A renewed push is underway in Springfield to extend and expand one of Illinois’ most established affordable housing tools, as lawmakers and housing advocates warn that soaring construction costs are making it increasingly difficult to deliver new housing without stronger state support.

Backed by a broad coalition of housing, business, and community groups, House Bill 4413 and Senate Bill 3738 would extend the Illinois Affordable Housing Tax Credit (IAHTC) for another 10 years while increasing its annual growth rate. Supporters say the proposal reflects a changing economic reality: simply maintaining the program at current levels will not keep pace with rising development costs — and risks leaving significant housing investment on the table.

Illinois currently faces a shortage of nearly 300,000 affordable rental homes for its lowest-income residents, a gap that has widened amid declining housing production and higher borrowing costs.

For more than two decades, the IAHTC — often referred to as the state’s “donation tax credit” — has helped address that gap by incentivizing private contributions to affordable housing developments. Donors receive a state tax credit equal to 50 percent of the value of their contribution, which can include cash, land, or buildings.

Housing advocates say the model has proven highly effective, leveraging more than $510 million in private donations and helping create or preserve more than 26,000 affordable homes across Illinois.

But today’s economic conditions are putting that success under strain.

Construction costs have risen sharply in recent years: up 44 percent in Chicago and 48 percent nationally since 2019, with roughly 28 percent of that increase driven by inflation alone. These increases have dramatically altered the financial feasibility of affordable housing developments, widening the gap between available funding and actual project costs.

Advocates argue that under current law, the IAHTC’s 5 percent annual growth rate simply cannot keep up with those increases. Without an adjustment, even extending the program would result in fewer projects moving forward and missed opportunities to leverage private capital.

“This program works because it turns private investment into real housing outcomes,” said Allison Clements, executive director of the Illinois Housing Council. “But to keep delivering results, it has to reflect today’s cost realities.”

The proposed legislation would increase the program’s annual growth rate to 10 percent, a change supporters describe as modest but necessary. Over time, that adjustment could help generate nearly 10,000 new affordable homes over the next five years.

Equally important is the 10-year extension, which would provide certainty for developers and investors navigating complex, multi-year financing structures. Without action, the program is set to expire at the end of 2026, creating uncertainty that could stall projects already in development.

Housing leaders warn that failing to expand the credit — not just extend it — would come with real consequences. Each year the program falls short of market conditions, Illinois risks losing millions in private investment that could otherwise be leveraged into new housing.

If the credit lapses entirely, the losses would be even greater, including tens of millions of dollars in private donations and additional capital that support developments across the state.

Support for the measure spans housing nonprofits, planning organizations, and business groups, reflecting a growing consensus that Illinois must scale proven solutions to meet its housing needs.

At its core, proponents say, the legislation is about keeping a successful program aligned with economic reality.

“The Illinois Affordable Housing Tax Credit is one of the state’s most reliable tools for getting affordable housing built,” said Jeremy Yost of Innovative Development Partners. “But without growth that reflects rising costs, we risk slowing the very progress we’ve worked decades to achieve.”

As lawmakers weigh competing priorities this spring, housing advocates are urging swift action: arguing that failing to expand the program now will only deepen Illinois’ housing shortage and increase the long-term cost of solving it.