As the expansion of low-income housing tax credits and loosening banking regulations begins filtering into the affordable housing market, many states and counties have already laid groundwork via housing production funds.
"Our Housing Production Fund has been a tremendous tool that has helped us to advance development at times where it's definitely becoming more and more difficult, especially with financing," said Chelsea Andrews, president and executive director of the Housing Opportunities Commission of Montgomery County.
The suburban Maryland county's program is currently working with a $100 million revolving loan fund to develop more than 3,000 affordable housing units. The fund is fed by county-backed municipal bonds to provide up-front, low-cost capital for construction that replaces private equity investment.
The program is spotlighted as a successful example of jumpstarting mixed-income housing by the National Association of Counties, that puts government into a combined role of public housing authority, finance agency and developer.
The key leverage point is the county's ability to replace private equity typically used during construction, "which typically demands a 15% to 20% return, with public capital that only requires a 5% or lower return."
After a project is built, the loan is repaid into the fund and becomes available for new projects.
The buildings are mixed-use, mixed-income, multifamily with a percentage of units classified into income restricted brackets. The building includes desirable amenities like swimming pools, yoga studios, and pet spas.
"We're positioning these properties as market rate properties that have affordable units in them," Andrews said. "They're competing with the market rate and the finishings are the same across every single unit."
The county started the program in in 2021 with an investment of $50 million before doubling the number a year later.
Housing advocates are calling on the state to follow the county's lead by issuing bonds to raise $250 million and administer the funds through Maryland's Department of Housing and Community Development.
An op-ed written by Zachary Marks, the head of real estate development at Enterprise Community Development, and Tom Coale, a Maryland-based government relations attorney with Perry Jacobson, lays out the potential.
"The fund provides subordinate financing at below-market rates, covering 15% to 30% of a project's capital stack above what banks will lend. Developers repay the fund with interest, servicing the bonds, while principal recycles into new projects as they're built and leased – a one-time public commitment that becomes a permanent, self-sustaining engine."
The Center for Public Enterprise, a think tank with interests in finance, transportation, energy and housing lists a number of states that have started and tapped revolving loan funds that puts public money into the real estate development business.
Last year the Michigan State Housing Development Authority created a $75 million fund to expand mixed-income multifamily housing.
New York has a $100 million fund that invests half the money into New York City and the other half to the rest of the state. The New York State Homes and Community Renewal program is also looking to partner up with banks and community development financial institutions to be co-lenders.
Massachusetts is onboard with a $50 million accelerator program for mixed-income and workforce housing.
Utah's program is aimed at building 35,000 new starter homes by offering below market rate loans to projects in which no fewer than 60% of the homes for sale cost $450,000 or less.
A number of other states are following suit by introducing legislation to set up similar programs.
