Understanding 4% vs 9% LIHTC: A Decision Framework

If you are developing affordable housing in America, you will eventually sit across a table from a lender, a syndicator, or a state housing agency, and someone will ask you the question: 4% or 9%?

They are talking about the Low Income Housing Tax Credit. LIHTC is the most successful affordable housing program in the history of the United States. It has financed the construction or rehabilitation of millions of affordable housing units since Congress created it in 1986. And at the heart of every LIHTC deal is a fundamental choice between two credit rates that will shape everything about your project: the timeline, the financing structure, the competition, and ultimately, who gets housed and when.

I have been on both sides of this decision. As Vice Chairman of the Missouri Housing Development Commission from 2009 to 2017, I helped administer the Federal Low Income Housing Tax Credit, the Missouri LIHTC, and the Affordable Housing Assistance Tax Credit. I saw hundreds of applications. I voted on allocations. I learned what separates the projects that get funded from the ones that do not. Today, as a developer, I apply those lessons every time we structure a deal. Two of our current projects, The Mabion and Promise Place, are both 4% deals, but they are structured very differently, and those differences illustrate exactly why the 4% vs 9% decision framework matters even when you end up on the same side of it.

The 9% credit is the more valuable of the two. It covers approximately 70% of a project's eligible basis, which means it generates significantly more equity from tax credit investors. That equity reduces the amount of debt the project has to carry, which reduces operating pressure and gives developers more room to serve residents at the lowest income levels.

The tradeoff is competition. The 9% credit is allocated by state housing finance agencies through a competitive application process. Each state receives a limited annual allocation based on population. In Missouri, MHDC administers that process. The demand far exceeds the supply. You are competing against every other affordable housing developer in the state, and the scoring criteria are rigorous. Location, readiness, community support, developer experience, financial feasibility, and the populations you intend to serve all factor into whether your application rises to the top.

The 4% credit works differently. It is paired with tax exempt bonds and is not subject to the same competitive allocation cap. If your project qualifies for bond financing and meets the program requirements, you can access the 4% credit without going through the competitive scoring process. The credit covers approximately 30% of eligible basis, which means less equity from investors. You will need to fill that gap with other sources: soft debt, grants, local incentives, or additional financing layers.

The advantage is speed and certainty. You are not waiting for an annual funding round. You are not competing against dozens of other applications for a limited pool. If your deal pencils with the lower credit, you can move.

There is a dimension to the 4% decision that many people outside of development do not fully appreciate: the state match. In Missouri, some 4% deals receive a state LIHTC match that supplements the federal credit. That match can make a significant difference in your equity stack. But not every 4% deal gets it, and not every deal needs it. The question of whether you pursue the state match or structure your deal without it changes everything about how you finance the project, what additional resources you need, and how quickly you can move.

The Mabion is a $19.3 million development in the heart of Kansas City, honoring Ray Mabion Sr. and Jr., pillars of Kansas City's community. It is bringing 57 homes to Beacon Hill. We broke ground in October 2024 with Mayor Quinton Lucas and city leaders at the ceremony.

We structured The Mabion as a 4% federal LIHTC deal without the state match. That was a deliberate choice. Without the state match, we had a larger financing gap to fill. But we also had more flexibility in how we structured the deal and more control over our timeline. When you are not waiting on state credit allocation, you can move when you are ready to move.

The tradeoff is real. Less equity from the credit means you have to be more resourceful with your capital stack. It means finding the right combination of debt, local incentives, and creative financing to make the numbers work. But the upside is that you are not dependent on a single funding source, and you are not waiting for a decision that is out of your hands.

Promise Place is an 85 unit affordable housing development serving Kansas City families at 30 to 60 percent of Area Median Income. Like The Mabion, it is a 4% federal only deal. But the financing structure is fundamentally different because Promise Place is backed by significant city resources.

That city investment changes the economics. When a municipality commits real resources to a project, it fills the gap that the lower 4% credit creates. It also signals to other financing partners that the project has community backing, which matters when you are assembling a capital stack from multiple sources. City resources can take many forms: land contributions, tax increment financing, HOME funds, CDBG allocations, local housing trust fund dollars, or direct financial commitments.

For Promise Place, the city's commitment was essential to making an 85 unit deal work at 4% without the state match. It is a model that other developers should study: when the federal credit alone is not enough and the state match is not available, the municipality becomes your most important financing partner.

The Mabion and Promise Place are both 4% federal deals. But they arrived at that structure through different logic and different capital stacks. The Mabion at 57 units and $19.3 million relies on a combination of investor equity from the 4% credit and creative gap financing. Promise Place at 85 units leverages its larger scale and significant city resources to close the gap the lower credit creates.

This is the point that gets lost in the 4% vs 9% conversation. The choice is not binary. Even within the 4% category, there are multiple paths depending on your project scale, your market, your municipal relationships, and whether the state match is available. The developer's job is to find the path that gets the project built and the families housed.

After years on both sides of this process, I have developed a straightforward framework for the 4% vs 9% decision. It comes down to five questions.

1. What is your project scale? Larger projects with more units tend to favor the 4% path because the bond volume supports the economics. Smaller projects often need the deeper subsidy of the 9% credit to pencil.

2. What income levels are you targeting? If you are serving residents at the lowest end of the AMI spectrum, the 9% credit gives you more equity and less debt, which translates to lower rents and more operating flexibility. The 4% credit can serve low income residents too, but you need to be creative with your financing stack.

3. How competitive is your state's 9% round? In Missouri, the competition is intense. MHDC receives far more applications than it can fund. If your project scores well on the state's criteria, the 9% path is worth pursuing. If there are weaknesses in your application, you may be better served by the 4% route rather than losing a year waiting for a decision that may not come.

4. Is the state match available? A 4% deal with the state match is a very different proposition than a 4% deal without it. If the state match is available and your project qualifies, it significantly strengthens your equity position. If it is not available, you need to identify other gap financing sources before you commit to the 4% path.

5. What municipal resources can you access? As Promise Place demonstrates, city resources can make or break a 4% deal. If your municipality is committed to affordable housing and willing to put resources behind that commitment, the 4% path becomes much more viable. If those resources are not available, you may need the 9% credit to make the deal work.

Serving as Vice Chairman of the Missouri Housing Development Commission from 2009 to 2017 was the most important professional education I have ever received on how affordable housing actually works. I reviewed applications from every corner of the state. I saw what made deals succeed and what made them fail. I learned that the best developers are not the ones with the most creative financing. They are the ones who understand their community, demonstrate genuine need, and present projects that are ready to go.

MHDC administers the Federal Low Income Housing Tax Credit, the Missouri LIHTC, and the Affordable Housing Assistance Tax Credit. The commission does not just allocate credits. It evaluates whether a proposed development will actually serve the families it claims to serve, whether it will be financially sustainable over the long term, and whether the developer has the capacity to deliver. Those are the questions I ask myself now as a developer, because I know they are the questions the commission will ask me.

The 4% vs 9% decision is ultimately a financial question, but it is never only a financial question. Behind every unit count is a family. Behind every AMI target is someone's rent check. Behind every financing gap is the question of whether a project happens at all.

At The Nash Group, we develop 100% affordable housing. Every unit we build serves families at 30 to 60 percent of Area Median Income. Whether we use the 4% credit with or without the state match, or the 9% credit, depends on the project, the market, the municipal partnership, and the families we are trying to reach. The credit is a tool. The mission is the families.

The Mabion will bring 57 homes to Beacon Hill. Promise Place will house 85 families in Kansas City. Both are 4% federal deals. Both required different strategies to get to the finish line. And both represent the same commitment: that every family deserves a stable, affordable place to call home.

Dr. Troy Nash is CEO and Co-Founder of The Nash Group, LLC. He served as Vice Chairman of the Missouri Housing Development Commission from 2009 to 2017. He currently serves as a Professor in the Executive MBA Program and Director of the Lewis White Real Estate Center at the UMKC Henry W. Bloch School of Management.