Neighborhood Homes Act Creates New Tax Credit to Fund Housing in Struggling Communities, Starting 2026

The new Neighborhood Homes Investment Act creates a brand-new federal tax break—the Neighborhood Homes Credit—aimed at closing the financial gap that prevents developers from building or fixing up homes in economically struggling neighborhoods. Starting in 2026, this credit is designed to make it financially feasible to create new, affordable homes in areas where the cost of construction currently exceeds the final sale price.

Essentially, if a developer builds or substantially rehabilitates a home in a designated "qualified census tract" and sells it affordably, they get a tax credit. This credit is calculated by taking the development cost and subtracting the affordable sale price, though it’s capped at 40% of the eligible development costs or 30% of the national median new home price. The goal is simple: use federal tax incentives to revitalize neighborhoods by increasing homeownership where it’s currently lagging.

The 'Value Gap' and Why This Matters to You

If you live in a city or a rural area that has seen better days, you know the cycle: property values are low, so no one wants to invest in new housing, which keeps the values low. This bill attempts to break that cycle. For a developer, the credit covers the difference between what it costs to build a quality home and what they can reasonably sell it for in that specific market—the so-called "value gap." This means that for the first time, building a new house in a distressed area can compete financially with building in a booming suburb.

For potential homeowners, the bill mandates that the sale price for a single-family home cannot exceed four times the area's median family income, ensuring the home remains affordable. Furthermore, the buyer's income must not exceed 140% of the area's median family income. This is key: it targets middle-income families who might be priced out of the wider market but still need assistance to buy their first home in a revitalization area.

Who’s Holding the Keys: The State Agency

This isn’t a free-for-all federal handout. Each state will designate a Neighborhood Homes Credit Agency (NHCA), which acts as the gatekeeper. The NHCA decides which projects get the credit, how much they get, and whether the proposed development costs are “reasonable.” They have a lot of authority here, setting standards for construction quality and prioritizing projects based on their own state-level allocation plan. This heavy reliance on state agencies means the program’s success will vary wildly depending on how well—and how fairly—each state’s NHCA manages its power.

For developers, the NHCA has to approve almost every step, including what counts as "reasonable development costs," which means navigating state bureaucracy will be crucial. For everyday taxpayers, this bill represents a significant new federal subsidy, and we’ll need to watch the NHCAs closely to ensure they aren't inflating costs or favoring certain developers under the guise of “financial feasibility.”

The Five-Year Catch for Homeowners

If you buy one of these subsidized homes, there’s a big detail you need to know: the five-year repayment rule. The program is designed to create stable, long-term homeownership, not quick flips. If the home is sold within five years of the affordable sale, the original seller (the developer) has to pay back a portion of the tax credit they received. To enforce this, the NHCA must place a lien on the property. While the developer is the one who repays the credit, this lien could complicate things for the homeowner if they need to sell quickly.

For instance, if a buyer gets a job transfer or faces a sudden illness and needs to sell in year two, the NHCA has to be involved in clearing that lien, even though the bill allows for hardship waivers in cases of divorce, disability, or illness. This adds a layer of complexity and potential administrative headaches to what should be a straightforward home sale, highlighting a trade-off between ensuring long-term community stability and maintaining flexibility for individual homeowners.