Economists have said a better name for the Great Recession might be the “Great Reset,” suggesting the economy has changed so fundamentally that it must grow back in new and possibly surprising ways. One of those surprises may be the upswing in demand for multifamily housing that, as a corollary, may strengthen tax credits as a vehicle of low-income rental housing.

This week, the National Multi Housing Council released its 2011 NMHC 50, an annual ranking of the 50 largest apartment owners and 50 largest managers in the country. Not only did the NMHC find the apartment industry made a swift recovery last year – reaching its highest occupancy rates since 1998 – but data also show a distinct change in the types of rentals hitting the market.

Affordable housing providers, in the form of tax credit syndicators, have climbed to the top of the list as the largest owners of apartments. As nearly every other category of owners shrank, affordable housing firms moved into the top four slots.

It shouldn’t be surprising that the Low Income Housing Tax Credit (LIHTC) has been generally successful. In an era of contraction, investors can look to LIHTCs for a direct dollar-for-dollar reduction in their federal income tax. And state and local agencies are generally eager to accommodate LIHTC projects.

What is surprising is the broader recovery in the multifamily rental market. Despite very moderate job growth, demand for apartments surged ahead of expectations last year. And with LIHTC claiming an ever-growing portion of those units, tax credits could be ascending as an even more essential financing solution for state and local housing agencies.

In particular, LIHTCs may help to fill the gaps left by other housing programs that have been cut due to state and local budget shortfalls. In California, the Governor recently suspended awards of bond funds for affordable housing projects (Proposition 1C and Proposition 46 bond funds), citing the state’s ongoing fiscal crisis. And proposals to eliminate redevelopment could nix local agencies’ largest non-federal funding source for affordable homes (about $1 billion annually).

At a time when public funding streams are drying up, the power of tax credits to leverage private investments from relatively small indirect subsidies appears promising. To the extent that state and local agencies leverage the private-sector appeal in LIHTCs, these tax credits may help to pick up the slack. At least that seems to be where the market is heading.