Michigan's New Housing Package for Affordable Housiing Developers

Michigan just enacted its most significant affordable housing legislation in years. Signed into law in July 2026, the package pairs a new state tax credit with regulatory reform and new restrictions on institutional investors, giving developers, syndicators, and investors several new variables to factor into their deals.

The centerpiece is the Michigan Housing Opportunity Tax Credit (HOTC), a state-level credit designed to work alongside the federal Low-Income Housing Tax Credit (LIHTC). Rather than replacing LIHTC, the HOTC is intended to supplement it and provide another potential funding source for qualifying affordable housing projects that might not otherwise pencil out given today's construction costs and interest rates. Under the enacted law, a qualified taxpayer may claim the credit in the amount shown on a project's allocation report, provided the taxpayer is included on that report and generally attaches an eligibility statement or, in specified circumstances, an approval notice.

State officials have described the credit as supporting the construction and preservation of affordable housing, though availability for any given project will depend on qualification, state approval, allocation, and implementing guidance. Qualified taxpayers may claim the credit for tax years beginning on or after January 1, 2027, subject to the statute's allocation, eligibility, and filing requirements.

Alongside the HOTC, Michigan lawmakers passed separate legislation modifying building requirements for certain smaller multifamily buildings, including circumstances in which a single stairway may be permitted. Developers should review the law's specific building, height, unit, and safety requirements before assuming a project qualifies. State officials have framed the goal as making it easier to build and preserve housing across Michigan, though the practical effect on construction timelines and costs will vary by project.

Another law in the package generally restricts additional purchases of Michigan single-family homes by entities meeting the statutory definition of a large institutional investor, generally those controlling more than 100 Michigan single-family homes and meeting a net-value or assets-under-management threshold of at least $375 million, with certain exceptions. The intent is to preserve homeownership opportunities and reduce competition from large investment funds, a policy response to concerns raised in housing markets nationwide. A bill introduced on August 11, 2026 would amend portions of this newly enacted law, so affected investors should verify the current requirements before completing acquisitions.

Michigan developers working with LIHTC are also navigating a wave of recent federal changes. At the federal level, the 21st Century ROAD to Housing Act increased the statutory limit on certain public welfare investments by national banks and state member banks from 15 percent to 20 percent of capital and surplus. Because LIHTC investments can fall within that authority, the change may give some banks additional capacity to invest in affordable housing, though it does not change the underlying LIHTC rules or guarantee additional equity for a particular transaction. Separately, the One Big Beautiful Bill Act reduced the bond-financing threshold for 4 percent credits from 50 percent to 25 percent of a project's basis and permanently increased each state's annual 9 percent LIHTC allocation by 12 percent, changes that can make bond-financed deals easier to structure. The practical question for most Michigan deals will be how the new state HOTC layers on top of these federal provisions, and where that combination unlocks projects that previously didn't pencil out.

Together, these changes may improve the feasibility of some Michigan affordable housing transactions, although their effect will depend on program implementation, available allocations, financing conditions, and project-specific economics.

New tax credit programs create opportunity, but only for developers who understand how to structure around them. CSH's Affordable Housing team has spent years helping clients navigate LIHTC syndication, state and federal credit stacking, and the compliance details that determine whether a deal actually closes. As Michigan implements the HOTC and MSHDA develops implementing guidance and administrative procedures, our team will monitor material legislative, regulatory, and administrative developments as implementation moves forward so our clients don't have to start from scratch.

If you're evaluating a Michigan affordable housing deal, or want to understand how the new state credit fits alongside your existing LIHTC financing, connect with CSH's Affordable Housing team today.