through the One Big Beautiful Bill Act is anticipated to increase the supply of affordable housing throughout the United States, many states continue to utilize state-level housing tax credit programs that play a critical role in addressing state-specific housing needs, cost structures and policy priorities.
Virginia Program Spurs Development
Consider the Commonwealth of Virginia. In May, Governor Glenn Youngkin signed the five-year renewal of the Virginia Housing Opportunity Tax Credit (HOTC) as part of the state’s budget bill, reinforcing Virginia’s commitment to increase the supply of affordable housing across the commonwealth.
HOTC provides an additional layer of equity financing to close funding gaps that federal LIHTCs alone may not cover, making it financially viable to build more housing for those who need it most, especially in high-cost or underserved areas.
Though still relatively new, HOTC has already made a significant impact across the state, helping developers create hundreds of affordable housing units. Notable projects include:
The ZeroPak. This project is among the first combined investments made in 2024 under HOTC (then in its infancy) and the Virginia Historic Rehabilitation Tax Credit program. The ZeroPak will serve as the first family-focused affordable housing development in Winchester, Virginia, since 1999. The project is a redevelopment of a former 1900s-era apple processing and storage facility.
Telestar Court. This $51 million residential office-to-residential conversion in Falls Church, Virginia, will deliver 80 affordable homes serving households earning between 30 and 80 of the area median income (AMI). The conversion leveraged $15 million in state LIHTCs in connection with the HOTC program.
Kindlewood Phase II. The $68 million redevelopment in Charlottesville, Virginia, leveraged $9.65 million in LIHTCs in connection with HOTC. The multi-phase redevelopment is designed to revitalize a 44-year-old housing community into a modern, inclusive, mixed-income neighborhood. In its second phase, it will add 100 new affordable homes, with approximately half serving as replacement units for existing residents and the rest as new affordable housing. The plans also feature a learning center, a community center and the headquarters for Piedmont Housing Alliance, a key partner in Kindlewood’s development team.
The Harbor at Quantico Creek. This seniors housing project in Dumfries, Virginia, about 30 miles south of Washington, D.C., will deliver 125 affordable housing units. Across the district, housing costs have risen dramatically.
The combined effectiveness of private-sector investment and innovative policy tools like LIHTC and HOTC are crucial for addressing the shortage of affordable housing in Virginia and the United States, enabling real, lasting change in communities struggling under housing challenges.
How Developers Can Ensure They Qualify for State Tax Credits
Hard work and a shared commitment to the community are driving affordable housing developments forward. However, state tax credits play a vital role in making the financing feasible. To secure state tax credit financing such as HOTC, developers should consider the following:
Measurable impact: Look for projects that support housing stability through lower rent burdens, longer tenancies and reduced turnover. Factors to consider include access to healthcare, jobs, recreation and healthy food options.
Track outcomes over time: Collect and analyze data from initial construction through long-term occupancy. This enables clearer insights and better alignment with public-private mandates.
Strategically select locations: Sites should be located in underserved areas or economically vulnerable regions and be bound to public programs, such as LIHTC.
Engage communities early: Meaningful impact depends on active community inputs, from planning to operations. Inclusive engagement ensures relevance and fosters social cohesion.
Choose a strategic partner: Assess the equity partner’s ability to align with project timelines and meet your needs as a developer.
Policy and legislative engagement: Consider whether the partner is actively involved in efforts to improve and expand housing programs, such as LIHTC, which may influence the project’s long-term viability and funding opportunities.
Financing affordable housing is complex, but the inclusion of state LIHTC programs, such as Virginia’s HOTC, provide developers with a significant opportunity to bridge financing gaps and bring quality, affordable housing projects to life.
Partnering with a strong equity partner who understands the nuances of state LIHTC programs can help unlock vital state tax credit equity and strengthen developers’ roles in addressing the nation’s need for safe, affordable housing.
William Fiederlein is vice president of business development with Advantage Capital, a firm that invests in affordable housing as well as in small businesses and renewable energy.