Financially speaking, affordable housing presents something of a paradox. 

Housing developments are costly, and in order for them to be viable, they need to generate enough profit to outweigh the substantial up-front costs. As the Municipal Research and Services Center of Washington (MSRC) notes, “Housing developments are usually financed based on high market rents or sale prices that will guarantee the repayment of construction loans to banks and result in enough profit for developers to take on the many risks of development. As a result, most housing is constructed for residents at or above median income levels.”

This presents a problem, since the whole purpose of low-income housing is to provide affordable living accommodations for people who fall below the median income level. When it comes to affordable housing, there is often a significant gap between the cost of building and maintaining housing developments and the revenue they generate in return. This is the primary reason that the demand for affordable housing far exceeds the supply. 

And yet, affordable housing developments do get built. While bridging the affordable housing funding gap is difficult, it’s not impossible. Here, we’ll detail some of the more common financing and funding resources for affordable housing. We’ll also talk about how you can support the affordable housing developments and initiatives in your own community. 

Sources of Affordable Housing Funding

When developers are looking for supplemental funding sources for affordable housing properties, there are a number of places they can turn. It’s not uncommon for a single affordable housing project to draw on multiple different sources of assistance. 

• Tax Credits. The Low-Income Housing Tax Credit (LIHTC) is a federal program that awards dollar-for-dollar tax credits to help subsidize the construction (and rehabilitation) of affordable housing projects. Since it was created in 1986, the LIHTC has subsidized over 3 million housing units, making it the largest source of affordable housing financing in the country.

Tax credits are allocated to state government agencies by the IRS. State governments, then give the tax credits to developers of properties that meet the eligibility requirements for low-income housing. The developers, in turn, usually exchange the tax credits to investors and are given project financing in return.

• Grants. Developers may be awarded grants from a number of sources, including federal block grants (like the Community Development Block Grant Program), state governments, or private foundations.

• Affordable Housing Trust Funds. Housing trust funds are funding programs dedicated to providing revenue for affordable housing projects. They are publicly financed, and may exist at the national, state, or local level. Different affordable housing trust funds work in different ways. Some provide grants, while others, like Midlands Housing Trust Fund (MHTF), offer loans to developers and contractors that are more competitive and/or flexible than traditional bank loans. Jeff Larimore, Executive Director for the MHTF, shares that “consistent access to available loan capital is imperative for housing trust funds to best serve their local communities.” In addition to providing funds for new housing developments, some housing trust funds offer assistance for other housing-related needs, such as emergency rent assistance or maintenance and weatherization services for qualifying households.

• Debt. Like private homeowners, developers often utilize mortgages and loans to fill in any funding gaps. Sometimes, they are able to secure these loans at below-market interest rates, which can help to make them more affordable. 

How to Support Affordable Housing

Affordable housing benefits everyone. And yet, housing development projects are such huge undertakings and involve such massive quantities of money that it can be difficult for individuals to know how they can make a difference in their daily lives—but it is possible. 

Practicing civic engagement is one of the best ways that you can support low-income housing initiatives. Participate in local elections and ask your elected officials what they’re doing to increase the availability of affordable housing. Vote for legislation that allocates funding to some of the publicly financed resources mentioned above. On a more direct level, you can also donate to community organizations that provide funds for housing developments and renovations. 

Midlands Housing Trust Fund (MHTF) is dedicated to improving South Carolina communities by expanding access to quality affordable housing. We provide a variety of loan products to housing developers and contractors for the purpose of creating, rehabilitating, and maintaining affordable housing for households earning less than 80% of the Area Median Income. Thanks to flexible lending limits and competitive loan rates, MHTF’s business model presents an attractive alternative to conventional retail banking. Since 2012, we are proud to have provided more than $3 million in affordable housing financing, thereby creating or preserving 512 housing units and improving the lives of over 1,200 individuals. 

Contact us today for more information about how MHTF can serve your community, or consider investing in our work.