THE FWD #272 • 977 words
Congress just loosened the “public welfare investment” cap by changing one number. Here’s why that could mean billions more for affordable housing.
In our rundown of the new 21st Century ROAD to Housing Act last month, we promised a deeper dive into the PWI cap. In this week’s blog, we’ll explain what it is, why it matters, and how one small tweak in that massive bill might bring a lot more money to affordable housing projects.
The bad news: you’re going to learn about an obscure barrier to affordable housing that wasn’t on your radar until today. The good news: the 21st Century ROAD to Housing Act, which became law on July 10, made it much less of a problem. Say hello to the public welfare investment (PWI) cap—your new favorite obscure regulation.
Never heard of it? You’re in good company. But if you care about how affordable housing gets financed in Virginia, it’s worth two minutes of your time.
What is the public welfare investment cap?
How many times have you found yourself chatting away with a colleague about affordable housing, LIHTC pricing, and the like and said, “Not if the Office of the Comptroller of the Currency has anything to say about it!!”
No? Just us? Well, the OCC does have a say—and Congress just reduced their influence over your friendly neighborhood tax-credit deal.
Let’s back up. Bank regulations are complicated, but they mostly boil down to protecting banks from themselves and the broader market from catastrophe. They keep the rest of us from being left holding the bag—remember how that felt?
Despite efforts to roll back Dodd-Frank and other oversight mechanisms, a whole alphabet soup of federal agencies continues to regulate banks today. One such rule—buried in the eleventh paragraph of 12 USC §24—limits how much a bank can invest in what regulators call “public welfare” projects. Affordable housing and LIHTC investment are included in that bucket, along with Historic Tax Credits, New Market Tax Credits, and other community-related investments.
Yes, you read that right. The regulations effectively told banks: “You can only do so much of a good thing. Now go back to the stock market and limit those LIHTC investments!”
Why this suddenly matters
The timing here isn’t an accident. Last year’s One Big Beautiful Bill Act expanded the LIHTC program—more credits, more potential housing—but also facilitated the continued decline in value for each credit. More housing can theoretically be financed, but the gap between what projects need and what equity can provide has widened.
How wide? The industry estimated that the LIHTC expansion would require $5 to $7 billion in additional tax credit equity investment every year, on top of the roughly $28.9 billion already flowing in. That’s a big ask. And the PWI cap was standing in the way of banks meeting it.
Current context and implications
Until now, the OCC permitted banks to invest up to 15% of their total capital and surplus in PWIs, with prior approval. But banks have been clamoring to invest more in LIHTC. Why? Because it’s a good investment—stable, federally backed, and a reliable performer even when other markets wobble. Try telling that to the regulators.
This demand isn’t hypothetical. A survey of banks by the Affordable Housing Tax Credit Coalition and partners found that among the 22 respondents (representing nearly two-thirds of all bank LIHTC investment) more than 42% of their investment ($6.1 billion) came from banks already nearing the 15% cap. Billions of dollars in willing capital was bumping up against the ceiling.
The ROAD to Housing Act addressed this by raising the PWI cap from 15% to 20% of a bank’s total capital and surplus, still subject to individual regulatory approval. That five-point bump may sound modest, but in reality it’s a 33% expansion of investment authority for any bank sitting at the old cap.
We’ve run this experiment before. The last time the cap went up—from 10% to 15% in 2006—national banks were investing about $3.1 billion in public welfare projects. By 2024, that number had climbed to $27.9 billion. History suggests the ceiling was a real limit on how much capital reached affordable housing.
What it means for Virginia
More investor demand for tax credits does two useful things at once.
First, LIHTC pricing improves. When more banks compete to buy credits, developers get more equity per credit—meaning each project needs less debt and less gap financing to pencil out. In a state where the Virginia Housing Trust Fund and other gap sources are always stretched thin, better pricing means those dollars go further.
Second, it helps close that national funding gap. A higher PWI cap won’t cover the full $5 to $7 billion on its own. But freeing up the banks already at their limit is one of the cheaper ways to move the needle, because it costs taxpayers nothing—it simply lets willing capital do what it already wants to do.
For Virginia’s developers, local governments, and housing authorities, the practical upshot is straightforward: a deeper pool of investors chasing the same credits should make deals a little easier to finance.
One piece of a bigger package
The PWI change is just one provision in a sprawling legislative package with 47 different provisions that cover manufactured housing reforms, HUD modernization, and more. We’ll keep unpacking the rest in editions to come.
For now, the next time someone at a happy hour complains that banks won’t invest more in affordable housing, you can tell them the good news: as of this month, a lot more of them can.
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