5 Ways to Finance Affordable Housing Developments (Other Than LIHTC)

When you think about developing affordable housing, you probably think about whether you can use Low-Income Housing Tax Credits (LIHTC). And for good reason–tax credits are the most widely-used funding resource in creating new affordable housing units. But even though tax credits are a key to affordable housing developments, they aren’t the only way to finance a new project.

There are various federal, state, and local programs to help cover the costs associated with developing and building affordable housing units. This includes the costs of: site acquisition (buying or leasing the building or the land on which the housing will be built); construction; rehabilitation; soft costs (including insurance, architect, engineer, accounting, etc.); development fees; and financing fees.

There will be costs incurred that are not covered by these programs, and your CPA specializing in affordable housing can advise as to what these non-covered costs are and how best to handle them.

Here are 5 other ways to fund affordable housing developments:

1. Funding for Naturally Occurring Affordable Housing (NOAH)
The old apartment building that keeps its low rents despite new developments springing up around it or the modest single-family home in a sea of McMansions are what’s called “Naturally Occurring Affordable Housing” or NOAH properties.

More than 60% of the nation’s stock of affordable housing units is made up of NOAH properties, which are affordable without being supported by public subsidies like low-income housing tax credits. With rising rents, soaring real estate prices, and increasing gentrification, preserving this housing stock is a challenge. To keep NOAH housing in the housing stock, there are local options like the NOAH Impact Fund in Minnesota and the Washington Housing Initiative Impact Pool in Washington, D.C. that can fund NOAH properties. These organizations partner with investors interested in not only in an economic return, but also a social return.

2. Community Land Trusts
Community Land Trusts (CLT) are nonprofit, community based organizations that are designed to ensure long-term housing availability and affordability. Typically, the CLT acquires land and builds or renovates a home, which is then sold to the homeowner. The purchase price is much more affordable because the homeowner is purchasing only the home and not the land. The homeowner then leases the land from the CLT. CLTs are created with the goal of increasing housing affordability, inclusion, and equity in a community. In St. Petersburg, the Bright Community Trust develops energy-efficient homes as part of their mission to make homebuying more affordable, and there is also a Charity Land Trust, which has plans to expand a program for at-risk foster youth and build affordable housing (a community of tiny homes on 12th Avenue South).

3. Multi-Family Housing Loans from the USDA
Borrowers may be eligible for funds for building, improving, or purchasing multi-family rental housing for low-income families, elderly people, and people with disabilities. These multi-family rental properties must be located in rural areas, because the specific goal of the program is to increase housing affordability for these groups in rural areas.

4. FHA Multi-Family Loans
To increase affordable housing stock for moderate-income families, the elderly, and people with disabilities, there are loans available from HUD that can be used to build, buy, or rehabilitate a property. The loans have low fixed interest rates and long terms, and many require a low down payment.

5. The HOME Program: HOME Investment Partnerships
HOME funds, made possible by block grants from the federal government to cities, counties or states, can be used for buying, rehabilitating, or developing affordable rental housing and for tenant-based rental assistance. All the housing developed through this program must serve low-income families.

Developing new affordable housing units may involve tax credits, alternative financing options, or some combination of both. Knowing how to combine opportunities, track expenses properly, and look for innovative solutions to problems is key to successful affordable housing development, and Spoor Bunch Franz can help you sort it all out.

Reach out to us at info@sbfcpa.com with any affordable housing questions.