How Federal Housing Policy Is Funded: Appropriations vs. the Tax Code

The federal government pays for housing through two separate channels. The first is annual appropriations: money Congress votes each year for programs run by HUD and the U.S. Department of Agriculture, including vouchers, public housing, and block grants. The second is the tax code: credits, deductions, and tax-exempt bonds that stay in law until Congress changes them and never appear in a spending bill.

The difference shapes almost everything about housing policy. Appropriated programs have to be funded again every year, and most of that money goes to keeping current tenants housed. That is a main reason only about one in four eligible renter households gets help. Tax provisions run without an annual vote, which is how a single 2025 law could permanently enlarge the Low-Income Housing Tax Credit (LIHTC).

The Two Channels at a Glance

Channel One: Annual Appropriations

Nearly all of HUD’s funding is discretionary, according to the Congressional Research Service (CRS). That means Congress sets the amount each year in an appropriations act. HUD’s money comes in the Transportation, Housing and Urban Development (THUD) bill, one of 12 regular appropriations bills. Rural housing programs run by USDA Rural Development are funded in a different one, the Agriculture bill.

Discretionary spending differs from mandatory (or direct) spending. CRS explains that mandatory programs are set up in permanent law and pay every eligible person according to a formula. HUD’s rental assistance programs do not work that way.

The Yearly Calendar

1. The President’s budget. The request is generally due in February. It is a proposal, not law. The FY 2026 request proposed replacing HUD’s rental assistance programs with a state-run program funded 42% below the FY 2025 level, CRS reports. Congress did not adopt it.
2. Committee bills. Each chamber’s Appropriations Committee divides its total among 12 subcommittees, and the THUD subcommittees write the HUD bill. Committee reports explain how the money should be used.
3. Final passage. The House and Senate must pass the same text. An explanatory statement with funding tables accompanies the final law.
4. October 1. The fiscal year begins. If the bills are not finished, Congress must pass a stopgap or let funding lapse.

Renewals Come First

HUD’s rental assistance programs serve more than 4.6 million households, CRS reports. They include the Housing Choice Voucher Program, project-based rental assistance, and public housing. Together they took 82% of HUD’s gross discretionary appropriations in FY 2025, and most of that money maintains help for households already assisted.

CRS notes that the cost of renewing vouchers and project-based contracts typically rises each year, largely because rents increase faster than tenant incomes. The FY 2026 law provided $66.6 billion for rental assistance, 6% more than FY 2025. About $35 billion of it went to voucher renewals alone.

So a larger HUD budget does not necessarily mean more families served. Smaller accounts, such as the HOME Investment Partnerships Program and the Community Development Block Grant, compete for what remains.

Budget tables show two totals. Fees collected by the Federal Housing Administration and Ginnie Mae count as offsetting receipts. In FY 2026, HUD’s gross appropriations were about $84.3 billion, and offsets brought the net figure used for scorekeeping to $77.3 billion.

When the Budget Is Late: Continuing Resolutions and Shutdowns

Congress rarely finishes on time. CRS counts one or more continuing resolutions (CRs) in all but three fiscal years from FY 1977 through FY 2025, and both fiscal years since have also needed one. A CR is a stopgap law. It usually funds programs at a rate based on the prior year and typically bars new activities. Exceptions written into a CR are called anomalies. If neither a regular bill nor a CR is in place, a funding gap occurs and affected agencies begin a shutdown.

Recent years show the pattern:

• FY 2025. Congress never passed a regular HUD bill. A full-year CR, enacted March 15, 2025, funded agencies at FY 2024 levels with some anomalies.
• FY 2026. Funding lapsed on October 1, 2025. CRS dates the lapse through November 12. A CR then ran to January 30, 2026, and the full-year law (Public Law 119-75) was signed February 3, 2026, four months into the fiscal year.
• FY 2027. The year began on October 1, 2026, under a CR set to expire December 11, with work remaining on all 12 bills, the National Low Income Housing Coalition (NLIHC) reported in September 2026.

What Delays Do to Housing Agencies and Owners

Public housing agencies (PHAs). About 2,100 PHAs administer vouchers. NLIHC explains that HUD distributes renewal money based on the vouchers each agency had in use the previous year, their cost, and an inflation adjustment. When Congress appropriates less than the formula requires, every agency’s funding is prorated downward. An agency is in shortfall when its funding and reserves will not cover all current participants through the end of the calendar year.

Flat funding under a long CR creates the same squeeze, because rents keep rising. A 2023 fact sheet from the Campaign for Housing and Community Development Funding, an advocacy coalition, says uncertain budgets can lead agencies to reissue fewer vouchers. The November 2025 CR included an anomaly letting HUD shift unspent balances into voucher renewals. The administration had said that without it, money might not sustain vouchers for up to 40,000 families, according to CRS.

Private owners. Owners of project-based Section 8 properties are paid under a multi-year housing assistance payments contract, but each year’s payments depend on appropriations. The coalition warns that unstable funding can leave owners short of operating money and deter them from staying in the program.

State and local grantees. HUD calculates HOME and CDBG formula allocations only after a full-year appropriation is enacted. Late budgets therefore delay local plans and projects, the coalition notes.

Why Only About One in Four Eligible Renters Gets Help

A March 2026 CRS report states that, at current funding levels, one in four eligible households receives federal rental assistance, and most communities have a waitlist. HUD’s own data point the same way. Its 2025 Worst Case Housing Needs report found that 28.0% of very low-income renter households received housing assistance in 2023. That year, 8.46 million renter households had “worst case needs”: very low incomes, no assistance, and severe rent burdens, severely inadequate housing, or both.

The budget structure explains the gap:

• No entitlement. The number of households served is whatever the appropriation supports. It is not the number who qualify.
• Renewals absorb the budget. Most new money covers rising costs for the same households.
• Every new voucher is a permanent commitment. A voucher created this year must be renewed every year after.

Emergency Housing Vouchers show the third point. Congress provided a one-time $5 billion appropriation in 2021, and HUD used it to award 70,000 vouchers. About 50,000 were still in use at the start of 2026 as that money ran down, CRS reports. The FY 2026 law responded indirectly. It let HUD use tenant protection voucher funds for agencies that would otherwise have to end assistance, and it let PHAs absorb those families into their regular voucher programs.

Channel Two: The Tax Code

The Congressional Budget Act of 1974 defines tax expenditures as revenue losses from special exclusions, exemptions, deductions, credits, preferential rates, or deferrals. CRS describes them as alternatives to spending programs such as grants or loans. The Treasury Department lists them each year.

Treasury’s estimates reflect law as of July 31, 2025. Treasury cautions against adding the lines into a grand total, because the provisions interact.

Three features set this channel apart:

• It is permanent by default. No annual vote is needed.
• Some provisions are open-ended. Anyone who qualifies can claim the mortgage interest deduction. The LIHTC is different. Each state gets a fixed annual credit ceiling, which its housing finance agency awards under a Qualified Allocation Plan. Private activity bonds for housing are limited by a state volume cap.
• The largest lines go to homeowners. The provisions aimed at lower-income renters, the LIHTC and tax-exempt multifamily housing bonds, are smaller.

Opportunity Zones are also a tax expenditure. They carry no affordability requirement, and Treasury’s estimate swings from year to year as deferred gains come due.

What the 2025 Tax Law Changed

Public Law 119-21, signed July 4, 2025, moved through reconciliation, an expedited process that CRS says can be used to change revenue and direct spending laws. It amended Section 42 in two ways:

• A 12% larger allocation. For calendar years after 2025, the per-resident amount and the small-state minimum that set each state’s credit ceiling are multiplied by 1.12. This enlarges the competitive 9% credit. A temporary 12.5% increase had applied only from 2018 through 2021.
• A 25% bond test. A building can receive the 4% credit outside the state ceiling if tax-exempt bonds finance enough of its building and land cost. The old threshold, known as the 50% test, still works. A building now also qualifies at 25% if bonds issued after December 31, 2025, finance at least 5% of that cost. The change applies to buildings placed in service in taxable years beginning after that date.

CRS reports that the LIHTC was estimated to cost an average of $14.4 billion a year before the law. The changes are projected to reduce federal revenue by another $39 million in 2026, rising to $4.0 billion in 2034.

The same law permanently kept the mortgage interest deduction’s limit at $750,000 of home loan debt for loans taken out after December 15, 2017, and rewrote Opportunity Zone rules for investments made after December 31, 2026. For details on the credit, see How the Low-Income Housing Tax Credit Works.

Authorizing Is Not Funding

An authorization creates or changes a program. An appropriation provides the money. A housing law can be large and still contain no funding.

The 21st Century ROAD to Housing Act (Public Law 119-101), enacted July 11, 2026, is an example. CRS notes that it does not appropriate funding to implement any section, and that some of its new grant programs may not be carried out without later appropriations.

A few programs sit outside both channels. The National Housing Trust Fund is financed by contributions from Fannie Mae and Freddie Mac, not appropriations.

How to Follow Federal Housing Money

• Identify the channel first. Spending questions go through the Appropriations Committees. Tax questions go through Ways and Means and Senate Finance.
• Treat the President’s budget as an opening bid. Compare it with the committee bills and the enacted law.
• Read the renewal lines. Find voucher renewals in the Tenant-Based Rental Assistance account and contract renewals in project-based rental assistance. Ask whether the amounts cover everyone now assisted.
• Check gross against net. The headline number can move because of offsetting receipts, not program funding.
• Look for anomalies in a CR. They show which accounts would run short at last year’s rate.
• Ask whether a new law appropriates money. If it only authorizes, watch the next appropriations bill.
• For tax provisions, go to the source. Read Section 42 itself, Joint Committee on Taxation revenue estimates, and Treasury’s annual tax expenditure list.
• Use CRS reports. They are free on Congress.gov and track each year’s HUD bill.

The Bottom Line

Federal housing policy is funded in two different ways. Appropriated programs such as vouchers must be renewed every year, are exposed to continuing resolutions and shutdowns, and reach only about one in four eligible households. Tax provisions such as the LIHTC and housing bonds run on permanent law, so changes like the 2025 expansion last until Congress acts again. Knowing which channel a program uses tells you who decides its size, when, and how secure the money is.