New Tool Aims to Ease Kentucky's Housing Shortage

Good news for Kentucky local governments—they’ve got a new tool to help tackle housing shortages, thanks to legislation passed during the 2025 Kentucky General Assembly. Senate Bill (SB) 25 now allows local governments to issue industrial revenue bonds (IRBs) to assist private developers with the construction or renovation costs of projects that add 48 or more units of local multifamily housing.

So, what’s an IRB? It’s a bond that local governments can issue to finance "industrial buildings" under the Industrial Buildings for Cities and Counties Act. Here’s the exciting part: the term "industrial building" now includes certain multifamily housing projects too! Depending on the rent structure of the project, IRBs can be issued on either a federally tax-exempt or taxable basis.

The Act allows local governments to hold title to improvements financed by IRB proceeds, exempting them from local property taxes. While local governments issue these bonds, the private borrower manages the debt through project revenue in a leasehold structure. Additionally, properties financed with IRB may qualify for reduced state property tax rates with approval from Kentucky Economic Development Finance Authority. Typically, a local PILOT arrangement is also involved.

IRBs can cover total project costs, including engineering, site preparation, land, buildings, and equipment. They’re commonly used for economic development projects like manufacturing facilities, downtown redevelopment, and parking garages. For a full list of authorized projects that can be financed by IRBs, check out KRS 103.200(1).

Since SB 25 includes an emergency clause, this new tool for multifamily housing projects is now in effect and can be used right away for approved projects. Developers will need to work with legal counsel to navigate through state and local approval processes and negotiate any PILOT arrangements.

If you and your team are contemplating related investments within the state of Kentucky, we recommend contacting one of our experienced members of the Bricker Graydon Public Finance group. Our team has significant experience collaborating with communities in Kentucky and includes in-house modeling experts who can validate tax benefits associated with IRB incentives.