In our last post, we covered the new federal housing law and what it means for housing authorities, developers and community organizations. That law is not the only change underway. Over the past 18 months, HUD has rolled back several long-standing fair housing rules. At the same time, Congress has substantially expanded the Low-Income Housing Tax Credit (LIHTC) and made the New Markets Tax Credit (NMTC) permanent. The following is a brief summary of those developments and what they mean for our clients. Read more below.
Summer ended and it is time to go back to school… thanks to our colleague Jeff Femrite for educating us all on the housing bill that Congress passed this summer. As Jeff explains in detail below, it is mostly a regulatory streamlining bill, not about new money, but it brings good news for simplifying some processes. See details below, followed by proposed regulations on race-based preferences.
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Other Federal Housing Changes
Nonprofits & Housing Providers Should Know About
In our last post, we covered the new federal housing law and what it means for housing authorities, developers and community organizations. That law is not the only change underway. Over the past 18 months, HUD has rolled back several long-standing fair housing rules. At the same time, Congress has substantially expanded the Low-Income Housing Tax Credit (LIHTC) and made the New Markets Tax Credit (NMTC) permanent. The following is a brief summary of those developments and what they mean for our clients.
The Short Version
Fair housing paperwork is shrinking, but fair housing law has not gone away. Meanwhile, there is more federal financing for affordable housing than at any time in nearly two decades. Organizations should keep their fair housing practices in place and take a fresh look at deals that previously didn’t pencil out.
Fair Housing Rules: Less Federal Paperwork, Same Legal Obligations
The AFFH Rule Rescinded. In 2025, HUD terminated the Affirmatively Furthering Fair Housing (AFFH) rule and replaced it with an interim rule. Localities and other HUD grantees no longer need to complete detailed fair housing assessments and planning process the prior rule required. Now, they simply certify compliance. This significantly reduces the planning burden on grantees. However, the underlying statutory duty to affirmatively further fair housing still applies. The
paperwork went away … the obligation did not.
Proposed Equal Access Rule Changes. On April 28, 2026, HUD proposed revising the 2016 Equal Access Rule, which governs access to HUD-funded shelters and housing based on gender identity. The proposal would remove “gender” and “gender identity” from Equal Access regulations, replace those terms with “sex” and allow shelters to require evidence of biological sex. The comment period closed June 29, 2026, and the rule is not yet final. HUD has not been enforcing the 2016 rule since February 2025. If finalized, this would be a major operational and legal shift for shelter operators. Shelters should keep in mind that state and local laws, including Wisconsin’s, may impose their own requirements regardless of what HUD does.
HUD Moving to Eliminate Disparate Impact Regulations. Disparate impact is the legal theory that a facially neutral policy, such as a criminal background screening standard or an occupancy limit, can violate the Fair Housing Act if it has an unjustified discriminatory effect, even without discriminatory intent. In January, HUD proposed a rule that would eliminate all HUD regulations governing disparate impact liability under the Fair Housing Act. HUD’s position is that courts, not a federal agency, should decide how disparate impact liability is interpreted under the Fair Housing Act. HUD has since issued a further proposal to eliminate disparate impact liability from the regulations governing recipients of HUD federal financial assistance, and that proposal is open for comment through October.
It is important to be clear about what this does not do. The proposed rule does not eliminate disparate impact liability itself. The Supreme Court recognized disparate impact claims under the Fair Housing Act in 2015, and private plaintiffs can still bring them. State and local fair housing laws are also unaffected by anything HUD does. Housing providers may see less federal enforcement activity, but they should not treat screening criteria and occupancy policies as risk-free.
Affirmative Fair Housing Marketing Rules May be Rescinded. In June 2025, HUD proposed rescinding its Affirmative Fair Housing Marketing regulations. Under the proposal, owners and developers would no longer need to create or submit Affirmative Fair Housing Marketing Plans to HUD or get HUD approval before beginning marketing. This would reduce a recurring filing burden for FHA-insured and HUD Multifamily properties. Organizations with a genuine outreach mission may want to keep marketing to underserved populations voluntarily, and LIHTC properties should check whether their state allocating agency or funding agreements still require an affirmative marketing plan.
Watch Your Grant Certifications
As federal fair housing rules shift, some federal agencies now require grantees to certify compliance with anti-discrimination laws as a condition of funding. These certifications matter. A false certification to the federal government can create liability under the False Claims Act. Before signing, organizations should understand exactly what they are attesting to and confirm that their policies and programs match. It’s also worth identifying which funding sources carry which requirements. For example, Title VI of the Civil Rights Act applies to recipients of federal financial assistance, while other funders may impose different conditions. Please reach out to your attorneys if you need further guidance.
The Good News: Significantly More Financing For Housing
LIHTC Expansion and a Permanent NMTC. Federal tax legislation enacted in 2025 made the most significant LIHTC structural changes since 2008:
- Bond financing threshold for 4% credits drops from 50% to 25%. Previously, a project needed tax-exempt private activity bonds to finance at least 50% of its land and building costs to qualify for 4% credits. That threshold is now permanently 25%.
- 9% credit allocations are permanently increased by 12%.
- NMTC program is now permanent.
For LIHTC-focused clients, this is likely the most consequential change of all. States that were oversubscribed on bond volume cap can now spread the same cap across roughly twice as many 4% deals. Projects that couldn’t work under the old 50% test may work now, so any deal shelved for that reason is worth revisiting. Expect more deal volume, and more competition for bond cap and investor capital, over the next decade. A permanent NMTC gives community development organizations the certainty to plan multi-year projects, including homeownership and community facility deals.
FY2026 HUD funding increased. In FY2026, Congress is providing $77.3 billion for HUD programs, more than $7.2 billion over the prior year. The legislation provides $38.4 billion for Housing Choice Vouchers, up from $36.04 billion, along with $18.5 billion for Project-Based Rental Assistance and $4.417 billion for Homeless Assistance Grants, a $336 million increase. Congress rejected the Administration’s proposed steep HUD cuts on a bipartisan basis. For organizations running homeless programs or holding Section 8 contracts, this gives more confidence that existing contracts and vouchers will be renewed this year, though advocates note the funding still lags rising rents and need. FY2027 funding has not yet been settled.
What This Means For You
- Keep your fair housing policies in place. Reduced federal paperwork and enforcement don’t change your obligations under the Fair Housing Act, State Law, or your Funding Agreements.
- Read certifications carefully before signing federal grant documents.
- Shelter operators should watch the Equal Access rulemaking and review their policies against State and Local Law.
- Revisit shelved LIHTC deals that failed the old 50% bond test.
- Consider NMTC for homeownership and community facility projects, now that the program is permanent.
If you have questions about how these changes affect your organization or a particular project, please contact Jeff Femrite at jfemrite@scholznonprofitlaw.com or 608-692-0310.
This post is for general informational purposes only and is not legal advice. Several of the rules discussed are proposed and may change before they are finalized.
To learn more, contact Jeff Femrite.